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TMI Blog2017 (12) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... n Appellate Authority, without any cogent reasons. Since the A.O. followed an acceptable basis such as averaging the 3 years profit rate, we are of the view that the order of the Ld. CIT(A) on this aspect deserves to be modified and we uphold the order of the A.O. of estimating the average rate of 36.85%. - Decided partly in favour of revenue. - I.T.A. No. 28/Vizag/2015 - - - Dated:- 8-12-2017 - Shri D. Manmohan, Vice President And Shri D. S. Sunder Singh, Accountant Member Appellant by : Shri K. C. Das, DR Respondent by : Shri C. Subrahmanyam, AR ORDER Per D. Manmohan, Vice President This appeal by the revenue is directed against order passed by the CIT(A), Vijayawada and it pertains to the assessment year 2011- 12. Following grounds were urged by the revenue: 1. The order of the Ld.. CIT(A) is erroneous on facts and in circumstances of the case. 2. The Ld. CIT(A) erred in observing that there is no evLdence to show that the bank authorities had actually verified the stock ignoring the certification given by the Bank Authorities that the stock is subjected to random verification at regular intervals. 3. The Ld. CIT(A) ignored the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, is not permissible. We therefore, do not consider either ground no.6 or the statement of facts filed before us. The Ld. D.R. was however given full opportunity to put forth the case of the revenue while challenging the order passed by CIT(A) and in fact, the Ld. D.R. did not either refer to statement of facts or any of the case law or sections mentioned in the statement of facts. 3. Facts in brief are that the assessee, as a proprietary concern, was engaged in the business of manufacture of hosiery and readymade garments and sale thereof. For the year under consideration, the return was originally processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') but later on taken up for scrutiny under CASS. During the course of examination, the A.O. noticed that the assessee availed open cash credit facility from Andhra bank to meet the working capital requirement by hypothecation of inventory and receivables. Assessee was called upon to furnish the stock details (hypothecated) as on 31.3.2010 and 31.3.2011. The assessee, accordingly furnished the details. The A.O. noticed that the value of closing stock declared to Andhra Bank, as on 31.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turns of income filed, the gross profit rate for the 3 consecutive assessment years are as under: Asst. Year Gross profit 2010-11 36.50% 2011-12 36.13% 2012-13 37.92% Average GP 36.85% By taking the average percentage of gross profit, the suppression of gross profit was worked out by the A.O. 5. Aggrieved by the order of the A.O., assessee preferred an appeal before the Tribunal. It was contended that the monthly stock statements furnished to bank from time to time are usually prepared by a junior clerk who does not have authentic knowledge of value of stock and they are ordinarily based on approximation basis without bothering about accuracy in terms of quantity and value of the stock, just to satisfy the drawing power in OCC limits, even with inflated figures. It was thus submitted that the value of stock submitted to bank will never be accurate both in terms of quantity and value and would not tally with the amount reflected in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial tax authorities. The books of the assessee were not rejected by the A.O. and thus addition cannot be made on presumption basis when there is no unaccounted stock, the question of selling the same and deriving profit would not arise. Under these circumstances, the ld. CIT(A) deleted the addition by observing as under: After careful consideration of the facts prevailed in this case, I found force in the arguments of the learned Authorised Representative. The Assessing Officer made addition only on the basis of statement obtained from bank. In the absence of stock register, to establish the unaccounted stock, the Assessing Officer should have made some exercise to bring on record some corroborative evidence such as abnormal increase in production cost, electricity charges, transportation etc., which are attributable to the unaccounted stock to prove the existence of such stock and production of finished goods by processing the same. However, no such exercise was done by the Assessing Officer. Further, no evidence such as any purchase/sale bills which are not reflected in books of account was also found. In such circumstances, I am unable to accept the stand taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 4. (1987) 163 ITR 0434 (Delhi HC) 5. (2007) 292 ITR 0630 (Madras HC) 6. ITA No.271/Vizag/2012 7. ITA No.1007/Hyd/2011 13. It was also contended that the profit rate estimated by the Ld. CIT(A) do not call for interference. 14. We have carefully considered the rival submission and perused the record. We have also carefully gone through the case law relied upon by the A.O. as well as the Ld. Counsel for the assessee. It is no doubt true that the initial burden is upon the assessee to prove the correct value of the stock held by the assessee and he has to prove that the value reflected in the books of accounts is correct but the fact remains that the courts have time and again accepted the fact that in open loan system, the parties tend to inflate figures of quantity as well as rate merely to enjoy higher cash credit limits. In the instant case, the assessee filed monthly VAT returns based on the same books of accounts and the same was accepted without making any additions. Neither the bank authorities nor the A.O. made any effort to verify the actual stock to prove that there is existence of unaccounted stock under these circumstances and consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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