TaxTMI 
TaxTMI 
2025 (11) TMI 1601
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....erred in confirming the addition to the extent of Rs. 32,35,216/- estimating the Gross Profit at 35% against the Gross Profit of 18.31% already offered by the appellant, without any basis. 3) The learned commissioner of income Tax (Appeals) erred in not even giving credit to the extent of amount already offered to tax @18.31% in the return filed in response to 153A 4) The Learned Commissioner of Income Tax (Appeals) erred in enhancing the income to the extent of Rs. 15,09,208/- in respect of initial investment in the stock without giving any opportunity/show cause notice during the appellate proceedings. 5) The Learned Commissioner of Income Tax (Appeals) erred in enhancing the addition of Rs. 15,09,208/- incurred in regard to initial investment on the estimated basis without any evidences or basis and completely on the irrelevant considerations. The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds before or at the time of hearing. A.Y. 2006-07 The grounds mentioned hereunder are without prejudice to one another: 1) The Learned Assessing Officer, DCIT, Central Circle 1, Thane erred ....
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.... in confirming the addition to the extent of Rs. 9,93,518/- treating the same as Unexplained Advances without appreciating that the same were received against the Sales and already appellant had offered Gross Profit @ 18.31% on entire sales. 6) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 17,17,497/- on account of Unaccounted Stock without appreciating that only difference was in respect of Silver which amounted to Rs. 9,14,760/- and therefore addition needs to be restricted to the same and further benefit of telescoping needs to be allowed. 7) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 3,61,344/- in respect of loose papers found during the course of Search without appreciating that the said paper had no co-relation with the Assessee's business or the personal expenses and therefore the said addition was devoid of merits. 8) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 1,29,066/- presuming it to be a Money Lending transaction without appreciating that the appellant was not engaged in Money Lending business and no such m....
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....each of the assessment years there are separate issues raised as under : In A.Y. 2005-06 Ground No.4&5. That learned CIT(A) erred in enhancing the income to the extent of Rs. 15,09,208/- in respect of initial investment in stock without giving any opportunity/show cause notice during the appellate proceedings. That the same has been done without any basis or evidence. In A.Y. 2006-07 Ground No.4. That learned CIT(A) erred in upholding the addition of Rs. 6,86,625/- on account of unexplained investments in Mutha House only. On the basis of DVO report without appreciating that there was no search material found during the course of search in respect of investment in Mutha House. In A.Y. 2007-08 Ground No.5: That learned CIT(A) erred in confirming the addition to the extent of Rs. 9,93,518/- treating the same as unexplained advances without appreciating that the same were received against the sales and already assessee had offered gross profit @ 18.31% on entire slaes. Ground No.6:That learned CIT(A) erred in confirming the addition of Rs. 17,17,497/ on account of Unaccounted Stock without appreciating that only difference....
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.... response to the notice u/s. 153A, the return of income was filed on 12/11/08, wherein the additional income based on the records seized during the search proceedings u/s. 132, was included and accordingly, the additional tax payable was worked out for payment. The assessee claimed that the seized documents were not complete and the entire purchases were not recorded in these papers. While filing the return u/s. 153A, the assessee offered additional income for assessment years 2005-06 and 2006-07, based on seized records as under: Assessment Year Income declared in original return Total sales including additional sales (in Rs. ) 2005-06 63,29,913/- 1,56,01,961/- 2006-07 68,63,940/- 1,98,32,596/- 3.3. In so far as 2007-08 was concerned as the search took place during the year, the assessee while filing the return of income considered the seized, and the accounts of the assessee were completed thereafter. It was submitted that seized materials were incorporated broadly in the regular books. The assessee thus in the original return of income declared total sales Rs. 1,15,98,423/-. The assessee offered to disclose additional income for assessment year 2007....
