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2022 (8) TMI 1331 - AT - Income TaxAddition in respect of valuation of stock as on the date of search - AR has submitted that this valuation of stock is based only on the statement of one of the partners of the assessee firm who had answered in the negative to a query regarding maintenance of stock register - HELD THAT:- Action of the AO in recasting the trading account by taking the average GP rate for the purpose of valuation of inventory cannot be upheld for the simple reason that the stock records, though not maintained item wise, were available weight-wise and if the stock details were available on computer, in weight, there was no cogent reason for the AO to discard the same and proceed to apply the Average Gross Profit Rate, more so, because the assessee has been regularly following the method of valuation of stock for the past many years which even stands affirmed by the Ld. CIT(A). For this reason itself, the action of the CIT(A) in part confirming the impugned addition also cannot be upheld because, although, CIT(A) has tried to rectify some of the mistakes committed by the AO in the valuation of stock (discussed at length by the Ld. CIT(A) in the impugned order), the Ld. CIT(A) himself, after discarding the working of the AO, went back to applying the Average Gross Profit Rate of 11.34%. Since we have already rejected the action of the AO in applying the average GP rate of 11.34%, similar action of the Ld. CIT(A) in adopting this percentage of 11.34% also cannot be upheld. Assessee cannot be permitted to retract the surrendered amount - Assessee has not retracted the statement and has even partly honoured it. However, the assessee has every right to present correct facts in light of the material and evidence available and if the tax payer is being saddled with tax which is not legally imposable, the tax-payer has every right to contest it and also seek appropriate relief. Thus, in our considered view, the assessee cannot be to forced to pay tax on such undisclosed income which has been computed incorrectly although the assessee might have made a surrender at the time of search. Working of the actual taxable difference in valuation of stock - We agree with the working submitted by the Ld. AR regarding the difference in valuation of stock and we direct that the addition to the extent of Rs. 6,75,78,045/- only (which is as per the admittance itself of the assessee) is liable to be sustained. Unaccounted sales and expenditure bills found during the time of search - We agree that the amount of addition to be made i.e. gross profit at the rate of 11.34% (Rs. 40,14,667) is correct but the peak of investment has indeed been incorrectly computed by the Ld. CIT(A). The same comes to Rs. 21,78,373/- only and the amount which is liable to be added on this account comes to Rs. 6,191,180/- as has been submitted by the Ld. AR. Therefore, we hold that the sustenance of addition of Rs. 73,90,025/-after giving benefit of surrender of Rs. 1 crore is factually incorrect and the addition on this account would only be to the tune of Rs. 61,91,180/- which is to be included in the surrender of Rs. 1 crore and no further addition is required to be made. Therefore, the order of the Ld. CIT(A) stands modified to that extent and ground No. 6 of the assessee’s appeal stand partly allowed. Excess cash found during the course of search - We agree with the contention of the Ld. AR that this amount is also to be included in the surrender of Rs. 1 Crore made by the assessee with respect of miscellaneous discrepancies found in the books of account and therefore, no separate addition needs to be made on this account. Thus, ground No.7 of the assessee’s appeal also stands allowed. Tax was to be charged @ 60% in terms of the provisions of section 115BBE - As in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/s 69 would be completely out of place. We hold that the AO could not have legally invoked the provisions of section 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in upholding of the application of provisions of section 115BBE of the Act. Accordingly, ground Nos. 8 and 9 are also allowed.
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