2022 (8) TMI 1011 - AT - Income Tax

Addition of income from unaccounted sales - additional income was declared by the assessee in the statement recorded u/s 132(4) - HELD THAT - In view of the above finding of the in the case of Arti Gases v. Director of Income-tax (Investigation) 2000 (5) TMI 10 - GUJARAT HIGH COURT we hold that the statement recorded subsequent to the search by the ADIT has got evidentiary value and can be relied upon in making the addition - Hence, the above contention raised by the AR is rejected as devoid of any merits. Excess stock found during the course of search - AO in the assessment order has stated that as per the recorded statement from Mr.Aravind u/s.132(4) that the excess stock belongs to N R Halagappa Sons and N R Halagappa Company. During the course of hearing the bench questioned whether any addition towards the excess stock is made in the hands of partnership firm N R Halagappa Company for which the DR could not provide any details - the contention of the ld DR is that the CIT(Appeals) have merely accepted the statement of assessee without verification of facts or records. Further it is the submission of the AR that the assessee was not provided with sufficient opportunity to confront the statement recorded from Mr.Arvind as the copy of the same was not provided. In view of the above discussion, we remit the issue back to the AO, for verification of the issue afresh after giving a reasonable opportunity of being heard to the assessee. Addition towards capital account balance in M/s. N R Halagappa Company - CIT(Appeals) has verified and given a clear finding of each of the line items pertaining to the movement of the balance during the year under consideration and has decided on the taxability. However the CIT(Appeals) has not verified whether the balance is correctly reflected in the assessee s books of accounts. Tribunal in the individual case for AY 2012-13 has remitted that issue back to the AO to verify the whether the investments are recorded in the books including the opening balance. Further in the present case, the AO has made the addition on the basis that the capital account of the assessee in the partnership firm is not reflecting in the proprietorship balance sheet. This, in our considered view, is not the correct basis as the balance sheet of the proprietorship would only reflect the transaction that are routed through the same and would not reflect the transactions if any done by the assessee directly from the HUF account. Therefore it is important that the consolidated balance sheet of the assessee HUF needs to be verified to examine if the transactions of partnership firm are correctly recorded in the assessee HUF account. We therefore remit this issue to AO to verify the consolidated statement of accounts of the assessee and decide the issue afresh in accordance with law. Needless to say that the assessee should be given an opportunity of being heard. - Appeal by the revenue is allowed for statistical purposes

Summary

Issues Involved:
1. Deletion of addition on account of income from unaccounted sales.
2. Deletion of addition on account of excess stock found during the course of search.
3. Deletion of addition on account of unexplained capital account balance in the partnership firm.

Issue-wise Detailed Analysis:

1. Unaccounted Sales:
The revenue challenged the deletion of an addition of Rs. 1,89,12,957, which was initially added as income from unaccounted sales. During a search and seizure operation under section 132, incriminating material was found indicating suppressed sales. The Karta of the HUF admitted to unaccounted income for various years, including an undisclosed income of Rs. 1,85,04,420 for AY 2016-17. However, the assessee later retracted, claiming the statement was made under stress and the figure was not accurate. The AO did not accept the retraction and added the amount as income. The CIT(A) considered the amount as unaccounted turnover and applied the Gross Profit ratio, reducing the addition to Rs. 3,69,875. The Tribunal found merit in the assessee's argument that the amount might represent turnover rather than income and remitted the issue back to the AO for fresh examination based on facts and evidences.

2. Excess Stock Found During the Course of Search:
During the search, a physical inventory revealed excess stock of 22,945 kgs, which the AO valued at Rs. 63,90,490 and added as unaccounted stock. The assessee contended that this stock belonged to H. Omkarappa, HUF and H.O. Aravind, HUF, and was subsequently sold and declared in their returns. The AO rejected this explanation, stating it was an afterthought. The CIT(A) deleted the addition, noting that the AO did not properly examine the facts or the material on record. The Tribunal remitted the issue back to the AO for verification, emphasizing the need to provide the assessee with a reasonable opportunity to confront the recorded statements and substantiate their claims.

3. Unexplained Capital Account Balance in the Partnership Firm:
The AO added Rs. 1,02,18,644 as unexplained capital account balance, observing that the closing balance of the assessee's capital account in the partnership firm was not reflected in the assessee's books. The CIT(A) detailed the breakdown of the capital account transactions, including IT refund, profit, additional capital, sale of agricultural produce, and interest, concluding that no taxable income had escaped assessment. The Tribunal noted that while the CIT(A) provided a clear finding on the taxability of each item, it did not verify whether the balance was correctly reflected in the assessee's books. The Tribunal remitted the issue back to the AO to verify the consolidated statement of accounts and decide afresh, ensuring the assessee is given an opportunity of being heard.

Conclusion:
The Tribunal allowed the revenue's appeal for statistical purposes, remitting all three issues back to the AO for fresh examination and verification, ensuring due process and opportunity for the assessee to present their case.