2024 (7) TMI 791 - HC - Income Tax

Undisclosed investment in 29315 boxes of goods - goods detected during the course of search by Excise Department - Tribunal, as said in case of undisclosed sales, only profit margin should be taxed in absence of specific findings of any investment embedded therein - HELD THAT - As both the Tribunal as well as the CIT(A) have arrived at concurrent finding of fact that the AO has not recorded any finding of any undisclosed investment found as a result of search by the Excise Department and has only assumed the undisclosed investment being the source of purchases recorded for subsequent sales. No substantial question of law arises from the impugned judgment and order of the Tribunal.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in confirming the deletion of an addition made on account of undisclosed investment in goods detected during a search by the Excise Department?
2. Whether the Tribunal was justified in confirming the deletion of an addition without considering the failure to mention boxes in the production register during the search by the Excise Department?

Analysis:

Issue 1:
The appellant, the revenue, challenged the order of the CIT(A) before the Tribunal regarding the addition of undisclosed investment in goods detected during a search by the Excise Department. The Assessing Officer had made additions based on unaccounted sales and unaccounted investment in raw materials. However, the CIT(A) relied on various judgments, including those of the Gujarat High Court and the Rajkot ITAT, to restrict the addition only to the extent of gross profit. The CIT(A) held that in the absence of specific findings of undisclosed investments, only profit margin should be taxed, not assumed investments. The Tribunal concurred with this view, emphasizing that the Assessing Officer did not find any undisclosed investment during the search, only assuming it as the source of subsequent sales. Consequently, the Tribunal and the CIT(A) arrived at a concurrent finding that no undisclosed investment was proven, leading to the dismissal of the appeal.

Issue 2:
The second issue raised whether the Tribunal considered the failure to mention boxes in the production register during the search by the Excise Department. However, the judgment primarily focused on the taxation aspect related to undisclosed investments and sales. The Tribunal and the CIT(A) based their decisions on the absence of specific findings of undisclosed investments rather than procedural discrepancies like the failure to mention boxes in the production register. As a result, the appeal was dismissed based on the lack of substantial questions of law arising from the Tribunal's decision.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of specific findings of undisclosed investments for taxation purposes and restricting additions to the extent of gross profit in the absence of such evidence. The judgment highlights the significance of legal precedents in determining tax liabilities based on factual evidence rather than assumptions.