Non-Compliance with Statutory Notices and Absence of Verifiable Stock Evidence: ITAT Sustains ₹68.07 Lakh Addition as Unexplained Investment [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the addition of ₹68.07 lakh as unexplained investment under Section 69 of the Income Tax Act, 1961, was justified due to the assessee’s failure to comply with statutory notices and substantiate the claimed stock with credible evidence.

Ramesh Poonamchand Bansal (assessee) filed his return of income for Assessment Year (AY) 2013-14, declaring a total income of Nil on 30.09.2013. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS).

The Assessing Officer (AO) issued multiple statutory notices, including a questionnaire and show-cause notices, to which the assessee provided incomplete compliance. The AO observed an opening stock of Rs. 68,07,172 which was treated as unaccounted stock due to the absence of supporting details. The total income was assessed at Rs. 1,95,82,240 against the returned income of Nil.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. Regarding the stock, the assessee claimed that the Rs. 68,07,172 pertained to his other business, M/s Ram Roop Enterprises (a builder), and was spent on activities like fencing and road construction in FY 2011-12, appearing as closing stock as on 31.03.2012.

The CIT(A) found the explanation unconvincing, as the accounts of M/s Ram Roop Enterprises were unaudited, and the Income Tax Return (ITR) for AY 2012-13 showed a closing stock of Nil. The CIT(A) confirmed the addition of Rs. 68,07,172 as unexplained investment under Section 69 of the Income Tax Act.

Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT. The assessee submitted a paper book and relied on case laws, including PCIT vs. Asian Agency. The assessee contended that the AO and CIT(A) erred in treating the opening stock as unaccounted.

The two-member bench, comprising Suchitra Raghunath Kamble (Judicial Member) and Bijayananda Pruseth (Accountant Member) observed that the assessee’s claim of expenses in M/s Ram Roop Enterprises was unsupported by audited accounts or credible evidence.

The tribunal observed that the ITR for AY 2012-13 showed a closing stock of Nil, and the profit and loss account included a balancing figure of Rs. 23,00,000 in hotel expenses, with no evidence for claimed expenses.

The Tribunal found the decision in PCIT vs. Asian Agency inapplicable, as it involved closing stock included in prior profits, unlike the present case. The Tribunal upheld the CIT(A)’s findings, confirming the addition of Rs. 68,07,172 as unexplained investment under Section 69 due to the lack of verifiable evidence. The appeal of the assessee was partly allowed.

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