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2022 (6) TMI 1106 - AT - Income TaxUndisclosed stock found during the course of survey - HELD THAT - As alleged excess stock is part of business income of the assessee and the same has been confirmed by the CIT(A) and the Revenue is not before us challenging the said finding. Now once it is confirmed that excess stock is part of business income, it is judicially settled that only profit element in such excess stock should be brought to tax. Keeping in to consideration the gross profit rate and net profit rate disclosed by the assessee in the audited financial statements and also the submissions of assessee that the assessee is ready to offer 12% profit on the excess stock, we with a view to end of dispute sustain the addition on account of undisclosed closing stock i.e. 12% of undisclosed stock
Issues Involved:
Appeal against assessment order for the assessment year 2015-16 - Excess stock discrepancy treated as business income - Application of GP rate on excess stock - Regularization of excess stock in books - Appeal before ITAT Kolkata. Analysis: Issue 1: Treatment of Excess Stock Discrepancy The appellant raised concerns regarding the confirmation of excess stock discrepancy as unjust and incorrect, arguing that it should have been treated as business income subject to GP rate application. The contention was that since the excess stock was part of the overall stock and separately identifiable, the AO should have applied the GP rate specifically to this stock. The appellant emphasized that the excess stock was regularized in the books and advance tax was paid on it, causing no revenue loss. Issue 2: Assessment Proceedings and CIT(A) Decision The case involved a private limited company in the paddy mill business where a survey under section 133A revealed excess stock. The AO made additions to the income based on various transactions and documents, resulting in an assessed income of Rs.1,74,98,783/-. The appellant appealed to the CIT(A), who partially allowed the appeal by deleting an addition related to undisclosed investment but confirming the addition for excess stock. The CIT(A) considered the undisclosed income as part of business income, leading to the confirmation of the excess stock addition. Issue 3: ITAT Kolkata Decision During the ITAT hearing, the appellant's counsel argued that the addition on account of excess stock should be limited to the profit element within the stock. The appellant proposed sustaining the addition at 12% of the alleged amount. The Departmental Representative highlighted the appellant's failure to provide relevant details and revised trading accounts during assessment. The ITAT considered the undisputed fact that the excess stock was part of the business income. It was settled that only the profit element in such excess stock should be taxed. Considering the GP and NP rates disclosed by the appellant and the offer of 12% profit on the excess stock, the ITAT sustained the addition at Rs.3,51,430/-, being 12% of the undisclosed stock amount, and partly allowed the grounds raised by the appellant. In conclusion, the ITAT Kolkata partly allowed the appellant's appeal, emphasizing the application of GP rate on excess stock and the necessity to tax only the profit element within the excess stock.
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