2024 (4) TMI 91 - AT - Income Tax

Unaccounted stock found in survey taxed at 5% profit rate, not full value

M/s. B.J Cotton Industries Modasar Char Rasta, Anil R. Shah (C.A) Versus D.C.I.T, Circle-3 (1), Vadodara.

M/s. B.J Cotton Industries Modasar Char Rasta, Anil R. Shah (C.A) Versus D.C.I.T, Circle-3 (1), Vadodara. - TMI Issues involved:The only issue raised by the assessee is the addition made on account of excess stock found during a survey operation.Details of the Judgement:Issue 1: Addition on account of excess stock found during survey operation- The assessee, a partnership firm engaged in the business of manufacturing and trading of cotton, cotton seeds, and cotton seeds oil, had unaccounted stock of 2119 quintal worth Rs. 65,68,900 found during a survey operation under section 133A of the Income Tax Act.- The learned CIT(A) confirmed the addition made by the Assessing Officer.- The assessee contended that only an element of profit should be taxed from the unaccounted stock, not the entire amount.- The Tribunal noted that the unaccounted stock arises from unaccounted purchases, and the money invested in such stock was not quantified or taxed by the authorities.- Citing precedents, the Tribunal held that only the profit element embedded in such unaccounted stock should be taxed.- The Tribunal determined the profit element at 5% of the value of unaccounted stock, resulting in an addition of Rs. 3,28,445 to the total income of the assessee.- The order of the CIT(A) was set aside, and the appeal of the assessee was partly allowed.Conclusion:The Tribunal ruled in favor of the assessee, holding that only the profit element embedded in the unaccounted stock should be taxed at the rate of 5%.