2005 (10) TMI 429 - AT - Income Tax

Appeal allowed based on evidence. Closing stock carries over. Accountant errors not grounds for rejection.

Maheshwari Book Shopee Versus Additional Commissioner of Income-tax, Range I

The Tribunal allowed the appeal filed by the assessee, accepting the explanation and supporting evidence provided for the stock and purchases. The ... Unexplained investments Issues Involved:1. Addition of Rs. 2,87,289 under the head 'unexplained stock'.2. Alleged anomalies in purchases and sales.3. Addition of Rs. 2,47,747 for unexplained purchases for the financial year 1999-2000.4. Justification of reducing unexplained purchases from the stock during the survey.Detailed Analysis:1. Addition of Rs. 2,87,289 under the head 'unexplained stock':The assessee challenged the addition made by the authorities, arguing that the stock was inventoried at the sale price, which included the profit margin. The stock found during the survey was valued at Rs. 17,44,400, but the assessee claimed that the actual stock as per books was Rs. 12,88,016 after accounting for the gross profit (G.P.) margin of 15% and excluding specimen copies. The Tribunal noted that the department did not adequately address the evidence provided by the assessee regarding credit purchases from renowned publishers, which were not recorded due to the accountant's mistakes. The Tribunal concluded that the closing stock from the previous year should be considered as the opening stock for the assessment year under review, thereby allowing the assessee's appeal.2. Alleged anomalies in purchases and sales:The assessee contended that there were no anomalies in purchases or sales, which were fully supported by invoices and audited accounts. The Assessing Officer, however, found discrepancies in the books of account and suspected that the assessee had inflated stock figures to explain the stock found during the survey. The Tribunal found that the accountant's errors and the advice received to file returns under section 44AF contributed to the discrepancies. The Tribunal accepted the assessee's explanation and supporting documents, which showed that the purchases and sales were genuine and properly recorded.3. Addition of Rs. 2,47,747 for unexplained purchases for the financial year 1999-2000:The Assessing Officer added Rs. 2,47,747 to the assessee's income, considering these purchases as unaccounted and unexplained. The assessee argued that these purchases were made on credit from renowned publishers and were supported by bills and statements from both the publishers and the assessee's books. The Tribunal observed that the department did not provide any reason to disbelieve the evidence of credit purchases from unrelated and renowned publishers. The Tribunal accepted the assessee's contention that the closing stock from the previous year, which included these purchases, should be considered as the opening stock for the current year.4. Justification of reducing unexplained purchases from the stock during the survey:The Assessing Officer reduced the unexplained purchases from the stock found during the survey, leading to the addition under section 69C. The assessee argued that the purchases were genuine and supported by documentation. The Tribunal found that the department did not adequately address the outside evidence provided by the assessee. The Tribunal concluded that the closing stock from the previous year, which included the credit purchases, should be considered as the opening stock for the current year, thus rejecting the addition made by the Assessing Officer.Conclusion:The Tribunal allowed the appeal filed by the assessee, accepting the explanation and supporting evidence provided for the stock and purchases. The Tribunal emphasized that the closing stock of the previous year should be taken as the opening stock for the current year, and the accountant's mistakes and the advice received to file returns under section 44AF should not lead to the rejection of genuine transactions supported by documentation.