TMI Blog2000 (1) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of difference in stock found during the course of survey operation under s. 133A of the IT Act, 1961. 3. That on the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 40,000 representing the income of property owned by wives of partners and rented out to M/s Hindustan Marble Emporium. 3(a). That while allowing relief at '3' above, CIT(A) has ignored the fact that the basis of family have no independent sources of income and only income of the ladies is by way of gift or loans given by partners of the firm. 4. That, on the facts and in the circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of Rs. 6,878 out of the total disallowance of Rs. 22,000 made by the AO under the head 'car expenses'. 4(a). That while allowing relief at '4' above, the learned CIT(A) failed to appreciate the facts brought on record, that contessa car was not part to use during the year as the assessee could not justify the expenses." 3. The assessee has filed its C.O. No. 90(Asr)/1993 on the following effective grounds: "1. That the learned CIT(A) has rightly deleted addition of Rs. 21,156. 2. That the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why this debit entry over and above the amount of Rs. 21,156 (the excess stock noticed at the time of survey) has been made to reduce the income. It was explained before the AO that since the amount had been surrendered on account of excess stock, the debit entry in the purchase account has correctly been made to the same extent. In case this amount is not debited the G.P. rate would come to 15.3 per cent which is not possible in this trade. Therefore, the trading results which show the G.P. rate of 7.9 per cent should be accepted. Whereas, on the other hand, according to the AO by doing so, profits have been understated and, therefore, he held that the appellant-firm reduced the income by inflating purchases of Rs. 2,28,844 as during the survey operation, it was noticed that the assessee had excess stock of Rs. 21,156 over and above the stock available within its books of accounts. So, in these circumstances, the purchases were required to be debited by the assessee only for Rs. 21,156 and not to Rs. 2,50,000 as had been done by the assessee. The AO was also of the opinion that the net effect of the additional income offered for assessment during the survey operation stood nul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nov., 1988, the survey party found an excess stock of Rs. 21,156 over and above the stock reflected in the account books of the assessee and on that very date, vide letter dt. 22nd Nov., 1988, the assessee offered a sum of Rs. 2,50,000 over and above in the income as per books of account. 13. In our opinion, when there was excess stock found during the survey, the assessee surrendered a sum of Rs. 2,50,000 on the same date, then while recasting the stock, he is definitely justified on debiting the purchases by a sum of Rs. 2,50,000 and also crediting the same sum to the P L a/c. The net effect of this surrendered income, offered by the assessee, does not stand nullified in case the same is found reflected by the assessee in sales accounts in the books of accounts and is reflected in his closing stock. If the amount of surrender of Rs. 2,50,000 is found reflected in the sales and closing stock in the account books of the assessee, then no addition can be made on this account by the AO. In these circumstances, we direct the AO to verify from the books of accounts of the assessee whether the entry of Rs. 2,50,000 debited to the purchase account by the assessee is later found reflec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of book results of the assessee and opined that the assessee has shown low G.P. in comparison to the other firms in the same business but, however, worked out the G.P. to 15.3 per cent and the application of the same by the AO was excessive because, according to the CIT(A), if we consider the fact that the assessee was also selling white cements wherein the margin of profit was lower giving the G.P. rate of 4.6 per cent as out of total sales of 34 lacs, the sales of white cements was of about Rs, 10 lacs and so the CIT(A) was of the opinion that it would be fair and reasonable to apply the G.P. rate of 12 per cent to the sales of marbles, chips and Karazy against 15.3 per cent worked out by the AO. 17. From the order of the CIT(A), it appears that while applying the G.P. rate of 12 per cent against the G.P. rate of 15.3 per cent applied by the AO, she has only considered the fact that the assessee was also dealing in white cement in addition to marbles, etc. She was also of the opinion that since the profit margin in case of sale of white cement was lower, so she was justified in applying a G.P. rate of 12 per cent in calculating the profits of the assessee. However, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d their income from the assessee-firm by various modes as discussed earlier. The said income is being assessed as that of the firm in view of the decision of Hon'ble Supreme Court in Jamana Prasad Kanhaiya Lal vs. CIT (1981) 23 CTR (SC) 146 : (1981) 130 ITR 244 (SC), as that income is to be taxed in the hands of the real owners and an addition of Rs. 40,000 (48,000-8,000-1/6th for repairs) shall be assessed in the hands of the firm. 22. The learned CIT(A) deleted the entire addition, in appeal, considering the following detailed discussion on the arguments made by the learned counsel for the assessee before her: "3.1 The counsel of the appellant-firm submitted that the said property is owned by the ladies. They have been assessed under s. 143(3) vide order dt. 27th Sept., 1990. In their own assessments the question of investment in the acquisition of property has been thoroughly examined and accepted. Therefore, the observations of the AO that the property belonged to the appellant-firm is not warranted. As regards the decision Jamana Prasad Kanhaiya Lal vs. CIT (1981) 23 CTR (SC) 146 : (1981) 130 ITR 244 (SC), relied upon by the AO it was pointed out that this judgment is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) in which he has rightly deleted the addition of Rs. 40,000. Accordingly, no interference is called for in the order of the CIT(A) and the ground of appeal of the Revenue is rejected and the order of the CIT(A) is sustained and ground No. 2 of the CO is allowed. 26. Ground Nos. (4) and 4(a) of the Revenue's appeal and ground No. 3 of the CO of the assessee relates to the disallowance of car expenses. 27. The assessee claimed allowance of Rs. 27,514 towards car expenses out of which the AO disallowed the car expenses to the extent of Rs. 22,000 observing that a sum of Rs. 17,514, relating to the Contessa car and 50 per cent of the balance was disallowed treating the same not to be related to the business expenditure. In appeal before the CIT(A), the assessee submitted that in the asst. yr. 1990-91 the disallowance to the extent of 1/4th of the vehicle expenses was sustained. In appeal, the learned CIT(A) accepted this contention of the learned counsel for the assessee and made the following observations while allowing relief of Rs. 15,122 to the assessee: "5.3. The disallowance made appears to be excessive. The AO has not given any reason for making the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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