TaxTMI 
TaxTMI 
2011 (9) TMI 1007
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....e extent of Rs. 44,20,000/-. The difference in stock came to Rs. 1,79,35,023/-. Shri Neeraj Lakhi partner of the firm offered excess stock of Rs. 1,79,35,023/- as undisclosed income for the assessment year 2006-07 vide statement recorded during the survey. However, in the return of income, the assessee has disclosed Rs. 1,35,61,270/- as excess stock. The AO therefore, required the assessee to explain as to why excess stock of Rs. 1,35,61,270/- has been disclosed in the return as against Rs. 1,79,35,023/- offered for taxation in the statement given by one of the partner at the time of survey. The assessee filed an explanation vide letter dated 17-06-2008. It has been mentioned that on that date some purchases and sales were not recorded in the books of account. After considering such entries, the assessee prepared a recasted trading account. It was further pointed out that the Department has valued the stock at market value and reduced the value by 10% , the gross profit, to ascertain the cost of the goods found at the time of survey. The assessee has applied the G.P.Rate of 15.89% to arrive at the cost of the inventory prepared by the Department. The assessee has disclosed the G.P.....
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....y bills for the goods which were lying in the business premises were still to be entered but the partner stated that stock as per books has been correctly taken at Rs. 44.20 lacs. However, the G.P.Rate of 18.68% was accepted by the AO to determine the cost price of the stock. The AO accordingly determined excess stock at Rs. 1,58,38,634/- while the assessee has offered the excess stock of Rs. 1,35,61,270/-. The AO accordingly made the addition of Rs. 22,77,364/-. 2.4 Before the ld. CIT(A), the assessee stated that the AO has ignored the purchases of Rs. 14,55,382/- and sales of Rs. 2,95,018/-. The purchases included purchases amounting to Rs. 7,03,570/- from M/s. Royal Gems Source, Bangkok. Before the ld. CIT(A), it was submitted that purchase are supported by purchase invoice and the copy of ledger account of that party in the books of account of the assessee. In respect of purchases from four other parties, it was stated that such purchases are supported from purchase invoice. The AO should have give credit in respect of the purchases to the extent of Rs. 14,55,382/-. The assessee has worked out the excess stock in the case independently. Even on the reworking of the excess st....
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....issued to such parties were returned back with the remark not found. The evidences furnished by the appellant in support of such purchases at best can only establish paper existence of such parties. But the fact remains that the purchases from such parties remained unverified and no credence can be given to such purchases. Considering the totality of circumstances, the position of excess stock would work out as under: Particulars Appellant Firm Other group Firms Total Market value of physical stock in survey 2,49,12,240/- 2,41,05,219/- 4,90,17,459/- Less: GP rate @ 18.68% and 14.92% respectively (as on the date of survey) 46,53,606/- 35,96,498/- 82,50,104/- 2,02,58,634/- 2,05,08,721/- 4,07,67,335/- Less: Book Stock 49,28,196/- 2,20,35,551/- 2,69,63,747/- Excess Stock / Short Stock 1,53,30,438/- (15,26,830/-) 1,38,03,608/- Thus, taken together the excess stock works out to Rs. 1,38,03,608/- offered by the assessee. In these circumstances, the excess stock offered by the appellant at Rs. 1,35,61,720/- is found to be short by Rs. 2,42,338/- worked out above. The addition is th....
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.... the G.P.Rate for arriving at the quantum of excess stock. The assessee while filing the return worked out the correct book stock of all the concerns on the date of survey at Rs. 2,76,67,316/- after entering the purchase and sales made before survey but not recorded in the books and average G.P.Rate of all the concerns was taken at 15.89%. The excess stock was therefore, estimated at Rs. 1,35,61,270/-. It was stated that since entire stock is considered in the hands of the assessee, therefore, reduction for G.P.Rate should be considered at 18.68% from the value of physical stock. According to the assessee, the excess stock found during the course of survey in respect of all the concerns will be to the extent of Rs. 1,22,34,684/-. The working as given by the assessee is as under:- 'Total Value of physical stock as inventorised by survey party: Rs. 4,90,17,460/- 75, Gopal Ji Ka Rasta 2,49,12,240/- Narendra Plaza 2,41,05,219/- Less: GP rate of 18.68% Rs. 91,15,460/- Value of stock found during the course of survey Rs.3,99,02,000/- Less Stock as per books of accounts as on 18-08-05 Biharilal Holaram Rs.56,31,76....
