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2020 (12) TMI 652 - AT - Income TaxTrading addition - additional income was disclosed by the partner of the assessee firm in his statement recorded during the course of survey on account of difference in stock and difference in purchase sale as found during the course of survey - HELD THAT - Since this difference was directly affecting the trading results of the assessee firm, the additional income disclosed by the assessee should have been reflected in the trading account instead of profit loss account as done by the assessee. If the said amount of ₹ 35 lakhs is credited to the trading account, it gives a Gross Profit of ₹ 60.67 lakhs which is 3.8% of the sales declared by the assessee for the year under consideration and since the same is more than the GP rate of 3.5% adopted by the CIT(A), we find merit in the contention of the assessee that this is not a fit case to make any trading addition and the trading addition made by the Assessing Officer and sustained by the ld. CIT(A) is liable to be deleted. This vital aspect relating to the mistake committed by the assessee by treating the income disclosed during the course of survey to profit loss account instead of trading account as now highlighted by Assessee was not brought to the notice of CIT(A) and even the ld. CIT(A) failed to take note on the same while sustaining the trading addition made by the Assessing Officer partly. We, accordingly, delete the trading addition - Decided in favour of assessee.
Issues:
1. Addition of Gross Profit by Assessing Officer 2. Appeal against the trading addition 3. Estimation of Gross Profit percentage by CIT(A) 4. Challenge to the trading addition by the Assessee 5. Decision of the Appellate Tribunal Analysis: 1. The appeal was filed by the assessee against the order of the ld. CIT(A)-2, Nashik, where the Gross Profit (GP) addition of ?39,60,651 made by the Assessing Officer was sustained to the extent of ?30,18,904. The assessee, a partnership firm trading in MS Angels, GI Wires, and Cement, had a survey conducted under Section 133A of the Income Tax Act, 1961, leading to the partner agreeing to surrender additional income of ?50 lakhs for assessment years 2012-13 and 2013-14. The Assessing Officer noted discrepancies in the GP rates between the pre-survey and post-survey periods, leading to the trading addition. 2. The assessee appealed the trading addition, arguing that the trading account prepared during the survey was tentative and based on the earlier year's GP rate. They claimed the trading account filed with the return was reliable, being based on regularly maintained books of account. The Assessing Officer found the books unreliable due to discrepancies in stock records and accepted the GP rate from the survey period, resulting in the trading addition. 3. The CIT(A) estimated the GP percentage at 3.5% for the year under appeal, considering the increase in turnover. The GP addition was restricted to ?30,18,904 based on this estimation, deviating from the Assessing Officer's calculation. The assessee challenged this estimation, highlighting the error in crediting the additional income to the profit & loss account instead of the trading account, leading to a higher GP rate of 3.8%. 4. The Appellate Tribunal found merit in the assessee's contention, noting the mistake in treating the disclosed income in the profit & loss account instead of the trading account. This error resulted in a higher GP rate of 3.8%, exceeding the CIT(A)'s estimation of 3.5%. Consequently, the trading addition made by the Assessing Officer and partially sustained by the CIT(A) was deleted, and the appeal of the assessee was allowed. 5. The Appellate Tribunal pronounced the order in favor of the assessee, overturning the trading addition and highlighting the importance of correctly reflecting income in the appropriate accounts to determine accurate GP rates. The decision emphasized the significance of maintaining reliable records and the impact of such errors on tax assessments. This detailed analysis outlines the progression of the case from the Assessing Officer's addition to the final decision by the Appellate Tribunal, focusing on the key arguments, estimations, and errors highlighted throughout the legal process.
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