9911796707
TMI Blog2020 (9) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... it embedded in such amount of receivables can be brought to tax. In this regard we find support and guidance from the order in the case of CIT vs. President Industries [ 1999 (4) TMI 8 - GUJARAT HIGH COURT] where it was directed to make the addition only to the extent of gross profit. Whether the excess stock found during the survey represents the unaccounted income in its entirety - It is the only profit percentage which needs to be brought to tax on account of such unaccounted purchases/excessive stock found during survey. In holding so, we draw support and guidance from the judgment of Hon ble Gujarat High Court in case of CIT vs. Sathyanarayn P. Rathi [ 2013 (6) TMI 257 - GUJARAT HIGH COURT] What rate of profit should be applied to determine the income on such unaccounted receivables and unaccounted stock? - We note that the assessee claimed its gross profit ratio at the rate of 4.57% of the sales which has not been disputed by the Revenue. Thus we are of the view that justice will be served to the revenue as well as to the assessee if the amount of receivables and excessive stock found during survey brought to tax at the rate of 5% of such amount put together. Hence the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dd to, alter, delete or modify the above ground of appeal either before or at the time of hearing of this appeal. 2. For the purpose of adjudication, we have clubbed the ground Nos. 1 and 2 raised by the assessee. The issue raised by the assessee is that learned CIT (A) erred in confirming the order of the AO by sustaining the addition of ₹ 21,20,240/- and ₹ 49,39,400/- on account of discrepancy in the stock and receivables. 3. The facts in brief are that the assessee in the present case is a partnership firm and engaged in the in whole sale business of vegetables and grains. There was a survey conducted under section 133A of the Act, at the business premises of the assessee dated 07th January 2011. On the date of survey, the physical stock found therein was inventoried as detailed under: Items Quantity (In kgs) Price (Rs.) Value (Rs) Garlic 324 bags x 35 = 11340 160 18,14,400 Onion 286 bags x 40 = 11440 37 4,23,280 Potato Indore 453 bags x 60 = 27180 8 2,17,440 Potato Jalandhar 72 bags x 50 = 3600 Total 24,78,520 3.1 Whereas the value of stock in the books of account of the assessee on the date of survey stand at ₹ 3,58,280/- thus leading to a difference of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O made addition of ₹ 21,20,240 on account of discrepancy in stock and ₹ 49,39,400/- ( 51,52,720 - 2,13,320) being balance amount of receivables. Aggrieved assessee preferred an appeal to the learned CIT (A). 5. The assessee before the learned CIT (A) besides reiterating the submissions as made before the AO also contended that the partner Shri Rahimbhai A. Chhedawala whose statement was recorded was not versed with the technicality of income tax law. Hence he out of fear and pressure of survey agreed to disclose additional income on the alleged discrepancy. 6. However the learned CIT (A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under: there was a difference of Rs, 21,20,240/- in the stock 'declared as per the books of the assessee and as found on physical verification. As an acknowledgement that the physical stock found ar the business premises of the assessee during action u/s 133A(1), was correct and accurate and that it was verified before him, Shri Rahimbhai A. Chhedawala, partner, has also signed on the relevant Annexure prepared at the time of the survey. Not only this, the same was also acknowledged and acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 49,17,241/- is its expenditure. However, no proof of unaccounted expenditure of ₹ 49,17,241/- has been submitted by the assessee. All the regular expenses incurred by the assessee were already accounted for in its regular Profit and Loss Account. Since the assessee has failed to establish that it had incurred expenses of ₹ 49,17,241/-, it cannot be accepted that its profit is limited to 4.57% of the receivables. Since all the expenses have already been debited to Profit and Loss account, in the absence of any evidence, no further allowance can be made for additional expenses and whole of the receivables of ₹ 51,52,720/- must be treated as income of the assessee. Since the assessee had already offered a sum of ₹ 2,35,479/-, it was the duty of the Assessing Officer to tax the balance of ₹ 49,17,241/-, which he has rightly done in the impugned order u/s 143(3). In view of this, I have no reason to interfere with the order of the Assessing Officer in this regard and the order is upheld. The assessee fails on this ground of appeal. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 7. The learned AR before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative. 9.2 Now the question arises whether the excess stock found during the survey represents the unaccounted income in its entirety. In this regard we note that such unaccounted stock represents the unaccounted purchases which were made for unaccounted sales in future. As such, the unaccounted purchases cannot be treated as unaccounted income in its entirety. To our humble understanding it is the only profit percentage which needs to be brought to tax on account of such unaccounted purchases/excessive stock found during survey. In holding so, we draw support and guidance from the judgment of Hon ble Gujarat High Court in case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment embedded in such purchases can be added to the income of the assessee. 11. In the circumstances and particularly since the factual findings rendered by the Commissioner (Appeals) as to the quantum of additional stocks have now been restored, the order impugned on the methodology for the ascertainment of the income which escaped assessment would pass muster. The Appellate Tribunal merely directed the gross profit that the additional purchase was capable of generating to be regarded as the additional income for tax to be assessed on such basis. Such view of the Appellate Tribunal does not call for any interference . 9.4 Before parting, it is important to highlight the fact that such unaccounted business requires the investments. However none of the authority below, has touched this aspect. Therefore, we do not find any reason to comment on this. 9.5 Now the last issue arises what rate of profit should be applied to determine the income on such unaccounted receivables and unaccounted stock. For this purpose, we note that the assessee claimed its gross profit ratio at the rate of 4.57% of the sales which has not been disputed by the Revenue. Thus we are of the view that justice wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
