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2020 (9) TMI 28 - ITAT AHMEDABADDiscrepancy in the stock and receivables - survey conducted under section 133A of the Act, at the business premises of the assessee - HELD THAT:- What is transpired from the findings of the authorities below that the assessee was engaged in the unaccounted business, meaning thereby, the income generated by the assessee from such activity has to be brought to tax. This fact can also be verified from the statement recorded by the survey team during the survey proceedings where the partner Shri Rahimbhai A. Chhedawala while replying to Question number 15 and 17 admitted that the assessee has made unaccounted sales and purchases. Determine the income from such unaccounted business - Can the entire amount of receivables and the value of excess stock be treated as income of the assessee from the unaccounted business? - HELD THAT:- We note that the amount of receivables represents the sales which cannot be treated as income in the entirety. In our considered view only a percentage of profit embedded in such amount of receivables can be brought to tax. In this regard we find support and guidance from the order in the case of CIT vs. President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] where it was directed to make the addition only to the extent of gross profit. Whether the excess stock found during the survey represents the unaccounted income in its entirety - It is the only profit percentage which needs to be brought to tax on account of such unaccounted purchases/excessive stock found during survey. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of CIT vs. Sathyanarayn P. Rathi [2013 (6) TMI 257 - GUJARAT HIGH COURT] What rate of profit should be applied to determine the income on such unaccounted receivables and unaccounted stock? - We note that the assessee claimed its gross profit ratio at the rate of 4.57% of the sales which has not been disputed by the Revenue. Thus we are of the view that justice will be served to the revenue as well as to the assessee if the amount of receivables and excessive stock found during survey brought to tax at the rate of 5% of such amount put together. Hence the grounds of appeal of the assessee are partly allowed.
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