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2007 (10) TMI 338 - AT - Income TaxIncome From Undisclosed Sources - alleged excess stock found - HELD THAT - It is an undisputed fact that the difference in stock was worked out during the course of survey on the basis of GP rate of 3.37 per cent shown in the immediately preceding year whereas the assessee in his statement recorded under s. 131 had stated that the difference in the stock was as a result of application of profit rate of the past year and if the profit rate of the current year was applied there was no such difference. The assessee had agreed to pay tax as per the s. 44AF and he has also honoured the same. The assessee has shown net income by applying a net profit rate of 5 per cent as against net profit worked out in P L a/c which in our opinion clearly explains the amount taken as difference in stock. Consequently we confirm the finding of the learned CIT(A) and dismiss ground No. (1) of Revenue s appeal. Unexplained cash credits u/s 68 - It is a settled position of law that the assessee is duty bound to prima facie establish the identity and capacity of the cash creditors along with genuineness of the transactions. We have examined each and every cash creditor out of 32 squared up cash creditors 27 parties were examined by the Inspector of the Department. Even before the Inspector 24 parties confirmed the factum of loan having been given to the assessee and also having been received it back by them. These parties also confirmed receipts of interest on their respective deposits. The identity of these persons was established beyond doubt. We (sic-They) have also explained their respective source(s) of income along with their monthly expenses. Therefore their creditworthiness also stands explained being sufficiently proved on record. The transactions are found genuine; therefore there is no justification for addition on account of 27 squared up cash creditors. We confirm the finding of the learned CIT(A) to that extent and hold that the learned CIT(A) has correctly deleted the same. As regards 5 cash creditors who were not examined but they had their duly sworn in and attested affidavits filed which remained uncontroverted. When the affidavits remained uncontroverted by the Department the averment of the affidavit has to be taken as truthful. All of them have confirmed the factum of their cash credits. There were only 3 cash creditors who did not confirm having given loan and having received the same back. The explanation of the assessee in respect of them is that the transactions in question took place in financial year 2000-01 whereas the statements were recorded. Therefore we accept these cash creditors also as genuine. Regarding transaction being not by cheque it was explained that the place where the assessee has. carried on business and further that in this line of the business the banking habits are not normal. This is also a valid explanation. Therefore the addition cannot be made merely because transaction was not through cheque. Hence we accept all the cash creditors as genuine and delete the entire addition so made u/s 68 of the Act. Otherwise also the assessee is entitled to set off of the amounts of some cash creditors who denied the factum of loan against the extra income declared by the assessee by declaring income under the provisions of s. 44AF. Therefore ground No. (2) of Revenue s appeal is dismissed and ground No. (1) of assessee s cross-objection is allowed. Unexplained Investment in the purchase of a plot - HELD THAT - We are aware that only on the basis of stamp duty charged by the sub-Registrar no addition can be made on account of estimated investment made in the purchase of the property. In this case the AO made addition simply on the basis of the valuation taken for stamp duty by the sub-Registrar even after making further inquiries which were not relied by him. Therefore by respectfully following the decision of the Jodhpur Bench in the case of Jai Marwar Co. (P) Ltd. vs. Asstt. CIT 2005 (3) TMI 414 - ITAT JODHPUR we confirm the impugned finding and dismiss ground No. (3) of Revenue s appeal. Addition on account of inadequate withdrawals for household expenses - HELD THAT - The family of the assessee consisted of 2 members only and total withdrawals shown by him and his wife were at Rs. 48, 000 which was considered to be quite reasonable by the learned CIT(A). On the very face of it in the absence of any other material available on record we also confirm the impugned deletion. The AO simply made this addition based on guesswork. We cannot approve the same. We hold that the learned CIT(A) has correctly deleted this addition. In the result the appeal of the Revenue is dismissed and cross-objection is partly allowed.
Issues Involved:
1. Deletion of addition on account of excess stock found during survey. 2. Deletion of addition on account of unexplained cash credits under section 68. 3. Deletion of addition on account of unexplained investment in purchases of plot under section 69B. 4. Deletion of addition on account of inadequate withdrawals for household expenses. 5. Disallowance of telephone expenses and separate addition when income is determined under section 44AF. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Excess Stock Found During Survey: The Revenue contested the deletion of an addition of Rs. 50,918 made by the Assessing Officer due to excess stock found during a survey. The assessee, dealing in lime products, had declared an income of Rs. 1,92,070. During the survey, the physical stock was found to be Rs. 2,56,803 against Rs. 2,05,885 as per books. The assessee did not maintain a day-to-day stock register or quantitative details. The discrepancy was explained by the assessee as resulting from a higher gross profit rate applied during the survey. The CIT(A) accepted this explanation and deleted the addition. The Tribunal upheld the CIT(A)'s decision, confirming that the difference in stock was adequately explained through the application of the current year's profit rate, dismissing the Revenue's appeal on this ground. 2. Deletion of Addition on Account of Unexplained Cash Credits under Section 68: The Revenue appealed against the deletion of Rs. 5,14,900 added by the Assessing Officer for unexplained cash credits. The assessee had cash credits from 33 persons, most of which were squared up within the year. The CIT(A) examined the identity, capacity, and genuineness of these transactions, accepting most as genuine. The Tribunal reviewed each creditor's case, noting that affidavits and confirmations from creditors were sufficient to establish the genuineness of the transactions. The Tribunal found that the Assessing Officer's reliance on the Inspector's statements, recorded without the assessee's presence, lacked evidentiary value. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal and allowing the assessee's cross-objection. 3. Deletion of Addition on Account of Unexplained Investment in Purchases of Plot under Section 69B: The Revenue contested the deletion of Rs. 4,27,300 added by the Assessing Officer for unexplained investment in a plot. The assessee purchased a property for Rs. 2,00,000, but the market value for stamp duty was Rs. 6,27,300. The Assessing Officer relied on this valuation and further inquiries to make the addition. The CIT(A) deleted the addition, citing precedents that stamp duty valuations cannot determine fair market value. The Tribunal agreed, emphasizing that additions cannot be based solely on stamp duty valuations, dismissing the Revenue's appeal on this ground. 4. Deletion of Addition on Account of Inadequate Withdrawals for Household Expenses: The Revenue appealed against the deletion of Rs. 12,000 added by the Assessing Officer for inadequate household withdrawals. The assessee's family had two members, with total withdrawals of Rs. 48,000 deemed reasonable by the CIT(A). The Tribunal upheld this view, noting the lack of contrary evidence and dismissing the addition as speculative, thereby confirming the CIT(A)'s deletion. 5. Disallowance of Telephone Expenses and Separate Addition when Income is Determined under Section 44AF: The Assessing Officer made separate additions of Rs. 1,200 for telephone expenses and Rs. 3,780, which the CIT(A) confirmed. The assessee did not press these grounds in the cross-objection. The Tribunal dismissed these grounds, upholding the CIT(A)'s decision. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, affirming the CIT(A)'s deletions and addressing the issues comprehensively.
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