2014 (5) TMI 935 - AT - Income Tax

Tribunal upholds CIT(A) decisions on undisclosed income and bogus purchases, emphasizing valuation methods and contra entries.

DCIT, Bharuch Circle, Bharuch Versus Shri Ashok Kumar V. Soni, Prop. of Om Markandeshwar Jewellers

DCIT, Bharuch Circle, Bharuch Versus Shri Ashok Kumar V. Soni, Prop. of Om Markandeshwar Jewellers - TMI Issues:1. Addition of undisclosed income after survey2. Deletion of addition on account of bogus purchasesAnalysis:Issue 1: Addition of undisclosed income after surveyThe appeal by the Revenue challenged the deletion of an addition of Rs.21,97,326 representing the difference between income disclosed during a survey under section 133A and the income offered for taxation in the return filed post-survey. The Revenue contended that the assessee admitted to earning unaccounted income during the survey, which should be accepted as sufficient evidence. However, the CIT(A) found discrepancies in the valuation of gold and silver ornaments by the Assessing Officer, noting that the AO's valuation method was inconsistent with the assessee's regular records. The CIT(A) allowed the ground based on the valuation discrepancies and held that the addition should be deleted. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's adoption of market value was incorrect, and the assessee's consistent use of the weighted average cost method was appropriate. The Tribunal dismissed the Revenue's appeal on this issue.Issue 2: Deletion of addition on account of bogus purchasesThe second issue involved the deletion of an addition of Rs.72,01,360 on account of alleged bogus purchases. The AO found discrepancies in the purchase bills submitted by the assessee and conducted a survey on the parties involved, revealing no actual sales or delivery of gold/silver ornaments. The AO concluded that the purchases were bogus and added the amount to the assessee's income. However, the CIT(A) considered the contra entries in the assessee's books, where the purchase and purchase return entries nullified each other, resulting in no impact on the trading account. The CIT(A) deleted the addition based on this reasoning. The Tribunal agreed with the CIT(A), stating that once the contra entry was passed in the books, the amount did not need to be taxed. The Tribunal dismissed the Revenue's appeal on this issue as well.In conclusion, the Tribunal upheld the CIT(A)'s decisions to delete the additions of undisclosed income and bogus purchases, emphasizing the valuation method and contra entries in the assessee's books as key factors in reaching its decision. The Revenue's appeal was dismissed in its entirety.