TMI Blog2018 (6) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... and add it to the income of the assessee and thus the assessee gets relief of ₹ 1,11,86,081/-. Decided partly in favour of assessee Addition on account of undisclosed and unaccounted income - addition to the regular income by not giving opportunity under Rule 46A before admitting new evidences - Held that:- The order passed by the CIT(A) is correct in deleting the addition of ₹ 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. Addition on account of discrepancy in closing stock - Held that:- The facts in brief are that the first appellate authority rejected the application of decimal theory by the Assessing Officer and worked out the undisclosed profit at ₹ 3,22,371.51 (by taking sales and purchases at ₹ 51,81,988.77 minus ₹ 48,59,617.26). The contention of the AR is that instead of calculating the undisclosed profit by taking the sales and purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue for A.Y. 2009-10 arises out of two different orders of the CIT(A)-12, Mumbai, both dated 01.02.20013 2 We shall first take up appeal by the assessee in ITA 3432/Mum/2013 for A.Y. 2007-08 (assessee s appeal), wherein the following grounds have been raised: 1. On the facts and circumstances of the appellant's case and in law the Id. CIT(A) erred in confirming the Ld. AO's action in reopening the assessment u/sl47 by issue of notice dated 7/12/2010 u/s!48 which is illegal and bad in law or otherwise void for want of jurisdiction. 2. On the facts and circumstances of the appellant's case and in law the Id. C1T(A) erred in confirming 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 ₹ 1,15,82.192/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock. It would mean that the closing stock has been valued by the appellant as per its convenience. It also stands that the appellant's valuation of stock has no scientific or mathematical basis behind it and none was explained during the course of assessment or appellate proceedings. Therefore, I find no infirmity in the order of the AO wherein to arrive at a correct picture of closing stock, the AO has taken into account the loose papers impounded from the premises of the appellant which clearly reveal the value of closing stock as on 31/3/2007 at ₹ 2,26,31,232/-. The AO has also very fairly given the appellant benefit of audit report statement. The AO has taken into consideration the figures as were in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of profit by the appellant. Here it may be mentioned that during the course of survey in the case of the appellant it was noticed by the revenue that in the subsequent years, the appellant had undisclosed purchases and sales. These factors would definitely indicate the method of working adopted by the appellant-company in its business even though for the current year unaccounted purchases and sales are not the issue. In the current year, it is seen that the appellant has not been able to reconcile the differences between the audited accounts and that as found in the loose papers maintained by the appellant regarding closing stock valuation. Therefore, the AO's action in adopting the figure of closing stock 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee right from the beginning even during the survey. The assessee submitted that the return of income was filed on 04.10.2007, approximately ten months before the date of survey and, therefore, the CIT(A) has totally erred on facts in confirming the order of the Assessing Officer. The learned AR without any prejudice also made a submission that these stocks might have been prepared by the account personnel for the purpose of acquiring higher credit facilities from bank and thus, the same has no relevance to the actual income of the assessee. Another contention raised by the assessee during the course of hearing was that since no excess stock was actually found during the course of search action then the addition which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 3.2% and it would be reasonable if the same is applied to bring to tax the income of the assessee. Accordingly, we set aside the order of the CIT(A)) on this issue and direct the Assessing Officer to apply gross profit @ 3.42% of ₹ 1,15,82,192/- and add it to the income of the assessee and thus the assessee gets relief of ₹ 1,11,86,081/-. Resultantly, the ground is partly allowed. 9. The issue in ground no.3 is as regards restricting the addition to the extent of gross profit embedded in the alleged excess stock. We have already dealt with the issue, while dealing with ground no.2, in the foregoing paragraphs and, therefore, the ground is allowed. 