2014 (7) TMI 1273 - AT - Income Tax

Tribunal grants partial relief to assessee in tax case, upholding some additions and providing partial relief on others

The DCIT, Central Circle-II, Chandigarh Versus Shri Rajesh Popli and vice-versa

The DCIT, Central Circle-II, Chandigarh Versus Shri Rajesh Popli and vice-versa - TMI Issues Involved:1. Under-recording of purchases and sales.2. Addition of unexplained investment in stock under Section 69.3. Addition of profit on unaccounted sales.4. Addition of unexplained cash found during the search.5. Addition of unexplained investment in jewelry.6. Addition of undisclosed capital gains.Issue-wise Detailed Analysis:1. Under-recording of Purchases and Sales:The case involved a survey and search at the premises of New Shimla Hardware and Welding Works, revealing that the assessee was under-recording the purchase and sale values of goods. The assessee admitted to booking purchases and sales outside the books to avoid VAT payments. The Assessing Officer concluded that the assessee deflated its purchases by 32.30%, leading to under-recording in various years. The tribunal agreed that the assessee had under-recorded certain purchases and sales but emphasized that the same capital was rotated for purchases and sales, thus only a net profit on such unrecorded sales should be added to the income. Consequently, an initial addition of Rs. 3 lakhs was deemed sufficient to cover the inventory and sundry debtors for unrecorded purchases, with no further additions required for subsequent years.2. Addition of Unexplained Investment in Stock under Section 69:During the survey, the inventory was found to be valued at Rs. 24,32,554/-. The assessee failed to reconcile this with the books of account. The Assessing Officer added Rs. 24,21,754/- after allowing a minor relief. On appeal, the tribunal found the Assessing Officer's approach incorrect, as the assessee was carrying on the business for many years and must have had some stock. The tribunal directed to make an addition of Rs. 5 lakhs towards undisclosed stock, considering the method of valuation at MRP and the regular business operations.3. Addition of Profit on Unaccounted Sales:The Assessing Officer determined the profit on unrecorded sales and added amounts ranging from Rs. 90,808/- to Rs. 1,91,540/- for various years. The tribunal upheld this addition, noting that the undisclosed sales were admitted by the assessee during the survey, and profits on such transactions must be assessed to tax. The tribunal found the Assessing Officer's method of using the gross profit rate reasonable and confirmed the additions.4. Addition of Unexplained Cash Found During the Search:Cash amounting to Rs. 21,46,150/- was found during the search. The assessee explained part of the cash as belonging to various family members and business cash. The Assessing Officer added Rs. 8,00,503/- as unexplained cash. The tribunal allowed partial relief, giving credit for Rs. 1,60,000/- (Rs. 1 lakh for cash belonging to the assessee's sister and Rs. 60,000/- for business cash) and confirmed the balance addition.5. Addition of Unexplained Investment in Jewelry:Jewelry valued at Rs. 10,85,530/- was found, and the assessee claimed it belonged to his wife. The Assessing Officer added the entire amount as unexplained. The tribunal allowed partial relief, following CBDT instructions, and accepted jewelry of 600 grams for a married lady and small amounts of diamond and silver items, directing the addition of jewelry for 135.20 grams.6. Addition of Undisclosed Capital Gains:The assessee sold a flat and claimed capital gains after deducting cost of improvement. The Assessing Officer did not allow the cost of improvement due to lack of evidence and added Rs. 3,50,000/-. The tribunal confirmed this addition, noting the absence of documentary evidence for the claimed improvement expenses.Conclusion:The tribunal's decisions resulted in partial relief for the assessee on several issues, while confirming the additions where the assessee failed to provide sufficient evidence. The appeals of the revenue were partly allowed, and the cross-objections and appeals of the assessee were partly allowed or dismissed based on the merits of each issue.