2008 (1) TMI 591 - HC - Income Tax

Income from undisclosed sources- Whether the Appellate Tribunal is right in law and on facts in confirming the order of the Commissioner of Income-tax (Appeals) confirming only unaccounted sales to the tune of Rs. 4, 32, 848 and thereby deleting the remaining amount of Rs. 41, 61, 922 made by the Assessing Officer invoking section 145(2) of the Act ? Held that- the documents were found during the search by the Excise department. Thus the Commissioner (Appeals) reduced the addition made by the Assessing Officer. Thus the reduction made by the Commissioner(Appeals) and Tribunal just and equitable.

Summary

Issues:
1. Interpretation of section 145(2) of the Income Tax Act regarding unaccounted sales.
2. Determination of suppression of sales based on evidence found during a search.
3. Evaluation of the Tribunal's decision on the addition related to suppressed sales.

Issue 1: Interpretation of section 145(2) of the Income Tax Act regarding unaccounted sales
The central question in this case revolved around whether the Appellate Tribunal was correct in confirming the order of the Commissioner of Income-tax (Appeals) regarding unaccounted sales. The Tribunal considered various discrepancies noted during a search by the Excise Department at the assessee's business premises. The search revealed discrepancies in fabric production and clearance, with evidence pointing towards suppression of production. The Tribunal emphasized that the addition should be in respect of profit, not the sale consideration, as the assessee failed to explain the suppression of production adequately. The Tribunal referenced a previous judgment of the jurisdictional High Court to support its decision. Ultimately, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) regarding the reduction of the addition on account of suppressed sales.

Issue 2: Determination of suppression of sales based on evidence found during a search
The Tribunal analyzed the evidence found during the search, including discrepancies in fabric production and clearance, to determine whether there was suppression of sales. The evidence indicated that a significant amount of fabric production was not properly accounted for, with instances of fabric being cleared without payment of excise duty. Statements from individuals involved in the production process further supported the conclusion of suppressed production. Despite providing the assessee with an opportunity to explain the discrepancies, the Tribunal found the explanations unsatisfactory and agreed with the Commissioner of Income-tax (Appeals) that the suppression of production was evident. The Tribunal clarified that the addition should only be related to profit, not the sale consideration, due to the lack of evidence regarding expense claims.

Issue 3: Evaluation of the Tribunal's decision on the addition related to suppressed sales
The question of whether there was suppression of sales was deemed a factual matter by both the Commissioner of Income-tax (Appeals) and the Tribunal. Both authorities found the addition of Rs. 4,32,848 justified based on the evidence discovered during the search. Given the concurrent findings of the Commissioner of Income-tax (Appeals) and the Tribunal, the High Court saw no merit in the appeal and dismissed both the assessee's and the Revenue's appeals. The High Court affirmed the decision to uphold the addition related to suppressed sales, emphasizing the importance of the evidence found during the search in reaching this conclusion.