10. The issue raised in ground no.4 is against the order of the CIT(A) in not directing the Assessing Officer to increase the opening stock for A.Y. 2008-09 to the extent of ₹ 1,15,82,192/-. Since, we have already decided the ground no.2 relating to addition of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One of the Directors of the assessee submitted before the Assessing Officer that these records did not pertain to the assessee however, the plea of the Director was not accepted by the Assessing Officer and he reached a conclusion that the purchase and sales were manipulated by two decimal points by shifting the decimal to the left say for ₹ 1000/- only ₹ 10/- were recorded and thus, worked out and estimated the cash sales at ₹ 51,81,98,877/- (extrapolated by two decimals) and cash purchases in the same manner at ₹ 48,59,61,726/-. Thus, the Assessing Officer calculated the undisclosed profits of the assessee at ₹ 3,22,37,151/-. The Assessing Officer also calculated the peak on the basis of table appended in para 7.3 of the assessment order. The period covered was 17.04.2008 to 23.06.2008. The Assessing Officer noted that on 23.06.2008 the peak was ₹ 4,39,795.20 and since the books were manipulated by two decimals, the Assessing Officer calculated the peal amount at ₹ 4,39,79,520/- Finally the Assessing Officer compared the amount of undisclosed profit as has been calculated (supra) ₹ 3,77,97,485/- with the peak of ₹ 4,39,79,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .40 on the same day. This clearly pointed out to the fact that the appellant had issued more than what it had received and therefore besides the amount of ₹ 354676.09 the appellant had undeclared / unaccounted cash available with it. It has also not been explained by the appellant as to why these untallied entries should be considered at the beginning of the chart made for cash receipts and payments. Further all these untallied entries relate to sales that are unaccounted for and these amounts should be considered while calculating the profit from unaccounted sales of the appellant. The first figure of unaccounted purchases as per the Annexure is on 18/4/2008 therefore it would stand that to the extent of the untallied entries that represent the sales of the appellant there have been no unaccounted purchases. Therefore, the sale so declared would need to be 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 ₹ 8,32,502/-. 4.3 Accordingly the peak as calculated by the appellant would also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , unaccounted circulating capital and the inflow outflow of funds found to exist hi the case of the appellant during the course of survey. It is also important to note here that the peak calculated by both the assessing officer and the appellant cannot be accepted due to the discrepancies noticed in both the calculation and therefore the chronological inflow and outflow of funds as available in Annexure- C of the impounded documents would need to be taken into consideration. The contention of the appellant that there would be no need to increase the calculated figure by adding a 00 to it would need to be accepted for the reasons earlier stated in this order. 14. Before us, the learned DR vehemently submitted that the learned CIT(A) has completely ignored and overlooked the facts on record that the assessee has been manipulating the books of account by shifting two decimal places and the Assessing 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. ₹ 4,39,79,520/- the higher of the two was rightly added to the income of the assessee whereas the CIT(A) has completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial available on record. As could be seen from the record before us, during the course of survey on the assessee, the survey team extracted some documents from the computer back up of the assessee, which showed the figures were reduced by two decimal places in the books of account of the assessee vis-a-vis and its Saraswat Bank statements. Thus, the Assessing Officer extrapolated the total purchase and sale by increasing the same by two decimal places and worked out the undisclosed profit at ₹ 3,77,97,485/-. The Assessing Officer also worked out the peak credit during the period 01.04.2008 to 4.08.2008 and found that on 26.06.2008 the peak was ₹ 4,39,795.20 and increasing the said figure by two decimals, the peak was calculated at ₹ 4,39,79,520/-. The Assessing Officer added the higher of the two to the income of the assessee by observing that both the figures cannot be added and justified the addition at higher amount of the two. The learned CIT(A) partly allowed the appeal of the assessee by sustaining the addition to the extent of ₹ 91,16,460/- comprising of ₹ 3,22,371/- on account of closing stock, ₹ 8,32,502/- on account of opening balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant's case and in law the ld. CIT(A) erred not restricting the addition to the peak of unaccounted transactions initially recorded in Annexure C to the impounded electronic data . 7. 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. The appellant prays this Hon ble Tribunal to cancel/delete the addition made by the ld. A.O. which are confirmed by the Ld. CIT(A). 18. The issue raised by the assessee in the first ground of appeal is that ld CIT(A) has wrongly confirmed the addition of ₹ 3,77,151,/-. The facts in brief are that the first appellate authority rejected the application of decimal theory by the Assessing Officer and worked out the undisclosed profit at ₹ 3,22,371.51 (by taking sales and purchases at ₹ 51,81,988.77 minus ₹ 48,59,617.26). The contention of the AR is that instead of calculating the undisclosed profit by taking the sales and purchases at respective amount the rate of gross profit should be applied and, thus, average gross profit rate of 3.43% should be applied on the total undisclosed sales of ₹ 51,81,988.77/-. A p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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