2013 (11) TMI 1773 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of trading addition of Rs. 23,02,170/- made by the AO by applying the provisions of section 145(3) of the I.T. Act.
2. Justification of treating surrendered income as income from other sources.
3. Justification of trading addition based on estimated turnover.

Summary:

Issue 1: Deletion of Trading Addition
The department appealed against the deletion of a trading addition of Rs. 23,02,170/- made by the AO by applying the provisions of section 145(3) of the I.T. Act. The AO noticed discrepancies during a survey u/s 133A and invoked section 145(3) due to the assessee's failure to explain these discrepancies. The AO applied a GP rate of 15.46% on the disclosed turnover and estimated undisclosed turnover based on excess stock found during the survey. The CIT(A) upheld the rejection of books of accounts but deleted the trading additions, noting that the surrendered income should be included in the GP, resulting in a GP rate of 19.11%, higher than the AO's average GP rate of 15.46%.

Issue 2: Surrendered Income as Income from Other Sources
The AO treated the surrendered income as income from other sources, excluding it from the GP calculation. The CIT(A) disagreed, stating that the surrendered income related to the business and should be included in the GP. The Tribunal concurred, noting that the surrendered income was definitely the profit of the business and should be included in the GP for calculating the GP rate.

Issue 3: Trading Addition Based on Estimated Turnover
The AO made another trading addition based on an estimated turnover of Rs. 54,94,905/- derived from the undisclosed stock of finished goods. The CIT(A) found no material evidence to support that the assessee had effected such turnover outside the books. The Tribunal agreed, noting that no sale bills were found during the survey to substantiate sales outside the books and that the excess stock had already been surrendered and taxed. Therefore, the estimated turnover and the resulting trading addition were not justified.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the trading additions and treat the surrendered income as part of the business profit, dismissing the department's appeals in both I.T.A.No. 389/Jodh/2013 and I.T.A.No. 390/Jodh/2013.