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TMI Blog2018 (6) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Ld. AO's action of making an addition of Rs. IJ5.82.192/- on account of discrepancy in closing stock as per para 3 of the impugned order 3. On the facts and circumstances of the appellant's case and in law the Id. CIT(A) erred in not directing the Id. AO to restrict the addition to the extent of gross profit embedded in the alleged excess stock. 4. In any event the Id.CIT(A) erred in not directing the Id. AO to increase the opening stock for the AY-2008-09 to the extent of Rs. 1,15,82.192/-. 5. The Appellant craves leave to add, amend, alter, modify and or withdraw any of the above grounds of appeal, which are without prejudice to one another." 3. At the outset, the learned counsel for the assessee submitted that ground no.1 relating re-opening of assessment u/s. 147 is not pressed, it is therefore dismissed as not being pressed. 4. The issue in ground no.2 is regarding the confirmation of addition of Rs. 1,15,82,192/- by the learned CIT(A) as made by the Assessing Officer on account of discrepancy in closing stock. The facts in brief are that survey u/s. 133A of the Act was conducted on 13.08.2008 by ADIT (Inv), Mumbai. During the course of survey proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impounded documents found during the course of survey in the case of the appellant and has considered the figure as mentioned by the appellant in its own audited statement regarding the closing stock. It is obvious that the closing stock as declared in the books of accounts could not be adopted as it was obvious that the books had not been written in the method applicable and did not declare the correct working of the appellant's account. The audited report of the appellant also declared only those amounts which the appellant thought fit. Besides this, the appellant has not been able to give quantity-wise stock details of the amount declared in the audit report by way of stock register for it to be accepted as the correct figure especially when there exists documents as found in the premises of the appellant which give a completely different picture. In a business like that in which the appellant is, it is very necessary as jewellery value defers from piece to piece according to the quality, that the accounts are to be maintained meticulously recording the same in the proper stock record with respect to manufacturing and sale giving quality and quantity. Unless the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock as found in the loose papers is definitely in order and is to be confirmed as it is logical to accept that the accounting in the loose papers-are the basis of the books of accounts and that they reflect the actuals. It is also to be kept in view here that the appellant did not provide any quality-wise details of jewellery to the AO or reconciled the difference between the audited accounts valuation as available in the loose papers for the audited accounts to be held as being correct. It is also important to note that the audited accounts are prepared by an auditor only on the basis of information supplied by the appellant and if the appellant chooses to keep certain information out of the purview of the auditor, the auditor has no choice but to audit the accounts on the basis of details put forth before him by the appellant. It is clear that the appellant has adopted a closing stock balance which is much lower to manipulate its profit ratios. In the case of D. Subash Chandra & Co. for AY 2003-04, the Hon'ble ITAT Ahemedabad by their order dated 4/1/2008 have upheld, the addition made on account of on the valuation of closing stock due to discrepancies found. Under the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch can be sustained on alleged excess stock is to be restricted to the gross profit made. The learned AR submitted that the average gross profit of last three years is 3.42% and, therefore, at the most said rate could be applied. 7. The learned DR, on the other hand, opposed the arguments of the learned AR. He submitted that the additions were based upon the documents/ledger extracts taken during the course of survey, though the assessee denied the existence of the same right from the beginning. The learned DR contended that it is a common practice in the business to under value stocks for suppressing the income. He further relied on the orders of the authorities below and submitted that the same should be confirmed as being based on the documents found during the course of survey. 8. We have heard both the parties and perused the material available on record. The undisputed facts are that the assessee filed return of income on 04.10.2007, i.e. ten months prior to the date of survey, wherein as per its audited books of account, disclosed closing stock at Rs. 1,10,49,040/-. The survey team extracted stock statements/ stock ledgers account print outs, which revealed the stock at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to increase the opening stock for A.Y. 2008-09 to the extent of Rs. 1,15,82,192/-. Since, we have already decided the ground no.2 relating to addition of Rs. 1,15,82,192/- on account of closing stock and thus the ground raised becomes infructuous and is dismissed accordingly. 11. Now coming to ITA No. 3726/Mum/2013 for A.Y. 2009-10 (Revenue's appeal). The grounds raised by the Revenue read as under: "1.On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 4.39 crores as undisclosed and unaccounted income in addition to the regular income by not giving opportunity under Rule 46A before admitting any new evidence which was very crucial in the case of the assessee, especially evidence with respect to that assessee owning up all the transactions in the impounded papers as reflecting its transaction of assessee's submission of its peak credit method." "2.On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of undisclosed and unaccounted income by not considering the A.O's finding of the 2 decimals to be added to all the figures of Annexure 'C', 'D', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer noted that on 23.06.2008 the peak was Rs. 4,39,795.20 and since the books were manipulated by two decimals, the Assessing Officer calculated the peal amount at Rs. 4,39,79,520/- Finally the Assessing Officer compared the amount of undisclosed profit as has been calculated (supra) Rs. 3,77,97,485/- with the peak of Rs. 4,39,79,520/- and treated the higher of these two amounts a unaccounted income of the assessee during 1.04.2008 to 4.08.2008 and added Rs. 4,39,79,520/- to the income of the assessee by framing assessment u/s. 143(3) of the Act vide order dated 30.12.2011. 