2017 (4) TMI 1057 - AT - Income Tax

ITAT directs reevaluation of stock shortage and unexplained investments, citing lack of proper examination and reasoning.

Subhash Chand Kapania Prop., M/s Kapania Marble Store Versus ITO, Ward-2, Roorkee

The ITAT partially allowed the appeal, directing the CIT(A) to reevaluate the addition of Rs. 1,52,538 on account of stock shortage and Rs. 2,43,500 on ... Additions on account of stock shortage - Held that:- We find that the lower authorities have summarily rejected the stock reconciliation submitted by the assessee before the AO, as an afterthought without examining the merits of stock reconciliation provided by the assessee. We also find that the lower authorities have not given the reason for making the addition of the entire amount of alleged suppressed sales amounting to ₹ 1,52,538/- without explaining why the addition was not restricted to gross profit on the alleged suppressed sales. In the fitness of things, therefore, we set aside the order of the lower authorities on this issue and restore the matter to the file of the Ld. CIT(A) for fresh order on this issue. The Ld. CIT(A) is directed to examine the stock reconciliation furnished by the assessee on merits and to give a categorical finding. The Ld. CIT(A) is also directed to pass a speaking order giving categorical finding whether the entire amount of the alleged suppressed sales is to be added or only the gross profit earned on such alleged suppressed sales is to be added as assessee’s income. This issue is restored with the aforesaid directions to the file of the Ld. CIT(A) for fresh order as per law. Unexplained investments - loose paper on the basis of which this addition is made - Held that:- The assessee has filed a Paper Book before us containing 10 pages which includes the copy of the assessee’s reply filed before the AO and copy of assessee’s submissions filed to Ld.CIT(A). The order of Ld.CIT(A) is a non-speaking order and does not explain why the explanation/evidences furnished by the assessee before AO and before ld.CIT(A) have been rejected. The order of the Ld.CIT(A) is also silent on why he chose to consider the aforesaid amount of ₹ 4,53,500/- and not the aforesaid net amount of ₹ 3,73,500/-; and from perusal of the order of the Ld.CIT(A) there is no mention that any opportunity was given by him to the assessee for taking this step. In view of these facts and circumstances, we are of the view that the order of Ld.CIT(A) is a nonspeaking order and has been passed without giving reasonable opportunity to the assessee. In the fitness of things, therefore, we set aside the order of Ld.CIT(A) and restore this matter to the file of the Ld.CIT(A) for fresh orders on this issue. The Ld.CIT(A) is directed to pass a speaking order giving reasons for why the explanation/evidences furnished by the assessee before AO and before Ld.CIT(A) have been rejected and why he chose to consider the aforesaid amount of ₹ 4,53,500/- and not the aforesaid net amount of ₹ 3,73,500/-. Issues Involved:1. Addition of Rs. 1,52,538 on account of stock shortage2. Addition of Rs. 2,43,500 out of total disallowance of Rs. 3,73,500 made by the AO on account of unexplained investmentsAnalysis:Issue 1: Addition of Rs. 1,52,538 on account of stock shortageThe AO added Rs. 1,52,538 to the income of the assessee due to a net shortage of stock valued during a survey under section 133A of the Income Tax Act. The assessee initially explained the shortage by claiming the stock was with a sister concern, which was later proven false. Subsequently, a reconciliation was provided, which the AO rejected as an afterthought. The CIT(A) confirmed this addition without considering the stock reconciliation on merits. The ITAT found that the lower authorities summarily rejected the stock reconciliation without proper examination. The ITAT directed the CIT(A) to reevaluate the stock reconciliation, determine if the entire amount of suppressed sales should be added, or only the gross profit, and pass a speaking order on the issue.Issue 2: Addition of Rs. 2,43,500 on account of unexplained investmentsThe AO made an addition of Rs. 3,73,500 based on entries in a loose paper found during the survey. The CIT(A) accepted the explanation for specific entries totaling Rs. 2,10,000 and confirmed an addition of Rs. 2,43,500. The ITAT noted that the CIT(A) rejected the explanation for certain entries without providing reasons and considered a gross amount instead of the net amount considered by the AO. The ITAT found the CIT(A)'s order to be non-speaking and lacking a reasonable opportunity for the assessee. Therefore, the ITAT set aside the CIT(A)'s order and directed a fresh order with reasons for rejecting the explanations and considering the gross amount. The ITAT declined to adjudicate on the issue of telescoping as it was not raised before the lower authorities.In conclusion, the ITAT partially allowed the appeal and directed the CIT(A) to reexamine both issues and provide reasoned orders, ensuring a fair opportunity for the assessee.