2020 (6) TMI 607 - AT - Income Tax

Estimation of income - undisclosed stock - GP rate estimation - AR has contended that 1.25% declared by the assessee may be applied in the instant case - HELD THAT - Admittedly and undisputedly, the excess stock not recorded in the books of accounts was found as on date of survey and surrendered by the assessee company. Therefore, the undisclosed income by way of investment in such excess stock was to be offered to tax in the return of income which the assessee has failed to do so. In the result, we affirm the findings of the lower authorities in this regard. Regarding short stock which has been sold out of books, the AO has estimated gross profit rate of 10% and the ld AR has contended that 1.25% declared by the assessee may be applied in the instant case. Before the AO and the ld CIT(A), the assessee has not contested the rate of gross profit rate on such out of books sale and hence, we are not inclined to examine the fresh plea raised before us and interfere in the findings of the lower authorities and the same is hereby confirmed. In the result, the ground of appeal is dismissed.

Issues Involved:
1. General challenge to the order of the CIT(A).
2. Addition of ?1,66,92,172/- on account of undisclosed income.
3. Disallowance of ?2,32,193/- claimed as loss due to theft of goods.
4. Disallowance of ?11,00,469/- on account of excess stock found during the survey.
5. Disallowance of ?44,800/- on account of short stock found during the survey.

Issue-wise Detailed Analysis:

1. General Challenge to the Order of the CIT(A):
The first ground of appeal is general in nature and does not require specific adjudication. Therefore, it is dismissed.

2. Addition of ?1,66,92,172/- on Account of Undisclosed Income:
A search operation was conducted on 17.09.2008 in M/s Kamdhenu Group of companies, and a survey operation was carried out at the business premises of the assessee. The Assessing Officer (AO) made an addition of ?1,66,92,172/- based on a letter from Sh. Pradeep Agarwal, then Director of the company, who surrendered ?2.5 crores as unaccounted income. The AO held that the amount of ?1,66,92,175/- was the unaccounted income of the assessee company.

The assessee contested this addition, arguing that Sh. Pradeep Agarwal was not authorized to make such a surrender and that the documents were not seized from the company's premises. The AO rejected these arguments, stating that as a Director, Sh. Pradeep Agarwal was authorized to make such statements.

The CIT(A) confirmed the addition, stating that the surrender was based on specific documents and was voluntary. However, the Tribunal found that the AO did not verify the contents of the seized documents with the books of accounts of the assessee company. The Tribunal held that merely relying on the statement of Sh. Pradeep Agarwal without corroborative evidence was insufficient to make the addition. Therefore, the addition of ?1,66,92,172/- was deleted.

3. Disallowance of ?2,32,193/- Claimed as Loss Due to Theft of Goods:
The AO disallowed the loss claimed by the assessee on account of theft of goods, stating that the stolen goods were recovered by the police and handed back to the assessee. The CIT(A) confirmed this disallowance.

The Tribunal found that goods worth ?5,98,965/- were initially lost, out of which goods worth ?3,66,772/- were recovered. Therefore, the remaining goods worth ?2,32,193/- were permanently lost. The Tribunal held that such a loss is an eligible business expense and allowed the claim of ?2,32,193/-.

4. Disallowance of ?11,00,469/- on Account of Excess Stock Found During the Survey:
During the survey, excess stock worth ?11,00,469/- was found, which was not recorded in the books of accounts. The AO made an addition of this amount, which was confirmed by the CIT(A).

The Tribunal upheld the findings of the lower authorities, stating that the undisclosed income by way of investment in such excess stock was to be offered to tax in the return of income, which the assessee failed to do.

5. Disallowance of ?44,800/- on Account of Short Stock Found During the Survey:
The AO found a short stock of ?4,48,005/- and estimated a gross profit rate of 10% on this amount, making an addition of ?44,800/-. The CIT(A) confirmed this addition.

The Tribunal found that the assessee did not contest the gross profit rate before the lower authorities and therefore upheld the addition of ?44,800/-.

Conclusion:
The Tribunal allowed the appeal in part, deleting the addition of ?1,66,92,172/- on account of undisclosed income and allowing the claim of ?2,32,193/- for loss due to theft of goods. However, it upheld the disallowances of ?11,00,469/- for excess stock and ?44,800/- for short stock. The appeal was disposed of accordingly.

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