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2014 (11) TMI 903 - AT - Income TaxAddition of undisclosed stock deleted Held that - The assessee s own concern, M/s Chandra Kishore Ashok Kumar & Sons and other sister concern, M/s Devi & Company, which was owned by her son, were running their business at the same premises i.e. 48/226, General Ganuj, Kanpur. During the course of survey on 10.3.2006, the statement of Shri. Suresh Chandra Agarwal, the Manager of M/s Devi & Company and of the assessee was recorded - It is not a case of mere surrender, rather the assessee has also made payment of income-tax accrued on the surrendered amount - had there been any truth in the allegation, the assessee could have stopped the payment from the bankers, but nothing was done and the cheque was duly encashed - where the assessee has made a detailed explanation with regard to the reconciliation of the stock with the books of account and failed to reconcile the same, she made a voluntary surrender of ₹ 35 lakhs in the hands of the assessee on account of undisclosed stock - She not only surrendered, but has also paid tax by issuing cheque of the income-tax of ₹ 10,71,000/- which was duly encashed - the contention of the assessee cannot be accepted that the surrender was procured by exercising undue force upon the assessee. Whether on the basis of the surrendered statement and the payment of tax accrued, the addition can be made when the assessee failed to incorporate the surrendered amount in its return of income Held that - The assessee has not allowed the survey team to value the stock and to compare with the books of account maintained by the assessee - during the course of survey operation, the assessee herself has admitted that stock was spread over different floors of the property and godowns, which could not be valued; more so in the absence of sufficient staff - Having realized that the stock could not be valued or reconciled with the books of account, she made a voluntary surrender - She did not stop there, but she further issued a cheque to the Income-tax Department on the surrendered amount and allowed it to be encashed even after conclusion of the survey - addition was made on account of undisclosed stock with regard to which the assessee herself has made a statement that it cannot be valued on account of shortage of staff and the stock was spread over in five floors of the building and godowns - on the basis of the surrendered statement and issuance of cheque of income-tax, addition can be made on the basis of the surrendered statement, as the assessee has not made any effort to reconcile the stock available with the books of account thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO. Addition of ₹ 20 lakhs of less profit shown by the assessee Held that - The AO has noted that both the concerns are doing similar type of business with very slight variation in the case of M/s Devi & Company at the same address - the assessee was engaged in wholesale business and in the wholesale business the gross profit is always less compared to retail business - Moreover, while estimating the gross profit rate while making the addition in the hands of the assessee on account of less gross profit rate, the AO has not rejected the books of account - the gross profit rate declared by the sister concern which is engaged in different nature of business, cannot be accepted - the assessee herself has declared gross profit rate at 4.74% which is also higher than the gross profit rates declared in other years - the gross profit rate declared by the assessee should have been accepted by the AO the order of the CIT(A) is upheld Decided partly in favour of revenue.
Issues Involved:
1. Deletion of addition of Rs. 35 lakhs on account of undisclosed stock. 2. Deletion of addition of Rs. 20 lakhs on account of Gross Profit (G.P.) Rate. Detailed Analysis: 1. Deletion of Addition of Rs. 35 Lakhs on Account of Undisclosed Stock: Background: - A survey operation was conducted on the assessee's premises on 10.3.2006. - The assessee, engaged in wholesale cloth trading, voluntarily surrendered undisclosed stock worth Rs. 35 lakhs for M/s Chandra Kishore Ashok Kumar & Sons and Rs. 17 lakhs for M/s Devi & Company. - The assessee issued cheques for income tax on the same day but later filed a writ petition claiming the surrender was forced. Contentions: - The assessee argued that the surrender was forced and not voluntary, citing the timing and circumstances of the survey. - The Revenue countered that the statements were recorded on oath, and the assessee did not raise any objections immediately after the survey or stop the cheques. Tribunal's Observations: - The Tribunal noted that the assessee did not allow the survey team to value the stock, citing logistical difficulties. - The assessee's subsequent actions, including the encashment of cheques and the absence of immediate complaints, suggested the surrender was voluntary. - The Tribunal referenced various judicial pronouncements, emphasizing that statements recorded during surveys, although not conclusive, hold evidentiary value. Conclusion: - The Tribunal concluded that the addition of Rs. 35 lakhs based on the surrendered statement was justified, as the assessee did not provide any documentary evidence to support the claim of forced surrender. - The order of the CIT(A) deleting the addition was set aside, and the Assessing Officer's addition was restored. 2. Deletion of Addition of Rs. 20 Lakhs on Account of G.P. Rate: Background: - The Assessing Officer noted a discrepancy in the gross profit rates between the assessee (4.74%) and its sister concern, M/s Devi & Company (6.35%). - The assessee explained the difference by highlighting the nature of the businesses, with the assessee engaged in wholesale and the sister concern partly in retail. Contentions: - The Assessing Officer was not convinced by the explanation and made an addition of Rs. 20 lakhs based on the lower G.P. rate. - The assessee argued that the wholesale business naturally has a lower profit margin compared to retail, and the declared G.P. rate was consistent with previous years. Tribunal's Observations: - The Tribunal noted that the Assessing Officer did not reject the assessee's books of account, which is a prerequisite for estimating gross profit. - The Tribunal found that the assessee had consistently declared a similar G.P. rate in previous years and that the nature of the business justified the lower rate. Conclusion: - The Tribunal agreed with the CIT(A) that the gross profit rate declared by the assessee should be accepted, given the nature of the business and historical consistency. - The addition of Rs. 20 lakhs was rightly deleted by the CIT(A), and the Revenue's appeal on this ground was dismissed. Final Order: - The appeal of the Revenue was partly allowed, restoring the addition of Rs. 35 lakhs for undisclosed stock. - The deletion of Rs. 20 lakhs on account of the G.P. rate was upheld. - The cross-objection filed by the assessee in support of the CIT(A)'s order was dismissed.
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