2022 (11) TMI 1080 - AT - Income Tax

Addition for unaccounted stock - difference in the stock - unaccounted sales - As submitted no difference in the stock and the alleged 914 bags were actually received during the period 09/11/2013 to 12/11/2013 - CIT(A) confirmed the addition mainly on the ground that if the assessee had necessary evidence, he ought to have appealed the action of the survey team which the assessee failed to do and has paid the penalty stating that he did so solely to buy peace of mind - HELD THAT - Before both the lower authorities, the assessee failed to file any documentary evidence in support of the said 914 bags. CIT(A) confirmed the addition mainly on the ground that if the assessee had necessary evidence, he ought to have appealed the action of the survey team which the assessee failed to do and has paid the penalty stating that he did so solely to buy peace of mind. We find that there is actually shortage of stock because in the stock register, 2203 bags are appearing and as per the physical stock statement 1289 bags were found. So, there is actually shortage of stock of 914 bags and which was treated as unaccounted sales on which the Department of Trade Taxes, Government of NCT of Delhi, has levied the tax/penalty. Now so far as the first contention of the assessee that there was no variation of stock and the total addition made by the Assessing Officer is liable to be deleted, the option left is to send the documents filed before us to the lower authorities for necessary examination/verification. When this was proposed to the ld. Counsel for the assessee, he preferred to rely on his alternate plea raised in Additional Ground No. 5. Thus, Ground Nos. 1 to 4 and additional Ground Nos. 1 to 4 are dismissed. Gross profit element on such undisclosed sales should have been subjected to tax - As considering the judicial precedents wherein it has been held that in case of undisclosed/unaccounted sales, addition could be made only in respect of the profit element. We find that the in the case of CIT vs. Hariram Bhambani 2015 (2) TMI 907 - BOMBAY HIGH COURT considering similar case, where survey was conducted u/s 133A of the Act and unaccounted sales were found and thereafter accepted in the statement recorded. We find that the same are squarely applicable in the facts of the instant case and the assessee having disclosed the gross profit rate of 17.20%, we are inclined to hold that the addition should be sustained only to the extent of ₹17,26,108/-, which is 17.20% of the alleged sum. We, therefore, allow the additional ground no. 5 raised by the assessee and sustain the addition to ₹17,26,108/-. The assessee gets relief of ₹83,09,401/-.

Issues Involved:
1. Appeal against order of CIT(A) regarding undisclosed cash and stock additions.
2. Appeal against addition of interest on demand VAT.
3. Discrepancy in stock valuation and tax implications.
4. Challenge to the confirmation of undisclosed stock addition.
5. Alternate plea for profit-based addition on undisclosed sales.
6. Disallowance of demand VAT and its tax treatment.

Issue 1: Appeal against undisclosed cash and stock additions
The assessee contested the CIT(A)'s order confirming additions for undisclosed cash and stock. The assessee argued that the discrepancies were not accepted and were not part of regular books. The CIT(A) upheld the additions, citing lack of evidence and non-challenge of the survey team's actions. The Tribunal found a shortage of stock, leading to the confirmation of the addition of undisclosed stock.

Issue 2: Appeal against addition of interest on demand VAT
The assessee challenged the addition of interest on demand VAT. The Tribunal dismissed this ground, stating that the disallowance of demand VAT was penal in nature and not allowable under Section 37(1) of the Income Tax Act.

Issue 3: Discrepancy in stock valuation and tax implications
The case involved discrepancies in stock valuation discovered during a survey under the DVAT Act. The survey team found unaccounted stock, leading to tax and penalty assessments. The Tribunal upheld the tax implications based on the shortage of stock and the actions taken by the assessee.

Issue 4: Challenge to confirmation of undisclosed stock addition
The assessee challenged the confirmation of undisclosed stock addition, arguing that certain stock was not considered due to pending verification. However, the Tribunal found evidence of a shortage of stock and upheld the addition based on the findings of the lower authorities.

Issue 5: Alternate plea for profit-based addition on undisclosed sales
The assessee raised an alternate plea for profit-based addition on undisclosed sales. Citing judicial precedents, the Tribunal agreed that only the profit element of undisclosed sales should be taxed. The Tribunal sustained the addition based on the gross profit rate disclosed by the assessee.

Issue 6: Disallowance of demand VAT and its tax treatment
The disallowance of demand VAT was found to be penal in nature and not allowable under the Income Tax Act. The Tribunal upheld the CIT(A)'s decision to confirm the disallowance, dismissing the assessee's appeal on this ground.

Overall, the Tribunal partly allowed the appeal, sustaining the addition based on profit on undisclosed sales and dismissing the appeal on the disallowance of demand VAT. The judgment was pronounced on 21st November 2022 in Kolkata.

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