2021 (2) TMI 1129 - AT - Income Tax

Addition towards excess stock - GP estimation - HELD THAT - As examined the trading account of the assessee split in two parts, i.e. before survey and after survey. If the amount of surrender of ₹ 5.76 lakh is excluded, the rate of gross profit in both the periods comes to roughly 17% each. In order to bring down the value of closing stock as on the date of survey from market price to cost price, the amount of gross profit is required to be unloaded from the market price taken by the survey team for ascertaining the excess value of stock purchased by the assessee. If such gross profit rate of 17% is applied to the market value of stock determined by the authorities as on the date of survey to ₹ 27.08 lakh, a reduction in the value of stock would be warranted to the tune of ₹ 4,60,360/- for finding out its cost price to the assessee. This amount of ₹ 4.60 lakh is, therefore, directed to be excluded from the addition of ₹ 8,81,692/- made and confirmed by the authorities in this regard. Addition being difference in cash as per cash book and physical cash found at the time of survey - HELD THAT - The survey team counted physical cash and tallied it with the cash in hand as per cash book. There was excess cash of ₹ 73,228/- which was accepted by the assessee as an additional income, but not offered for taxation in the return of income. The assessee made up the cash book later on to present that there was no difference. However, nothing of this sort was stated at the time of survey that the cash book was not complete or certain transactions were omitted to be recorded.Contention of the assessee for the acceptance of books of account produced after the date of survey, cannot be countenanced. Thus, the resultant addition on account of excess stock is hereby confirmed.

Summary

Issues:
1. Addition of excess stock amounting to ?8,81,692.
2. Difference in cash as per cash book and physical cash found at the time of survey.

Analysis:
1. Addition of Excess Stock:
The appellant, engaged in the business of gold and silver ornaments, declared excess stock of ?5,76,072 in the trading account pre-survey. However, during a survey, excess stock of ?14,57,764 was found, leading to an addition of ?8,81,692 by the Assessing Officer (AO). The appellant claimed certain purchase bills were omitted, reducing excess stock to ?5.76 lakh. The CIT(A) upheld the AO's decision, noting the alleged purchase bills were below ?20,000 and not part of regular transactions. The Tribunal observed discrepancies in valuing stock at market price instead of cost price. Adjusting for gross profit, the excess stock addition was reduced by ?4,60,360, partially allowing this ground.

2. Difference in Cash:
Another issue was the ?73,228 difference in cash as per the cash book and physical cash found during the survey. The appellant accepted this as additional income but did not offer it for taxation. The Tribunal confirmed this addition, emphasizing that post-survey explanations about incomplete records were not acceptable. The appellant's attempt to reconcile the cash book later was disregarded, and the addition of ?73,228 was upheld.

In conclusion, the appeal was partly allowed, with the excess stock addition reduced by adjusting for cost price valuation and the difference in cash addition confirmed. The Tribunal's decision was pronounced on 27th January, 2021.