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....d the gross profit as under: 2005-06 2006-07 Sales as determined by appellant 15601961 19832596 Less: Sales already included in returns filed u/s. 139(1) 6329913 6863940 Undisclosed Sales 9272048 12968656 Gross Profit 35% as discussed above 32,35,216 45,39,029 4.3 In respect of 2007-08 the Ld.CIT(A) observed that the assessee filed its return of income for this year after the search and therefore the sales recorded in the seized papers formed part of the regular books. However the Ld.CIT(A) noted that the assessee did not maintain day to day stock register and therefore no independent verification of actual stock as on 31/03/2017 could be made. The Ld. CIT(A) further noted that based on the turnover for assessment year 2007-08, the closing stock was shown at abnormally low as compared to the earlier years the Ld. CIT(A) extracted the details as under : Asst year Sales Stock Stock as % of sales 2004-05 64,21,453 76,38,794 118.95 2005-06 63.29,913 81,91,605 129.41 2006-07 ....
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....n asst year 2006-07, the addition of 64,69,439/- is reduced to 45,39,029/-. The appellant gets relief of 16,45.686/-. In-the asst year 2006-07 and subsequent asst years no addition is required to be made as initial investment in unaccounted purchases because the same would have been sourced out of the earlier year's profit and sales. 21. As far as asst year 2007-08 is concerned, the previous year closed after the date of the search and the sales/purchases as recorded in the seized papers have been included in the regular books of accounts. But the GP shown in the regular books is adjusted by manipulating the closing stock figures. The appellant does not maintain day to day stock register. The books at least till the date of the search were not maintained regularly. The books are therefore unreliable and deserve to be rejected. The abnormally low GP shown in asst year 2007-08 is without any proper justification. Therefore I think it will be proper to apply the average GP rate of 35% to the entire turnover of the appellant. The GP thus calculated comes to 82,79,317/- as against the GP of 42,84,801/- disclosed in the books. The difference of 39,94,516/- is confirmed as ad....
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....al profit earned on unaccounted sales/purchases has been offered by the assessee, it is sufficiently to cover this investment which is excess in stock the Ld.CIT(A) thus directed to Ld.AO to delete this addition. 4.9. The Ld.CIT(A) noted that addition of Rs. 11,12,430/- was made by the Ld.AO being unexplained expenditure recorded in the seized documents. In respect of the same the assessee had submitted as under: 4.9.1. The Ld.CIT(A) thus after considering the above statements filed by the assessee observed and held as under: "39. I have considered the appellant's submissions and have gone through the copies of the seized papers. As regards the addition of 3,61,344/- the relevant paper appears to be from the appellant's diary. On the top is written details of cheque payment followed by cash payment details. The total payment is 3,61,344/-. On the bottom is written 325 pyjama and 85 caps. The paper was seized from appellant's premises. The handwriting on this paper and on other papers appears identical. Thus, it was for the appellant to explain the source of the payments recorded on this paper. The appellant has failed to do so. Therefore, the addition mad....
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....ase/sales, based on the difference between the purchases and the sales in previous assessment years. 6.2. For assessment year 2007-08 is concerned as the return was filed by the assessee post the date of search, the entire unexplained purchases/sales were unaccounted in the books. He thus submitted that the additional sales offered by the assessee for all the 3 assessment years and the sales offered in the return of income filed by the assessee u/s. 139(1) are as under : Particulars A.Y. 2005-06 A.Y. 2006-07 A.Y. 2007-08 Additional Sales offered 92,72,048 1,29,68,656 7,43,067 Sales offered u/s. 139(3) 63,29,913 68,63,940 2,26,57,056 Total sales as per assessee 1,56,01,961 1,98,32,596 2,34,00,123 6.3. The Ld.AR submitted that based on the above the total sales offered and the gross profit as per the profit and loss account would be as under: Particulars A.Y. 2005-06 A.Y. 2006-07 A.Y. 2007-08 Gross profit as per audited profit and loss 21,93,634 25,20,108 42,84,801 Gross profit % on revised sales 14.06% 12.71% 18.31% 6.4. The Ld.AR submitted that in any event it is net profit that needs to be....
