TaxTMI 
TaxTMI 
2004 (3) TMI 397
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....les. 3. On the facts and in the circumstances of the case, CIT(A) erred in deleting the addition made by the AO on account of capital investment of Rs. 45,000. 4. On the facts and in the circumstances of the case, CIT(A) is not justified in ignoring specific discrepancies detected by the AO and ultimately in the statement on oath recorded by the AO the partner confessed the same assuring that difference in closing stock will be reconciled but the assessee failed to do so. 5. On the facts and in the circumstances of the case, the CIT(A) is not justified on one side upholding the AO's action of invoking provisions of s. 145(2) for the reason that the assessee has not been able to bring on record or produce before him in the course of appellate proceedings any positive or conclusive evidence and simultaneously restricting addition of Rs. 50,000 only and thereby granting substantial relief out of the additions made by the AO on account of closing stock difference unrecorded purchases/sales and capital investment. 6. On the facts and in the circumstances of the case, CIT(A) further erred in deleting the addition of Rs. 2,35,032 made by the AO on account of GP on regular turn....
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....sing stock position as on 31st March, 1991, which reads as under: As per stock As per Differences Value register books Qty Rate Qty. Qty. Rs. Rs. 1. Shengdana 10 5 (-) 5 1,260 6,300 2. Rice (Katte) 3,269 1,864 (-) 1,405 234 3,29,617 3. Math-dal 54 15 (-) 39 300 11,700 4. Mung dal 142 9 (-) 133 500 65,005 5. Masur dal 119 39 (-) 80 350 28,000 6. Udid Dal 35 23 (-) 12 350 4,200 7. Tuwar Dal 599 426 (-) 173 600 1,03,800 5,50,117 The assessee, vide its letter dt. 31st March, 1994 objected to above proposed addition on the Rs. 5,50,117 stating that there was no justification in making the addition on the basis of so called discrepancies in the supply register and audit report. It was specifically stated that earlier the AO had mentioned the difference in closing stock as per the supply stock register at Rs. 94,950 and now the AO worked out the difference at Rs. 5,50,117. Accordingly, it was submitted that the alleged discre....
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....ular cash book, ledger and Jama-nond and that as recorded in the stock register maintained for the supply department purpose in respect of period from 20th Dec., 1990 to 31st March, 1991. He therefore estimated the said sales on pro rata basis. The working is given in Annex. 1 to the assessment order. As per Annex. 1, the AO worked out unrecorded turnover at Rs. 20,40,521 and applying GP rate of 2.5 per cent, the AO worked out the income at Rs. 51,013. As regards the addition of Rs. 45,000 on account of estimated capital investment in the estimated unrecorded transactions, the AO observed that value of unrecorded purchases/sales has been determined at Rs. 20,40,521 vide Annex. 1. He further observed that no businessman would make a turnover for earning profit without the help of capital investment. Therefore, it is essential to invest certain capital share not shown by the assessee in its regular books of account and balance sheet. He also pointed out that transactions of purchases and sales as recorded in the stock register do not also appear in the regular books of account. In these circumstances, the AO estimated capital investment of the assessee at Rs. 45,000 as per working....
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....hart, it was submitted that the difference in stock was only to the extent of Rs. 18,383. It was specifically stated that the AO, while arriving at the difference of Rs. 5,50,117 had committed a mistake and worked out the actual closing stock as on 31st March, 1991. It was stated that the AO has only taken into consideration those items in which there was excess stock of commodities as per supply stock register. At the same time, the AO has not taken into consideration those items of stock as per the books which were more than the corresponding stock shown in the supply register. It was vehemently argued that the stock register did not reflect the true position of the actual excess stock. Therefore, the AO was not justified in making the addition of Rs. 5,50,117 on this account. As regards the additions of Rs. 50,013 and Rs. 45,000, it was contended by the assessee before the CIT(A) that both these additions were made by the AO on the basis of assumptions and presumptions. There was no evidence on record to justify both these additions. The AO has not correctly appreciated the facts of the present case. The view taken by the AO that each inward and outward entry in the Supply Ac....
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....vide paras 9 to 17 of the impugned order. For the detailed reasons given therein, the learned CIT(A) estimated the addition at Rs. 50,000 as against three additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000. In other words, the CIT(A) allowed a relief of Rs. 5,96,130. 6. Now, the Department is in appeal against the relief of Rs. 5,96,130 given by the CIT(A) in respect of the three additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000 made by the AO. At the same time, the assessee is also in appeal against the addition of Rs. 50,000 sustained by the learned CIT(A). 7. Before us, Smt. Kusum Ingale, the learned Departmental Representative strongly supported the order of the AO. She further submitted that the AO has discussed the above issues in detail in the assessment order dt. 31st March, 1994 passed under s. 143(3) of the Act. She further submitted that the assessee could not give any satisfactory explanation regarding difference in stock pointed out by the AO and, therefore, the CIT(A) was not justified in sustaining the addition of Rs. 50,000 only out of the additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000. She has also stated that the learned CIT(A) has not assigned an....
