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TMI Blog2016 (9) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... able to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the embezzled cash of ₹ 1,86,24,839/- by Shri Arumugamswamy as business loss. Addition towards excess stock - Held that:- During the course of search operationo, the Revenue authorities found excess stock in the showroom of the assessee. Both the assessee and the Revenue valued the excess stock by reducing the gross profit margin from MRP value of the stock available at the end of the financial year. The Assessing Officer has also taken 14% as gross profit on the tag price for the purpose of computing the value of the stock. As rightly submitted by the ld. Representative for the assessee, while arriving at the excess stock, the Assessing Officer instead of 14% has adopted 20% as gross profit ratio which resulted in the excess stock of ₹ 3,25,16,473/-. Therefore, this Tribunal is of the considered opinion that the addition of ₹ 88,76,731/- is unwarranted. In view of the above discussion, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. Therefore, this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the employees and he was managing the day-to-day affairs. Shri Arumugamswamy has systematically embezzled the cash on day-to-day basis to the extent of 240 lakhs. This embezzlement of cash by Shri Arumugamswamy was found during the course of internal audit check. Consequently, the abovesaid Shri Arumugamswamy was removed from the Directorship on 21.2.2007. The ld. Representative further submitted that the assessee has filed civil suit against Shri Arumugamswamy to recover the money and also filed a criminal complaint before the Metropolitan Magistrate for embezzlement of cash. Since the assessee-company could not recovered the embezzled amount inspite of civil and criminal prosecution initiated against Shri Arumugamswamy, the net embezzled amount of ₹ 1,86,24,839/- was written off in the books of account as bad debt. According to the ld. Representative, the said amount of ₹ 1,86,24,839/- was taken as income in the earlier assessment years. Merely because the assessee used the nomenclature as bad debt , it would not lose the character as business loss . According to the ld. Representative, the amount of embezzled cash by the employee in the course of business activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are set aside and the Assessing Officer is directed to allow the embezzled cash of ₹ 1,86,24,839/- by Shri Arumugamswamy as business loss. 6. Now coming to the Revenue s appeal, the first issue arises for consideration is addition of ₹ 88,76,731/- towards excess stock. 7. Shri Supriyo Pal, the ld. DR submitted that the Assessing Officer found excess stock of ₹ 59,78,471/- during the course of search operation. In fact, the supervisor of the showroom, Shri Sivakumar accepted the stock difference in his sworn statement recorded on 18.8.2011. Shri Saravanan Arul has also accepted the stock difference of ₹ 59,78,471/- in his sworn statement recorded on 18.8.2011. Subsequently, the assessee claims that the cost of the available stock on the date of search was taken on the basis of the tag price without reducing the profit ratio. Accordingly, the cost price of the physical stock was worked out to ₹ 7,52,66,952/- by reducing the average gross profit from the value of physical stock. Accordingly, the deficient stock was worked out to ₹ 62,74,289/-. After considering the closing stock as per the tally account, the stock found at the time of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also taken 14% as gross profit on the tag price for the purpose of computing the value of the stock. As rightly submitted by the ld. Representative for the assessee, while arriving at the excess stock, the Assessing Officer instead of 14% has adopted 20% as gross profit ratio which resulted in the excess stock of ₹ 3,25,16,473/-. Therefore, this Tribunal is of the considered opinion that the addition of ₹ 88,76,731/- is unwarranted. In view of the above discussion, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly, the same is confirmed. 10. The next issue is with regard to addition of ₹ 1,48,54,638/- on account of fall in gross profit rate. 11. Shri Supriyo Pal, ld. DR submitted that the Assessing Officer found substantial reduction in the gross profit during the year under consideration. Referring to the gross profit ratio shown by the assessee from assessment year 2006-07, the Assessing Officer found that the gross profit rate shown for the year under consideration is considerably less when compared to earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the CIT(A) found that if the excess stock of ₹ 2,36,39,742/- was considered, the profit margin of the assessee would be 21% which is more than the average gross profit ratio of 18% declared by the asse in the earlier assessment years. According to the ld. Representative, the CIT(A) has rightly deleted the addition made by the Assessing Officer. 14. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the assessee has offered excess stock of ₹ 2,36,39,742/- for taxation. This excess stock is nothing but profit of the assessee. Therefore, this excess stock has to be taken into consideration while estimating the gross profit. As rightly submitted by the ld. Representative for the assessee if the excess stock of ₹ 2,36,39,742/- was taken into consideration, the gross profit margin of the assessee would come to 21% which is admittedly more than the average gross profit ratio shown by the assessee @ 18% for the earlier assessment years. Therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition made by the Assessing Officer. This Tribunal do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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