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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 ..... excess stock found during the course of survey - Held that:- It is self evident that excess stock fortifies the inference of the assessee making unaccounted purchases. If there are certain unaccounted sales, the amount of stock on physical verification should be less to that extent. As it is a case of excess stock found on physical verification, there can be no inference that the assessee was making sales but not recording them in books of account. Moreover, there is no basis on which the sale has been estimated at ₹ 4.70 crore. We, therefore, uphold the action of the ld. CIT(A) in restricting the amount of sales at the declared level of ₹ 4.59 crore. - Decided against revenue. GP addition - CIT(A) limiting the addition of ₹ 30 lac surrendered on account of excess stock found during the survey, he held that net addition of ₹ 26.60 lac made on account of low G.P. was uncalled for and hence deleted - Held that:- The entire premise of the action of the ld. CIT(A) in working out the figure of ₹ 58.68 lac is the incremental increase in the price of raw material. We are unable to appreciate as to how the corresponding increase in the sale price can be ig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 1,54,60,820/-. Similarly, cash amounting to ₹ 5,450/- was found as on 1.3.2007, against the cash of (-) ₹ 23,83,807.73 as per cash book. Considering these discrepancies, the assessee came out with a surrender of ₹ 30 lac as additional income, which was accepted to be in addition to his normal income for the relevant year. A further sum of ₹ 3,000/- on account of difference in cash, was also surrendered. The assessee furnished its annual accounts during the course of assessment proceedings. On the perusal of the trading account, it was noticed by the A.O that the assessee had shown gross profit (G.P.) of ₹ 55.10 lac as against sales of ₹ 4.59 crore, giving G.P. rate of 12% for the current year. This was in contrast to G.P of ₹ 33.05 lac and sale of ₹ 2.75 crore, giving G.P. rate of 12.01% for the immediately preceding year. The amount of gross profit of ₹ 55.10 lac for the current year was inclusive of the additional income of ₹ 30 lac surrendered during the course of survey. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found on physical verification other than the stock of bras rod/bar plus and stock of bras rod/bar worth ₹ 14.45 lac) as reduced by the amount of ₹ 30.00 lac for which he made a separate addition]. Apart from that, the A.O also added excess cash surrendered amounting to ₹ 3000 thereby computing gross income at ₹ 88,80,508/-. From such gross income, he reduced expenses amounting to ₹ 26 lac as against the claim of the assessee for such expenses at ₹ 29,08,839/- debited to the profit and loss account. This resulted into computation of business income as ₹ 62,80,508/-. 3. When the matter came up before the ld. CIT(A), he deleted the addition of ₹ 7,07,508/- by holding that stock of finished goods was required to be valued at cost and not at market price as was done by the survey team. He also brought the figure of sales down to the declared amount of ₹ 4.59 crore as against the AO estimating it at ₹ 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 ₹ 58,68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the further addition of ₹ 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 assessee. The calculation done by the ld. CIT(A) in bringing the market value of finished goods down to its cost price, has not been controverted by the ld. DR. Thus, if we value the stock of finished goods at cost instead of market price taken by the survey team, the deletion of addition of ₹ 7,07,508/- is perfectly in order. This ground is not allowed. 6. The ground no. 3 is against the rejection of estimation of sales at ₹ 4.70 crore on which the G.P. rate was applied for computing gross profit of the assessee. The Assessing Officer estimated figure of higher sale at ₹ 4.70 crore as against the declared sale of ₹ 4.59 crore for the reason that there was excess stock found during the course of survey. It is self evident that excess stock fortifies the inference of the assessee making unaccounted purchases. If there are certain unaccounted sales, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year under consideration. There is no reference worth the name to the dates on which such sale rate have been taken despite the fact that such items are subject to regular sale through out the period. In the absence of the mention of any invoice nos. on such list, it is further not coming out if such chart covers the entire sales made during the year. The ld. CIT(A) appears to have been more than charitable. In our considered opinion this approach adopted by him does not merit acceptance. However, the fact remains 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- -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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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