2016 (1) TMI 937
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 133A of the Income Tax Act, 1961 were carried out at the business premises of the company. During the course of survey certain stocks as per books of accounts were more than stocks actually found. This discrepancy was due to the fact that the company had a great financial crunch. For that reasons he has been selling the goods at a lower price and even at a loss to make the payments to the bank and to show adequate stocks in the books for the purpose of raising the loans, the company has been showing more G.P. rate consequently inflated stocks. However, in order to buy peace with the Department, the company has agreed to make a surrender of Rs. 30 lacs for the Assessment Year 2010-11 to cover up these discrepancies. This agreement of surrender has been made subject to the conditions that no penalty under the provisions of Income Tax Act or any prosecution shall be made. It is further assured that same GP shall be maintained as in last year for the purpose of tax on surrender. The payments of taxes shall be made within due date for which 3 cheques are given as security." 3. The assessee company had agreed to offer an additional income of Rs. 30,00,000/- for taxation to cove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was sold at the same value for which it was valued in the opening stock. From the above the only conclusion which can be drawn is that the stock was actually sold but the entire exercise was done in the books just to evade the gross profit earned on sale of this stock. Therefore it is held that the prior period rejection is not actually rejection but sales outside the books of accounts (unaccounted sales) and added back to the sale of the assessee. - The sale of the assessee is taken at Rs. 3,00,90,044/- [sale declared by the assessee Rs. 46,65,044/- + 2,54,25,000/-(rejection claimed)]" 4. The assessee challenged the addition before ld. CIT(Appeals) and filed written submissions which are reproduced in the appellate order and read as under : "Accordingly, the appellant-company agreed to an addition of Rs. 30,00,000/- (Rupees Thirty Lacs Only) to cover up this discrepancy on account of difference in stocks. As was explained during the course of survey and also assessment proceedings, the appellant-company had not been doing well for the past few years and had a great financial crunch. The appellant-company had been selling the goods with a lessor margin of profit and sometimes at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve sold the stocks outside the books of account. The other reason could be that the company had showing more G.P. than actually earned by the appellant-company which is the case of the appellant. Neither during the course of survey operations nor in assessment proceedings any purchase, sale or expenses was found unvouched. In the absence of which no addition could be made. However in order to buy peace with the Department the appellant-company agreed with the Revenue to an addition of Rs. 30 lacs which is evident from the letter of surrender dated 4.8.2009. It was assured to the Department that the same GP rate of 19.3% as against a GP of 18.2% A.Y. 2009-10, the Id. Assessing Officer instead of accepting the returned income in terms of the agreement which was specifically mentioned in the letter dated 4.8.2009 "However, in order to buy peace with the Department, the company has agreed to make a surrender of Rs. 30 lacs for the Assessment Year 2010-11 to cover up these discrepancies". The ld. Assessing Officer resiled from the agreement and not only applied a GP rate on this amount of-difference of Rs. 2,54,25,000/- but also again added the amount surrendered at Rs. 30 lacs which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r) on this amount of Rs. 2,54,25,000/-& the sales declared by the appellant of Rs. 46,65,044/-. The question of application of G.P. rate on the suppressed sales would arise only when the sales and the corresponding purchases are kept outside the books of accounts. There is nothing to indicate that even the purchases were omitted to be recorded in the account books. Therefore, in any case application of G.P. rate on suppressed sales is not justified. Further, if the stock was found short by Rs. 2,54,25,000/- at the time of survey, the Department should have asked for declaration of additional income to this extent. Probably, after taking into account all these factors, the appellant had declared only Rs. 30,00,000/- as additional income at the time of survey and this declaration was accepted by the Department. Be as it may, it is unbelievable that the appellant could have sold rejected goods worth more than Rs. 2,54,25,000/- within first four months of this year and so it is held that the Assessing Officer is not right in increasing the sales of the appellant by Rs. 2,54,25,000/- and computing gross profit on this amount. Hence, the addition made by the Assessing Officer on this acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irector of the assessee in the affidavit has confirmed that assessee has not asked for the refund of the amount paid as taxes on surrendered income and will also not ask for the refund of the same even if carry forward of the losses have been claimed. It would, therefore, prove that even if stock was found short during the course of survey but the explanation of the assessee could not be brushed aside that due to financial crisis, the assessee was making sales at the lower price or even at loss, in order to make the payment to the Bank. The ld. CIT(Appeals), therefore, rightly observed that assessee would not have sold the rejected stock of more than Rs. 2.54 Cr within first four months of this year because the survey was conducted on 30.07.2009. Thus, there was no basis to calculate shortage of the stock by Rs. 2.54 Cr. At the most, shortage of the stock could be considered as sales but nothing was indicated that purchases were not properly recorded in the books of account of the assessee. Therefore, survey party in their wisdom has agreed for surrender of Rs. 30 lacs by assessee in order to cover up the discrepancy found during the course of survey. Thus, 30 lacs have been surren....