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2016 (2) TMI 456 - ITAT MUMBAI

2016 (2) TMI 456 - ITAT MUMBAI - TMI - Enhancing addition relating to discrepancy in stock - Held that:- First of all, stock shortage of ₹ 37.87 lakhs has been arrived on estimated basis i.e. book stock has been estimated by adopting GP ratio 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 assessme .....

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ould 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 Respondent : Shri Mahesh Shah ORDER Per B. R. Baskaran, AM The appeal filed by .....

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tc. The department carried out a survey operation u/s 133A of the Act at the premises of the assessee on 5.11.2004. During the course of survey operations, the survey team took the inventory of physical stock available with the assessee. The Survey team also estimated the book stock by adopting the Gross profit rate of 29.6%. It was noticed that there was shortage of stock to the tune of ₹ 37,87,811/-. When this was pointed out, the assessee surrendered a sum of ₹ 30.00 lakhs at the .....

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ld. 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) Less:- Offered in M/s Small World .....

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l challenging the revision order of Ld CIT has since been dismissed. 3. The assessing officer passed the assessment order dated 26.11.2010 u/s 143(3) r.w.s. 263 of the Act, wherein he added the amount of ₹ 30.00 lakhs surrendered by the assessee. The AO also restricted the deduction u/s 40(b) of the Act in respect of remuneration to the partners, to the amount actually claimed by the assessee in the return of income. In the appellate proceedings, the Ld CIT(A) enhanced the addition to S .....

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firmed 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 .....

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tted that the said transfer should be taken into consideration. He submitted that the Gross profit worked out on the shortage of stock @ 29.6% works out to ₹ 11.20 lakhs only, where as the assessee has offered additional income of ₹ 18.52 lakhs. He submitted that the assessee offered the amount of ₹ 30.00 lakhs without understanding its implications on the net profit and hence the said admission should not be given cognizance of. By placing reliance on the decision of Hon'b .....

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same should be directed to be sustained in the place of ₹ 37.87 lakhs enhanced by the Ld CIT(A). 6. On the contrary, the ld. DR 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 bee .....

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transfer of stock from the assessee's concern to its sister concern named M/s Small World and hence the said claim should be rejected. He further submitted that the assessee itself has surrendered a sum of ₹ 30.00 lakhs and hence the addition should be sustained to the extent of ₹ 30.00 lakhs. 7. We heard the parties and perused the record. It is an admitted fact that the survey team as found out "Shortage of stock" only and not excess stock as presumed by Ld CIT(A). Th .....

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ceeds to dispose of this issue by taking the GP rate of the assessee at 29.6%. The ld. AR submitted that the GP rate is affected by many factors since the assessee is dealing in garments, which is badly affected by change in fashion. Hence the assessee would be constrained to sell certain old fashion items at heavy discount and hence the average rate of GP worked out at around 30% only. This explanation of the assessee also appears to be plausible and hence we proceed to adopt the Gross profit r .....

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ingly, 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/-. However, we notice that the assessee himself has surrendered a sum of ₹ 18,52,108/-, which is more than the GP worked out above. Hence, under these set of facts, we are of the view that the additional income of ₹ 18,52,108/- surrendered by the assessee is adequate enough to cover up the deficiencies noticed by the survey team. 9. The ld. DR submitted that .....

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