2012 (3) TMI 572 - AT - Income Tax

G.P. addition - Held that - The books of account were incomplete at the time of survey and there was discrepancies found in the stock. GP rate also declined marginally i.e. from 14.17% shown in immediately preceding year to 13.28% shown during the year under consideration. There was no material to establish that the assessee was making sales outside books of account. After the survey and end of the year, the assessee has prepared its Profit & Loss account on the basis of books of account. Since there were certain discrepancies in stock and marginal decline in GP rate, we are of the view that if an addition of ₹ 50,000/- is sustained in trading account that will meet the ends of justice, which will take care of decline in GP and other discrepancies found. Enhancement of household expenses - Held that - As already sustained trading addition of ₹ 50,000/- which is more than the addition made by Assessing Officer on account of household expenses and since trading addition was available with the assessee for incurring expenses etc., therefore, we find no infirmity in the order of ld. CIT (A) in allowing set off of the income made on account of household expenses. Accordingly we confirm the action of ld. CIT (A). In fact, there will be no addition as household expenses is less than trading addition sustained.

Summary

Issues:
1. Estimation of sales and GP rate.
2. Enhancement of household expenses.

Estimation of Sales and GP Rate:
The appeal was against the estimation of sales at Rs. 1.10 crore compared to Rs. 1,04,56,360 shown by the assessee for the assessment year 2006-07. The Assessing Officer applied section 145 provisions due to incomplete books of account and estimated sales at Rs. 1.30 crore. The GP rate discrepancy was also noted, with the AO applying a rate of 15% compared to the 13.28% declared by the assessee. The CIT (A) upheld the sales estimation at Rs. 1.10 crore and set the GP rate at 14.2%, resulting in an addition of Rs. 1,72,690. The Tribunal found that while there were discrepancies in stock and a marginal decline in GP rate, there was no evidence of sales outside the books of account. Considering this, the Tribunal sustained an addition of Rs. 50,000 in the trading account to address the decline in GP and discrepancies found.

Enhancement of Household Expenses:
The Assessing Officer increased household expenses from Rs. 40,000 to Rs. 78,000, estimating expenses at Rs. 6,500 per month for a family of two. The CIT (A) confirmed this addition but allowed a set off against the trading addition. The Tribunal, having already sustained a trading addition of Rs. 50,000, found that this amount was more than the household expenses addition. Therefore, the Tribunal confirmed the set off, resulting in no additional household expenses being added. The appeal of the assessee was allowed in part, with the order pronounced on 30.3.2012.