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2015 (7) TMI 522 - AT - Income TaxEstimation of profit - Undisclosed Purchase - non production of books of accounts - Held that:- Assessee has not produced books of account before the AO or before CIT(A) during the course of assessment proceedings or appellate proceedings. The AO while framing assessment has gone through the audited accounts and the stock register maintained in Form No IV. AO has never denied that the sales are not out of these unaccounted purchases. The sales made are accepted as it is. Once the sales are accepted, the entire undisclosed purchases cannot be added for computing the income of the assessee except by applying a profit rate i.e. gross profit as declared by assessee in regular books of account or the gross profit declared by other concerns in the similar trade. In view of the above facts and circumstances and particularly when the books of accounts were not produced by the assessee before the AO, the book results cannot be accepted and the same are to be rejected. In any case, the computation method of the AO for determining undisclosed purchases is taken through mathematical exercise. We find that the assessee maintaining the stock and production registers as per the guidelines of FCI, which are Form No.I to IV. The registers are regularly checked by FCI for the reasons that 40% of the production would have been sold to FCI as per Government order. The AO should have verified the closing stock in view of stock register maintained for the purposes of FCI. Even otherwise, this stock inventory of the magnitude of 43,447.20 quintals is impossible to be weighed and determine the closing stock within the time-limit of 12 hours, which was the period during which the Survey Party stayed in the business premises of the assessee. From the finding of survey, it is clear that weighing is not done but only counting of bags or inventory of bags is taken by the Survey Party counting the number of bags in the stacks. We find that the FCI Inspector has signed the stock register as on 31.03.2010 by mentioning the 5700 quintals of paddy, whereas the AO determined the stock as 43,347.20 quintals. The assessee has maintained stock register in Form No I, II, III & IV under DCF&S/FCI guideline as maintained by the Rice Mill. Neither AO nor CIT(A) has cross-verified the registers maintained by assessee. In such circumstances, we direct the AO to recompute the income by applying gross profit rate on the unaccounted purchases, which are sold out. Gross profit declared by the assessee, we are of the view that these are undisclosed purchases as sold by the assessee and sale is admitted by the Revenue, a reasonable GP rate will be 10% for computing profit of the assessee. Accordingly, we direct the AO to recompute the income after deleting the addition made on account of undisclosed purchases but apply GP rate of 10% on the undisclosed purchases. The AO is directed accordingly. - Decided partly in favour of assessee.
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