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TMI Blog2011 (1) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,381/- disclosed in the immediately preceding year. The AO completed the assessment under Section 143(3) of the Act. On 24-11-2004, a survey under Section 133A was undertaken at the business premises of the assessee. During the course of survey, it was noted by the AO that the business of two concerns viz. K.P. TRakeshkumar, Prop. Nanikaram S. Jhamtani and K.P. Rakeshkumar Cloth Pvt. Ltd. were carrying out their business from Shop No. 178/179, Sindhi Market, Revdi Bazar, Kalupur, Ahmedabad. An inventory of stock lying at the shop of both the concerns was prepared and on the basis of such inventory the value of stock was worked out at Rs. 72,62,556/-. In a statement recorded during the survey, Shri Nanikram S. Jhamtani disclosed the stock of Rs. 99.09,905/- in the books of K.P. Rakeshkumar and the stock of Rs. 16,71,283/- in the books of K.P. Rakeshkumar Cloth Pvt. Ltd. The AO found a deficit of Rs. 43,18,632/- in the stock maintained in the books of account of above two concerns. The assessee explained that the survey team while working out the stock position on the date of survey did not consider the quantity of cloth of 312583.50 meters and 2804 pieces given to the workers for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted sales of the assessee and added the same as unaccounted sales to the returned income of the assessee. The assessee further contended before the learned CIT(A) that the statement recorded during the survey at odd hours was later on retracted in an affidavit by giving proper explanation. Therefore, without looking to the facts and circumstances of the case, the addition of Rs. 27,04,785/- made by the AO as unaccounted sales is not sustainable in law. It was explained that the assessee filed affidavit to retract from earlier statement. The assessee placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Kailashben Manoharlal Choksi, 174 Taxman 466 wherein it was held that statement recorded u/s. 132(4) at midnight cannot be relied upon as the person may not be in a position to make any correct or conscious disclosure if such statement is recorded at such odd hours, more particularly, if such statement is thereafter retracted within a reasonable time. It was further contended that small time businessmen or traders do not keep upto-date daily stock register on the basis of their books of account and therefore such figure of stock on the date of survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. while arriving at the difference has not considered the submissions made before her during the assessment proceedings by the appellant. 4.14 It is on record that the appellant retracted his statements by filing an affidavit on 14.12.2004. Therefore, after his retraction the statement recorded at the time of survey had lost its evidentiary value. It was incumbent upon the A.O. to bring necessary facts on record to support his findings with regard to discrepancy in stock on the basis of which impugned addition has been made. However, it is seen from the assessment order no such effort was made even though the appellant filed the details of stock worked as per books of account after considering sales made between 25th to 30th November and subtracting the purchases between 25th to 30th November. The appellant filed the stock position on the basis of books of accounts as on the date of survey wherein the stock was shown at Rs. 72,25,436/-. The appellant's submissions in this regard have been reproduced by the A.O. at page 5 and 6 of the assessment order. The A.O. without bringing any material on record rejected the appellant's explanation and the stock position as on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and provided a figure which was retracted by him by filing an affidavit. Further he accepted in his statement recorded at the time of survey that he did not maintain a stock register and was working out the closing stock on the close of financial year on estimate basis only. 4.17 Therefore, (a) the aforesaid factors: (b) the discrepancy in stock and (c) a fall in G.P. over the preceding year provide ample grounds to conclude that the books of accounts of the appellant are not reliable. 4.18 The A.O. has not rejected the books of account, however, the undersigned has the power under the provisions of sec. 251 of the Act in this regard. Therefore, the books of accounts are required to be rejected by invoking the provisions of sec. 145(3) of the Act. Hon'ble Supreme Court in the case of CIT Vs. Macmillan & Co. 33 ITR 182 (SC) has held that : "If the Assessing Officer has failed to apply his mind to the first proviso to section 145(1) or has come to a wrong determination for or against the assessee in the computation of the income, the first appellate authority can correct that error when it has seizin of the assessment on an appeal filed by the assessee. The first appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t/short fall as compared with the stock noted in the books of accounts. The AO after considering the explanation of the assessee considered the deficit/short fall stock as unaccounted sales of the assessee and made addition of Rs. 27,04,785/-. Hon'ble Madhya Pradesh High Court in the case of Commissioner of Income-tax Vs Balchand Ajit Kumar, 263 ITR 610 held that the total sales cannot be regarded as the profit of the assessee. The net profit rate has to be adopted and once the net profit is adopted, it cannot be said that there is a perversity of approach. The Hon'ble Gujarat High Court in the case of CIT Vs. President Industries, 258 ITR 654 held "dismissing the application for reference, that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods,; only the realisation of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the assessee and that that investment was als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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