2020 (9) TMI 28

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....ere of perishable nature and totally impracticable to hold such a huge stock. The appellant prays that the arbitrary additions made under this head may be deleted. 2.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the additions of Rs. 49,39,400/- on account of the allegedly unaccounted receivables. 2.1 The Commissioner (Appeals) brushed aside the explanation that the ' entire amount of receivables cannot be treated as income and the income ought to have been assessed by applying the normal GP rate. The appellant, therefore, prays that additions made under this head are totally arbitrary, unjustifiable and deserve to be deleted. 3.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of Remuneration to Partners amounting to Rs. 1,53,346/- on the ground that the same is not permissible under section 40b of the I T Act. 4.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act, 1961 for the alleged concealment and/o....

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.... team has valued the stock on the date of survey in arbitrary manner. It was also contended that, it is dealing in the perishable goods and therefore it is not practicable for it to restore such huge value of stock. Further the survey team has not pointed out any discrepancy in the purchases made by it. Accordingly the assessee has not disclosed additional income in the income tax return qua the difference found in the value of stock on the date of survey. 3.5 The assessee, in relation to receivables submitted that such receivables are representing the unaccounted sales which cannot be the income in its entirety. At the most the element of gross profit embedded in such sales can be brought to tax. Accordingly the assessee offered an income of Rs. 2,13,320/- representing the gross profit embedded in such sales 4. However, the AO disregarded the contention of the assessee by observing as under: 1. The quantity of the stock was found physically by the survey team during the survey proceedings in the presence of the partner of the firm which was accordingly valued. 2. The major discrepancy with respect to the stock found relates to the onion and garlic which are....

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....not available during survey, it is physically impossible to stock so much these items as they are perishable in nature, are afterthought and are not valid. All the traded items like potato, onion, garlic have longer shelf life as compared to other vegetables and stocking of these items in periods of scarcity is not unusual. Consequently, assessee's contention that he could not have maintained unusually high stocks of these items as the same were perishable, cannot be accepted. There is hard evidence on record that the physical stock, found at the time of the survey, was far more than the recorded stock and the same was verified in the presence of the partner himself and that the physical stock found during survey was in excess of stock as per books by Rs. 21,20,240/-. The assessee has failed to reconcile the difference. In view of the above discussion, I have no hesitation in upholding the order of the Assessing Officer in this regard. The assessee fails on this ground of appeal. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx "There is concrete evidence on record in the form of impounded pages 20 to 32 of Ann. A-10, that these amounts ....

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....rvey represents the purchases made by the assessee. Undoubtedly the stock cannot be generated in the business without effecting the purchases. Thus what is transpired from the findings of the authorities below that the assessee was engaged in the unaccounted business, meaning thereby, the income generated by the assessee from such activity has to be brought to tax. This fact can also be verified from the statement recorded by the survey team during the survey proceedings where the partner Shri Rahimbhai A. Chhedawala while replying to Question number 15 and 17 admitted that the assessee has made unaccounted sales and purchases. 9.1 The next question arises how to determine the income from such unaccounted business. Can the entire amount of receivables of Rs. 51,52,720/- and the value of excess stock (Rs. 21,20,240/-) be treated as income of the assessee from the unaccounted business. In this regard, we note that the amount of receivables represents the sales which cannot be treated as income in the entirety. In our considered view only a percentage of profit embedded in such amount of receivables can be brought to tax. In this regard we find support and guidance from the order o....

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....f this be our conclusion, only question arises whether such profit element should be estimated at the rate of 30% or 12½%. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12½% of the purchase towards its possible profit, we do not find any reason to entertain the appeal. In the result, Tax Appeal is dismissed" 9.3 We also draw support and guidance from the order of the Hon'ble Calcutta High Court in the case of PCIT vs. Subarna Rice Mill reported in [2018] 96 taxmann.com 286 wherein it was held as under: "9. According to the Appellate Tribunal the value of the entire quantity of additional stocks that were discovered in course of the survey operation could not be regarded as the additional income of the assessee and amenable to tax. There was a specific ground taken before the Appellate Tribunal, which was a legal question, as to whether the undisclosed purchase could be taken as the additional income without reference to the possible sale of the paddy when converted. ....