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TMI Blog2017 (2) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deleted. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs. 33,908/- on account of unexplained investment in unaccounted purchases, arbitrarily. 2.1 That the Ld. CIT(A) has further erred in ignoring the fact that entries noted in loose papers, slips impounded during the course of survey was only rough estimate and measurements and actual purchases noted on loose papers were duly recorded in the books of accounts, and further, ignored the fact that difference between valuation of purchases by the Ld. AO and purchases declared by the assessee was due to the estimated rate adopted by the Ld. AO therefore, addition of Rs. 33,908/- as sustained by the Ld. CIT(A) deserves to be deleted. 3. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in making the addition of Rs. 2,61,930/- on account of Gross Profit in stock alleged as found short of Rs. 7,77,010/- arbitrarily, thus the resultant addition deserves to be deleted. 3.1 That the Ld. CIT(A) has further erred in ignoring the fact that valuation of stock done by the department during the course of survey was on lower side o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,82,010/- by making various additions aggregating to Rs. 20,41,020/-. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who vide his order dated 20.09.2013 passed in appeal No.343/10-11 partly allowed the appeal of assessee. Against the additions so sustained by the Ld. CIT(A), the assessee has preferred this appeal. 2.2 In respect of grounds of appeal nos.1 & 1.1, the assessee has challenged the action of Ld. CIT(A) in sustaining the addition of Rs. 78,005/- by applying G.P. rate @ 33.71% being the gross profit on alleged unaccounted sales of Rs. 2,31,400/-. 2.3 Brief facts pertaining to these grounds of appeal are that during the course of survey certain loose papers were found and were impounded. The Ld. AO referred to these papers and stated that the jottings on these papers reflect the unaccounted sales made by the assessee. The details pertain to these papers is as under: S.No. Page No. Annexure Date Description Amount as per impounded papers (Rs) 1. 14 A-12 12.3.2008 Shokin Khan 53,600.00 2. 66 to 68 A-25 2007-08 Shyam Sunder 2,31,400.00 3. 78 A-17 2007-08 Nirmal Kumar Jain 10,79,684.00 2.4 The ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the same. It is further submitted that neither the rate nor the amount received has been mentioned on the aforesaid loose papers. It is pertinent to mention here that the said person i.e. Shri Shyam Sunder had executed an affidavit in confirmation of the above fact admitting therein that no purchase whatsoever was made by him from the assessee which fact is further confirmed by him in the statement recorded during remand proceedings also, as observed by Ld. AO in remand report also (APB-21) however, CIT(A) completely ignored the submission of the assessee as well as the affidavit of Shri Shyam Sunder without any basis. Therefore, in view of the above it is humbly prayed that the addition of Rs. 78,005/- being G.P. rate @ 33.71% on the alleged undisclosed sales of Rs. 2,31,400/- sustained by the Ld. CIT(A) may please be directed to be deleted. 2.8 Further, without prejudice to above and in the alternative it is submitted that the Ld. CIT(A) has grossly erred in enhancing the application of the profit rate at 33.71% in place of 26% applied by the Ld. AO. In this regard it is submitted that the Ld. CIT(A) has unilaterally and on his own applied this profit rate without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort. The appellant in the counter comments on remand report did not offer any explanation on this point. This issue was discussed with the AR during the appellate proceedings and it was fairly conceded by him. The GP rate declared by the appellant for FY 2007-08 is 33.71% and if applied on unaccounted sales of Rs. 2,31,400/-, it gives a profit of Rs. 78,005/-. Accordingly, I confirm the addition of Rs. 78,005/- made on account of profit earned on unaccounted sales and the appellant would get a relief of Rs. 2,76,813/- under this head." 3. In respect of grounds of appeal nos. 2 & 2.1, the assessee has challenged the addition of Rs. 33,908/- sustained by the Ld. CIT(A) on account of alleged unexplained investment in unaccounted purchases. 3.1 Brief facts pertaining to these grounds of appeal are that, in the books of account the assessee has recorded purchases of raw material to the tune of Rs. 58,10,975/-, however, the. AO disputed the valuation of assessee and stated that the valuation of the stock should be Rs. 65,77,943/- and not Rs. 58,10,975/- and thus, the difference of Rs. 7,66,968/- is assessee's unaccounted purchases. It has been stated in the assessment order that the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 7,66,968/- and the difference of Rs. 33,908/- was sustained by Ld. CIT(A). 3.5 In this regard, it was submitted that the Ld. CIT(A) has completely failed to consider the contention of the assessee and also the observation in the remand report that the valuation done by the Ld. AO in the assessment order was mere estimation which was though alleged to be done on the basis of impounded loose papers, but in actual it was not based on any paper whatsoever which fact is apparent from the remand report itself. The Ld. CIT(A) himself in para 5.5 of his order accepts this fact and observes that this difference was due to the estimated rate adopted for valuation of purchases at the time of assessment. Thus, the addition of Rs. 33,908/- is clearly based on estimation and has been sustained without application of mind and without considering the submission of assessee. Thus, in view of the above it is prayed that the addition of Rs. 33,908/- deserves to be deleted. 3.6 The relevant findings of the ld CIT(A) is reproduced as under: "5.5 I have carefully considered the submissions made by the AR and find that AO had in his order worked out the total purchases at Rs. 65,77,943/- as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that he thereafter made requests to the department to consider the whole stock including the stock which could not be considered earlier, however it was informed to him that now no details shall be taken. 