2011 (9) TMI 795 - HC - Income Tax

High Court affirms Tribunal's deletion of unexplained investment, emphasizing Tribunal's fact-finding role.

The High Court upheld the Appellate Tribunal's decision to delete the addition of Rs.28,60,263 as unexplained investment in the purchase of raw material ... Addition - unexplained investment - Tribunal's decision was actuated by the fact that raw materials purchased were converted into finished goods and the same had already been included in the stock which has resulted into higher profit and once when the closing stock of raw material had been included in the purchase and finished goods, the same was not required to be included in the profit and loss account - Appeal is dismissed Issues:Challenge to deletion of addition of unexplained investment in purchase of raw material by the Appellate Tribunal.Analysis:The case involves a challenge by the Revenue against the deletion of an addition of Rs.28,60,263 made on account of unexplained investment in the purchase of raw material by the Appellate Tribunal for the assessment year 2003-04. The assessee had disclosed a sum of Rs.70,50,263, which included unaccounted investment in the purchase of raw material. The Assessing Officer rejected this claim, leading to the addition of Rs.28,60,263 as unaccounted investment in the stock. The CIT (Appeals) confirmed this addition, but the Appellate Tribunal later deleted the additions. The Revenue then approached the High Court challenging the Tribunal's decision.Upon review, the High Court examined the orders of the adjudicating authorities. The Assessing Officer and the CIT (Appeals) both supported the addition of Rs.28,60,263 as investment in stock. However, the Tribunal noted the declared unaccounted stocks and investments, including the raw material purchase, land development expenses, investment in a shopping center, and donations. The Tribunal considered the explanation provided by the assessee, which stated that the undisclosed income was utilized for production and sale of finished goods, with the value reflected in the trading and profit and loss accounts.The Tribunal emphasized that the raw materials were converted into finished goods, already included in the stock, resulting in higher profit. It noted the excess stock of Indian wastage paper explained by the assessee during survey proceedings. The Tribunal found that the Assessing Officer had not considered the complete effect of the additional material on the gross profit margin. It concluded that confirming the addition would result in double counting, as the consumption of additional material was satisfactorily explained by the assessee.The High Court agreed with the Tribunal's decision, stating that the issue was predominantly factual. As the Tribunal had provided valid reasons for setting aside the orders of the lower authorities, and no substantial question of law arose, the appeal was dismissed. The Court found the Tribunal to be the highest fact-finding body, and since the issue was adequately addressed, the appeal had no merit for consideration.