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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 ..... (Appeals-18, Chennai, dated 23.9.2015 for assessment year 2012-13. Therefore, we heard them together and dispose of by this common order. 2. The only issue arises for consideration in the assessee's appeal is disallowance of Rs. 1,86,24,839/- being the loss claimed by the assessee on account of embezzlement of cash by an employee. 3. Shri K.M.Mohandass, ld. Representative for the assessee submitted that a sum of Rs. 1,86,24,839/- was debited by the assessee in the Profit & Loss Account as bad debt. The assessee explained before the Assessing Officer that one Shri Arumugamswamy, a former employee of the assessee had embezzled cash to the extent of Rs. 1,86,24,839/- during the assessment year 2007-08 which was not written off during that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee invited the attention of the Bench to the criminal complaint filed before the XVII Metropolitan Magistrate, Chennai. The copy of the complaint is available in the paper book. 4. On the contrary, Shri Supriyo Pal, ld. Departmental Representative submitted that the assessee claimed the said amount embezzled by the employee as bad debt. Referring to sec. 36 of the Income-tax Act, 1961, the ld. DR submitted that the conditions for claiming the bad debt were not complied with, therefore, the claim of the assessee cannot be allowed as bad debt. Hence, the CIT(A) has rightly confirmed the disallowance made by the Assessing Officer. 5. We have considered the rival submissions on either side and also perused the material available on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the embezzled cash of Rs. 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 Rs. 88,76,731/- towards excess stock. 7. Shri Supriyo Pal, the ld. DR submitted that the Assessing Officer found excess stock of Rs. 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 Rs. 59,78,471/- in his sworn statement recorded on 18.8.2011. Subsequently, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was computed at Rs. 8,75,19,712/- and the cost price of the physical stock was Rs. 7,52,66,952/- after reducing the margin of 14% on the tag price. The ld. Representative further submitted that the assessee-company is maintaining account in tally software and sales were recorded through a separate system and updated in the tally software on periodical basis. The ld. Representative further submitted that the Assessing Officer also taken 14% gross profit ratio for computing the physical stock while arriving at the exact stock. The Assessing Officer has adopted 20% as gross profit ratio which resulted in the excess stock of Rs. 3,25,16,473/- as against the actual figure of Rs. 1,48,54,638/-. Since the assessee has already offered a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 earlier assessment years. According to the ld. DR, it is a normal trade practice to determine the closing stock at the end of the financial year. When the assessee is valuing the closing stock based upon the gross profit rate, according to the ld. Representative, the assessee cannot go beyond certain limit which was admitted in the earlier assessment years. The ld. DR further submitted that value of closing stock is the basis for determination of gross profit in any trade. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the excess stock found and offered for taxation during the year under consideration. According to the ld. Representative, the excess stock offered for the year under consideration to the extent of Rs. 2,36,39,742/- was not considered by the Assessing Officer. If the excess stock declared by the assessee was taken into consideration, the profit margin would be 21% and not 12.92%. Therefore, the CIT(A) found that if the excess stock of Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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