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2015 (4) TMI 799 - AT - Income TaxApplication of the provisions of section 145(3) - Reduction in the Gross Profit rate from 18.5% to 16% by CIT(A) - Addition on account of unexplained cash - Addition on account of unexplained stock - Held that - It is undisputed fact that the assessee has been indulging in unaccounted sales/purchases. The major expenses on account of trading of fireworks have already been debited by the assessee in P 20 lacs was found at residence had disclosed additional income. The learned AR for the assessee s argument that the excess cash found during the course of search at residence was result of unaccounted sale made in preceding years. The learned CIT(A) also analysed the whole facts with reference to cash and unaccounted investment found and has given detailed findings on this issue which has not been controverted by the learned CIT DR. Therefore we confirm the order of the learned CIT(A). Addition on account of unexplained stock - The learned AR considered the reconciliation in his submission and excess stock has been calculated at 77, 289/- in place of addition confirmed by the learned CIT(A) at 2, 80, 238/-. The facts and figure mentioned by the assessee are required to be verified from the record of the assessee and seized material therefore we set aside this issue to the Assessing Officer to re-verify these facts and figure reproduced above in conciliation of stock. Accordingly this ground of appeal is set aside to the Assessing Officer. - Decided against the revenue.
Issues Involved:
1. Reduction of Gross Profit (G.P.) rate from 18.05% to 16%. 2. Deletion of addition on account of unexplained cash. 3. Deletion of addition on account of unexplained stock. Issue-wise Detailed Analysis: 1. Reduction of Gross Profit (G.P.) rate from 18.05% to 16%: The Revenue's appeal and the assessee's cross-objection both contest the reduction of the G.P. rate from 18.05% to 16% by the CIT(A). The assessee, involved in trading fireworks, was subject to a search and seizure operation revealing unaccounted purchases and sales. The Assessing Officer (A.O.) applied a G.P. rate of 18.5% based on a comparable case of M/s Rajan Fireworks and Emporium, which showed a G.P. rate ranging from 17% to 18%. However, the CIT(A) reduced the G.P. rate to 16%, considering that the comparable entity might have been involved in manufacturing, unlike the assessee who was solely a wholesaler. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had declared a better G.P. rate compared to previous years and had already disclosed substantial undisclosed income. Thus, the Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection on this issue. 2. Deletion of addition on account of unexplained cash: The Revenue's appeal contested the deletion of an addition of Rs. 19,50,059/- made by the A.O. on account of unexplained cash found during the search. The A.O. had treated the excess cash as income from undisclosed sources based on the statement of a key person of the assessee group. However, the CIT(A) allowed the appeal, noting that the assessee had declared additional income of Rs. 42 lacs, which covered the unexplained cash. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had disclosed excess undisclosed income over undisclosed investments, and the statement recorded under Section 132(4) of the Act had evidentiary value. Therefore, the Tribunal dismissed the Revenue's appeal on this ground. 3. Deletion of addition on account of unexplained stock: The Revenue's appeal and the assessee's cross-objection both addressed the deletion of an addition of Rs. 12,20,999/- out of a total addition of Rs. 15,01,237/- on account of unexplained stock found during the search. The A.O. had valued the stock at Rs. 79,04,220/- but accepted discrepancies pointed out by the assessee, reducing the stock value to Rs. 39,92,438/-. The CIT(A) further reduced the addition to Rs. 2,80,238/- after allowing a discount on the stock valued at MRP and considering the G.P. margin. The Tribunal found that the facts and figures presented by the assessee required verification and set aside the issue to the A.O. for re-verification. Consequently, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection for statistical purposes only. Conclusion: The Tribunal upheld the CIT(A)'s decisions on the reduction of the G.P. rate and the deletion of the addition on account of unexplained cash, dismissing the Revenue's appeals on these grounds. However, it set aside the issue of unexplained stock to the A.O. for re-verification, allowing the assessee's cross-objection for statistical purposes.
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