2000 (12) TMI 227 - AT - Income Tax

Tribunal rules in favor of taxpayer: unexplained investments deleted, stock discrepancy reassessment ordered.

Nanakchand Kanhiyalal. Versus Deputy Commissioner Of Income-Tax.

The Tribunal held that the addition of Rs. 72,88,982 as unexplained investment under Section 69 of the IT Act was deleted as the seized documents ... Block Assessment Issues Involved:1. Addition of Rs. 72,88,982 as unexplained investment under Section 69 of the IT Act, 1961.2. Addition of Rs. 1,38,217 on account of stock of silver and silver utensils found short at the time of search.Detailed Analysis:Issue 1: Addition of Rs. 72,88,982 as Unexplained Investment under Section 69 of the IT Act, 1961Facts and Background:A search was conducted at the business premises and residences associated with the appellant firm, which is engaged in trading silver and gold ornaments. Loose papers and summary sheets were seized, indicating potential unaccounted transactions. The Assessing Officer (AO) concluded that these documents evidenced unexplained investments and added Rs. 72,88,982 to the income of the appellant under Section 69 of the IT Act, 1961.Arguments by the Assessee:The assessee contended that the seized documents reflected loans raised through finance brokers, not unexplained investments. The names and addresses of the brokers were provided, and the transactions were claimed to be loans, not income. The assessee argued that the AO's conclusions were based on suspicion and lacked substantive evidence.Arguments by the Department:The Department argued that the seized documents indicated unaccounted investments and that the onus was on the assessee to prove the nature and source of these investments. The Department also pointed out that the brokers denied any transactions with the appellant, and the AO's conclusion was based on the peak credit method.Tribunal's Findings:The Tribunal found that the seized documents did not conclusively prove unaccounted purchases or sales. The documents indicated daily transactions with abbreviations representing brokers. The Tribunal noted that the AO did not thoroughly verify the brokers or provide an opportunity for cross-examination. The Department also failed to prove that the credit entries represented the assessee's income.Conclusion:The Tribunal held that the amounts represented loans raised through brokers and not unexplained investments. The addition of Rs. 72,88,982 under Section 69 was deleted, as the Department failed to prove that the credits were the assessee's income.Issue 2: Addition of Rs. 1,38,217 on Account of Stock of Silver and Silver Utensils Found ShortFacts and Background:During the search, the stock inventory revealed a discrepancy, with stock valued at Rs. 19.28 lakhs found against an estimated stock of Rs. 31.84 lakhs. The AO concluded that the firm was using stock out of books and calculated an undisclosed income of Rs. 1,38,217 based on a gross profit rate of 11%.Arguments by the Assessee:The assessee argued that some stock was kept at the residences of partners for safekeeping, which was not accounted for in the stock register. The explanation was supported by inventory records and statements from partners.Arguments by the Department:The Department contended that there was no entry in the stock register for stock taken home by partners, and the explanation was an afterthought. The partner's statements were considered evasive, and the AO's addition based on the profit rate was justified.Tribunal's Findings:The Tribunal found that the inventory records supported the assessee's claim that some stock was kept at the partners' residences. The statements from partners indicated that stock was indeed kept at home. The Tribunal noted that the AO did not provide evidence of unaccounted sales or purchases.Conclusion:The Tribunal directed the AO to re-evaluate the stock discrepancy after considering the stock found at the partners' residences. The AO was instructed to work out any remaining shortage and make a fresh finding.Final Judgment:The appeal of the assessee was partly allowed, with the deletion of the addition under Section 69 and a directive for re-evaluation of the stock discrepancy.