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2019 (4) TMI 1831 - AT - Income TaxDetermination of profit of unaccounted sales - gross profit v/s net profit - HELD THAT - As relying on Shri Hariram Bhambhani 2015 (2) TMI 907 - BOMBAY HIGH COURT and BALCHAND AJIT KUMAR 2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT we direct the Assessing Officer to assess the income from undisclosed sales in question by applying the net profit rate in place of the gross profit rate on undisclosed sales. The net profit rate shall be that which the assessee had disclosed in its regular books of account for the said Assessment Year on recorded sales. In the result, this ground of the assessee is allowed in part. Disallowance u/s 40A(3) and 40(a)(ia) can be made when profits have been estimated as a percentage of turnover - HELD THAT - We delete the disallowance made u/s 40A(3) and 40(a)(ia) of the Act as in this case, the income has been estimated by the Assessing Officer. Hence, we allow this ground of the assessee. Taxation of excess stock found by the revenue during the course of survey - HELD THAT - Survey done u/s 131 of the Act, for the Assessment Year 2009-10, the survey team found difference between the physical stock and the book stock. The physical stock was more than the stock recorded in the books. The difference was assessed as income. The ld. Counsel for the assessee relied on the judgment in the case of Principal Commissioner Of Income vs M/S. Subarna Rice Mill 2018 (8) TMI 1475 - CALCUTTA HIGH COURT and argued that in such a situation, only the gross profit on such stock can be taxed. This judgment was followed by the ITAT Kolkata Bench in the case of DCIT vs. Smt. Madhu Chhanda Sirkar 2018 (9) TMI 1775 - ITAT KOLKATA - We direct the Assessing Officer to tax only the gross profit embedded in the excess stock found for the Assessment Year. The balance addition is hereby deleted. In the result this ground of the assessee is allowed in part.
Issues:
1. Assessment of income from suppressed sales. 2. Disallowance under sections 40A(3) and 40(a)(ia) of the Income Tax Act. 3. Taxation of excess stock found during survey. Assessment of income from suppressed sales: The appeals were against orders of the Commissioner of Income Tax for various assessment years. The primary issue was whether the Assessing Officer correctly adopted the gross profit of suppressed sales as the income of the assessee, instead of the net profit. The assessee argued that only the net profit of unaccounted sales should be taxed, citing relevant judgments. The Tribunal agreed with the assessee, directing the Assessing Officer to assess income from undisclosed sales using the net profit rate disclosed in the regular books of account. The ground of the assessee was allowed in part. Disallowance under sections 40A(3) and 40(a)(ia) of the Income Tax Act: The second and third issues revolved around disallowances under sections 40A(3) and 40(a)(ia) when profits were estimated as a percentage of turnover. The assessee relied on a Supreme Court judgment to argue against the disallowances. The Tribunal, finding no contrary decisions, deleted the disallowances as income had been estimated by the Assessing Officer. The ground of the assessee was allowed. Taxation of excess stock found during survey: Regarding the excess stock found during a survey, the Tribunal considered whether only the gross profit on such stock should be taxed. The assessee referred to a High Court judgment and an ITAT Kolkata Bench decision to support their argument. The Tribunal, in line with the cited judgments and finding no contrary decisions, directed the Assessing Officer to tax only the gross profit embedded in the excess stock found for the relevant assessment year, deleting the balance addition. Consequently, all appeals of the assessee were allowed in part. The Tribunal's detailed analysis covered the assessment of income from suppressed sales, disallowances under relevant sections of the Income Tax Act, and the taxation of excess stock discovered during a survey. The judgments cited by the assessee played a crucial role in the Tribunal's decisions, ensuring a fair and reasoned outcome in each issue raised before the Tribunal.
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