2018 (11) TMI 252 - AT - Income Tax

Undisclosed investment addition - stock discrepancy addition - alleged discrepancies found in paddy stock during the course of survey - gross profit estimation @ 8.92% - Held that - The assessee reiterates his stand adopted throughout that the impugned addition is not based upon any material fund during the course of survey since both the lower authorities have gone by the alleged survey statement only which is against CBDT s circular dated 10.03.2003. We find no merit in either of these two submissions. It has come on record that both the lower authorities have made the former addition based on physical verification to assessee s paddy stock during the course of survey there on mere statement recorded therein or with reference to any vague evidence. We thus find no reason to delete the impugned addition in principle. Now comes the equally important question as to whether the entire discrepancy in stock addition or only the profit element embedded therein is to be considered for the impugned addition. We find this issue to be no more res integra as co-ordinate bench of this tribunal in M/s Subarna Rice Mill vs. ITO 2015 (7) TMI 522 - ITAT KOLKATA holding only the profit element liability to be added in such circumstances; stand upheld by hon ble jurisdictional high court s recent judgment 2018 (8) TMI 1475 - CALCUTTA HIGH COURT . We therefore conclude that the impugned former addition of the entire discrepancy in stock deserves to be deleted.

Summary

Issues Involved:
1. Undisclosed investment addition of ?77,89,600/- based on discrepancies in paddy stock.
2. Gross profit estimation @ 8.92% amounting to ?6,94,832/-.

Issue-wise Detailed Analysis:

1. Undisclosed Investment Addition of ?77,89,600/-:
The primary issue revolves around the addition of ?77,89,600/- due to discrepancies found in the paddy stock during a survey. The assessee contested the correctness of the stock-taking method, arguing that the survey team did not accurately count the paddy bags and completed the inventory in an unreasonably short time. The assessee submitted an objection letter four days post-survey, but it was addressed to an officer who neither conducted the survey nor had jurisdiction over the case. The CIT(A) dismissed these objections, stating they were raised too late and appeared to be an afterthought. The physical stock was verified and signed by both parties during the survey, and no objections were raised at that time. The CIT(A) upheld the addition, noting that the assessee failed to explain the source of the investment.

The tribunal agreed with the CIT(A), emphasizing that the addition was based on physical verification and not merely on the survey statement. It found no merit in the assessee’s argument that the addition was unsupported by material evidence.

2. Gross Profit Estimation @ 8.92% Amounting to ?6,94,832/-:
The second issue pertained to the gross profit estimation of ?6,94,832/-. The tribunal referenced a precedent where only the profit element embedded in stock discrepancies should be considered for addition, rather than the entire discrepancy amount. This approach was supported by a judgment from the jurisdictional high court. Consequently, the tribunal concluded that the entire discrepancy amount should be deleted, but the gross profit addition of ?6,94,832/- should be upheld.

Conclusion:
The tribunal partly allowed the assessee's appeal. It deleted the addition of ?77,89,600/- related to the stock discrepancy but confirmed the gross profit addition of ?6,94,832/-. The decision was pronounced in the open court on 31/08/2018.