2016 (1) TMI 168 - AT - Income Tax

Under valuation of stock up to the date of survey by deducting 18.55% for gross profit - CIT(A) deleted the addition - Held that - The assessee has prepared separate trading account for pre-survey period and post survey period. The assessee has also given gross profit rate and net profit rate in post survey period qua survey period as compared to pre-survey period. Ld. Counsel for the assessee drew our attention to the gross profit rate calculation made by the survey party and valued the stock after reducing approximately 10%. In view of the above explanation given by assessee s counsel, which was never negated by Ld. Sr. DR, we find that the reduction made by CIT(A) at 18.5% of G.P. rate from the date of survey in consonance with the facts of the case. Actually, the value of stock on the date of survey as per books of account ₹ 4,30,93,290/- and in addition to the stock of ₹ 17,62,820/- was lying with the Karigars. This stock as per books of account of the assessee at ₹ 4,30,93,290/- comprises of gold jewellery of ₹ 3,63,05,575/- and separate diamond stock of ₹ 67,87,715/-. Even otherwise, if we go by rate of gold on the date of survey taken by valuation officer at ₹ 11,965/- as against the rate of ₹ 9395/- the increase is almost 28%. In term of the above facts, we find that the CIT(A) has rightly applied the gross profit rate of 18.55% for reduction of the value of stock and we confirm the same - Decided against revenue Addition being difference between the undisclosed income recorded in the impounded documents MJ-4 and undisclosed income declared by assessee - CIT(A) deleted the addition - Held that - The assessee has brought out estimated income out of sales at ₹ 2,31,700/-. But in a nutshell, the assessee has offered an income of ₹ 13,50,000/- being undisclosed income out of the above undisclosed transaction of sales and purchases. When a query was put to Ld. Sr. DR from the bench, he could not answer whether there is only sales or purchase element is also there, if we take the transactions of sale as well as purchase then net profit is to be estimated and also some investments. If we apply net profit rate of 19.55% as declared by assessee to the sale of undisclosed transaction at ₹ 38,57,105/- the profit will come to ₹ 7,15,493/- and further we estimate some investments of ₹ 2 to 3 lacs the total will come at ₹ 10,15,943/-. In any case, the assessee has made disclosure of ₹ 13.50 lacs on this account, which is higher than the income is to be estimated out of the undisclosed transactions of sales and purchases. Accordingly, we have no hesitation in confirming the action of CIT(A) in deleting the addition - Decided against revenue Disallowance of expenses made by AO being interest payment without deduction of TDS by invoking the provisions of section 194 - CIT(A) deleted the addition - Held that - We find that the assessee has received declaration in form No. 15G from the payee of the interest i.e. Smt. Narayani Devi Agarwal and once the assessee received form no. 15G he is not liable to deduct TDS and hence, no disallowance can be made u/s. 40(a)(ia) of the Act. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition on account of undervaluation of stock.
2. Deletion of addition due to difference between undisclosed income recorded in impounded documents and declared income.
3. Deletion of disallowance of interest payment without deduction of TDS.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Undervaluation of Stock
The primary issue in this appeal was whether the CIT(A) erred in deleting the addition made by the AO on account of undervaluation of stock by deducting 18.55% for gross profit. The AO had valued the stock at Rs. 5,15,74,306/- after a 15% deduction for higher valuation, while the assessee's books showed the stock at Rs. 4,30,93,230/-. The CIT(A) found that the valuation was made at current market prices, which included gross profit. Therefore, reducing the gross profit of 18.55% was justified, leading to a stock valuation of Rs. 4,20,07,272/-. The Tribunal affirmed this decision, noting that the valuation should consider the gross profit rate and the actual stock value recorded in the books, which was Rs. 4,30,93,290/-. The Tribunal dismissed the revenue's appeal on this ground.

Issue 2: Deletion of Addition Due to Difference Between Undisclosed Income Recorded in Impounded Documents and Declared Income
The second issue was whether the CIT(A) erred in deleting the addition of Rs. 25,07,105/- being the difference between the undisclosed income recorded in impounded documents (MJ-4) and the undisclosed income declared by the assessee. The AO had treated the total transactions of Rs. 38,57,105/- as income, excluding the declared income of Rs. 13.50 lacs. The CIT(A) found that the transactions in MJ-4 included sales and purchases, and applying the gross profit rate of 18.55% to the total sales resulted in a gross profit of Rs. 7,15,493/-, which was already covered by the declared income of Rs. 13.50 lacs. The Tribunal upheld the CIT(A)'s decision, noting that the declared income was higher than the estimated profit from the undisclosed transactions.

Issue 3: Deletion of Disallowance of Interest Payment Without Deduction of TDS
The third issue was whether the CIT(A) erred in deleting the disallowance of Rs. 1,62,612/- for interest payment without TDS deduction. The AO disallowed the interest payment under section 40(a)(ia) of the Act, as no TDS was deducted. The CIT(A) found that the assessee had received Form No. 15G from the payee, Mrs. Narayani Devi Agarwal, which prevented the deduction of TDS as per section 197A. The Tribunal agreed, stating that once Form No. 15G was received, the assessee was not liable to deduct TDS, and thus, the disallowance under section 40(a)(ia) was not applicable.

Conclusion:
The Tribunal dismissed the revenue's appeal on all grounds, affirming the CIT(A)'s decisions regarding the undervaluation of stock, the difference in undisclosed income, and the disallowance of interest payment without TDS deduction. The cross-objection by the assessee was also dismissed as infructuous.