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TMI Blog2016 (2) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to the case are stated in brief. The assessee is a partnership firm engaged in trading of readymade garments, accessories etc. The department carried out a survey operation u/s 133A of the Act at the premises of the assessee on 5.11.2004. During the course of survey operations, the survey team took the inventory of physical stock available with the assessee. The Survey team also estimated the book stock by adopting the Gross profit rate of 29.6%. It was noticed that there was shortage of stock to the tune of Rs. 37,87,811/-. When this was pointed out, the assessee surrendered a sum of Rs. 30.00 lakhs at the time of survey operations. The assessee had also renovated the shop and hence he submitted to the survey team that the differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.11.2010 u/s 143(3) r.w.s. 263 of the Act, wherein he added the amount of Rs. 30.00 lakhs surrendered by the assessee. The AO also restricted the deduction u/s 40(b) of the Act in respect of remuneration to the partners, to the amount actually claimed by the assessee in the return of income. In the appellate proceedings, the Ld CIT(A) enhanced the addition to Rs. 37,87,811/- i.e. to the extent of difference in stock. It is pertinent to note that the Ld CIT(A) has, initially, presumed that the difference in stock relates to "Excess Stock". The Ld CIT(A) also confirmed the order of the AO with regard to the deduction claimed u/s 40(b) of the Act. 4. With regard to the first issue, the ld. AR submitted that the ld. CIT(A) has enhanced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be given cognizance of. By placing reliance on the decision of Hon'ble Supreme Court rendered in the case of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala and another (1973) 91 ITR 18 (SC), the ld. AR submitted that the Hon'ble Supreme Court has held that it is open to the assessee to show that the admission made is incorrect. Accordingly he submitted that the surrender of Rs. 18.52 lakhs made by the assessee in the original assessment proceedings is very much reasonable in the facts and circumstances of the case and accordingly prayed that the same should be directed to be sustained in the place of Rs. 37.87 lakhs enhanced by the Ld CIT(A). 6. On the contrary, the ld. DR submitted that the assessee himself has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that there is merit in the submissions made by the Ld A.R in this regard. We notice that the discrepancy in stock was arrived by the survey team by adopting GP rate at 29.6% only. Hence, at this stage, it may not be proper to alter the GP rate, as suggested by the ld. DR. Accordingly, we proceeds to dispose of this issue by taking the GP rate of the assessee at 29.6%. The ld. AR submitted that the GP rate is affected by many factors since the assessee is dealing in garments, which is badly affected by change in fashion. Hence the assessee would be constrained to sell certain old fashion items at heavy discount and hence the average rate of GP worked out at around 30% only. This explanation of the assessee also appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing the liability that may arise on account of stock discrepancy. The ld. AR further submitted that the shortage of stock would at the most give rise to addition towards GP and hence, the admission of Rs. 30 lakhs made with the assessee without understanding all the implications should be ignored. The Ld A.R also placed reliance on the decision rendered by the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd (supra). 10. We find merit in the submissions made by the ld. AR. First of all, stock shortage of Rs. 37.87 lakhs has been arrived on estimated basis i.e. book stock has been estimated by adopting GP ratio of 29.6%. There is also merit in the submissions of the assessee that the effect of stock shortage w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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