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2017 (1) TMI 458 - AT - Income TaxBogus purchases - net profit computation - Held that:- From the record we found that there are certain purchases to the tune of ₹ 1.73 crore in respect of which the goods are received before the date of survey and the accounting is post-survey. Thus, in the inventory of the survey team, such goods are included as they have been considered in physical counting but the same have not been accounted for in the accounts; thus, not included in the purchase figure in the provisional trading and profit and loss account prepared on the date of survey. Further, as seen in 1.2.7(b) that there are some sales in the Pre-survey period for which the purchases are not recorded. Thus, if the said purchases which have been accounted post-survey, there will be no distortion in net profit. With regard to AO’s allegation regarding rates charged by Creative Chain Stores, which is covered u/s.40(2)(b), we found that assessee had exported the goods purchased from Creative Chain Stores at a gross profit ranging from 5 to 7 percent and hence, there can be no question of accommodation entry and reduction of tax liability from the record, we also found that if the purchases of ₹ 1.78 crores in the pre-survey period is recorded as such then the gross profit ratio for the pre-survey and post-survey becomes comparable which further gives credence to the fact that the purchases of ₹ 1.78 crores though recorded in post-survey period were unrecorded on the date of survey. With regard to addition of ₹ 86.82 lacs made by AO by estimating G.P. at 4%, we found that assessee by their letter dated 10th March 2014 filed before AO had furnished the details of sales post survey and also furnished columnar profit and loss account for the pre and post-survey period. The Assessing Officer observed that there is a difference between the sales and other income shown per columnar profit and loss account (Rs 5,72,78,650) and that per the details of sales post survey and required the appellants to reconcile the same. We found that the assessee have reconciled the difference by their letter dated 25th March, 2014. Thus there is no undisclosed sales and hence, the addition on account of gross profit on such undisclosed sales is not tenable and requires to be deleted. Coming to the financial results shown by the assessee during the year under consideration as compared to the earlier and subsequent years, we found that during the year A.Y.2010-11 under consideration, gross profit of assessee is 27% and net profit rata is 11%. However, in the earlier assessment years 2009-10 and 2010-11 gross profit rate was 18% and 17% respectively. In the subsequent assessment year 2012-2013 and 2013-14, gross profit was 20% and 9% respectively. Thus, we found that gross profit shown during the year under consideration is much better than the gross profit rate shown by assessee in all previous and subsequent years. Coming to the net profit rate shown by assessee during the year under consideration, we found that assessee had shown net profit rate at 11%. However, in the earlier assessment years 2009-10 and 2010-11, the net profit rate was 1% in both the years, in the subsequent years 2012-13 and 2013-14, the net profit rate was 2% and (-7%) respectively. Thus, even the net profit rate during year under consideration is much better than the net profit rate shown in earlier and subsequent years. Keeping in view the nature of trade, assessee was involved the net profit rate of 11% and gross profit of 27%, can be considered to be the best rate. In view of these facts, we do not find any merit for the addition made by AO by disallowing purchases and estimating profit on unexplained sales.In the result, Ground No. 1 & 2 raised by the assessee is allowed. Addition made u/s.50C - estimating the stamp duty valuation of an immovable property - Held that:- We found that the said property has been sold by the assessees for ₹ 8,50,000 which has been shown as short-term capital gains. An amendment has been brought in Clause (b) of Section 50C(2) by financial Act 2009 w.e.f.1.10.2009, accordingly to which if assessee has not disputed the value so adopted by stamp valuation authority under sub-section (1) of Section 50C. AO may refer the valuation of capital asset to DVO. In the instant case without making any reference to DVO, the AO has invoked provisions of Section 50C for the assessment year 2011-12 under consideration. In all fairness, we restore the matter back to the file of AO for making reference to the DVO in respect of impugned property and for deciding the issue afresh as per law. We direct accordingly.
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