Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (3) TMI 460 - AT - Income TaxUndisclosed income - gross profit margin on unaccounted sales - HELD THAT:- Assessee has not maintained day to day material wise stock register. It is also an admitted fact that the closing stock at the year end is arrived at on estimated basis by applying gross profit rate on sales, i.e., under reverse methodology. It is a fact that such kind of defective stock would command lesser price. Hence it was submitted that the value of stock is arrived on average basis. We also notice that the alleged shortage of stock was arrived at by the search officials by adopting gross profit methodology only. The Ld A.R submitted that the assessee has also agreed to the proposal of the search officials to treat the alleged shortage of stock as “unaccounted sales” in order to avoid protracted litigation and to buy peace from the department. Thus, we notice that the whole exercise of arriving at the shortage of stock has been done on estimation and presumption. It is a fact that such kind of defective stock would command lesser price. Hence it was submitted that the value of stock is arrived on average basis. We also notice that the alleged shortage of stock was arrived at by the search officials by adopting gross profit methodology only. The Ld A.R submitted that the assessee has also agreed to the proposal of the search officials to treat the alleged shortage of stock as “unaccounted sales” in order to avoid protracted litigation and to buy peace from the department. Thus, we notice that the whole exercise of arriving at the shortage of stock has been done on estimation and presumption. We notice that the gross profit margin on the unaccounted sales has been arrived at on the basis of facts and figures available on the date of search. However, the AO has proceeded to arrive at the gross profit margin on the unaccounted sales by considering the financials relating to FY 2014-15 covering post search period. It is in the common knowledge of everyone that the quality of marble slabs and granite slabs are not static. Further their selling price and profit margin would differ on the basis of quality. It is quite possible that the assessee was able to generate more profit post search period depending upon the quality of blocks. Hence it may not be correct on the part of the AO to consider the post search period results for determining the gross profit margin of unaccounted sales despite the fact that the gross profit margin worked out by the assessee has been accepted by the search officials, i.e., another wing of the income tax department. Hence, what the AO has done is to substitute one estimation with another one, which is not warranted in the facts of the present case. Addition made by the AO should be telescoped against the income surrendered by the assessee - The additional income was surrendered considering the status of sundry creditors, meaning thereby, the unaccounted income generated has been ploughed back into the business in the form of sundry creditors. Hence we are of the view that the addition resulting from variation of gross profit margin, in the facts and circumstances of the case, requires to be telescoped against the above said surrender. Hence, the alternative ground of the assessee also requires to be upheld. - Decided in favour of assessee.
|