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M/s J.R. Packages (P) Ltd. Versus The Deputy Commissioner of Income Tax

2016 (7) TMI 729 - ITAT CHENNAI

Profit on sale of deficit stock - whether the entire deficit stock has to be taken as profit of the assessee or the profit element embedded in the deficit stock has to be taken as income of the assessee? - Held that:- The Assessing Officer himself has taken only 20% of gross profit on the deficit stock arrived by him. Therefore, it is obvious that the Revenue intended to take only the profit element embedded in the deficit stock. In other words, the presumption was that the deficit stock was sol .....

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profit at 20%. The assessee otherwise claims before this Tribunal that the profit in this kind of industry is 12 to 15%. Therefore, this Tribunal is of the considered opinion that estimation of profit at 15% of the deficit stock of ₹ 55,75,603/- would meet the ends of justice. Accordingly, the orders of the authorities below are modified and the Assessing Officer is directed to take 15% on the deficit stock of ₹ 55,75,603/- as income of the assessee for the year under consideration. .....

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evanathan, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is with regard to estimation of profit on the deficit stock. According to the Ld. counsel, there was a survey in the premises of the assessee on 13.03.2009. The Assessing Officer claims that physical inventory of stock was taken and it was estimated at ₹ 98,61,818/-. According to the Ld. counsel, the stock, namely, the papers were spread over several acres of land. Therefore, it is not possib .....

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4% and the estimation made by the Assessing Officer is on the higher side. On a query from the Bench - what would be the reasonable manufacturing cost? The Ld.counsel very fairly submitted that the manufacturing cost in normal circumstances is around 10% to 15% and definitely not at 24%. Therefore, according to the Ld. counsel, the addition made by the Assessing Officer on the deficit stock is not justified. 3. Referring to the order of the CIT(Appeals), the Ld.counsel for the assessee submitted .....

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t ₹ 55,75,603/-. According to the Ld. counsel, 20% cannot be the profit of the assessee. The assessee is in the manufacturing industry and has to incur several expenditure to maintain machinery. Therefore, at the best, according to the Ld. counsel, the profit would vary from 12% to 15%. Therefore, the CIT(Appeals) while restricting the deficit stock at ₹ 55,75,603/-, ought to have taken the profit on the deficit stock of ₹ 55,75,603/-. According to the Ld. counsel, the addition .....

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oyees of the assessee. The accuracy of the physical stock was also certified by the assessee s employees. Therefore, at this stage, the assessee cannot say that the inventory was not taken properly. The Ld. D.R. further submitted that the Managing Director of the assessee-company has not disputed the manner in which the physical inventory was taken. Therefore, there is no justification in the contention of the Ld.counsel for the assessee that the physical inventory was not taken properly. In fac .....

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tock at ₹ 55,75,603/-. Since the deficit stock as estimated by the CIT(Appeals) was less than the profit estimated by the Assessing Officer, he confirmed the addition made by the Assessing Officer. 5. We have considered the rival submissions on either side and perused the relevant material available on record. There was a survey in the premises of the assessee on 13.03.2009. The Assessing Officer estimated the physical stock found during the course of survey, at ₹ 98,61,818/-. The as .....

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y taken by the Revenue. Therefore, it is too late for the assessee to contend before this Tribunal that the inventory was not taken properly. 6. Now coming to the actual stock found by the Assessing Officer, the closing stock as per the books was ₹ 3,69,46,849/-. The sales as per the sales tax return was ₹ 17,18,04,430/-. The Assessing Officer added 20% as gross profit to the extent of ₹ 3,43,60,886/- and ultimately estimated the deficit stock at ₹ 2,70,85,031/-. The CIT( .....

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