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TMI Blog2014 (3) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's only proprietorship concern, namely, M/s Auto Tech were written up to 31.12.2006. A printout of trial balance of such books for the period of 1.4.2006 to 31.12.2006 was taken. Stock worth Rs. 1,77,23,328/- was found on physical verification on 1.3.2007. As against that, the amount of stock on the date of survey as per books of account was determined at Rs. 1,54,60,820/-. Similarly, cash amounting to Rs. 5,450/- was found as on 1.3.2007, against the cash of (-) Rs. 23,83,807.73 as per cash book. Considering these discrepancies, the assessee came out with a surrender of Rs. 30 lac as additional income, which was accepted to be in addition to his normal income for the relevant year. A further sum of Rs. 3,000/- on account of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nward. The amount of cartage inward as per trial balance as on 31.12.2006 prepared at the time of survey was Rs. 2,250/- as against the figure shown in the books of account produced before the Assessing Officer relevant to 31.12.2006 at Rs. 3,58,534/-. After considering the above discrepancies and also variation in the amount of travelling expenses and workers welfare expenses, being the amount shown as per trial balance as on 31.12.2006 prepared at the time of survey vis-à-vis that on 31.12.2006 as per books produced during the course of assessment proceeding, the Assessing Officer rejected the books of account. As there was difference in the stock position as discussed above, the AO estimated sales of the assessee at Rs. 4.70 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne by the survey team. He also brought the figure of sales down to the declared amount of Rs. 4.59 crore as against the AO estimating it at Rs. 4.70 crore. Apart from that, he also held that if the percentage increase in the purchase price of raw material was accepted and applied, the effect of such increase would result into fall in G.P to the extent of Rs. 58,68,837/-. He noticed that the A.O made effective addition of Rs. 26.60 lac (Rs. 51.70 lac and Rs. 25.10 lac) and if the additional income of Rs. 30 lac was reduced from the gross profit of Rs. 55.10 lac, the net G.P would work out to Rs. 25.10 lac. Since the assessee in his opinion had sufficiently explained the fall in the G.P. to the extent of Rs. 58.68 lac on account of increase i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of Rs. 1.77 crore found on physical verification, in addition to the stock of bras rod/bar, the stock of finished goods amounting to Rs. 1.40 crore was valued by the survey team at sale price. The ld. CIT(A) held that such stock was required to be valued at cost and not at market price. By applying the G.P. rate of 5.67% on such of stock of finished goods, he computed the profit element in it to the tune of Rs. 7,67,174/. That is how the further addition of Rs. 7,07,508/- made by the AO was knocked down. We agree in principle with the view canvassed by the ld. CIT(A) that the stock of finished goods at the time of survey was required to be valued at cost, as it is only this value which would show the unexplained investment made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) took into consideration the factum of increase in the price of raw material and thus, concluded that if that was given effect to then there would be reduction in G.P. to the extent of Rs. 58.68 lac. By limiting the addition of Rs. 30 lac surrendered on account of excess stock found during the survey, he held that net addition of Rs. 26.60 lac made on account of low G.P. was uncalled for and hence deleted. We are not agreeable with the ld. CIT(A) for this wholesome benevolent approach. The effect of the finding given by the ld. first appellate authority is that there can be no addition to the extent of Rs. 58.68 lac. Whatever is added up to this level deserves to be deleted. As in the present case the figure of addition came at Rs. 26.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains that the Assessing Officer made the addition by applying G.P rate of 11% on estimate basis as against the last year's G.P. rate of 12%, without specifically considering the effect of increase in the cost of raw material vis-à-vis the resultant increase in the sale price of the products manufactured by the assessee to justify reduction in the G.P rate. In our considered opinion, the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of the AO for taking a fresh decision on this point in conformity with our above discussion as per law after allowing a reasonable opportunity of being heard to the assessee. We order accordingly. It is made clear that such det ..... X X X X Extracts X X X X X X X X Extracts X X X X
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