TaxTMI 
TaxTMI 
2022 (3) TMI 460
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....rial wise stock register. The assessee was following the practice of arriving at the closing stock applying gross profit rate. The physical inventory of stock was taken during the course of search. The book stock as on the date of search was arrived at by applying gross profit rate and it was noticed that there was difference between the physical stock and book stock resulting in shortage of stock to the extent of 402108.08 sq.ft. This shortage was taken as unaccounted sales by the search officials. During the course of search, the assessee offered voluntarily undisclosed income of Rs. 18.10 crores as detailed below. 1. M/s. Hindustan Marble & Granite FY2013-14 = Rs. 3,90,44,264.00(r/o) 2. M/s. Hindustan Marble & Granite FY2014-15 = Rs. 11,44,44,648.00 3. M/s. Hindustan Marble & Granite FY2014-15 = Rs. 1,76,92,755.00and 4. M/s. Hindustan Marble & Granite FY2014-15 = Rs. 98,25,910.00 Total Rs. 18,10,07,577.00 3. It can be noticed that the undisclosed income offered for assessment year 2015-16 (financial year 2014-15) was Rs. 14.19 crores (11.44 + 1.77 + 0.98). The assessee disclosed the same in the return of income f....
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....that the same has been worked out by considering selling price of products for post search period also. 7. However, before the AO, the assessee modified the gross profit margin initially worked out by it before the search officials. It was submitted that the average rate of Rs. 200/- per sq.ft. adopted by the assessee while giving declaration for undisclosed income was the "cost price" and not the selling price. However, gross profit margin of 22% represents gross profit margin on selling price. Accordingly, the assessee re-worked the gross profit earned on the sales made outside books at Rs. 2.27 crores. The details are given below: Total sales outside books - in quantity 4,02,108 sft Total sale adopting Rs. 257/- per sq.ft. 10,33,41,756 GP on sales 22% Gross income thereon 2,27,35,186 Undisclosed income admitted vide statement dated 3.3.2015 and ROI filed for AY 2015-16 on this account 1,76,92,755 Difference 50,42,431 Thus there was upward revision of gross profit margin by an amount of Rs. 50,42,431/-. The assessee submitted it has already offered income of Rs. 12.42 crores over and above the gross profit margin of Rs. 1.77 crores. Hence any additional ....
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..... This method involves determining of closing stock value on estimated basis. By following this estimating methodology only, the search officials have also arrived at stock shortage of 4,02,108.08 sq.ft and the shortage has been presumed to be unaccounted sales. In reality, it may not be so. However, the assessee agreed with the proposal of the search officials to treat the shortage as unaccounted sales in order to avoid protracted litigation and to buy peace from the department. In addition to the above, the assessee has also surrendered huge additional income. Thus, the entire offer of Rs. 18.10 crores (including Rs. 14.19 crores relating to the year under consideration) has been made on estimated basis without reference to any material. The gross profit on accounted sales is only one of the components in the above said disclosure of Rs. 14.19 crores. Accordingly, the Ld A.R submitted that the increase, if any, in gross profit amount should have been telescoped against other amounts already surrendered. 11. The Ld A.R submitted that the assessee had also estimated gross profit on the alleged unaccounted sales. He submitted that average cost price of shortage of stock was determi....
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....aintained comprehensive day-to-day stock records. This aspect was known and acknowledged by the ITD. In this backdrop, the book stock was arrived at on the basis of the gross profit methodology. The difference in stock vis-à-vis the stock records was identified as 4,01,108 sq.ft as on the date of the search held on 25.11.2014. Following the standard practice, the appellant computed the value of the book stock applying the gross profit methodology. The detailed computation of the same is available at para 6 and page number 10 of the assessment order....." Thus, it is clear that the assessee does not maintain material wise quantity register. It is also stated that the marble and granite slabs are prone to various defects like cracks, moles, fishers, colour variation, size variation, irregular sizes and likes. It is a fact that such kind of defective stock would command lesser price. Hence it was submitted that the value of stock is arrived on average basis. We also notice that the alleged shortage of stock was arrived at by the search officials by adopting gross profit methodology only. The Ld A.R submitted that the assessee has also agreed to the proposal of the search offic....
