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The ACIT, Chandigarh Versus M/s Nova Industries (P) Ltd.

2016 (1) TMI 937 - ITAT CHANDIGARH

Addition made by applying declared GP rate of 19.3% on the amount of stock - CIT(A) deleted the addition - Held that:- The assessee produced complete books of account before Assessing Officer in which no defects have been pointed out either in the cash book or sales or purchases. Therefore, book results could not have been rejected by the Assessing Officer. Thus, ld. CIT(Appeals) properly appreciating the facts and circumstances of the case, correctly deleted the addition in the matter. The appr .....

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me.

Considering the totality of the facts and circumstances of the case in the light of affidavit of assessee's Managing Director placed on record, we do not find any infirmity in the order of the ld. CIT(Appeals) in deleting the addition. The departmental appeal thus, has no merit - Decided in favour of assessee. - ITA No. 970/Chd/2013 - Dated:- 14-12-2015 - Bhavnesh Saini, JM And Annapurna Mehrotra, AM For the Appellant : Ms Chander Kanta, DR For the Respondent : Shri Vineet Krishan .....

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During the course of survey, physical verification of stock was done and stock of ₹ 47,19,230/- was found as against ₹ 3,01,78,000/- as per the tentative trading account prepared on the date of survey. The assessee was to asked explain the shortage of stock and it had filed a letter dated 04.08.2009 as under : "It is submitted that survey operations under Section 133A of the Income Tax Act, 1961 were carried out at the business premises of the company. During the course of surv .....

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s agreed to make a surrender of ₹ 30 lacs for the Assessment Year 2010-11 to cover up these discrepancies. This agreement of surrender has been made subject to the conditions that no penalty under the provisions of Income Tax Act or any prosecution shall be made. It is further assured that same GP shall be maintained as in last year for the purpose of tax on surrender. The payments of taxes shall be made within due date for which 3 cheques are given as security." 3. The assessee compa .....

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dding the same amount in the computation of income, the assessee had evaded the profit earned on sale of this stock and so she applied the G.P. rate of 19.3% (as declared in this assessment year) on sale of ₹ 3,00,90,0447- (Rs. 2,54,25,000/- + sales declared of ₹ 4,66,5044/-) and made addition of ₹ 58,0.7,378/- with the following observations: "On perusing the computation of income it is noticed that the assessee itself added back the amount of ₹ 2,54,25,000/- on acc .....

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has shown the sale price and cost price of the stock at the same value and has thus not shown any profit on sale of., that stock. Had not been the case, the assessee would have incurred huge loss in the manufacturing & trading account as against the gross profit now being shown by the assessee. Thus, in order to show the gross profit rate in the line with the G.P. rate as declared in earlier years the assessee has taken recourse to taking-out the stock from, the, opening stock. It is import .....

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at this stock was sold at the same value for which it was valued in the opening stock. From the above the only conclusion which can be drawn is that the stock was actually sold but the entire exercise was done in the books just to evade the gross profit earned on sale of this stock. Therefore it is held that the prior period rejection is not actually rejection but sales outside the books of accounts (unaccounted sales) and added back to the sale of the assessee. - The sale of the assessee is tak .....

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and also assessment proceedings, the appellant-company had not been doing well for the past few years and had a great financial crunch. The appellant-company had been selling the goods with a lessor margin of profit and sometimes at no profit and even at a loss to make the payments to the bank. The appellant had obtained financial limits against stocks from the bank and to match the stocks vis-a-vis limit amount the appellant-company did not show the loss and maintained the same G.P. as such th .....

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lding i.e. 109, Indl. Area, Chandigarh held by him where the business of the company was being done which was sold on 05,11.2009. The perusal of the manufacturing account will show that during the year under appeal the sales were at ₹ 46,65,044/- as against ₹ 4,04,18,949/- in A.Y. 2009-10. The appellant-company was in the process of closing the business at 109, Indl. Area, Chandigarh. The appellant had agreed to make a surrender of ₹ 30,00,000/- only on account of this differen .....

