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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 ..... eted. The question of applying gross profit on such non-existent sales therefore doesn’t arise and hence, not been examined. Addition is on account of estimated rate adopted by AO for valuation of purchases as admitted in the remand report submitted by the AO. As far as quantity of purchases is concerned, there is no dispute between the assessee and the Assessing Officer. However, no valuation methodology/basis has been apparent on perusal of the record pursuant to which the valuation of the purchases has been done by the Assessing Officer. Therefore, being an adhoc addition, same is not sustainable in eye of law. Hence, the same is deleted. Addition on account of gross profit @ 33.71% on stock found short during the course of survey - Held that:- 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 ₹ 37,88,130/- as against physical stock at ₹ 30,11,120/-, the shortage of stock has rightly been worked out at ₹ 7,77,010/- and which has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has been sustained. Given that there is no question of telescoping which is available to the assessee. In the result, this ground is dismissed. - ITA No. 925/JP/2013 - - - Dated:- 8-2-2017 - SHRI KUL BHARAT, JM SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Manish Agarwal (CA) For The Revenue : Shri Rajendra Singh (ACIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A) dated 02.09.2013 for A.Y. 2008-09. The sole grounds of appeal taken by the assessee are as under:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining an addition of ₹ 78,005/- by applying G.P. rate of 33.71% being the gross profit on alleged unaccounted sale of ₹ 2,31,400/- arbitrarily. 1.1 That the Ld. CIT(A) has further erred in ignoring the fact that entries noted in loose papers and slips impounded during the course of survey were only the rough working and measurements not related to the actual sale made by the assessee and all the sale related to loose papers were duly recorded by the assessee in the books of accounts, thus addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis out of various expenses claimed in the Profit Loss Account for non-verification of same without considering the fact that the Ld. AO has failed to point out even a single instance wherein personal element is involved and expenses were not incurred for business purposes. In the circumstances the disallowances so sustained deserves to be deleted. 6. Without prejudice to grounds of appeal 1 to 5 and in the alternative, Ld. CIT has grossly erred in not allowing the benefit of telescoping and set off one income from the other income which being a legal claim, deserves to be allowed. 2. Briefly, the facts of the case are that the assessee is an individual and proprietor of M/s Gaurav Stones engaged in the business of manufacturing and trading of pillars and slabs of sand stones. A survey u/s 133A of the Income Tax Act, 1961 was carried out on 18.03.2008 at the business premises of the assessee, during the course of which certain loose papers were found and impounded. Further physical verification of the stock as well as books of accounts was also taken during the course of survey. 2.1 For the year under appeal, the assessee had filed his return of income declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly contain some rough calculations or estimations of measurements. Affidavits of the parties were also submitted before the Ld. CIT(A), after considering which, the Ld. CIT(A) forwarded to the Ld. AO and called for a remand report. In compliance of the directions of the Ld. CIT(A), the Ld. AO submitted his remand report on 11.06.2013 (APB 20-24) wherein the Ld. AO himself has accepted that the figures mentioned on the aforementioned papers do not represent any sale made by the assessee except the amount of ₹ 2,31,400/- as mentioned on Page Nos. 66 to 68 of A-25. However, with regard to the remaining amount, the contentions of the assessee was accepted by the Ld. AO himself. 2.6 Having taken into consideration the remand report so furnished by the Ld. AO, the Ld. CIT(A) also accepted the contentions of the assessee with respect to the amount of ₹ 11,33,284/- and the addition made on this account was deleted. However, with respect to the amount of ₹ 2,31,400/-, the Ld. CIT(A) did not consider the submission/ explanation of the assessee and applied G.P. @ 33.71% in place of the G.P. rate applied by the Ld. AO @ 26% by taking the average G.P. rate for past 3 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO @ 26% be upheld. 