4.3 The Ld. CIT(A) then referred the matter to the Ld. AO for examination of the contentions of the assessee with respect to the details submitted by him. The Ld. AO submitted his remand report (APB 20-24) wherein he merely repeated the allegations made in the assessment order. The Ld. CIT(A) accordingly, without considering the above facts and circumstances of the case and the submissions of the assessee sustained the addition made by Ld. AO and further enhanced it to Rs. 2,61,930/- by applying profit rate of 33.71% on the alleged short stock in place of the rate of 26% applied by the Ld. AO. 4.4 In this regard, it was submitted that from the record of the case, it is undisputed fact that the valuation of stock during physical verification thereof was not done in proper manner and certain stock was left out from consideration as mentioned above and to which effect the assessee has submitted his affidavit also which remains uncontroverted. 4.5 It is further submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the course of present proceedings. The explanation furnished in the course of appellate proceedings has been examined by the AO, after giving an opportunity of being heard to the appellant and considering these facts, I uphold the action of the AO in treating the shortage of stock worth Rs. 7,77,010/- as the sales outside the books of accounts. The AO had applied average gross profit rate for the last 3 years while working out the unaccounted profit on such sales. In the remand report, the AO has pointed out that the GP rate for the current year i.e. should be applied for working out the unaccounted profit on sales made outside the books i.e. on the stock shortage of Rs. 7,77,010/-. The appellant has not offered any comment on this issue in his counter reply to the remand report. However, this issue was discussed with the AR in the appellate proceedings and it was fairly conceded. This would result in an addition of Rs. 2,61,930/- on account of unaccounted profit earned on sales outside the books of accounts of Rs. 7,77,010. "6.6 Accordingly, I enhance the addition from Rs. 2,02,022/- made by AO (on the basis of average GP rate of last 3 years) to Rs. 2,61,930/- on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletely ignored and as submitted above remained uncontroverted. 5.4 Further, the allegation of cash payment is solely based on the loose papers impounded during the survey wherein the consolidated payments were mentioned. The books of accounts of the assessee based on which trading results declared were not disturbed and only additions towards the undisclosed sales/stock were made. Thus, the entries recorded therein with respect to these payments deserves to be accepted and consequent addition u/s 40A(3) deserves to be deleted. Alternatively, if your goodself hold that the books of accounts are rejected, no disallowance could be made u/s 40A(3) based on the entries found noted in such rejected books of accounts as has been held by various Courts. Thus, in view of the above it is prayed that the addition of Rs. 1,23,500/- sustained by the Ld. CIT(A) may please be deleted. 5.5 The relevant finding of the ld CIT(A) is reproduced as under: "7.5 I have considered the submissions made by the AR and the report of the AO and find that payments of Rs. 4,86,875/- are stated to have been covered within the exceptions provided under the provisions of Rule 6DD of IT Rules read with Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence. However, considering the explanation furnished and the case laws cited by the appellant, I find that the disallowance was made by the AO on an estimate basis and in my opinion, it would be just and fair to restrict the disallowance to Rs. 75,000/- and the appellant would accordingly, get a relief of Rs. 56,500/-. 7. In respect of ground of appeal No.6, the assessee has challenged the action of Ld. CIT(A) in not allowing telescoping of additions sustained with each other. It was submitted that the addition sustained by Ld. CIT(A) are on account of alleged unaccounted sale, alleged unaccounted purchases and alleged shortage of stock. A bare consideration of the nature of these additions clearly shows that these additions could not have been made simultaneously inasmuch as it is natural presumption that the unaccounted purchases would naturally have rotated around for the purpose of making sales. Similarly, the short stock which has been alleged to be sold in unaccounted manner has to be adjusted in unaccounted sales. Thus, in view of the above it is prayed that any addition, if sustained, may please be directed to be telescoped with each other. 8. The ld DR is heard who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock was left out from consideration. On perusal of the assessment order, the Assessing Officer has stated that there is no proper stock evidence on record which can prove that the stock verification cannot be properly taken by the department during the course of survey. Further, the ld. CIT(A) has also held that the appellant has not been able to prove the reason for shortage of stock. The appellant has failed to furnish any documentary evidence in support of the stock valuation adopted by him during the course of assessment proceedings or even the course of appellate proceedings. Further, given that in the books of accounts, the stock was recorded at Rs. 37,88,130/- as against physical stock at Rs. 30,11,120/-, the shortage of stock has rightly been worked out at Rs. 7,77,010/- and which has rightly been held to have been sold outside the books of accounts. Regarding application of GP @ 33.71% by the ld. CIT(A) as against G.P rate of 26% applied by the AO, since the unaccounted sales belongs to the year under consideration, the rate of GP which is declared by the appellant itself in respect of its recorded sales @ 33.71% has been considered by the ld. CIT(A). We accordingly, do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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