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TMI Blog2022 (3) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock is arrived on average basis. We also notice that the alleged shortage of stock was arrived at by the search officials by adopting gross profit methodology only. The Ld A.R submitted that the assessee has also agreed to the proposal of the search officials to treat the alleged shortage of stock as unaccounted sales in order to avoid protracted litigation and to buy peace from the department. Thus, we notice that the whole exercise of arriving at the shortage of stock has been done on estimation and presumption. We notice that the gross profit margin on the unaccounted sales has been arrived at on the basis of facts and figures available on the date of search. However, the AO has proceeded to arrive at the gross profit margin on the unaccounted sales by considering the financials relating to FY 2014-15 covering post search period. It is in the common knowledge of everyone that the quality of marble slabs and granite slabs are not static. Further their selling price and profit margin would differ on the basis of quality. It is quite possible that the assessee was able to generate more profit post search period depending upon the quality of blocks. Hence it may not be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was difference between the physical stock and book stock resulting in shortage of stock to the extent of 402108.08 sq.ft. This shortage was taken as unaccounted sales by the search officials. During the course of search, the assessee offered voluntarily undisclosed income of ₹ 18.10 crores as detailed below. 1. M/s. Hindustan Marble Granite FY2013-14 = ₹ 3,90,44,264.00(r/o) 2. M/s. Hindustan Marble Granite FY2014-15 = ₹ 11,44,44,648.00 3. M/s. Hindustan Marble Granite FY2014-15 = ₹ 1,76,92,755.00and 4. M/s. Hindustan Marble Granite FY2014-15 = ₹ 98,25,910.00 Total ₹ 18,10,07,577.00 3. It can be noticed that the undisclosed income offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the basis of gross profit declared in the preceding three years. The average rate of gross profit declared by the assessee in the preceding three years was 19.03%. Since the search officials did not agree with the above said rate, the assessee agreed to work out the gross profit on unaccounted sales @ 22%. With regard to the selling price proposed to be adopted, the assessee submitted that the same has been worked out by considering selling price of products for post search period also. 7. However, before the AO, the assessee modified the gross profit margin initially worked out by it before the search officials. It was submitted that the average rate of ₹ 200/- per sq.ft. adopted by the assessee while giving declaration for undisclosed income was the cost price and not the selling price. However, gross profit margin of 22% represents gross profit margin on selling price. Accordingly, the assessee re-worked the gross profit earned on the sales made outside books at ₹ 2.27 crores. The details are given below: Total sales outside books in quantity 4,02,108 sft Total sale adopting ₹ 257/- pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has filed this appeal before the Tribunal. 10. The Ld A.R submitted that the assessee has offered additional income of ₹ 14,19,67,748/- during the year under consideration as agreed addition before the search officials. The above said amount included gross profit margin of ₹ 1.77 crores. It is an admitted fact that the assessee does not maintain day to day material wise, quality wise stock register, though over all quantity was available. He submitted that the granite blocks and marble blocks would usually have defects like cracks, moles, fishers, colour variation, size variation, irregular sizes etc. These types of defective stock had to be sold at heavy discount. Hence the selling price of the slabs will not be uniform as presumed by the AO. Accordingly, the closing stock value of these items of would be valued at less than cost price. He further submitted that the assessee was arriving at the value of closing stock on reverse basis by applying gross profit rate. This method involves determining of closing stock value on estimated basis. By following this estimating methodology only, the search officials have also arrived at stock shortage of 4,02,108.08 sq.ft an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be telescoped against the above said additional income. Otherwise, it would result in double assessment of same income. He submitted that the Tribunal, in the assessee s own case relating to AY 2007-08 in ITA No.98/Bang/2010 dated 16th December, 2010, has accepted telescoping of additions against the income surrendered. 