TaxTMI 
TaxTMI 
2017 (1) TMI 514
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....rect in law and in facts in deleting the addition of (i) Rs. 4,52,34,000/- made by A.O. on account of undisclosed profit on the basis of material seized from residence of Sh. J.P. Aggarwal, one of the Director of the assessee company upto the F.Y. 89-90; (ii) Of Rs. 7,49,459/- made by A.O. on account of unaccounted purchase made from M/s GarwarePlyster Ltd. when the assessee itself had admitted the same; (iii) Of Rs. 33,725/- made by the A.O. on account of profit on sale of material purchased out of books from M/s GarwarePolyster Ltd. when assessee itself had admitted the unaccounted purchase?" 2. The brief facts are that search and seizures proceedings were conducted in the assessee's premises on 20.03.1996. Notice under Section 158BC(c) was issued to the assessee on 13.06.1996. However, the assessee filed its return for the block period 01.04.1985 till 20.03.1996, much later on 10.03.1997. It declared undisclosed income of Rs. 6,05,320. This was based upon a computation of the total undisclosed/assessed income. The details thereof found in a tabular chart in the AO's order are extracted below:- Asstt. Year Total Income including Und....
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....urther noted that the first unaccounted sale made was on 10.04.1995 out of the purchases made till then and of a quantity of 21,596.70 kg valued at Rs. 33,42,089 on an average cost price. It was further held that for the subsequent period, the total purchases were shown as 92,451.20kgs valued at Rs. 1,43,20,750 on average cost price. The corresponding sale during this period was shown to be 19,959.40 kgs valued on average sale price at Rs. 32,45,398. The excess of purchase over sales worked up to Rs. 1,10,75,352. Added together with the initial unexplained total investment, it accounted for Rs. 1,44,17,441. The assessee had not disclosed the value of these raw materials so purchased nor did it mention the cost price in the return filed. Subsequently, it filed a letter on 25.03.1997 stating that the undisclosed income in the return of the block period was not correct. The assessee's explanation was that Annexure A1 to A7 of the panchnama prepared in one of its premises- G-150 Badarpur, were the books of accounts maintained in the normal cause of business before the date of search and that the income therefore determined should be considered as accounted/disclosed income in view of p....
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.... of the amounts relating to the transactions with M/s Garware Ltd. - which worked out to Rs. 7,49,459. The assessee's explanation was that reconciling was not possible because of bunching of bills by M/s Garware Pvt. Ltd or by itself in the accounts books and further that the discrepancies were only to the tune of 0.2% of the total transactions of Rs. 65 crores during the block period. The AO rejected these explanations observing that that the unaccounted purchases of Rs. 7,49,459 had to be treated as unexplained investment of the assessee and on applying the average gross profit disclosed by the assessee i.e. at 4.5%, the profit on sales on account of these transactions worked out to Rs. 33,725. 8. The ITAT accepted the AO's findings with respect to the quantum of the raw materials purchased which were not part of the regular books of account. However, the ITAT rejected the AO's approach stating that the assessee's explanation with respect to the value i.e. Rs. 43.70 per kg, on the ground that it was sourced from M/s Associated Plastics was reasonable. It was held that "in the absence of any evidence that any such investment was made, in our opinion, it could not be re....
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....nder reasoning of the ITAT is entirely premised upon the asseessee's explanation which in turn is based upon the two invoices that were neither found in the course of the search nor relied upon even in the original return but for which explanation was given through a letter dated 20.03.1997, much later. 10. Once the raw material quantity that did not appear in the regular books of account was discovered and could be inferred as a result of the search, the onus lay upon the assessee to furnish full particulars as to the cost of that raw material or the average cost. Its explanation by relying upon a letter of 1996 produced more than a year later, was by an afterthought really speaking. Its creditability, was in our opinion correctly doubted and entirely rejected by the AO who adopted a safer method for discerning the cost of the raw material which was not reflected in the regular books of account.In these circumstances, the ITAT's reasoning cannot be sustained. It is plainly contrary to the facts on the record and contrary to any reasonable approach that could have been adopted under the circumstances of the case. 11. Likewise in respect of the same issue-vis-a-vis the stocks ....
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....unverified. This made the document suspect and was correctly brushed aside by the AO. In the circumstances, the AO's decision to rely on materials which showed a clear value of the goods, was an acceptable principle rather than the valuation report, which weighed considerably with the AO. This question too has to be answered in favour of the revenue. 14. Likewise, the interference by the ITAT in respect of the Rs. 33,725/- by the AO, on a pure appreciation of the facts, merely because it differed from the view of the AO, was not justified. In the case of Question b (iii) as well, when the assessee had admitted Rs. 7,49,459/- made by A.O. on account of unaccounted purchase made from M/s GarwarePlyster Ltd the deletion directed by the ITAT was not justified. This question is answered against the assessee and in favour of the revenue. Re Question No. b (i) 15. This pertiains to the addition made by the AO on the basis of Mr. J.P. Agarwal's statement, recorded during the course of search proceedings. It was found that the documents contained detailed working out of profits, with specifics and particulars relating to the quantities of goods, raw materials etc. The assessee made....