Facts of the Case

The assessee, an individual engaged in the trading business of tyres and tubes, filed his return of income for the relevant assessment year. The assessment was completed ex-parte under Section 144 of the Income-tax Act due to non-production of books of accounts and alleged non-compliance.

During assessment, the Assessing Officer noted a substantial discrepancy between the closing stock as on 31 March 2009 and the opening stock as on 1 April 2009 reflected in the profit and loss account. The difference was added to the income of the assessee. Further, an amount paid towards LIC premium was treated as unexplained investment due to lack of supporting evidence. The Commissioner of Income Tax (Appeals) upheld the additions.

Issues Involved

  1. Whether the ex-parte assessment under Section 144 was justified on facts.
  2. Whether the addition for discrepancy between closing stock and opening stock was sustainable.
  3. Whether the LIC premium payment could be treated as unexplained investment.
  4. Whether the assessee should be granted another opportunity to produce books of accounts. 

Petitioner’s (Assessee’s) Arguments

  • The discrepancy arose due to an error in the audit report, where purchases were wrongly included in the opening stock figure.
  • The Assessing Officer relied solely on audit report figures without examining the actual books of accounts.
  • Proper reconciliation could be furnished if another opportunity were granted.
  • The additions were arbitrary and not based on verified records.

 Respondent’s (Revenue’s) Arguments

  • The assessee failed to produce books of accounts despite sufficient opportunities during assessment proceedings.
  • In the absence of verifiable records, the Assessing Officer was justified in making additions based on available information.
  • The orders of the lower authorities should therefore be sustained.

Court / Tribunal Findings & Order

The Tribunal observed that the addition relating to stock discrepancy was fundamentally factual and required verification from the books of accounts. Since the assessee had not produced such records earlier, the matter could not be conclusively decided without proper examination.

In the interest of justice, the Tribunal granted the assessee another opportunity to produce books of accounts and supporting details. The issue of stock discrepancy was set aside to the Assessing Officer for fresh adjudication after verification.

Regarding the addition for LIC premium treated as unexplained investment, the Tribunal held that this issue was also linked to verification of books of accounts and therefore required reconsideration.

Accordingly, the appeal was allowed for statistical purposes and the matter was remanded to the Assessing Officer for fresh decision after providing adequate opportunity of hearing.

Important Clarification by the Tribunal

  • Additions based solely on discrepancies in financial figures must be supported by verification of books of accounts.
  • Ex-parte assessment does not dispense with the requirement of factual accuracy.
  • Where issues are purely factual, proper opportunity must be given before final determination.
  • Matters may be set aside when justice requires fresh verification.  

Link to download the order –

https://itat.gov.in/public/files/upload/1607488892-ita%20no.%2076%20Alld%202018.pdf

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