13. On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 14. We heard rival contentions and perused the record. It is an admitted fact that the assessee has not maintained day to day material wise stock register. It is also an admitted fact that the closing stock at the year end is arrived at on estimated basis by applying gross profit rate on sales, i.e., under reverse methodology. Following explanations filed before Ld CIT(A) by the assessee clarifies this aspect:- During the course of the investigation proceedings, the Investigation wing of the ITD identified shortage of physical stock to the extent of 4,02,108 sq.ft. (marble and granite). The appellant had not maintained comprehensive day-to-day stock records. This aspect was known and acknowledged by the ITD. In this backdrop, the book stock was arrived at on the basis of the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he search officials. As noticed earlier, entire exercise has been done on estimation and presumptions only. Hence, what the AO has done is to substitute one estimation with another one, which is not warranted in the facts of the present case. 16. We shall now examine the alternative contention of the assessee that the addition made by the AO should be telescoped against the income surrendered by the assessee. We have noticed that the assessee has arrived at the gross profit amount on unaccounted sales initially at ₹ 1.77 crores, which was later enhanced to ₹ 2.27 crores during the course of assessment proceedings. With regard to the above said amount, there was a basis, i.e., shortage of stock presumed to be unaccounted sales. In addition to the above said amount of ₹ 1.77 crores, the assessee has also voluntarily offered additional income of ₹ 12.42 crores. The basis for arriving at the above said additional income is not available in the orders passed by the tax authorities. In the written submissions, the assessee has stated as considering the status of sundry creditors . Under these set of facts, it may be safely presumed that the unaccounted receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of the assessee. 9.3. Though Hindustan Granites and Hindustan Marble and Granites were different entities, it was an un-denying fact that both these units were closely connected sister concerns, dealing in same line of business - granites. Of course, Hindustan Granite was a proprietary concern of M.G. Anand Reddy who was incidentally a major and controlling (power) partner of HMG - the assessee. HMG had, in fact, advanced sizeable funds to HG. Thus, funds available in such group of concerns would be made use of by either concern without any restriction. This very fact has not been contradicted by the Revenue. 9.4. We shall now have a glimpse of legal position on this issue. (i) CIT v. K.S.M.Guruswamy Nadar And Sons reported in 149 ITR 127 (Mad). The issue before the Hon'ble Court was that The assessee a firm running a hotel. It filed return showing G.P. rate at 5.5%. Also shown certain credits a loans from Hundi Bankers. Question whether the Tribunal was right in law in holding that the two separate additions made, (i) for deficiency of gross profit, and (ii) for unproved cash credits, should be telescoped and covered into one addition? Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other towards profits suppressed. It was found by the Tribunal that there, is a connection between the profits withheld by the assessee in the account books and the cash credit entries found therein and, therefore, it can be concluded that only one addition could be made. When the matter came to this court, this court rejected the reference and then the matter was taken to the Supreme Court. The Supreme Court dismissed the appeal holding that (p. 725): It is true that there is no direct evidence of any connection between the cash credit entries and the income withheld from the books of account by the assessees. But if the Tribunal inferred that there was a connection between the profits withheld from the books and the cash credit entries, it cannot be said that the conclusion is based upon speculation . It is thus clear that the view taken by the Tribunal in this case that the additions towards the suppressed book profits should be telescoped with the additions towards the cash credit is legally tenable. With respects, we record our view that the ruling of the Hon'ble Court cited supra fits in to the issue under consideration. (ii) Jagmohan Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the above said third party under the compelling circumstances as stated by the A R.. The statement cannot, therefore, be considered to be voluntary. In the above background, where the Department has no other evidence to establish the concealment of income except the papers seized from a third party, his statement on the same, (which was subsequently retracted) and the assessee's acceptance under compelling circumstances of the same which was also subsequently retracted. The additions have not been duly corroborated by the Revenue. We are of the opinion that the Department has not been able to substantiate its finding with cogent reasoning. So the same cannot be upheld. 4.1 The alternative arguments put forward by the A R are also quite forceful. It has rightly been pointed out that so far as the question of payment of on-moneys towards purchase of land is concerned, such unaccounted investment, if any, could have been made by the group only out of the unaccounted source generated in the hands of the two concerns belonging to the group engaged in dairy busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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