DCIT Vs H. Omkarappa (HUF) (ITAT Bangalore)
ITAT Bangalore held that deletion of unexplained investment without verifying the reflection thereof in the books of accounts and also without verifying consolidated statement of accounts is untenable in law. Matter remanded to verify the books of accounts
Facts-
AO concluded the assessment by making additions towards income from unaccounted sales; excess stock found during search and unexplained capital account balance. AO also initiated penalty proceedings u/s 271(1)(c). Additions were deleted by CIT(A). Being aggrieved, revenue has preferred the present appeal.
Conclusion-
Held that statement recorded subsequent to the search by the ADIT has got evidentiary value and can be relied upon in making the additions.
The CIT(Appeals) has not verified whether the balance was correctly reflected in the assessee’s books of accounts.
Held that in our considered view, is not the correct basis as the balance sheet of the proprietorship would only reflect the transaction that are routed through the same and would not reflect the transactions if any done by the assessee directly from the HUF account. Therefore it is important that the consolidated balance sheet of the assessee HUF needs to be verified to examine if the transactions of partnership firm are correctly recorded in the assessee HUF account. We therefore remit this issue to AO to verify the consolidated statement of accounts of the assessee and decide the issue afresh in accordance with law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the revenue is against the order of the CIT(Appeals)-2, Panaji dated 3.4.2019 for the assessment year 2016- 17.
2. The revenue has raised the following grounds:-
1. The order of the learned CIT(A) is opposed to law and facts of the case.
2. Whether in the facts and circumstances of the case and in law, the CIT(A) erred in deleting addition of Rs 1,89,12,957 added on account of income from unaccounted sales without appreciating the fact that the additional income was declared by the assessee in the statement recorded u/s 132(4) of the I.T. Act.
3. Whether in the facts and circumstances of the case and in law, the CIT(A) erred in deleting addition of Rs. 63,90,490 on account of excess stock found during the course of search without appreciating the fact that the A.O has clearly worked out the difference in on the basis of documents found and also the physical stock found at the time of search/survey.
4. Whether in the facts and circumstances of the case and in law, the CIT(A) erred in deleting addition of Rs. 1,02,18,644/- without appreciating the fact that the addition made on similar issue i.e Capital investment in the firm M/s N R Halagappa & Company for the A. Y 2012-13 was confirmed by the CIT(A) Davanagere vide order dated 08.2017 and on further appeal, the ITAT vide order ITA No. 31/Bang/2018 dated 25.01.2019 has set aside the order of the CIT(A) to the file of the A.O for fresh consideration.
5. For these and such other grounds that may be urged at the time of hearing the order of Ld. CIT(A) may be set aside and that of Assessing Officer may be restored.
3. The brief facts of the case are that assessee is a HUF carrying on business of arecanut as a proprietary concern under the name & style of N R Halagappa & Sons. The assessee is also a partner in the firm, N R Halagappa & Company in the status of HUF. For the year under consideration, the assessee filed return of income on 29.9.2016 declaring an income of Rs.10,30,740. A notice u/s. 143(2) of the Income Tax Act 1961 (the Act) was issued. The assessee submitted various details called for by the AO. The AO concluded the assessment by making the following additions:-
(i) Income from unaccounted sales – Rs.1,89,12,954.
(ii) Excess stock found during the search – Rs.63,90,490.
(iii) Unexplained capital account balance : Rs.1,02,18,644.
4. The AO also initiated penalty proceedings u/s. 271(1)(c) of the The assessee preferred appeal before the CIT(Appeals), who deleted the additions made by the AO. Aggrieved, the Revenue is in appeal before the Tribunal.
5. Ground Nos.1 & 5 are general and does not warrant separate adjudication.
Unaccounted Sales
6. A search and seizure action u/s. 132 of the Act was carried out on 24.11.2015. During the course of search in the case of proprietary concern of M/s. N R Halagappa & Sons, some incriminating material was found at the residence of Shri H. Omkarappa wherein it revealed that assessee had suppressed sales in the regular books of account. Statement of Shri H. Omkarappa, Karta of HUF, proprietor of N R Halagappa & Sons, was recorded on 5.1.12016 wherein it was stated as follows:-
“Do you have anything else to say?
I have gone through the seized material. After going through the same, it appears that unaccounted income has indeed been generated by NR Halagappa and Sons, the trading firm, in various years form AY 2010¬11 to AY 2016-17.
After going through the seized material, I can state that the unaccounted turnover which is recorded in these documents can be summarized as shown in Column No. 3 of the table below. Also, I wish to state that the Gross Profit for the corresponding Assessment Year has been taken to arrive at the unaccounted income earned by me during the corresponding Financial Year. Consequently, the unaccounted income has been calculated and placed in Column No. 4 of the table below.
