2016 (12) TMI 681 - AT - Income Tax

Addition on account of GP estimation on unaccounted sales - Held that - All necessary quantitative details were filed before the assessing authority during the course of assessment proceedings including excise records and no defect has been pointed out except for minor difference in the yield. Ld. Assessing Officer has also not been able to point out any mistake in the excise record which could not be avoided and certainly carry a far better evidentiary value in comparison to the computer generated sheet of the accounting system in which figures of closing stock can be manually putin to increase or decrease the profits. Certainly the excise record and quantitative records are having an edge over the computer generated print out. We are therefore of the view in that where Revenue has been unable to point out any major fault in the quantitative record maintained by the assessee which were duly produced during the course of assessment proceedings we agree with the contentions of assessee that the shortage of stock is only to the extent of 10, 30, 028/- and not 60, 00, 000/- Accordingly addition towards GP estimation on unaccounted sales will work out to 1, 61, 920/- being 15.72% of the shortage figure of 10, 30, 028/-. Unexplained expenditure u/s 69C for payment of labourand two expenditure directly made by the partners out of their cash withdrawals - Held that - We observe that ld. Assessing Officer has made a general remark for making addition and has not given any cognizance to the fact that there was a shortage in cash of 250781/- which could have taken care of the unexplained expenditure as submitted by the assessee. Further we also agree to the contentions of assessee that once estimation of GP has been made on the unaccounted sales it covers unexplained expenditure also to this extent. We are therefore of the view that ld. Assessing Officer erred in making addition

Issues Involved:
1. Calculation of difference between physical stock and book stock.
2. Admission and retraction of unaccounted income.
3. Addition towards unexplained expenditure.
4. Estimation of Gross Profit (GP) rate.
5. Reliability of computerized accounting systems versus excise records.

Issue-wise Detailed Analysis:

1. Calculation of Difference Between Physical Stock and Book Stock:
The core issue revolves around the discrepancy identified during a survey conducted on 12.02.2008, where the physical stock was valued at ?1,05,37,970/- and book stock was shown as ?1,65,06,231/-. The difference calculated was ?59,68,261/-. The assessee later retracted, stating that the book stock should be ?1,15,67,906/- based on excise records, not the computer-generated figure.

2. Admission and Retraction of Unaccounted Income:
During the survey, the managing partner admitted to unaccounted income of ?60,00,000/-. This was retracted on 28.03.2008, with the claim that the initial admission was based on incorrect figures from a computer-generated sheet. The Tribunal acknowledged that the statement made during the survey was not on oath and lacked evidentiary value, supporting the retraction.

3. Addition Towards Unexplained Expenditure:
The Assessing Officer made an addition of ?2,75,407/- for unexplained expenditure, which included payments to laborers and expenses by partners. The Tribunal observed that there was a cash shortage of ?2,50,781/- which could account for the unexplained expenditure. Additionally, it was noted that once GP estimation is made, separate additions for unexplained expenditure are not warranted.

4. Estimation of Gross Profit (GP) Rate:
The Assessing Officer applied a GP rate of 15.72% on unaccounted sales of ?60,00,000/-, resulting in an addition of ?9,43,200/-. The assessee argued that the GP rate should only apply to the actual shortage of ?10,30,028/-. The Tribunal agreed with the assessee, determining that the addition should be based on the shortage of ?10,30,028/-, resulting in a GP addition of ?1,61,920/-.

5. Reliability of Computerized Accounting Systems Versus Excise Records:
The Tribunal emphasized that excise records, which are maintained regularly and provide quantitative details, have a higher evidentiary value compared to computer-generated sheets. The Tribunal found no major faults in the excise records and thus accepted the assessee’s contention that the book stock discrepancy was only ?10,30,028/-.

Conclusion:
The Tribunal concluded that the addition should be restricted to ?1,61,920/- (15.72% of ?10,30,028/-) instead of the ?8,50,000/- sustained by the CIT(A). The addition of ?2,75,407/- for unexplained expenditure was also deleted. Thus, the appeal of the assessee was partly allowed.

Order Pronouncement:
The order was pronounced in the open Court on 8th December, 2016.

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