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....in the books of accounts while arriving at the book stock. In these circumstances the purchase and sales which could not be recorded in the trading account submitted in the course of survey needs to be taken into account for arriving at the correct book stock. On that basis the book stock of assessee firm needs to be considered at Rs. 56,31,765/- as against Rs. 44,20,000/- taken by the AO. 3. The CIT (A) after considering evidence on record has accepted the purchases of Rs. 7,03,570/- and sales of Rs. 2,95,018/- as made prior to the date of survey in arriving at the book stock and accordingly accepted the book stock at Rs. 49,28,196/- as against Rs. 44,20,000/- determined at the time of survey and Rs. 56,31,765/- arrived at by the assessee. The assessee is not in cross appeal and therefore the book stock as arrived at by CIT (A) at Rs. 49,28,196/- needs to be accepted. 4. The another issue is whether stock of all the group concern should be considered together or not. It is a fact on record that in survey stock of all group concerns were considered together. The excess stock arrived at was got surrendered in case of the assessee. However, in assessment, the AO mad....
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....,79,35,023/-. The physical stock as per market rate was around Rs. 4.90 crores and if the G.P.Rate of 10% is applied then the stock at cost price will be around Rs. 4.41 crores as against Rs. 2.61 crores as per books after considering the stock of all the concerns. Hence, from the statement, it is clear that the stock at the business premises situated at 75, Gopal Ji Ka Rasta, Jaipur was also belonging to the other concerns as well as to the assessee concern. We therefore, agree with the findings of the ld. CIT(A) that one will have to consider over all position of the stock. The stock found short in the case of other concerns is to be adjusted against excess stock found at the premises situated at 75, Gopal Ji Ka Rasta, Jaipur. 2.11 Purchase voucher issued by M/s. Royal Gems, Bangkok is available at page 27 of the paper book. This purchase voucher is signed by Supt of Customs, Jaipur on 11-08-05 and is in the name of the assessee firm. It is not the case of the Revenue that such items so purchased had been sold between 11-08-05 to 18-08-05 i.e. the date of survey. The payment in respect of such purchases has been made on 25-01-06 at Rs. 7,15,323/- as against purchase value of R....
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....age No. 21 Annexure A-49 12,695 12. Page No. 24 Annexure A-49 3,00,592 13. Page No.58-60 Annexure A45 15,00,000 14 Page No. 26 Annexure A59 20,693 15. Page No16-18 Annexure A12 3,982 3.3 Before the ld. CIT(A), it was submitted that the AO has estimated the income/ expenditure on the basis of certain loose papers. Such addition has been made without understanding the nature of these papers. The major papers in these Annexures are approval memos of goods received and send and physical inventory of the stock at a particular date. When the goods are approved then the same is kept/ returned back/ delivered/ taken back as the case may be. Number of such approval memos related to the year 2003. The AO estimated the quantum involved in these loose papers and made the addition. No addition can be made on the basis of such approval memos. The profit earned on the basis of these approval memos get invested in stock and such excess stock has been offered to tax. Hence, no separate addition is required to be made on the basis of such loose papers. 3.4 The ld. CIT(A) after considering the submissions of the assessee has recorded the detailed....
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....ssessee as there is no material to hold that goods are lying with third party. But at the same time he held that these goods represent the unaccounted sale of the assessee on which he estimated profit on sale. Therefore addition is rightly deleted by CIT (A). Annexure 8 pg no. 30 & 31 A O page 18-19 CIT (A) page 15 17,29,320/- Amount received from Kamlesh & Co in cash, treated as unexplained income u/s 69 The paper is a ledger account of the assessee in books of Kamlesh & Company (PB 43-44). The opening balance in this account is Rs. 17,29,320/- representing the amount due to the assessee from this concern. This amount is realized during the year as noted in the ledger. Thus in fact the paper shows that assessee has realized this amount out of the opening amount due to the party. Thus this amount is available as a source for the assessee for making investment in the stock which is found in excess. The AO has wrongly invoked section 69 as during the year there is no investment rather it is a case of realization of investment. Hence no addition for this amount can be made during the year rather it becomes the source for making the investment in the stock which is fo....
