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TMI Blog2019 (4) TMI 2172X X X X Extracts X X X X X X X X Extracts X X X X ..... e issues arising in both these appeals are common, for the sake of convenience, they are heard together and disposed off by way of this common order. 3. The assessee is a partnership firm and filed its return of income on 31/03/2008 declaring total income of Rs. 29,350/- for the Assessment Year 2007- 08 and on 14/10/2010 declaring total income of Rs. 95,098/-. Later a survey operation u/s 133A of the Act was conducted on the business premises of the assessee company 23/04/2008 and the case was selected for scrutiny. The Assessing Officer completed the assessment u/s 143(3) of the Act on 31/12/2009 determining the total income of the assessee at Rs. 40,61,557/- for the Assessment Year 2007-08 and assessment for Assessment Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench any contrary judgment. Under these circumstances, we apply the proposition of law laid down in the judgments of the Hon'ble Bombay High Court and the Hon'ble Madhya Pradesh High Court, referred above, and direct the Assessing Officer to assess the income from undisclosed sales in question by applying the net profit rate in place of the "gross profit rate" as undisclosed sales. The net profit rate shall be that which the assessee had disclosed in its regular books of account for the said Assessment Year on recorded sales. In the result, this ground of the assessee is allowed in part. 7. The second and third issue that arises for our consideration is whether the disallowance u/s 40A(3) of the Act and Section 40(a)(ia) of the Act, can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee relied on the judgment of the Hon'ble Jurisdictional High Court in the case of Principal Commissioner Of Income vs M/S. Subarna Rice Mill in ITAT 196 of 2015, GA 4047 of 2015, judgment dt. 20/06/2018 and argued that in such a situation, only the gross profit on such stock can be taxed. This judgment was followed by the ITAT Kolkata Bench in the case of DCIT vs. Smt. Madhu Chhanda Sirkar reported in 2018 (9) TMI 1775 -ITAT Kolkata, wherein this Bench of the Tribunal at para 15, 16 & 17 held as follows:- "15. We have heard the representative of both the parties and perused the materials available on record. We find from the records that the entire amount has been added on the basis of the undisclosed stock of the business. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on a document signed by an official of the Food Corporation of India that evidenced the stock figures at the relevant point of time. The Commissioner (Appeals) dealt with such aspect of the matter in great detail and by referring to the admitted statements of the representatives of the assessee, which were not sought to be controverted at any point of time on behalf of the assessee, concluded that it was the physical verification of the stocks undertaken by the Assessing Officer in course of the survey operation that was to be given primacy. Indeed, the Commissioner (Appeals) found that there was no evidence that the FCI official who had issued the certificate had undertaken any physical verification of the stock at the rice mill of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be taken as the additional income without reference to the possible sale of the paddy when converted. The assessee refers to a judgment of the Gujarat High Court reported at 388 ITR 377. The principle enunciated in such judgment is that when undisclosed purchases of such nature are discovered, it is only the profit embedded in the transaction which can be added to the total income. The Gujarat High Court relied on some of its previous judgments to hold that "not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee." In the circumstances and particularly since the factual findings rendered by the Commissioner (Appeals) as to the quantum of additional stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declined in view of our foregoing discussion. We confirm the gross profit addition of Rs. 6,94,832/- in these peculiar facts and circumstances." 17. Respectfully relying upon these judgments we observe that only the gross profit can be added to the income of the assessee and not the entire undisclosed stock. We thus delete the addition made by the authorities below." 9. Consistent with the view taken therein, and as no contrary judgment is brought to our notice by the revenue, we direct the Assessing Officer to tax only the gross profit embedded in the excess stock found for the Assessment Year. The balance addition is hereby deleted. In the result this ground of the assessee is allowed in part. 10. In the result, both these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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