Tribunal upholds deletion of addition by CIT(A) due to double counting of profit in WIP sale value.

The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition based on estimated additional gross profit and reject the AO's rejection of the books of account. It was found that the AO's addition led to double counting of profit already included in the sale value of the Work in Progress (WIP). The tribunal concluded that the Revenue failed to provide evidence to challenge the CIT(A)'s findings, resulting in the dismissal of the Revenue's grounds.

---

---

Issues Involved:
1. Rejection of books of account by the Assessing Officer (AO).
2. Deletion of addition based on estimated additional gross profit.
3. Alleged double addition due to determination of Work in Progress (WIP) on account of sale value.

Detailed Analysis:

1. Rejection of Books of Account by the Assessing Officer (AO):
The Revenue contended that the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in holding that the books of account of the assessee were not required to be rejected. The AO had rejected the books of account under section 145(3) of the Income Tax Act, 1961, due to discrepancies in the stock found during a survey conducted under section 133A. The AO noted that the assessee had not maintained the purchases and sales register, leading to an excess stock of Rs. 1,88,77,595/- which was admitted by the assessee as unaccounted investment in stock of raw materials.

The learned CIT(A) disagreed with the AO's rejection, citing that the recognized method of valuation is cost or market rate, whichever is lower. The CIT(A) referenced the Supreme Court's decision in Sanjeev Woolen Mills v. C.I.T. 279 ITR 434 (SC), emphasizing that the method of accounting should be such that real income, profits, and gains can be properly deduced. The CIT(A) also noted that non-maintenance of a day-to-day stock register is not a valid reason to reject books, as upheld by the Delhi High Court in CIT v/s Jas Jack Elegance Exports (2010) 324 ITR 95 (Del.).

2. Deletion of Addition Based on Estimated Additional Gross Profit:
The AO had made an addition of Rs. 2,09,64,740/- to the income of the assessee as undisclosed profit, based on a difference in gross profit percentage compared to the preceding year. The AO recomputed the gross profit of the assessee at 16.86% after excluding the disclosure amount of Rs. 5,04,09,595/- (unaccounted investment in stock).

The learned CIT(A) allowed the appeal filed by the assessee, stating that the survey party had valued the WIP at the sale value, which already included the profit component. Therefore, excluding the declaration and estimating the gross profit again was unwarranted. The CIT(A) concluded that the addition resulted in double counting of the profit component already included in the sale value of the WIP.

3. Alleged Double Addition Due to Determination of WIP on Account of Sale Value:
The Revenue argued that there was no double addition on account of the valuation of raw material and highlighted a fall in gross profit (GP) of 9.94% in the post-survey period compared to the average GP of the immediately preceding two assessment years.

The assessee contended that the unaccounted investment in stock of WIP of cranes amounting to Rs. 3,15,32,000/- was valued at the sales price, and this amount, along with Rs. 1,88,77,595/- (unaccounted investment in raw materials), was already offered to tax in the return of income. The CIT(A) supported this view, noting that the sales value considered for WIP computation included the profit component, and therefore, the addition made by the AO resulted in double addition.

The tribunal upheld the CIT(A)'s decision, finding no infirmity in the impugned order. The tribunal noted that the Revenue had not provided any evidence to counter the CIT(A)'s findings that the Sales Tax/VAT assessment order had accepted the assessee's books of account. Consequently, the grounds raised by the Revenue were dismissed.

Conclusion:
The appeal by the Revenue was dismissed, and the tribunal upheld the CIT(A)'s decision to delete the addition based on estimated additional gross profit and to reject the AO's action of rejecting the books of account. The tribunal found that the addition made by the AO resulted in double counting of the profit component already included in the sale value of the WIP.

---