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....nt of Rs. 42,380/- is again noted on page 12 of this annexure against which Rs. 41,000/- is realized. Thus in effect the papers indicate sale of the goods for Rs. 43,280/- on which only an addition for gross profit can be made. This addition is also not required as the same was invested in the stock found in excess in survey and offered for tax. The CIT (A), considering this factual position, has rightly deleted the addition and considered it for determination of profit on sale. Annexure 8 pg no. 12, A O 19 43,280/-CIT (A) 17 Goods sent on approval, treated as unaccounted stock. The amount of Rs. 43,280/- on this page is covered by page 13 of annexure 8 above (PB 48). Hence CIT (A) rightly deleted the addition. Annexure 22, 23 & 24 A O page 19-20 CIT (A) page 17-18 75 lacs Estimated cost of goods sent for display, added as unaccounted stock Annexure 22, 23 & 24 are approval memo in respect of goods taken from the show room by the staff or the partners of the firm for exhibition or marketing to other places. On this annexure only name of the item and weight is noted. Rate is not mentioned. These are prepared for carrying the goods to other places and not for ....
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....ount of Rs. 29,455/- (13646/- + 15809) was personal expenditure of the partners and born by them. The CIT (A) has considered this paper on substantive basis in case of M/s. Lakhi Gems and therefore rightly deleted the protective addition from the hands of the assessee. Annexure A 49 pg no 21 A O 21 CIT (A) 19-20 12,695/- Unexplained expenditure added u/s 69 C. This paper is the details of the printing expenses of Rs. 12,695/-. Out of this expenses of Rs. 8810/- (4000 + 270 + 1740 + 2800) is duly recorded in the books. (PB 69-71) The balance amount of Rs. 3885/- is not verifiable. The CIT (A) has therefore rightly restricted the addition to Rs. 3,885/-. Annexure A 49 pg no. 24 A O page 21-22 CIT (A) page 20 3,00,592/- Unexplained expenditure added u/s 69 C. This is the approval memo of the goods received from Armila Gems on 10-08-2005 for Rs. 3,00,591/-.These goods was returned back on 17-08-2005 as per the copy of the approval return memo enclosed (PB 72-73). Hence on the basis of this approval memo, no separate addition can be made as excess stock is already taxed. In these circumstances, CIT (A) has rightly deleted the addition. Annexure A 45 pg n....
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....e fact that quantum is undisputed; we feel that ld. CIT (A) has drawn a right conclusion. 3.8 Page No. 30 & 31 of Annexure 8:- This is ledger account of the assessee firm in the books of assessee for the period 1.4.2005 to 15.4.2005. Entries at page 31 are included in ledger account at pages 30. Such pages are available at pages 43 & 44 of Paper Book. In the books of Kamlesh & Co., the assessee was having credit balance as on 1.4.2005. It means the assessee was to receive payment of Rs. 17,29,000/-. The assessee has made cash payments and such payments exceed Rs. 20,000/-. We are not aware as to whether any goods were sold or Loan was advanced before 1.4.2005. Hence these papers are not relevant for A.Y. 06-07 as it shows receipts of cash and such cash receipt is considered to be invested in excess stock. 3.9 Page No.51 of Annexure 8: Copy of this page is not enclosed in the paper book filed before us. Finding of A.O. is the same as given for page 7 of Annexure 8 and finding of the ld. CIT (A) is the same as given for page No.7 of Annexure 8. In the written submissions filed before ld. CIT (A), copy of which is available in paper book filed before us, it is mentioned that thi....
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....ok entries are considered as normal. It will be useful to reproduce entries on 26/6 Balance 3314.8 + 50,000 Balance 8314.8 Here entries may be in hundred. Looking to the perusal of document, we feel that A.O. was reasonable in making addition of Rs. 2,84,314/-. Hence on this issue we uphold the finding of A.O. 3.16 Annexure A-49 Page 12: It is available at page 68 of the Paper book. As per assessee, it contains the traveling expenses. Before the A.O. it is stated that traveling Rs. 1,94,567/- is recorded in the regular books of Lakhi gems. There is no mention as to whom such paper relates. A.O. has not collected any material to rebut the contention that paper belongs to Lakhi gems. The A.O. has not asked the assessee to file evidence that traveling included are not those traveling which are debited in the books of M/s. Lakhi gems. A.O. could have examined the persons in whose name traveling expenses have been debited. We therefore upheld the finding of ld. CIT (A). 3.17 Page No.21 of Annexure A-49.:- Page No.21 of Annexure A-49 is available at page 69 of Paper Book and it was found from the premises of Khushboo Jewellers. Page No.70 is ledger copy. Pa....