2022 (5) TMI 1376 - AT - Income Tax

Undisclosed investment in stock - certain loose documents found during the course of search which indicated that there were undisclosed sales - HELD THAT - CIT(A) has given a categorical finding that the assessee was able to locate and reconcile all these entries with the regular books of account and there were only some minor differences to be found in the quantitative details of stock as per the books of account and the physical verification of stock as on the date of search. It has been mentioned by the Ld. CIT(A) that the difference was only to the tune of 0.35% of the turn over. The above finding by the Ld. CIT(A) has been recorded after a detailed verification and even during the course of arguments before us, the Ld. CIT DR could not point out any perversity in the findings of the Ld. CIT(A). Thus, the Ld. CIT(A) has returned a categorical finding that there were no undisclosed sales. In such a situation, any addition on account of undisclosed investment in stock, which is relatable to undisclosed sales, cannot be sustained. Finding no perversity in the order of the Ld. CIT(A) on this issue, we uphold his findings and dismiss the ground raised by the Department. Addition on account of difference in cost of construction as per the books of account and as per the report of the DVO - As it is an undisputed fact on record that no incriminating material or evidence was found during the course of search which could indicate that the assessee had made investment towards cost of construction outside the regular books of account. We also note that the Ld. CIT(A) had deleted the addition in this year by following the order of the Ld. CIT(A) for the immediately preceding assessment year. Since no material was found in the search and seizure operations which could justify the Assessing Officer's action in referring the matter to the DVO for his opinion on valuation of the said properties, then the valuation arrived at by the DVO would be of no consequence. Accordingly, in view of the above cited judicial precedents as well as the factual finding recorded by the Ld. CIT(A) in assessment year 2016-17, which, in our opinion, is both sound as well as logical, we have no hesitation in upholding the same. Accordingly, the ground raised by the Department on this issue also stands dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unaccounted investment in stock.
2. Deletion of addition on account of unexplained investment in the construction of a showroom.
3. Maintainability of the Department's appeal based on tax effect.
4. Validity of the assessment order due to alleged "Mechanical Approval" under section 153D.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unaccounted Investment in Stock:

The Assessing Officer (AO) added Rs. 3,58,753/- for unaccounted investment in stock based on undisclosed sales of Rs. 50,67,136/-. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, reasoning that the assessee had a turnover of Rs. 146.37 crores and a closing stock of Rs. 10.37 crores, which was sufficient to cover any discrepancies. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided a complete reconciliation of the alleged undisclosed sales with the regular books of account. The Tribunal found no perversity in the CIT(A)'s findings and dismissed the Department's ground on this issue.

2. Deletion of Addition on Account of Unexplained Investment in Construction of Showroom:

The AO added Rs. 85,82,593/- based on a difference between the cost of construction as per the books and the Departmental Valuation Officer (DVO) report. The CIT(A) deleted this addition, following the order for the previous assessment year (AY 2016-17), where a similar addition was deleted due to the lack of incriminating material and acceptable deviation within 10%. The Tribunal agreed, noting that no incriminating material was found during the search to justify the addition. The Tribunal cited judicial precedents supporting the view that no addition could be made without incriminating material and upheld the CIT(A)'s deletion of the addition.

3. Maintainability of the Department's Appeal Based on Tax Effect:

The Tribunal raised a query about the maintainability of the Department's appeal, as the total tax liability was less than Rs. 50,00,000/- according to the CIT(A)'s order. The Department argued that a subsequent rectification order under section 154 increased the tax effect above the statutory limit. However, the Tribunal noted that the addition had already been deleted by the CIT(A) before the rectification order was passed. Thus, the Department's appeal was dismissed as it did not meet the statutory limit for maintainability.

4. Validity of the Assessment Order Due to Alleged "Mechanical Approval" Under Section 153D:

The assessee argued that the approval under section 153D was mechanical and without application of mind, rendering the assessment order invalid. The Tribunal did not find it necessary to adjudicate this issue separately, as the Department's appeal was already dismissed, and the relief granted to the assessee by the CIT(A) was upheld.

Conclusion:

The Tribunal dismissed both the Department's appeal and the assessee's cross-objection. The additions made by the AO were deleted by the CIT(A) and upheld by the Tribunal due to lack of incriminating material and sufficient reconciliation provided by the assessee. The Department's appeal was found to be non-maintainable based on the tax effect, and the issue of mechanical approval under section 153D was rendered moot.