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....ss profit applied by the Ld. CIT(A)is to be upheld. 6.8. The Ld.DR submitted that the Ld.CIT(A), has granted telescoping of the profits offered by the assessee in its original Return of income and therefore the submission of the assessee to that extent is incorrect. We have perused the submissions advance by both sides in the light of record placed before us. 7. In respect of the applicability of the gross profit rate at 35%, it is observed that the said rate has been adopted having regard to the results of the preceding years. The assessee itself, in its original returns of income, had disclosed gross profit rates ranging between 32% and 37% for the Assessment Years 2004-05 to 2006-07, during which period instances of unaccounted sales were also noted. Accordingly, the adoption of a gross profit rate of 35% is considered reasonable and justified, being consistent with the assessee's own past performance and the prevailing business circumstances. 7.1. Further, on a comparison of the computation furnished by the Ld.AR with that adopted by the Ld.CIT(A), it is observed that the assessee has already been granted benefit of telescoping in respect of the sales offered in the....
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....h 20 of the impugned order that the Ld.CIT(A) on estimation made addition of Rs. 15,09,208/- as initial investment in respect of the unaccounted sales. The Ld.CIT(A) arrived at the said figure by computing 25% of the unaccounted sales, on the presumption that the assessee must have utilized unaccounted capital towards unaccounted purchases at the initial stage. However, there is no material found during the course of search to substantiate such a presumption. 8.2. On a perusal of the profit and loss account, it is further noted that the assessee has disclosed income from other business activities as well, indicating the availability of regular business funds. In the absence of any evidence suggesting deployment of unaccounted capital for the purpose of unaccounted sales, the estimation made by the Ld. CIT(A) on a presumptive basis cannot be sustained. The addition therefore made on account of alleged initial investment is directed to be deleted. Accordingly Ground No. 4-5 for assessment years 2005-06 stands allowed. 9. Issue 4: Ground no.4 for assessment year 2006-07 is on addition of Rs. 6,68,625/- on account of unexplained investment in Mutha House based on DVO report. ....
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....only difference was in respect of Silver which amounted to Rs. 9,14,760/- and therefore addition needs to be restricted to the same and further benefit of telescoping needs to be allowed. 11.1. The Ld.AR submitted that, admittedly, the assessee is not maintaining a day-to-day stock register, and therefore, it was not possible to ascertain the value of stock on a particular date at the current market rate. Accordingly, in order to determine the value of stock at the end of the financial year, the assessee undertakes a physical verification of the stock, which is thereafter valued at cost (net of MVAT) in accordance with the consistent accounting policy regularly followed by the assessee. It was submitted that the Ld.AO made an addition on account of the difference between the valuation report and the value of stock as per the books of account on the date of search. 11.2. The Ld.AR further submitted that, on the date of search, the total quantity of gold ornaments found was 12,622.310 grams, which were valued at Rs. 8,556 per 10 grams, aggregating to Rs. 1,07,99,648/-. In addition, gold jewellery studded with diamonds weighing 68.19 grams (net) and containing 9.63 carats of dia....
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....und during the search vis-à-vis the average stock maintained in the regular books, the question of making any addition on account of valuation difference does not arise. The Ld.AR thus submitted that, since no excess quantity of gold was found on the date of search, no addition could be sustained on this account. 11.6. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 11.7. It is evident that the total quantity of stock found during the course of search was fully reconcilable with the stock recorded in the regular books of account. No discrepancy in the quantity of stock was brought on record by the Ld.AO. The difference, if any, arose merely on account of valuation, which was computed by adopting the market rate prevailing on the date of search. We find merit in the contention of the Ld.AR that such valuation does not represent the cost at which the stock was actually acquired, since the same was purchased and accumulated over a period of time. The consistent accounting policy followed by the assessee to value stock at cost (net of MVAT) has n....
