2018 (1) TMI 1107 - AT - Income Tax

Addition on account of difference in stock found as on the date of search and stock as per books of accounts - unaccounted income - addition of gross profit applying the rate of 26% on unaccounted stock - Held that - Stock statements of the appellant are regularly submitted to the appellant s banker on monthly basis. The stock statements submitted during the period 1/4/2009 to 31/8/2009 were also submitted to the CIT(A) for his perusal. But both the authorities did not consider the reconciliation submitted by the appellant and authorities relied statement of the appellant u/s.142 of the Act though the appellant reflected for his statement after one month and thereafter also filed an affidavit to that effect but lower authorities failed to consider his contention. After hearing both the parties, we set aside this issue to the file of the AO to examine the reconciliation statement filed before the lower authorities and will decide the matter Addition applying gross profit @ 22.82% on difference in stock found as on the date of search - Held that - As we can see that appellant s profit in earlier year was less than the year under consideration meaning thereby his Gross Profit was higher than earlier years. Therefore, in such circumstances assessee s contentions cannot be denied. In the result, this ground of appeal is allowed.

Summary

Issues Involved:
1. Addition on account of difference in stock found during the search.
2. Addition by applying gross profit rate on the difference in stock found during the search.
3. Restriction of additions by the Commissioner of Income-Tax (Appeals).

Issue-wise Detailed Analysis:

1. Addition on Account of Difference in Stock Found During the Search:
The assessee contested the addition of ?35,23,941/- made by the CIT(A) on account of the difference in stock found during the search. The search conducted under Section 132 of the I.T. Act, 1961, revealed an excess physical stock of ?60,91,883/- compared to the stock recorded in the books of account. The partner of the firm admitted to ?60 lakhs as undisclosed investment in the unaccounted excess stock during the search. However, the appellant argued that the addition was made solely based on the partner's statement recorded under Section 132(4) and that no incriminating materials were found to support the addition. The appellant provided a reconciliation statement showing that the discrepancy was due to counting errors during stock-taking. The Tribunal noted that the CIT(A) and AO did not consider this reconciliation and relied solely on the partner's statement. The Tribunal set aside this issue to the AO to examine the reconciliation statement and decide the matter as per law.

2. Addition by Applying Gross Profit Rate on the Difference in Stock Found During the Search:
The assessee also contested the addition of ?8,04,163/- by applying a gross profit rate of 22.82% on the difference in stock found during the search. The AO initially applied a 26% gross profit rate, which the CIT(A) reduced to 22.82%. The appellant provided a detailed quantitative reconciliation showing that the undisclosed stock was semi-finished goods and hence not recorded in the books of accounts. The Tribunal observed that the AO and CIT(A) did not acknowledge this reconciliation and relied on the partner's statement. The Tribunal allowed this ground of appeal, noting that the appellant's profit in the year under consideration was higher than in previous years, indicating that the gross profit rate applied by the AO was not justified.

3. Restriction of Additions by the Commissioner of Income-Tax (Appeals):
The Revenue contested the CIT(A)'s decision to restrict the addition of ?60,91,883/- to ?35,23,941/- and the addition of ?15,83,890/- to ?8,04,163/-. The Tribunal noted that in the connected appeal (ITA No.2809/Ahd/2013), the matter was set aside to the AO for re-examination. Consequently, the Tribunal dismissed the Revenue's appeal, as the issues were already addressed in the assessee's appeal.

Conclusion:
The Tribunal set aside the addition on account of the difference in stock and the addition by applying the gross profit rate to the AO for re-examination, considering the reconciliation statements provided by the assessee. The Tribunal dismissed the Revenue's appeal, as the matters were already addressed in the assessee's appeal. The order was pronounced in the Court on 22nd January 2018 at Ahmedabad.