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ectors have purchased or sold any moveable and immoveable assets. During the course of assessment proceedings the complete books of accounts i.e. cash book, ledger, excise records, sale, purchase and expenses vouchers were produced and no discrepancy was found and pointed by the Id. Assessing Officer. It was also explained to the Id. Assessing Officer that the entire sales are on the wholesale basis and the deals of the appellant-company are mostly south. When there is difference of stocks as pe .....

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r to buy peace with the Department the appellant-company agreed with the Revenue to an addition of ₹ 30 lacs which is evident from the letter of surrender dated 4.8.2009. It was assured to the Department that the same GP rate of 19.3% as against a GP of 18.2% A.Y. 2009-10, the Id. Assessing Officer instead of accepting the returned income in terms of the agreement which was specifically mentioned in the letter dated 4.8.2009 "However, in order to buy peace with the Department, the com .....

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lled as the surrender was made by the appellant-company only on the ground that stocks found were less than one as per the trading account. In fact, the agreement was made after considering all the facts. It is a double addition." 5. The ld. CIT(Appeals) considering the facts and circumstances of the case, deleted the entire addition. His findings in para 3.3 to 3.3.1 of the appellate order are reproduced as under : "3.3 I have considered the submission of the Ld. Counsel. In this case .....

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ng loans. As per the details provided, the sales have been dipping for the past five years and have gone down from ₹ 8.5 crores in A.Y. 2006-07 to ₹ 4.04 crores in A.Y. 2009-10 and ₹ 46.65 lacs in A.Y. 2010-11; the year in question. It has also been explained that the goods had been sold at low price and even at loss to make payments to clients. 3.3.1 There can be only two reasons as to why the stock on physical verification is found less than what is recorded in the books of a .....

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had not recorded sales to the extent of ₹ 2,54,25,000/-, the entire sale amount (purchase price + gross profit) would have been added at the time of assessment, but the Assessing Officer calculated gross profit at the rate of 19.3% (as declared during the year) on this amount of ₹ 2,54,25,000/-& the sales declared by the appellant of ₹ 46,65,044/-. The question of application of G.P. rate on the suppressed sales would arise only when the sales and the corresponding purchas .....

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0,00,000/- as additional income at the time of survey and this declaration was accepted by the Department. Be as it may, it is unbelievable that the appellant could have sold rejected goods worth more than ₹ 2,54,25,000/- within first four months of this year and so it is held that the Assessing Officer is not right in increasing the sales of the appellant by ₹ 2,54,25,000/- and computing gross profit on this amount. Hence, the addition made by the Assessing Officer on this account i .....

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our perusal. On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below and filed comparative statement as per order of the Assessing Officer and as per explanation of the assessee to show that even after carry forward of the losses, there is a loss in the case of the assessee. He has referred to PB-26 which is surrendered statement made for survey declaring additional income of ₹ 30 lacs to cover up any discrepancy found during the course of s .....

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ask for refund in future as well. He has submitted that since surrendered income is accepted by the Department, therefore, on the short stock, further addition would amount to double taxation and as such, ld. CIT(Appeals) was justified in deleting the addition. 7. We have considered rival submissions and do not find any merit in the appeal of the revenue. It is admitted fact that during the course of survey, physical stock was found short as against shown in the books of account. The survey fol .....

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the refund of the amount paid as taxes on surrendered income and will also not ask for the refund of the same even if carry forward of the losses have been claimed. It would, therefore, prove that even if stock was found short during the course of survey but the explanation of the assessee could not be brushed aside that due to financial crisis, the assessee was making sales at the lower price or even at loss, in order to make the payment to the Bank. The ld. CIT(Appeals), therefore, rightly obs .....

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7; 30 lacs by assessee in order to cover up the discrepancy found during the course of survey. Thus, 30 lacs have been surrendered in the computation of income on which taxes have also been paid. Therefore, if profit rate is applied against shortage of the stock, it would amount to double taxation because the Assessing Officer in the computation of income has taken the gross profit as calculated by applying profit rate and also added separately the surrendered income of ₹ 30 lacs. If Asses .....

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