2016 (10) TMI 88 - AT - Income Tax

Addition on account of stock difference declared during the course of survey - Held that - In absence of any specific reason for fall in gross profit specifically in view of fact that finding of survey was that stock in business of assessee was found to be understated in books. Accordingly, CIT(A) considered that gross profit should be taken at the same rate as it was found on the date of survey i.e. @3.92%. When the same was put as was seen in the chart the difference of ₹ 15,58,139/- was found evident. It means assessee has understated closing stock as on 31.03.2007 by this amount i.e. ₹ 15,58,139/-. However, assessee has already carried forward this value of stock as reflected on 31.03.2007 at ₹ 3,72,36,668/- to 01.04.2007 to the next assessment year as opening stock, same was not disturbed and hence addition to the extent of ₹ 15,58,139/- was made in gross profit. Accordingly, addition to the extent of ₹ 15,58,139/- was rightly sustained out of addition made by Assessing Officer at ₹ 70lacs. This reasoned finding of CIT(A) needs no interference from our side. Disallwoance of renovation expenses - Held that - Since assessee has already offered an additional amount of ₹ 63,84,565/-, which after considering the gap of ₹ 15,58,139/- on account of difference in gross profit and ₹ 409/- on account of cash was enough (Rs.48,26,017/- to cover amount of ₹ 11 lakhs of renovation expenses as still balance ₹ 37,26,017/- was left with). Same was deleted. This reasoned finding of CIT(A) needs no interference from our side Addition in respect of cash - Held that - As per that there were withdrawals from the bank on 06.01.2007 of ₹ 2 lacs and ₹ 50,000/- and the balance as on 20.02.2007 was ₹ 4,24,862/-. CIT(A) observed that assessee s books of accounts were incomplete and not written from January 2007 onwards as found by the survey team in respect of purchases and sales as well. Assessee has submitted that the survey party found cash on hand ₹ 4,25,272/-, whereas cash on hand as per books of accounts was ₹ 4,24,862/- which has wrongly been worked out by survey part at ₹ 24,863/-. This resulted into a difference of ₹ 4 lacs which was added in the income of assessee. As books of accounts were audited and this balance was reflected, same could not have been ignored. Since, entries in the books of accounts had not been found wrong as per which the cash balance was reflected at ₹ 4,24,862/- as mentioned above, only the difference between this and ₹ 4,25,271/- the cash found on the date of survey could be added. The difference between two comes to ₹ 409/- which being an negligible sum was rightly avoided by CIT(A). However, same was taken as unaccounted cash and addition to this extent was sustained. Accordingly, CIT(A) gave partial relief to assessee. This reasoned finding of CIT(A) needs no interference from our side Additional income of assessee - disclosure made during the course of survey - Held that - The voluntary addition of ₹ 63lacs to the profit of ₹ 51lacs, which was made to cover the shortfall to declare income of ₹ 1.15 Crores, was more than enough to take care of disclosure of unexplained renovation expenditure. No separate addition needed to the income declared by assessee. Assessing officer failed to appreciate these facts and made addition of ₹ 11 lacs to the net profit shown. This addition of ₹ 11lacs was made to separate additions of closing stock and cash on hand. As per said sheet containing explanation for disclosure, assessee s income during the year was ₹ 51,15,435/-, to purchase peace of mind, assessee claimed to have offered ₹ 1.15 Crores as her income at the same time reserving her right to be assessed at the actual income. It is the duty of Assesisng Officer to assess income at correct figure disregarding the fact what assessee has returned. In fact, it was the case that assessee had returned higher income than her actual income. In view of above, assessee s income was enhanced due to addition sustained for ₹ 15,58,139/- on account of gross profit and ₹ 409/- on account of difference in cash the income from business only stood at ₹ 78,96,427/- which was more than assessee s claim of ₹ 62lacs. Along with this, assessee was having capital gain. As discussed above, regarding applicability of Rule 8D, Assessing Officer has to look into the corresponding expenses before disallowing the same. In this background, the alternative plea that income actually is only ₹ 62 lakhs was rightly dismissed by CIT(A). In view of above, we are not inclined to interfere with the finding of CIT(A) who has held that additional income of assessee should be taken at ₹ 63,84,565/- as declared by assessee in her return of income instead of ₹ 85 lacs declared during survey action. Appeal of revenue dismissed.

Summary

Issues:
1. Addition of stock difference
2. Addition of renovation expenses
3. Addition of excess cash
4. Additional income disclosure

Issue 1: Addition of Stock Difference
The Assessing Officer made an addition of &8377; 70,00,000 on account of stock difference declared during a survey, which was later reduced to &8377; 15,58,139 by the CIT(A). The Tribunal upheld the CIT(A)'s decision, stating that the gross profit should be calculated at the same rate as found during the survey, resulting in the understatement of closing stock by &8377; 15,58,139. The Tribunal found no reason to interfere with the CIT(A)'s reasoned decision and upheld the reduction in the addition.

Issue 2: Addition of Renovation Expenses
The Assessing Officer added &8377; 11,00,000 as unexplained expenses for renovation, which was deleted by the CIT(A). The Tribunal agreed with the CIT(A)'s decision, noting that the assessee had already disclosed additional amounts covering the renovation expenses, and thus upheld the deletion of the addition.

Issue 3: Addition of Excess Cash
An addition of &8377; 4,00,000 was made by the Assessing Officer for excess cash found during the survey. The CIT(A) partially sustained this addition after considering discrepancies in the cash balance. The Tribunal upheld the CIT(A)'s decision, stating that the negligible difference of &8377; 409 was correctly treated as unaccounted cash.

Issue 4: Additional Income Disclosure
The Assessing Officer added &8377; 11,00,000 to the net profit, which was part of the total disclosure of &8377; 85,00,000 made during the survey. The Tribunal agreed with the CIT(A)'s decision to consider the additional income at &8377; 63,84,565 instead of the declared &8377; 85,00,000. The Tribunal found that the voluntary addition made by the assessee covered the shortfall, and no separate addition was required. The Tribunal upheld the CIT(A)'s decision regarding the additional income disclosure.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The judgment was pronounced on August 23, 2016.