TMI Blog2016 (2) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 30.00 lakhs made by it was wrong. Hence, we are of the view that the admission of ₹ 30 lakhs made by the assessee cannot be given credence in the facts and circumstances of the case. Disallowance of deduction u/s 40(b) - Held that:- After hearing the parties, we are of the view that this issue should be examined afresh by the AO, by duly considering the instrument of partnership, entries made in the books of accounts and explanations that may be furnished by the assessee. Accordingly, we set aside the order of ld. CIT(A) on this issue and restore the same to the file of the AO. - ITA No. 2636/Mum/2012 - - - Dated:- 15-12-2015 - B. R. Baskaran, AM And Sandeep Gosain, JM For the Appellant : Shri N M Porwal For the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 9,35,000/- was transferred to the sister concern of the assessee named M/s Small World. From the order of Ld CIT(A), we notice that the assessee has filed the above said retraction letter along with the return of income filed on 31.10.2005. Subsequently, the assessee filed another letter dated 30.11.2007, wherein he agreed to offer a sum of ₹ 18,52,108/-, which was worked out by the assessee as under:- (a) Difference in stock (shortage) 37,87,811 (b) Less:- Transfer to M/s Small World 9,35,703 (c) Revised difference in stock 28,52,108 (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced the addition without giving notice of enhancement to the assessee. He further submitted that the ld.CIT(A) confirmed the addition to the extent of ₹ 37.87 lakhs by presuming that the discrepancy in stock was related to surplus stock. He submitted that the survey team has found out only shortage in stock. He submitted that the shortage of stock normally means that the assessee has sold the goods outside the books and hence normally the Gross Profit (GP) realised on sale of stock would be assessable to tax. In support of this contention, the ld. AR placed reliance on the decision rendered by the Hon'ble Andhra Pradesh High Court in the case of Rajnik Co. vs. ACIT (AP) (251 ITR 561). He further submitted that the GP rate has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee himself has admitted in the Statement that the GP rate is about 38 to 40% in the case of branded goods. He further submitted that the assessee has not maintained any stock register and the said position has also been admitted by the assessee in the statement taken from the partner of the firm. Despite admitting that the assessee has been earning GP rate 38 to 40%, the assessee has been declaring GP of around 30% only in its books of account. With regard to the query as to whether the shortage of stock can be considered as sales outside the books, the Ld D.R agreed that the same may be considered to be so. However, he submitted that the GP should be estimated at the rate of 40%, if the assessee's plea is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This explanation of the assessee also appears to be plausible and hence we proceed to adopt the Gross profit rate @ 29.6%. 8. The working relating to stock difference is given in Question no.39 in the statement taken from the partner of the assessee. We notice that the stock shortage of ₹ 37,87,811/- represents cost of sales, which is 70.4% of the sales value. By grossing up the same to 100%, the sales value should have stood at ₹ 53,80,413/-. Hence, the Gross Profit that should have been realized by the assessee should stand at ₹ 15,92,602/-(Rs.5380413/- (-) ₹ 3787811/-). Accordingly, we are of the view that the addition relating to GP on the stock shortage may be made to the extent of ₹ 15,92,602/-. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 29.6%. There is also merit in the submissions of the assessee that the effect of stock shortage was not properly understood by the partner of the assessee firm. We have earlier noticed that the additional income surrendered in the original assessment proceedings is more than the Gross profit that should have been earned on sale of Stock shortage. Hence, we are of the view that the assessee has proved that the admission of ₹ 30.00 lakhs made by it was wrong. Hence, we are of the view that the admission of ₹ 30 lakhs made by the assessee cannot be given credence in the facts and circumstances of the case. 11. The next issue relates to disallowance of claim made u/s 40(b) of the Act. After hearing the parties, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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