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....ions, the assessee has stated as "considering the status of sundry creditors". Under these set of facts, it may be safely presumed that the unaccounted receipts generated by the assessee has been ploughed back into business in the form of other credits. Hence, the assessee has offered additional income of Rs. 12.42 crores. In these set of facts, there is merit in the contention of the assessee that the gross profit addition of Rs. 4.14 crores made by the AO should be telescoped with the above said additional income of Rs. 12.42 crores, since the gross profit generated from out of unaccounted sales has been ploughed back into the business. Hence, even if the working of gross profit made by the AO is considered to be correct, the same is required to be telescoped against the surrender of Rs. 12.42 crores made by the assessee. 17. We notice that the Tribunal has considered an identical claim of telescoping in the assessee's own case in AY 2007-08 referred supra. The facts relating to AY 2007-08 are that the assessee was subjected to search on 8.3.2007. During the course of search, the assessee surrendered additional income of Rs. 15.99 crores out of sundry creditors balance. The sale....
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....s profit, and (ii) for unproved cash credits, should be telescoped and covered into one addition? Whether the Tribunal was right and had materials to hold that the cash credits in the books of the assessee were nothing but undisclosed profits in its business? Yes. It is open to the assessee to prove that the cash credits came from the suppressed profits towards which an addition has already been made, and, therefore, there should be telescoping of one with the other. If the Tribunal inferred that there was a connection between the profits withheld from the books and the cash credit entries, it cannot be said that the conclusion is based upon speculation. After analyzing the issue, the Hon'ble Court held thus - "The position that the assessee is entitled to claim that both the additions should be telescoped into one in such a situation is clear from the decision of the Supreme Court in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194. The facts in that case are more or less similar to the facts in this case. In the case before the Supreme Court there were two additions, namely, one towards suppressed business profits and the other towards the bogus cash credits. The Sup....
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....ed supra fits in to the issue under consideration. "(ii) Jagmohan Singh Arora And others v. DCIT and another - 101 TTJ 682 -ITAT, Mumbai Bench The issue before the Hon'ble Tribunal, in brief, was that there was an action u/s 132 of the IT Act, 1961 in the business as well as the residential premises of the appellant group consisting of a number of persons on 10-12-1998 during which certain documents, books of account and other valuables including cash and jewellery were found and seized. After deliberating the issue extensively, taking into account the counter submissions of the rival parties and also kept in view the Board's Circular F. No. 286/2/2003-IT (Inv. II) dt. 10-3- 2003, the Hon'ble Tribunal observed thus - "4. After going through the orders of the authorities below, rival submissions of both the sides and material on record, we are of the opinion that the question of whether any reliance and if so, how much reliance can be placed on the statements made during search, would depend on the facts of each case. We find enough force in the arguments on behalf of the A R as supported by the judgments cited by him and also corroborated by supporting mater....
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.... the two concerns belonging to the group engaged in dairy business. We find enough force in the arguments on behalf of the appellant group that here the AO has tried to tax both the earning of unaccounted money in the hands of the dairy farms and also application thereof in the hands of the firm engaged in construction and also the individual members of the group. The AO has not at all ITA No.98/Bang/10 considered the question of telescoping the unaccounted funds generated in the hands of those two concerns with the possible application thereof in the construction business. 4.2 Ultimately, taking into consideration all the above aspects, we hold that the additions as made by the AO in this regard in the hands of the different members of the assessee-group including the partnership firm are untenable. We, therefore, delete them." On a decisive perusal of the reasoning, we find that the ratio laid down by the Hon'ble Tribunal is applicable to the facts of the issue under dispute. 9.5............ 9.7. In an over all consideration of the facts and circumstances of the issue on hand and also in conformity of the findings of the Hon'ble Madras High Court and the Hon&#....