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....lt in by the firm. The other explanation of the assessee was that bifurcation of the goods traded was made by the staff of the assessee and there was a chance of mistake due to wrong classification of goods of which no verification was done by the partner. It is observed that the AO has not brought out any material on record to controvert the above explanation of the assessee. It is also noticed that the AO has pointed out some discrepancy in rice account. However, the assessee explained the true position with regard to this discrepancy before the AO as well as the CIT(A). The contention of the assessee has been accepted by the AO after verification, vide its report dt. 20th Feb., 1995. It seems that during the course of appellate proceedings, the CIT(A) has asked the AO to forward his comments on the written submissions filed by the assessee. The CIT(A) has also admitted that the assessee had successfully explained the discrepancy in rice account. It is also noticed that at one time the AO proposed to make an addition of Rs. 94,950. Subsequently, he has changed his mind and made an addition of Rs. 5,50,117. This fact alone shows that the AO himself was not sure about the alleged d....
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....he books of account for the whole year. In our considered view, there was no justification in making the addition of Rs. 51,013 by applying GP rate of 2.5 per cent on the estimated sales of Rs. 20,40,521. As regards the addition of Rs. 45,000, the CIT(A) has correctly observed that the AO was not justified in making the calculation on pro rata basis with reference to the hypothetical sales of Rs. 20,40,521. We do not find any concrete material on record to support this addition. In view of the above discussion, we do not see any merit in ground Nos. 1 to 5 of the Departmental appeal. However, we find substance in this contention of the learned counsel for the assessee that the CIT(A) has without any basis worked out difference in value of stock at Rs. 44,865. The accounts of the assessee were being audited under s. 44AB of the Act. The CIT(A) himself has admitted that the stock supply register maintained by the assessee was being maintained under the Essential Commodities Act. Furthermore, all the commodities dealt in by the assessee were not mentioned in the said register. In our view, the CIT(A) has correctly observed to this extent that the entries appearing in the supply stock ....
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....0 to 31st March, 1991 which was initially worked out at Rs. 5,82,575 in respect of purchases and Rs. 4,65,955 in respect of sales. However, the AO revised the figures of abovesaid difference at the instance of the assessee. He found that in the stock book maintained by the assessee, Rs. 4,03,461 was shown in respect of purchases and Rs. 1,56,422 in respect of sales. The assessee vide its letter dt. 31st March, 1994 stated that the figures of discrepancies were changing from time to time. It was also submitted that the assessee had not maintained the said stock register seriously; however, the same was maintained under the Essential Commodities Act. The assessee also reiterated the submission that there was a chance of mistake in entering inward and outward of each commodity as the said register was maintained by the staff which included as many as 12 commodities against total 38 commodities dealt in by the assessee. The assessee also submitted that no proper verification of the goods was done as the register was not treated as a record of purchases and sales effected by the firm. The AO did not find any merit in the above submissions of the assessee. He therefore worked out the qua....
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....s. 1,89,28,228 at Rs. 4,73,205. After deducting the GP shown by the assessee at Rs. 2,38,273, the AO added the balance of Rs. 2,35,032 to the total income of the assessee. 11. Before the CIT(A), the assessee reiterated the submissions made before the AO. Further, it was submitted that the GP addition made by the AO was totally unwarranted and unjustified. The assessee was maintaining regular books of account and the trading accounts were supported by bills and vouchers. The assessee was also maintaining quantitative details. The AO has not pointed out any defects in quantities maintained by the assessee in respect of various items. It was also brought to the notice of the CIT by the assessee that book results had been accepted in asst. yr. 1990-91 and assessment was made under s. 143(3) of the Act. The assessee also submitted that the trading results declared by it were also better as compared to the earlier years. The turnover disclosed by the assessee for the assessment year under consideration was at Rs. 1,89,28,224 as against turnover of Rs. 1,58,79,548 shown in the immediate preceding year. It was also submitted that the AO was not justified in comparing the trading results....
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....eceding year. It is true that the AO has not pointed out any material defects in the books of account of the assessee regularly maintained by it on day to day basis. At the same time, the AO was not justified in relying upon the trading results of abovementioned two concerns, particularly when the said concerns were engaged in the business since long, while the assessee had started its business only from 2nd May, 1988. Therefore, there was no justification in comparing the book results of the assessee with those of M/s Mahesh Trading Co. and Shri G.R. Wani of Dhule. In view of the above, we decline to interfere with the findings of the learned CIT(A) on this issue. 14. Ground No. 7 is against the action of the CIT(A) in deleting the addition of Rs. 40,000 made on account of household expenses. The AO has observed that withdrawals by the partners in respect of house-hold expenses were too low. According to him, Abbasbhai Adambhai had withdrawn only Rs. 4,600. Similarly, Shri Sabbirbhai Abbasbhai had withdrawn only Rs. 4,500. However, Smt. Sakina Zalfikar had not withdrawn any amount. According to the AO, the withdrawals made by the partners of the assessee-firm were low and he th....