2.9 The relevant finding of the ld CIT(A) is reproduced as under: 4.5 I have carefully considered the submissions made by the ld. AR and the remand report furnished by the AO. AO has now worked out the total unaccounted sales at ₹ 2,31,400/- after considering the explanations furnished by the appellant and affidavits filed during the course of appellate proceedings, as against the unaccounted sales of ₹ 13,64,684/- worked out at the assessment stage. The evidence furnished at the appellate stage was examined by the AO with reference to impounded books of accounts, diary, loose papers etc., which were marked as annexure A-12, A-17 A-25, and worked out that only sales of ₹ 2,31,400/- has not been recorded in the books of accounts. 4.6 The AO has thus worked out the unaccounted sales at ₹ 2,31,400/- after considering the evidence and explanations furnished by the appellant. The appellant in his counter comments has not been able to controvert the findings of the AO and has merely stated that these papers reflect the estimate made and do not show the actual sales. There is no substance in the arguments given by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstituted the proper valuation done by assessee with some fictitious figures which did not have any basis. It was further submitted that as per trading account submitted alongwith the return of income, the total value of purchases after including the expenses incurred on purchases came to ₹ 65,44,035/- and the so-called difference, if any, came only to ₹ 33,908. 3.3 During the course of appellate proceedings, the Ld. CIT(A) referred the matter to the Ld. AO for examination of the contentions of the assessee with respect to the impounded documents. Accordingly, the Ld. AO submitted a remand report on 11.06.2013 (APB 20-24) wherein, the Ld. AO observed as under: to examine the correctness of the rates of sand stone per CFT, loose papers/incriminating documents were verified from the details of purchases calculated by the AO. In most of the incriminating documents like annexure A-5, A-6, A-7 only details of sand stone purchases were mentioned the rates of sand stone and type of sand stone are not mentioned. Only on few pages like Annex. A-17 page 55, A-5 page 39 60 rates were mentioned but type of sand stone is not mentioned. From the above facts it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of only ₹ 33,908/-. It is further stated by the AO in the remand report that this difference was due to the estimated rate adopted for valuation of purchases at the time of assessment. In view of these facts, I confirm the addition of ₹ 33,908/- on account of unaccounted purchases and accordingly the appellant would get a relief of ₹ 7,33,060/- under this head. 4. In respect of grounds of appeal nos.3 3.1, the assessee has challenged the action of the Ld. CIT(A) in sustaining the addition of ₹ 2,61,930/- out of gross profit @ 33.71% on stock alleged as found short of ₹ 7,77,010/- during the course of survey. 4.1 Brief facts pertaining to these grounds of appeal are that during the course of survey, physical verification of stock was taken by the department which was stated to have shown availability of stock at ₹ 30,11,120/- and the stock recorded by assessee in the books of account is at ₹ 37,88,130/-, on the basis of which it was stated that the difference between the two amounts is the shortage in stock which have been sold by the assessee. 4.2 With regard to the allegation of shortage of stock, it was submitted before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO (ITAT Jodhpur) (XLII TW 98). 4.6 Further the sales of ₹ 2,31,400/- have been held as made outside books, which has been challenged separately in Ground of Appeal No.1 above. In the event the Hon ble Bench proceeded to hold the sales of ₹ 2,31,400/- as outside the books of accounts, the credit may please be given out of the alleged shortage of stock of ₹ 7,77,010/- which is also treated as undisclosed. Thus, in view of the above it is humbly prayed that the addition of ₹ 2,61,930/- sustained by the Ld. CIT(A) may please be deleted. 