2020 (4) TMI 231 - AT - Income Tax

Addition of the excess stock found during the course of survey - Assessee as contended that the stock of finished goods was valued by the survey team at selling price and not at cost - HELD THAT -Assessee as invited our attention to the list of finished goods prepared by the survey team and submitted that the Assessing Officer may be directed to verify the stand of the assessee. It is, however, observed that no such stand was taken by the assessee either before the Assessing Officer during the course of assessment proceedings or even before the ld. CIT(Appeals) during the course of appellate proceedings - also no evidence brought on record by the assessee in the form of relevant bills to support and substantiate his stand that the stock of finished goods was valued by the survey team at selling price and not at cost - no merit in the contention raised by the assessee on this issue and rejecting the same, we uphold the impugned order of the ld. CIT(Appeals) confirming the addition made by the Assessing Officer on account of excess stock found during the course of survey. Grounds No. 2 3 of the assessee s appeal are accordingly dismissed. Addition on account of the estimated profit from the sale of excess stock presumed to have been made by the assessee - AO presumed that the excess stock found during the course of survey must have been sold by the assessee outside the books of account and such sale should have generated disclosed profits to the assessee. He accordingly applied gross profit rate of 11% to the excess stock - HELD THAT - As rightly submitted by the assessee, the excess stock found during the course of survey having been added to the total income of the assessee as unexplained investment, the same became part of the stock of the assessee as incorporated in his books of account and in the absence of any evidence to show that it was sold by the assessee outside the books of account generating any undisclosed profit to the assessee, the addition made by the Assessing Officer was purely based on assumptions and surmises and the ld. CIT(Appeals) was not justified in confirming the same. We, therefore, delete the said addition made. Disallowance of telephone expenses - disallowance being 10% of the total telephone expenses claimed by the assessee was made by AO on account of personal uses of telephone by the assessee - HELD THAT - Disallowance of 10% of the total telephone expenses claimed by the assessee for personal uses is quite fair and reasonable. Having regard to all the facts and circumstances of the case including the fact that the assessee was carrying on the business in his proprietary capacity where the personal usage could not be ruled out in the absence of any record maintained by the assessee in the form of call register, etc. to show that this substantial expenditure on telephone was wholly and exclusively incurred for the purpose of business. We accordingly uphold the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer out of telephone expenses and dismiss Ground of the assessee s appeal .

Summary

Issues:
1. Excess stock valuation during survey.
2. Addition of estimated profit from sale of excess stock.
3. Disallowance of telephone expenses.

Excess Stock Valuation during Survey:
The appeal challenged an addition of ?18,27,346 made by the Assessing Officer due to excess stock found during a survey. The assessee, engaged in manufacturing and export, failed to explain the excess stock during assessment. The ld. CIT(Appeals) confirmed the addition, citing discrepancies in stock valuation and lack of evidence from the assessee. The Tribunal upheld the decision, noting the absence of supporting evidence or objections raised earlier by the assessee.

Addition of Estimated Profit from Sale of Excess Stock:
Another issue involved an addition of ?2,01,008 by the Assessing Officer as estimated profit from the sale of excess stock. The ld. CIT(Appeals) upheld this addition, presuming the excess stock was sold outside the books of account. The Tribunal, however, found the addition speculative and based on assumptions. As there was no evidence of actual sale generating undisclosed profit, the Tribunal deleted the addition.

Disallowance of Telephone Expenses:
Regarding the disallowance of ?44,558 out of total telephone expenses, the Assessing Officer disallowed 10% for personal use. The ld. CIT(Appeals) upheld this disallowance, considering the lack of records proving business-related usage. The Tribunal found the disallowance reasonable, given the absence of documentation supporting exclusive business use. Consequently, the Tribunal confirmed the disallowance and partially allowed the appeal.

In conclusion, the Tribunal addressed the issues of excess stock valuation, addition of estimated profit, and disallowance of telephone expenses. It emphasized the importance of supporting evidence and proper documentation in tax assessments, leading to the partial allowance of the appeal.