Gross profit rate on stock shortage recomputed at 30% after survey variation and past-year margins were considered.

Variation in stock found during survey led to an addition based on a gross profit rate of 35.13% on the stock shortage. Considering the assessee's reported gross profit rate of 28.34% for the year and the average rate of about 26% from the preceding four years, the appropriate rate for recomputation was fixed at 30%. The addition was therefore not sustained at 35.13% and was directed to be recomputed at 30%, granting partial relief.

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Issues: Whether the gross profit rate applied to the addition arising from shortage of stock was required to be sustained or revised.

Analysis: The record showed variation in stock found during survey and the Assessing Officer had applied a gross profit rate of 35.13% on the shortage. The earlier years' gross profit rates, including an average of about 26% for four preceding years, were available on record, while the assessee had shown a gross profit rate of 28.34% for the year under appeal. In the interest of justice, the appropriate gross profit rate for the shortage of stock was taken at 30%.

Conclusion: The addition was not upheld at 35.13% and was directed to be recomputed by applying a gross profit rate of 30%, resulting in partial relief to the assessee.

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