4.7 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 confronting this issue to the assessee and without seeking his explanation on this issue. It is submitted that the Ld. AO was quite justified in applying the profit rate of 26% by taking the average profit rate of the past three assessment years, however the Ld. CIT(A) has wrongly disturbed this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, the assessee had made certain payments to the tune of ₹ 6,10,375/- in cash to certain suppliers exceeding ₹ 20,000/-. As per the assessee, these payments in cash had to be made under compulsion and under justifiable circumstances and were clearly covered by the exceptions provided in Rule 6DD of the Income Tax Rules, 1962. The assessee also claimed to have submitted complete evidences in support of such claim in the shape of affidavits of all the persons to whom payments had been made. 5.2 The matter was referred by the Ld. CIT(A) to the Ld. AO for examination of the contention of the assessee upon which the Ld. AO submitted his remand report (APB 20-24) wherein, the Ld. AO has accepted the fact that the case of assessee was covered by exceptions provided under Rule 6DD in respect of all the payments except payments made to two parties i.e. to Sh. Gulaiya and to Sh. Khan Mahesh Seth of ₹ 23,500/- and ₹ 1,00,000/- respectively solely for the reasons that their statements could not be recorded though their affidavits remained uncontroverted. Accordingly, the Ld. CIT(A) deleted the addition in respect of the remaining amount, however sustained the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 1,23,500/- made U/s 40A(3) of IT Act and thus the appellant would get a relief of ₹ 4,86,875/- under this head. 6. In respect of ground of appeal no.5, the assessee has challenged the addition of ₹ 75,000/- sustained by Ld. CIT(A) on account of lump sum disallowance made by AO out of the various expenses claimed by assessee in the P L Account. As per the assessee, the addition has been made without bringing on record any single evidence of any unreasonable expenses or any evidence found as a result of survey indicating any expenditure incurred for non-professional purposes. 6.1 It was submitted that from the perusal of the order of Ld. CIT(A) in case of the assessee, your honour would observe the fact that the said addition of ₹ 75,000/- was sustained without referring to any incriminating material found as a result of survey and disallowance was made and sustained solely for the sake of additions. 6.2 It was further submitted that while making disallowance Ld. AO has alleged that assessee has claimed expenses on account of telephone, running maintenance of car, business promotion and general expenses and personal user cannot be denied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 relates to sale transaction with Shri Shyam Sunder to whom the assessee had sold goods worth ₹ 11,59,900/- out of which, goods worth ₹ 2,31,400/- were not approved by the buyer and were rejected during the same financial year. In this regard, Shri Shyam Sunder had executed an affidavit in confirmation of the above fact and his statement were also during remand proceedings by the AO. The AO in his remand proceedings as well as ld CIT(A) has not specified any reason for disbelieving the affidavit as well as statement of Shri Shyam Sunder. Moreso, when on basis of similar affidavits and statements, additions have been deleted in respect of other unaccounted sales alleged by the AO on the basis of loose papers. In light of above, it is clear that goods worth ₹ 231,400 were rejected resulting in no actual sales made by the assessee during the year under consideration and on this ground alone, addition of ₹ 78,005 on said unaccounted sales is hereby deleted. The question of applying gross profit on such non-existent sales therefore doesn t arise and hence, not been examined. Ground no. 1 thus, becomes infructuous and dismissed. Ground no 1.1 is allowed. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO by way of disallowance u/s 40A(3) of the Act. The ld. AR has submitted that ₹ 1 lac has been paid to Khan Mahesh Seth and ₹ 23,500/- has been paid to Mr. Gulaiya who are material suppliers and they do not have any bank account maintained by any bank and such payments are covered under the exceptions stated in Rule 6DD of the Rules and in support, their affidavits have been filed which have not been considered in right perspective. However, the Assessing Officer, in his remand report submitted to the ld. CIT(A), has stated that no affidavits have been filed in respect of these two persons. Given the contradictory position and in absence of these affidavits in the paperbook submitted before us, we are left with no option but to set aside the matter to the file of the Assessing Officer to examine any such affidavit filed by the assessee and decide the issue afresh as per law. Therefore, this ground is allowed for statistical purposes. 14. Regarding ground no.5, the assessee has challenged the addition of ₹ 75,000/- on account of lump sum disallowance out of various expenses claimed by the assessee. On perusal of record, it is noted that originally 10% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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