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2010 (3) TMI 937 - AT - Income TaxAddition on unaccounted sales - business of manufacture and sale of clothes of man made fabrics - discrepancies noted during the course of survey by the Income-tax Department - AO noticed that the sales recorded by the assessee for the purpose of income-tax were more than as compared to the disclosed to the Sales Tax Department, he treated it as a defect in the books of account so as to apply the provisions of section 145 - CIT(A) applied the gross profit rate of 6.09 against unaccounted sales for the purpose of making the addition on account of undisclosed income of the assessee. HELD THAT:- Assessing Officer was not justified to substitute its own sale price and apply the same uniformly to all the items of stock irrespective of their quality and measurements especially when the recorded sale price was never a matter of discussion in the entire assessment proceedings. The Assessing Officer was obliged to take the unaccounted sale value as was worked out by the excise officials on the spot giving description of different varieties of cloth along with the sale price attached to each one of them. Had the Assessing Officer restricted herself to the sale price of Rs. 3,86,14,825 as was worked out by the excise officials, there was no need for her to make unwarranted addition of the balance amount of Rs. 72,42,049. The addition to the extent of Rs. 72,42,049 (Rs. 4,58,56,874-Rs.3,86,14,825) thus goes off straight away. What treatment should be given to the unrecorded sales? - After making such comparison, the stock physically wherever found to be short in comparison to its availability in the stock register, has been treated to be sold outside the books of account. In this view of the matter, the investment in acquiring these stocks has undoubtedly come from the declared sources of the appellant. In other words, the entire amount of unrecorded sales of Rs. 58,85,530 cannot be added as their income and only the profit element involved therein needs to be taxed after applying the gross profit at the rate of 6.09 percent on such sales. The addition of Rs. 3,58,428, i.e., Rs.58,85,530 divided by 100 x 6.09 percent is thus liable to be sustained and balance amount of Rs. 55,27,102 is deleted. Whether the total amount is required to be treated as income of the appellant as is done by the learned Assessing Officer or only the gross profit at the rate of 6.9 percent is to be taken as the income element ? - We rely upon the decision of the hon'ble Gujarat High Court in the case of CIT v. President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] in which it was held that "addition cannot be of entire undisclosed sale proceeds. Only the profit embedded in sale proceeds can be taxed" Commissioner of Income-tax (Appeals) was, therefore, justified in applying the gross profit rate against unaccounted sales for the purpose of making the addition on account of undisclosed income of the assessee. CIT(A) was justified in considering the issue of deployment of minimum capital investments for the purpose of making and rotating the sales outside the books of account. These facts are sufficient to hold that the book results of the assessee were not reliable and have rightly been rejected by the authorities below. Rejection of book results is also not disputed by the assessee.Assessee has not pointed out any error in the findings of the learned Commissioner of Income-tax (Appeals) to that extent. Commissioner of Income-tax (Appeals) was justified in applying gross profit rate as against undisclosed sales made by the assessee for the purpose of making the addition against the assessee. To that extent the findings of the learned Commissioner of Income-tax (Appeals) are maintained. CIT (Appeals) on proper appreciation of facts and material on record rightly came to the conclusion in making addition on account of profit earned on undisclosed sales. The Assessing Officer also proposed to make addition initially on the same line but the Assessing Officer changed his mind later on and treated the entire undisclosed sales as undisclosed income of the assessee. Therefore, there was no need to give any further opportunity to the Assessing Officer with regard to the calculation of the undisclosed income of the assessee. We accordingly, do not find any merit in the contention of the learned Departmental representative. The same is accordingly rejected. Assessee declared additional income on the above properties and in case any set off of undisclosed income is given to the assessee against undisclosed investments, it would amount to reducing the additional income declared by the assessee - It may also be noted that the assessee claimed set off which are not part of the record of the Excise Department on the basis of which the entire addition is made. The addition made by the Assessing Officer on the basis of the record prepared by the Excise Department is an independent addition which has no co-relation with the survey conducted by the Income-tax Department. CIT(Appeals) was not justified in giving set off of Rs. 11,91,746 to the assessee. We, accordingly, set aside the order of the learned Commissioner of Income-tax (Appeals) to that extent and direct that no such benefit of set off of Rs. 11,91,746 be given to the assessee.
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