CA Pratibha Goyal | Jun 22, 2022 |
Undisclosed stock found during Survey: Only profit element should be brought to tax [ITAT]
Brief facts of the case as culled out from records are that the assessee is a private limited company engaged in the business of paddy mill. A survey u/s. 133A of the Income-tax Act, 1961 was conducted on 04-02-2015 at the business premises of the assessee, wherein excess stock was found. Thereafter, a return of income was filed on 31-03-2016 declaring an income of Rs.40,14,130/-. The case was selected for scrutiny followed by serving of notices issued u/s 143(2) and 142(1) of the Act. In the course of assessment proceedings the ld. AO examined various documents and other transactions connected to said survey proceeding. After considering the submissions of the assessee and examining the books of account addition under various heads were made at Rs, 1,34,84,653/- and income assessed at Rs.1,74,98,783/-.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A), but partly succeeded. So far as the addition pertained to undisclosed investment in stock and undisclosed stock determined/found during survey at Rs.88,89,658/- and Rs. 31,78,588/- respectively, the ld. CIT(A) firstly observed that the undisclosed income on which the additions made are part of the business income. The ld. CIT(A) deleted the addition of Rs.88,89,658/-, but confirmed the one for excess stock at Rs.31,78,588/-.
Aggrieved, the assessee is now in appeal before this tribunal against the addition of Rs.31,78,588/- confirmed by the ld. CIT(A).
The Ld. Counsel for the assessee submitted that the ld. CIT(A) has accepted the alleged income as business income. Since the addition is on account of excess stock then the addition should be restricted only to the profit element in the said stock. It was prayed by the Ld. Counsel for the assessee that addition at 12% may be sustained on the alleged amount.
Per contra, the ld. Departmental Representative submitted that the assessee miserably failed to furnish relevant details during the course of assessment proceedings. The assessee also did not file a revised trading account incorporating the excess stock found during the course of the survey. Reference was made to the finding of both the lower authorities.
ITAT highlighted that the only issue for consideration is the addition of Rs. 31,78,588/- made by the Ld. AO on account of undisclosed stock found during the course of the survey.
ITAT retreated that it is an undisputed fact that the alleged excess stock is part of the business income of the assessee and the same has been confirmed by the ld. CIT(A) and the Revenue is not before us challenging the said finding. Now once it is confirmed that excess stock is part of business income, it is judicially settled that only profit element in such excess stock should be brought to tax.
Keeping into consideration the gross profit rate and net profit rate disclosed by the assessee in the audited financial statements and also the submissions of the ld. Counsel for the assessee that the assessee is ready to offer 12% profit on the excess stock, ITAT with a view of ending the dispute sustained addition on account of undisclosed closing stock at Rs.3,51,430/- i.e. 12% of the undisclosed stock of Rs.31,78,588/-
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