2005 (5) TMI 251 - AT - Income Tax

Summary

Issues:
Appeal against deletion of addition of Rs. 29,70,743 based on search operation discrepancies.

Analysis:
The appeal was filed by the Revenue challenging the deletion of an addition of Rs. 29,70,743 by the CIT(A) based on discrepancies found during a search operation. The search operation was conducted on the premises of the assessee and other related concerns, revealing discrepancies in stock. The assessee filed a return of income showing undisclosed income, attributing the stock differences to unaccounted sales. The AO rejected the assessee's explanation and added the amount to the total income. The CIT(A) observed that the AO heavily relied on the statement of the factory manager, which was clarified later through an affidavit. The CIT(A) criticized the AO for not conducting a thorough investigation and for misinterpreting the manager's statement. The AO's conclusion of unaccounted sales outside the books of account was deemed unsupported by evidence found during the search operation.

The CIT(A) highlighted that the raiding party failed to properly investigate the premises at Himparvati Society, where the stock discrepancies were claimed. The tribunal noted that the manager's statement clarified that the premises were not used for manufacturing activity, not that they were devoid of stock. The tribunal emphasized the lack of proper investigation by the AO before concluding unaccounted sales. The tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 29,70,743, as the AO's reasoning lacked substance and proper investigation.

The tribunal dismissed the appeal, stating that the AO unjustly rejected the manager's clarification provided through an affidavit and failed to investigate the premises adequately. The tribunal found the AO's conclusion regarding unaccounted sales unsupported by evidence and upheld the CIT(A)'s decision to delete the addition. The legal position regarding the acceptance of affidavits without cross-examination was cited to support the tribunal's decision in favor of the assessee.