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2016 (1) TMI 660 - ITAT AHMEDABAD

2016 (1) TMI 660 - ITAT AHMEDABAD - TMI - Addition on unexplained expenditure - Held that:- First Appellate Authority has observed that there is no evidence that this represent outstanding dues or peak debits. The department has not filed copies of any seized material which can indicate that the amount worked out by the AO at ₹ 1,23,26,300/- is a gross sales not accounted by the assessee, rather, it is the peak debit/credit balance. The profit embedded in these sales can only be assessed a .....

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expenditure of ₹ 20,75,500/-. - Decided against revenue. - ITA No.2615/Ahd/2009, CO No.238/Ahd/2009 - Dated:- 29-10-2015 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER For The Revenue by : Smt.Vibha Bhalla, CIT-DR For The Assessee by : Shri Sanjay Kapadia with Shri Ankur D. Shah ORDER PER BENCH: Revenue is in appeal before us against the order of the ld.CIT(A)- II, Ahmedabad dated 17.6.2009 for the Asstt.Year 2007-08. 2. On receipt of notice in the Revenue .....

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eclaring total income at ₹ 3,39,36,646/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act dated 7.4.2008 was issued and served upon the assessee. Shri Natvarlal V. Thakkar was the Chief Accountant of the assessee-company and the Colourtex Group at the relevant time. His residential premises was also covered under search action. During the course of search, documents inventorised as Annexure B1-6 and B1-7 was found and seiz .....

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o contended that documents were seized from the residence of the accountant, hence, they did not relate to the assessee. The documents did not disclose, specifically, whether it is sale or purchase. Thus, the emphasis of the assessee was, these are dump documents not belonging to the assessee-company, and therefore, no addition be made in the hands of the assessee. The ld.AO did not find any merit it the contentions of the assessee. He observed that perusal of various pages viz. 11, 16, 19, 21, .....

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from the residential premises of the Chief Accountant. It is to be assumed that they relate to the assessee. The ld.First Appellate Authority observed that the transactions mentioned in the documents are sales out of books, which could not be explained by the assessee. The ld.First Appellate Authority ultimately held that profit element embedded in this unaccounted sale is to be treated as income of the assessee. The ld.First Appellate Authority has estimated the profit margin at 10% which gives .....

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ed in concluding that the same pertains to the company. The transactions represents the unaccounted sales made by the assessee company and the total comes to ₹ 1,23,26,300/-. However, in my opinion there is no evidence that this represents outstanding dues or peak debts. Hence, it is reasonable to apply the gross profit margin of 10% on this unaccounted sales, as in the unaccounted transaction G.P. rate is higher than the accounted transactions. Therefore, the profit comes to ₹ 12,32 .....

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to the facts that the documents demonstrating unaccounted sales related to the assessee were found and seized. The moot question before us is, whether the gross credit amounts of the sales worked out from those documents is to be added as income of the assessee or the profit embedded in the sales, after debiting the expenditure for achieving those sales is to be considered as income of the assessee ? The ld.AO in a passing reference has made an observation that it is the peak debit (credit) bala .....

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of the assessee. The ld.CIT(A) after considering the result shown by the assessee estimated the gross profit of 10% on these unaccounted sales. However, on noticing that the assessee has debited unaccounted expenditure also, then, those expenditure cannot be allowed to the assessee unless it explains the source of expenditure. Once the unexplained expenditure were found to be higher than the alleged estimated gross profit, then the addition would be of the higher amount i.e. unexplained expendit .....

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77; 9,32,604/-. 8. Brief facts of the case are that the during the course of search surplus cash was found at CPL, Bhestan Branch and Mumbai Branches. Similarly, at M/s.Bhavin Textile, proprietary concern of Colourtex Pvt. Ltd. deficit in cash of ₹ 9,32,604/- was found. The ld.AO has added the surplus cash found at Mumbai Branch and Bhestan Branches. He also made addition of deficit in cash found at M/s.Bhavin Textile. 9. On appeal, the ld.CIT(A) has deleted the addition with regard to the .....

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which were not accounted for in the books of accounts as on the date of survey, on account of paucity of time. The ld.AO did not accept this contention of the assessee. However, the ld.CIT(A) has accepted. 11. Along with this appeal, we have heard 33 appeals of this group. The AO has ultimately given a set off of the additions qua the income declared by Shri Jayantilal Thakordas, who is the head of this group. In some of the cases, we have found excess cash. The stand of the assessee is that th .....

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account of surplus stock found during the course of survey proceedings. During the course of survey, on physical examination, stock having value of ₹ 8,89,71,479/- was found. In the books, the stock was recorded at ₹ 8,81,21,386/-. Thus, there was surplus stock. In response to the query of the AO, it was contended that a stock reconciliation statement has been prepared. In respect of few items, sales bills were prepared for the delivery and reduced from the stock, but the physical d .....

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