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2017 (2) TMI 600 - AT - Income TaxAddition by applying GP rate of 34.71% on unaccounted sales - Held that:- The unaccounted sales of ₹ 2,31,400 relates to sale transaction with Shri Shyam Sunder to whom the assessee had sold goods worth ₹ 11,59,900/- out of which, goods worth ₹ 2,31,400/- were not approved by the buyer and were rejected during the same financial year. In this regard, Shri Shyam Sunder had executed an affidavit in confirmation of the above fact and his statement were also during remand proceedings by the AO. The AO in his remand proceedings as well as ld CIT(A) has not specified any reason for disbelieving the affidavit as well as statement of Shri Shyam Sunder. Moreso, when on basis of similar affidavits and statements, additions have been deleted in respect of other unaccounted sales alleged by the AO on the basis of loose papers. In light of above, it is clear that goods worth ₹ 231,400 were rejected resulting in no actual sales made by the assessee during the year under consideration and on this ground alone, addition of ₹ 78,005 on said unaccounted sales is hereby deleted. The question of applying gross profit on such non-existent sales therefore doesn’t arise and hence, not been examined. Addition is on account of estimated rate adopted by AO for valuation of purchases as admitted in the remand report submitted by the AO. As far as quantity of purchases is concerned, there is no dispute between the assessee and the Assessing Officer. However, no valuation methodology/basis has been apparent on perusal of the record pursuant to which the valuation of the purchases has been done by the Assessing Officer. Therefore, being an adhoc addition, same is not sustainable in eye of law. Hence, the same is deleted. Addition on account of gross profit @ 33.71% on stock found short during the course of survey - Held that:- The appellant has failed to furnish any documentary evidence in support of the stock valuation adopted by him during the course of assessment proceedings or even the course of appellate proceedings. Further, given that in the books of accounts, the stock was recorded at ₹ 37,88,130/- as against physical stock at ₹ 30,11,120/-, the shortage of stock has rightly been worked out at ₹ 7,77,010/- and which has rightly been held to have been sold outside the books of accounts. Regarding application of GP @ 33.71% by the ld. CIT(A) as against G.P rate of 26% applied by the AO, since the unaccounted sales belongs to the year under consideration, the rate of GP which is declared by the appellant itself in respect of its recorded sales @ 33.71% has been considered by the ld. CIT(A). We accordingly, do not see any infirmity in the order of the ld. CIT(A) which is hereby confirmed. - Decided against assessee. Disallowance u/s 40A(3) - Held that:- AR has submitted that ₹ 1 lac has been paid to Khan Mahesh Seth and ₹ 23,500/- has been paid to Mr. Gulaiya who are material suppliers and they do not have any bank account maintained by any bank and such payments are covered under the exceptions stated in Rule 6DD of the Rules and in support, their affidavits have been filed which have not been considered in right perspective. However, the Assessing Officer, in his remand report submitted to the ld. CIT(A), has stated that no affidavits have been filed in respect of these two persons. Given the contradictory position and in absence of these affidavits in the paperbook submitted before us, we are left with no option but to set aside the matter to the file of the Assessing Officer to examine any such affidavit filed by the assessee and decide the issue afresh as per law. Therefore, this ground is allowed for statistical purposes. Addition on account of lump sum disallowance out of various expenses claimed by the assessee - Held that:- On perusal of record, it is noted that originally 10% of the total expenses amounting to ₹ 1,31,563/- was disallowed by the Assessing Officer which has been restricted to ₹ 75,000/- by the ld. CIT(A). However, there is no basis which has been given by the Assessing Officer to make such disallowance. There is no finding that these expenses are either bogus or have not been incurred for the purpose of business. Being an adhoc disallowance, same is not sustainable in the eye of law. Hence, the same is deleted. - Decided in favour of assessee. Telescoping benefit in respect of additions on account of unaccounted sale, unaccounted purchases and shortage of stock - Held that:- The additions on account of unaccounted sale, unaccounted purchases have already been deleted and it is only the addition on account of shortage of stock which has been sustained. Given that there is no question of telescoping which is available to the assessee. In the result, this ground is dismissed.
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