2014 (7) TMI 376

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.... Officer during the course of assessment proceedings made an addition by taking the month wise purchases and sales and after adjusting opening and closing stock for the month applying a gross profit rate of 27.6%, which was arrived at from the figures of sales and purchases for the month of March and in this reverse process came to a conclusion that the assessee has negative stocks. The peak negative stock was added. Similarly the Assessing Officer made a disallowance of Rs. 10,68,000/- on estimate basis. 3. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted relief. Aggrieved with this order, the Revenue has filed this appeal before us on the following grounds. "1. That the Ld.CIT (A) has erred ....

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.... and the bills for these are received later on i.e. after acceptance of the material and that these are subsequently accounted in the books of accounts, was not supported by any evidence whatsoever. She submitted that the purchases were made outside the books of accounts. She argued that the Assessing Officer has, in view of these discrepancies, adopted a method of applying of gross profit and thereafter estimated the stocks and arrived at the negative stock. On the issue of adhoc disallowance the Ld.D.R. submitted that the Assessing Officer noted that the assessee has not furnished the information called for by the A.O. such as list of employees with their PAN, address, annual salary and job assigned etc. and as the assessee failed to prov....

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....nd cannot be upheld. The closing stock cannot be estimated by assuming a particular Gross Profit Percentage when the books of accounts are not rejected. The Assessing Officer has not rejected the books of accounts in this case. 8. The Delhi 'A' Bench of the Tribunal in the case of Anand Prakash Gupta on a similar issue has held as follows. "Income from undisclosed sources - Negative stock - unexplained investment in stock - assessee was engaged in business of wholesale food grains - During assessment Assessing Officer referred to details furnished by assessee with respect to month wise sale and purchase - Assessing Officer prepared a chart of closing stock and noted that assessee had negative stock - Assessing Officer added amount of ....

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.... 10. On the issue of adhoc disallowance the First Appellate Authority at para 5.5 has held as follows. "5.5. The appellant has explained in detail that these employees are villagers doing hand jobs who come from far flung areas and then go back to their villages or some other business concerns. The appellant argues that whatever information regarding their addresses had been provided, the same was provided to the Assessing Officer. I find sufficient force in assessee's explanation. Salary register has been maintained and primary details are available regarding the employees to whom salary was paid. There is a force in explanation that higher salary expense was incurred because the turnover of the business also increased from Rs. 2.68 cr....