2023 (3) TMI 1141 - AT - Income Tax

Addition of excess stock - Addition in the hands of assessee during the course of survey - HELD THAT - Fact remain undisputed that the alleged stock is part of business income and the fact that it has been confirmed by the ld. AO in his order also. However, it is judicially settled principle that only profit element in such excess stock should be brought under the purview of the tax. The gross profit rate and net profit rate disclosed by the assessee in the audited financial statements and also taking into consideration the submissions made the assessee is ready to offer 12% profit on excess stock and with a view to end of dispute between the parties sustained the addition on account of undisclosed stock @12% of undisclosed stock and partly allowed ground raised by the assessee. TDS addition on freight charges - violation of provisions of section 194C(7) - HELD THAT - As in the case of ACIT vs Mr. Mohammed Suhail 2015 (2) TMI 1187 - ITAT HYDERABAD specifically held that provisions of section 194C(6) is independent of section 194C(7) and just because there is violation of provisions of section 194C(7) disallowance of u/s 40(a)(ia) does not arise if the assessee complies with the provisions of section 194C(6) of the Act. We find that the assessee complies with the provisions of section 194C(6) disallowance u/s 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act - Authorities below are not justified in treating the expenses incurred by the assessee for freight charges as disallowable u/s 40(a)(ia) of the Act and adding back as claimed as expenses towards freight charges and such addition shall stand deleted. Appeal of the assessee is allowed.

Summary

Issues:
The issues involved in the judgment are estimation and confirmation of higher G.P. on unaccounted sales, confirmation of addition on excess stock, confirmation of TDS addition on freight charges.

Estimation and Confirmation of Higher G.P. on Unaccounted Sales:
The appeal was filed against the order of the ld. CIT(A) regarding the estimation and confirmation of higher G.P. on unaccounted sales. The appellant argued that the estimation by the AO was baseless and incorrect since the actual audited G.P. rate was lower. The Tribunal noted that the alleged excess stock was part of the business income, and only the profit element should be brought under tax purview. Considering the submissions made by the appellant, the Tribunal sustained the addition on account of undisclosed stock at 12% and partly allowed the grounds raised by the appellant.

Confirmation of Addition on Excess Stock:
The ld. CIT(A) justified the addition made by the ld. AO on account of excess stock and sustained the addition in the hands of the assessee. The appellant appealed against this confirmation. During the hearing, the appellant contended that the addition should be restricted to the profit element in the stock. The Tribunal observed that the excess stock was part of the business income and decided to sustain the addition at 12% of the undisclosed stock amount. Consequently, the impugned addition made by the ld. CIT(A) was set aside.

Confirmation of TDS Addition on Freight Charges:
The appellant challenged the confirmation of TDS addition on freight charges by the ld. CIT(A). The ld. AR argued that as payments were made towards hiring charges to parties with PAN details of transporters, no deduction was required as per section 194C(6) of the Act. The Tribunal referred to a co-ordinate bench decision and held that compliance with section 194C(6) negates disallowance under section 40(a)(ia) even if there is a violation of section 194C(7). Consequently, the expenses incurred for freight charges were not disallowable under section 40(a)(ia) and the addition claimed towards freight charges was deleted.