Discrepancy shown in the tax audit report in respect of stock, which is duly explained by the assessee cannot be declared as unexplained investment

Prism Jewellery Vs ITO (ITAT Mumbai)- The question of unexplained investment outside the books of account does not arise when the books itself has accounts purchases and payment through cheques. Assessee record itself indicates the purchases at that quantity and the same values were carried to the P & L Account as per the grouping shown above. On these facts_‘ we are unable to confirm the action of the A.O. and CIT(A) in treating the unexplained investment of diamond jewellery_‘ just because the tax audit has shown lesser figure in quantitative details in the audit report. To that extent the statement from the auditor and the explanation for the figures were bonafide and reasonable. We are also unable to understand on what basis the CIT(A) rejected the books of account while confirming the addition. It may be another reason that the CIT(A) considered the profits disclosed by the assessee as inflated while considering the deduction under section 10A but that does not mean that there will be unaccounted purchases outside the books of account when assessee is eligible for deduction under section 10A.

The entire approach of the A.O. as well as the CIT(A) is not correct given the fact that the difference is arrived on the basis of the books account it self. Provisions of section 69 will apply only when the investments were not recorded in the books of account and assessee has not offered any explanation for the nature and source of investment. In this case_‘ assessee has recorded the transaction in the books of account and the mistake in representing the cartage by the Tax Auditor was also properly reconciled. Therefore_‘ in our view there is no scope for any addition of unexplained investment as made by the A.O. and confirmed by the CIT(A). Both on facts as well as on law there is any scope for treating unexplained investment out of accounted purchases.

Merely because the assessee has not reconciled the use of raw materials and the price at which its goods were sold, it cannot be held that the assessee has declared higher profits to claim the deduction under s 10A.

Arriving at the gross profit and working out the GP to compare with the profit earned on transactions by considering sales to group concerns and others as a basis and giving credit for only purchases from such group concerns and others, respectively, is not a scientific method of comparison

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