2019 (12) TMI 1201 - AT - Income Tax

Addition on account difference between stock declared land stock offered for taxation and treating the same as retraction from surrendered amount - Survey u/s 133A - HELD THAT - No other incriminating material was found during the course of survey relating to unaccounted stock, excess physical stock was calculated by Revenue authority on estimative and presumptive basis. The stock statement prepared by the survey team on the date of survey itself seems to be on a loose wicket since the remarks column mentioning about the weighment of stock in trucks do not correlate with any actual weighment slip and also the alleged unrecorded stock is practical impossible to be stored on the available space with the assessee. Even after the retraction assessee had not retracted the total surrender but he prudently kept separate record of the sales of physical stock which was 250.03 MT whereas the book stock on the date of survey was 85.433 MT. The difference i.e. 165.27 MT is accepted as unrecorded stock which has been offered to tax by the assessee. CIT(A) erred in confirming the addition made by the AO for unrecorded stock of ₹ 84,00,000/- merely on the basis of recorded statement and without basis of any material evidence and there the same needs to be deleted. We, accordingly order so and allow ground no.1 raised by the assessee. Ad hoc addition for offering lower net profit stands confirmed by the CIT(A) - HELD THAT - AO after taking average of last two years net profit rate applied the same on the turnover disclosed by the assessee and after comparing with the profits disclosed in the preceding year addition of ₹ 2,33,227/- made for lower net profit. We, observe that during the course of assessment proceedings itself it was submitted that the main reason for the lower net profit during the year was due to increase in the depreciation expenditure which increased by ₹ 2,54,512/- in comparison with the preceding year. This fact went unattended by both the lower authorities Had the AO had considered the increased amount if the depreciation expenses at ₹ 2,54,512/- then the net profit for the year under appeal would not have decreased very significantly from the preceding year and would have been consistent as per the past history. There is no justification with the Ld. AO of ignoring the material facts and making the addition for lower net profit of ₹ 2,33,227/- and the same deserves to be deleted. We, accordingly order so and delete the addition for ₹ 2,33,227/-. Ground No.2 of the assessee s appeal is also allowed.

Summary

Issues Involved:
1. Addition of ?84,00,000/- on account of difference in stock declared during survey and stock offered for taxation.
2. Addition of ?2,33,227/- for showing lower net profit.

Issue-Wise Detailed Analysis:

1. Addition of ?84,00,000/- on account of difference in stock declared during survey and stock offered for taxation:

The assessee, a dealer in iron and steel scrap, filed a return declaring a total income of ?52,27,800/-. During a survey under section 133A on 12/07/2011, a physical stock worth ?1,35,79,761.36 was found, whereas the stock as per books was ?18,79,761.36, showing a difference of ?1,17,00,000/-. The Assessing Officer (AO) added ?84,00,000/- to the income, treating it as retraction from the surrendered amount. The assessee argued that the excess stock was estimated without actual weighment and recalculated the difference, declaring it in the return. The AO, however, was not satisfied and made the addition, noting deliberate efforts by the assessee to retract the surrendered income.

The Tribunal observed that the stock quantification by the survey team was based on an eye estimate without actual weighment, which was practically impossible given the available space. The survey team’s method of estimating stock using truckloads was not supported by weighment slips, and no other incriminating material was found. The assessee prudently kept records of the physical stock sold post-survey, showing unrecorded stock of 165.27 MT, which was offered to tax.

The Tribunal referred to several judicial pronouncements, including CIT v. Radha Kishan Goel, Pullangode Rubber Produce Co. Ltd. v. State of Kerala, and Paul Mathews & Sons v. CIT, which emphasized that statements recorded under section 133A do not have evidentiary value unless corroborated by material evidence. The Tribunal concluded that the addition of ?84,00,000/- was based on presumptive and estimative stock quantification without material evidence, and thus, deleted the addition.

2. Addition of ?2,33,227/- for showing lower net profit:

The AO made an ad hoc addition of ?2,33,227/- for lower net profit, noting that the assessee showed a net profit of ?5,79,048/- (excluding surrendered amount) for the year, which was lower compared to the previous year’s profit of ?8,12,275/-. The AO argued that the net profit should be consistent, considering the business consistency.

The assessee explained that the lower net profit was due to increased depreciation of ?2,54,512/- compared to the previous year. The Tribunal observed that this fact was not considered by the lower authorities. Had the increased depreciation been considered, the net profit would have been consistent with the previous year.

The Tribunal referred to judicial precedents, including Dhakeswari Cotton Mills Ltd. v. CIT and Banshidar Onkarmal vs. CIT, which held that assessments based on mere presumption are unsustainable. The Tribunal concluded that the addition for lower net profit was unjustified and deleted the addition of ?2,33,227/-.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal deleting both the additions of ?84,00,000/- and ?2,33,227/-. The Tribunal emphasized the need for material evidence to support additions and highlighted the importance of considering all relevant facts, such as increased depreciation, in determining net profit.