2024 (12) TMI 1164 - AT - Income Tax

Addition u/s 69B - undisclosed stock - HELD THAT - Closing stock worked out by the CIT(A) was Rs 10,20,91,121/- and the correct closing stock ought to have been worked out by the search party as per Table A supra was Rs 10,12,53,736/-. Hence, there is no deficit in stock at all. Accordingly, there is no case for making any addition on the ground of excess closing stock by the CIT(A). Hence we have no hesitation in deleting the addition made on account of closing stock by holding that there is no excess stock at all even as per the workings of CIT(A) and by adopting the correct closing stock as on the date of search after eliminating the profit element on finished goods. Accordingly, the Ground Nos. 1 to 3 raised by the assessee are allowed. Disallowance of car running and maintenance expenditure and car depreciation thereon - HELD THAT - The book results declared cannot be disturbed unless certain deficiencies are found thereon and there is no need to make any ad hoc disallowance thereon. The partners have their own personal vehicles for their personal usage, which fact was brought to the knowledge of Learned CIT(A) and the same had not been disputed by the revenue. Hence the action of the Learned CIT(A) in restricting the disallowance on account of car maintenance expenses to Rs 2 lakhs on an ad hoc basis is devoid of merit and deserves to be deleted at once. Car depreciation - CIT(A) had rightly held that it is an allowance statutorily provided to the assessee in the Act and the same cannot be disturbed by alleging that there is personal usage of the vehicle. The element of personal usage of the vehicle had already been answered to be non-existent in the previous paragraph. Hence, we hold that the CIT(A) had rightly granted relief to the assessee by allowing the depreciation on car, on which we do not find any infirmity. Accordingly, the Ground Nos. 1 and 2 raised by the revenue are dismissed and Ground No. 4 raised by the assessee is allowed. Addition made u/s 69A - HELD THAT - When there are unaccounted sales mentioned in the seized document, there should be obviously unaccounted purchases, as without purchases there cannot be any sales. Hence, only the profit element needs to be brought to tax. In the instant case, the Learned CIT(A) had estimated the gross profit at the rate of 28.10% by taking cognizance of the fact that the same rate has been offered by the assessee during the year under consideration. It is also pertinent to note that assessee has accepted to the CIT(A) order by not preferring any further appeal. Hence, there is no other better gross profit rate that could be applied in the facts of the case. Hence we hold that the adoption of gross profit rate of 28.10% on the unaccounted sales is in order. The Learned CIT(A) had rightly applied the same, on which we do not find any infirmity.

Summary

Issues Involved:

1. Restriction of addition under Section 69B of the Income-tax Act, 1961, concerning alleged undisclosed stock.
2. Disallowance of car running and maintenance expenditure and car depreciation.
3. Addition under Section 69A of the Income-tax Act related to unexplained cash credit.

Issue-wise Detailed Analysis:

1. Restriction of Addition under Section 69B:

The core issue revolves around the addition of Rs 91,08,879/- under Section 69B of the Income-tax Act, 1961, due to alleged undisclosed stock. A search operation under Section 132 was conducted, revealing discrepancies between the physical stock valued by the search party and the recorded closing stock. The search party valued the inventory at Rs 11,12,45,367/-, while the AO calculated the recorded value at Rs 5,67,92,915/-, leading to an addition of Rs 5,44,07,085/- for excess stock. The assessee contested this, arguing that the valuation was flawed as it used market rates instead of the lower of weighted average cost or market price. The CIT(A) recalculated the closing stock using the current year's gross profit rate of 28.10%, arriving at a revised closing stock of Rs 10,20,91,121/-, thus reducing the excess stock to Rs 91,08,879/-. However, the tribunal found that the correct closing stock should have been Rs 10,12,53,736/-, eliminating any deficit and leading to the deletion of the addition.

2. Disallowance of Car Running and Maintenance Expenditure and Car Depreciation:

The assessee claimed deductions for car depreciation and running expenses, which the AO partially disallowed, suspecting personal use by partners. The CIT(A) reduced this disallowance and allowed full depreciation, recognizing it as a statutory allowance. The tribunal upheld the CIT(A)'s decision, emphasizing that the books of accounts were not rejected and the partners had personal vehicles, negating the assumption of personal use of the firm's vehicles. Therefore, the tribunal deleted the ad hoc disallowance of Rs 2 lakhs for car maintenance expenses and upheld the allowance of car depreciation.

3. Addition under Section 69A:

The issue here pertains to the addition of Rs 29,56,800/- as unexplained cash credit under Section 69A, based on a seized document indicating unaccounted cash transactions. The assessee initially admitted to receiving cash from three parties but later contended that these were rough jottings related to demands for payments. The CIT(A) found that the entries represented unaccounted sales and estimated the gross profit on these sales at 28.10%, reducing the addition to Rs 8,30,861/-. The tribunal agreed with the CIT(A), noting that unaccounted sales imply unaccounted purchases, and only the profit element should be taxed. The tribunal found no infirmity in the CIT(A)'s application of the gross profit rate and dismissed the revenue's appeal on this ground.

In conclusion, the tribunal allowed the assessee's appeal regarding the addition under Section 69B and the disallowance of car expenses, while dismissing the revenue's appeal concerning the addition under Section 69A. The tribunal's decisions were based on a detailed examination of the facts, ensuring that only justified amounts were taxed.