13. In the appellate proceedings, the learned CIT(A) after considering the submissions of the assessee partly allowed the appeal of the assessee by observing and holding as under: "4.2 The submissions of the appellant have already been recorded earlier on in this order. Carefully considering the issue, I find that the assessing officer has taken into account that the recording of cash inflow and outflow as available in Annexure-'C" found during the course of survey proceedings was interrelated with Annexure-'D1 and 'E' which recorded the unaccounted purchases and unaccounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered in totality as an addition in the hands of the appellant holding that the same is the income of the appellant and the corresponding expenses have already been debited in the P&L Account. The total of the sales amount to Rs. 8,32,502/-. 4.3 Accordingly the peak as calculated by the appellant would also need to be rejected as being incorrect as it is seen that the appellant has also followed the same incorrect method it-has accused the assessing officer of that is of "pick and choose" to suit itself and justify the discrepancies noticed in its accounts. Accordingly it would not be incorrect to say that the difference of Rs. 77,13,995/- between the received and the issued amount as available in Annexure C, chronologically recorded, along with the difference in the opening balance as on 15/4/2008 i.e. of Rs. 2,47,548/- would be the correct amount of the funds available with the appellant during the period under concern to be treated as initial capital. Here it is once more stated that the appellant's statement that the AO has erred in making an addition by adding two decimal points to the entries recorded would need to be accepted for the reasons already discussed ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer has comprehensively recorded the same in the assessment order. He further contended that since the peak worked out by the Assessing Officer i.e. Rs. 4,39,79,520/- the higher of the two was rightly added to the income of the assessee whereas the CIT(A) has completely ignored the finding of the Assessing Officer and wrongly restricted the addition to Rs. 91,16,460/- comprising of Rs. 3,22,371/- on account of discrepancy in closing stock, Rs. 8,32,502/- on account of opening balance and Rs. 79,61,543 on account of capital required for conducting the unaccounted transactions. The learned DR contended that there is no basis of the said conclusion reached by the appellate authority. Therefore, the order of the CIT(A) be set aside on this issue and that of the Assessing Officer be restored. 15. The learned AR vehemently opposed the arguments of the learned DR by submitting that the learned CIT(A) has grossly erred in sustaining the part addition of Rs. 3,22,371/- Rs. 8,32,502/- and Rs. 79,61,543/- by giving frivolous reasoning and thus, grossly erred in sustaining the addition aggregating to Rs. 91,16,416/-. The learned AR submitted that these additions have also been cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(A) partly allowed the appeal of the assessee by sustaining the addition to the extent of Rs. 91,16,460/- comprising of Rs. 3,22,371/- on account of closing stock, Rs. 8,32,502/- on account of opening balance and Rs. 79,61,543 on account of circulating capital introduced by the assessee for doing this unaccounted transactions. The Revenue has challenged the deletion of Rs. 4.39 Cr in its appeal where as the assessee has challenged the sustenance of addition to the extent of Rs. 91,16,460/-. After examining the records before us in the light of the submissions made by the rival parties, we hold that the order passed by the CIT(A) is correct in deleting the addition of Rs. 4.39 Cr as it was based upon surmises and presumptions and there is no concrete basis for the same. The learned CIT(A) has give a very clear and comprehensive findings while deleting the addition, and, therefore, we do not find any reason to interfere with the order of the first appellate authority and are inclined to dismiss the appeal by the Revenue. 17. Coming to the cross appeal by the assessee in ITA No. 3433/Mum/2013 for A.Y. 2009-10. So far as the issues raised by the assessee, the same read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should be applied and, thus, average gross profit rate of 3.43% should be applied on the total undisclosed sales of Rs. 51,81,988.77/-. A perusal of the order of the CIT(A) reveals that the CIT(A) has taken a very balanced view of the mater and we, do not find any reason to interfere with the findings of the CIT(A) on this issue. According, ground no.1 raised by the assessee is dismissed. 19. The issue raised in ground no.2 is against the sustenance of addition of Rs. 55,603/- out of Rs. 55,60,334/- made by the Assessing Officer on account of opening capital. The learned CIT(A) reduced the said amount by two decimal places by rejecting the theory adopted by the Assessing Officer. The learned AR submitted before us that the opening balance of cash in hand as on 01.04.2008 was Rs. 4,20,481/- and, therefore, the addition of Rs. 55,603 was wrong and against the facts on record. We find merit in the contention of the learned AR as there was opening cash balance to the tune of Rs. 4,20,481/- as on 01.04.2008. Accordingly, we are inclined to delete the addition of Rs. 55,603 sustained by the CIT(A). Resultantly, ground no.2 is allowed. 20. The assessee vide its ground nos. 3, 4 & 5 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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