2015 (6) TMI 888 - AT - Income Tax

Estimation of income - G.P. addition on account of unaccounted sale of stock - CIT(A) restricted addition - whether the GP rate of 10% is to be applied or the GP rate of 30.87% is to be applied on the sale of stock presumed to have been made outside the books? - Held that - Considering the facts of the case and the arguments of both the sides, we do not find any justification to interfere with the order of the CIT(A). The shortage is of raw material and therefore, the normal presumption is that the raw material was sold outside the books by the assessee. If the Revenue claims that the assessee converted the raw material into finished goods, then the finished goods was sold outside books and the Revenue has to bring some corroborative evidence for such presumption. No corroborative evidence has been brought on record that the raw materials have been converted into finished goods and then the electrical transformers have been sold outside the books. In view of the above, we agree with the finding of the CIT(A) that the sale outside the books was of the raw material and not of the electrical transformers. Therefore, in our opinion, the applicability of GP rate of 10% on the sale of raw material by the CIT(A) is fully justified. - Decided against revenue.

Summary

Issues:
- Appeal filed by Revenue against orders of CIT(A) for AYs 2004-05, 2008-09, and 2009-10.

Analysis:
1. AY 2004-05:
- Revenue appealed against CIT(A)'s decision to restrict GP addition due to unaccounted stock sale.
- AO presumed stock sale outside books based on seized documents during search.
- CIT(A) reduced GP rate from 30.87% to 10% considering raw material sale outside books.
- Tribunal upheld CIT(A)'s decision as raw material sale presumed outside books, not finished goods.

2. AY 2008-09:
- Revenue challenged CIT(A)'s limitation on GP addition for unaccounted stock sale.
- CIT(A) applied 10% GP rate on raw material sale of Rs. 39,00,000.
- After considering disclosed profit of Rs. 3,00,000, sustained GP addition at Rs. 90,000.
- Tribunal upheld CIT(A)'s decision based on similar facts as AY 2004-05.

3. AY 2009-10:
- Revenue disputed CIT(A)'s restriction on GP addition for unaccounted stock sale.
- CIT(A) determined actual sales outside books at Rs. 25.24 lakhs, not Rs. 43 lakhs.
- Applied 10% GP rate on Rs. 9.24 lakhs unaccounted sale, sustaining addition of Rs. 2,52,400.
- Tribunal supported CIT(A)'s decision, noting no challenge to findings.

In all three appeals, the Tribunal dismissed Revenue's appeals, upholding CIT(A)'s decisions on GP additions for unaccounted stock sales based on specific circumstances and evidence presented, emphasizing the distinction between raw material and finished goods sales outside the books.