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.... the assessee's business activities. It was submitted that the assessee is engaged in the retail trade of gold jewellery, and it would be wholly unreasonable to presume any connection between the notings and the business operations of the assessee. 12.2. The Ld.AR further contended that in the absence of any corroborative material, it cannot be inferred that the said notings represented personal expenses of the assessee, as it would be absurd to suggest that the assessee had incurred expenditure towards the purchase of 325 pyjamas and 85 caps for personal use. The Ld.AR submitted that mere notings on loose sheets, found interspersed among other business papers, cannot be held to represent any unaccounted or unexplained expenditure of the assessee unless the revenue brings on record cogent evidence to establish such a link. Accordingly, the Ld.AR prayed that the addition of Rs. 3,61,344/- be deleted in its entirety. 12.3. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 12.4. It is evident that the impugned addition has been made solely on the basi....
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....representing unexplained expenditure in the hands of the assessee. 13.2. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 13.3. It is observed that the impugned addition has been made merely on the basis of certain loose papers containing the name "Roop Sangam," without any corroborative evidence to establish that the same pertained to the assessee or represented any expenditure incurred by him. The explanation offered by the assessee that Roop Sangam is a business establishment situated opposite his shop and that the said noting could have been left behind by a customer or third party is both reasonable and unrebutted. It is further evident that Roop Sangam is neither a supplier nor a customer of the assessee, and no corresponding entry is traceable in the regular books of account or in any other seized material. 13.4. In these circumstances, the mere presence of a stray loose paper bearing the name of a third party, found amongst several unrelated documents, cannot by itself constitute evidence of undisclosed expenditure. The settled position of....
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....ident that the impugned document relating to M/s. Yash Gold represents only a quantitative statement recording the receipt of jewellery and issue of fine gold, forming part of the regular manufacturing and conversion activity carried out by the assessee. The figures noted therein merely indicate equivalent quantities of gold received and returned, and do not reflect any flow of money. The Ld.AO has not brought on record any evidence to suggest that the said entries represented cash transactions or that any monetary consideration passed between the parties. 14.5. It is further noted that the assessee has maintained quantitative records of gold movement, and the transactions reflected in the seized paper stand reconciled with the average stock balances appearing in the regular books of account. The entries on both sides being of matching quantity and value, there remains no outstanding balance receivable or payable, either in money or in kind. In these circumstances, treating such quantitative reconciliation as unexplained investment or expenditure is unsustainable. 14.6. Accordingly, we find merit in the explanation of the assessee that the impugned entries pertain only to man....
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....stock at the end of the balance sheet date, physical stock is taken and the same is valued at Cost (net of MVAT) in accordance with the consisting accounting policy followed by the assessee. Thus, there can be no addition since there was no excess quantity of gold found on the date of search while comparing with the average stock maintained by the assessee. Further, since there is no excess stock found, the question of valuing the same for the purpose of calculating the unaccounted investment was not required. The net addition that is sought to be made on account of difference in the value of gold stock is only Rs.6,73,597/ -. The said addition has been made without considering the fact that the valuation was done adopting the rates prevailing on the date of search, whereas the stock held by the appellant was definitely not purchased on the same date and was purchased and accumulated over a period of time and therefore, the market rate on the date of action U/s 132 cannot be adopted. Further, the learned Assessing Officer has not in any of the earlier assessment years. been able to rebut the valuation rates adopted by the appellant, which was duly Audited, and therefore, to m....
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....ewellery and therefore it is beyond the scope of imagination to treat as an unexplained expenditure in hands of appellant, when the no connection could be established with the appellant. Further without any evidence it cannot also be said that these are some personal expenses, since it is quite obvious that Appellant cannot purchase 325 Pyjamas and 85 caps for his personal use. The appellant therefore submits that just certain noting made on loose papers found among the various papers related to business, the same cannot be held to be pertaining to appellant without any establishing evidence against the appellant. Therefore the appellant prays that the above addition of Rs 3,61,344/- be deleted. The second addition of Rs 7,51,086/- comprises of the following amounts: Page No of the seized bundle No. 32 Amount in Rs Copy attached on page no of paper book 12 82,735 53 13 13 74,000 55,066 54 17 7,776 55 18 61,470 56-57 20 3,59,989 58 22 50,000 59 23 TOTAL 60,050 7,51,088 60-61 Page No of the seized bundle No. 32 This all pages were found in loose papers. The detailed reply to the individual items was already submitted before the learned As....