2015 (4) TMI 799 - AT - Income Tax

Application of the provisions of section 145(3) - Reduction in the Gross Profit rate from 18.5% to 16% by CIT(A) - Addition on account of unexplained cash - Addition on account of unexplained stock - Held that - It is undisputed fact that the assessee has been indulging in unaccounted sales/purchases. The major expenses on account of trading of fireworks have already been debited by the assessee in P&L account except unaccounted purchase. Therefore in unaccounted purchase resultant to unaccounted sales the assessee has more profitability. The learned counsel has not controverted the finding given by the learned CIT(A). In case of comparable Rajan fireworks and Emporium case the G.P. shown by it @ 17% to 18% who is dealing in wholesale/retail fireworks. Therefore the learned CIT(A) has reasonable to apply 16% G.P. on recorded sales as well as unrecorded sales. Thus we confirm the order of the learned CIT(A). Therefore the revenue s appeal and assessee s C.O. on this issue are dismissed. Addition on account of unexplained cash - The assessee has already disclosed excess undisclosed income over undisclosed investment in the return itself. It is a fact that the assessee has admitted additional income on account of cash found during the course of search. The statement recorded U/s 133A of the Act has no evidentiary value as held by the Hon ble Supreme Court but the statement recorded U/s 132(4) has evidentiary value which is also rebuttable presumption as held by the Hon ble Apex Court in various cases. It is fact that Shri Madan Mohan Gupta in question to answer No. 21 in statement U/s 133A dated 22/10/2008 had admitted that the cash of Rs. 20 lacs was found at residence had disclosed additional income. The learned AR for the assessee s argument that the excess cash found during the course of search at residence was result of unaccounted sale made in preceding years. The learned CIT(A) also analysed the whole facts with reference to cash and unaccounted investment found and has given detailed findings on this issue which has not been controverted by the learned CIT DR. Therefore we confirm the order of the learned CIT(A). Addition on account of unexplained stock - The learned AR considered the reconciliation in his submission and excess stock has been calculated at Rs. 77, 289/- in place of addition confirmed by the learned CIT(A) at Rs. 2, 80, 238/-. The facts and figure mentioned by the assessee are required to be verified from the record of the assessee and seized material therefore we set aside this issue to the Assessing Officer to re-verify these facts and figure reproduced above in conciliation of stock. Accordingly this ground of appeal is set aside to the Assessing Officer. - Decided against the revenue.

Summary

Issues Involved:

1. Reduction of Gross Profit (G.P.) rate from 18.05% to 16%.
2. Deletion of addition on account of unexplained cash.
3. Deletion of addition on account of unexplained stock.

Issue-wise Detailed Analysis:

1. Reduction of Gross Profit (G.P.) rate from 18.05% to 16%:

The Revenue's appeal and the assessee's cross-objection both contest the reduction of the G.P. rate from 18.05% to 16% by the CIT(A). The assessee, involved in trading fireworks, was subject to a search and seizure operation revealing unaccounted purchases and sales. The Assessing Officer (A.O.) applied a G.P. rate of 18.5% based on a comparable case of M/s Rajan Fireworks and Emporium, which showed a G.P. rate ranging from 17% to 18%. However, the CIT(A) reduced the G.P. rate to 16%, considering that the comparable entity might have been involved in manufacturing, unlike the assessee who was solely a wholesaler. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had declared a better G.P. rate compared to previous years and had already disclosed substantial undisclosed income. Thus, the Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection on this issue.

2. Deletion of addition on account of unexplained cash:

The Revenue's appeal contested the deletion of an addition of Rs. 19,50,059/- made by the A.O. on account of unexplained cash found during the search. The A.O. had treated the excess cash as income from undisclosed sources based on the statement of a key person of the assessee group. However, the CIT(A) allowed the appeal, noting that the assessee had declared additional income of Rs. 42 lacs, which covered the unexplained cash. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had disclosed excess undisclosed income over undisclosed investments, and the statement recorded under Section 132(4) of the Act had evidentiary value. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

3. Deletion of addition on account of unexplained stock:

The Revenue's appeal and the assessee's cross-objection both addressed the deletion of an addition of Rs. 12,20,999/- out of a total addition of Rs. 15,01,237/- on account of unexplained stock found during the search. The A.O. had valued the stock at Rs. 79,04,220/- but accepted discrepancies pointed out by the assessee, reducing the stock value to Rs. 39,92,438/-. The CIT(A) further reduced the addition to Rs. 2,80,238/- after allowing a discount on the stock valued at MRP and considering the G.P. margin. The Tribunal found that the facts and figures presented by the assessee required verification and set aside the issue to the A.O. for re-verification. Consequently, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection for statistical purposes only.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on the reduction of the G.P. rate and the deletion of the addition on account of unexplained cash, dismissing the Revenue's appeals on these grounds. However, it set aside the issue of unexplained stock to the A.O. for re-verification, allowing the assessee's cross-objection for statistical purposes.