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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ABRAHAM P. GEOGE & SHRI VIJAY PAL RAO
Per Vijay Pal Rao, Judicial Member
This appeal by the assessee is directed against the order dated 30.11.2010 of CIT(Appeals), Mysore for the assessment year 2007-08.
The assessee has raised the following grounds:-
The Hon'ble CIT(A) erred in estimating the G/P @ 3.5% “1. on the turnover declared as against 2.45% declared by the assessee without appreciating that the G/P declared was fair and reasonable and compared with the results of the past and also the results declared by persons in similar trade.
2. The Hon'ble CIT(A) erred in not appreciating that the assessee had maintained books of accounts including stock records and that in the scrutiny assessment the learned A.O. did not find any mistake in the books of accounts nor not in the stock records and further that the deficit noticed at the time of survey related only to the turnover in paints which formed only a integral part of the total sales as can be seen from the table annexed.
3. The Hon'ble CIT(A) failed to appreciate that as the stock book relating to cement and steel was maintained and had been examined and no discrepancies was noticed and that as the bulk of the turnover related to these items the books of accounts could not be rejected only because of certain discrepancies in the stock statement of paints noticed at the time of survey and without appreciating that in respect of paints the turnover was not substantial and that the items of paints are too many which could not be reconciled at the time of survey.”
There was a survey conducted at the premises of the assessee on 10.8.2006. During the course of survey, it was found that for the A.Y. 2005-06, 2006-07 etc., the assessee had debtors outside the books. It was inferred that debtors outside the books apparently represent sales made outside the books. The assessee admitted the debtors outside the books and offered additional income on account of such debtors.
Apart from the debtors outside the books, it was also noticed that there was deficit stock of cement. The deficit was estimated to be Rs. One lakh. The assessee admitted this deficit in the cement stock and agreed to offer the same as additional income. The assessee undertook to disclose GP @ 4% of turnover. However, in the return filed after the end of previous year, the assessee did not offer the income by considering the GP @ 4%.
The AO therefore made addition on account of deficit stock of cement of Rs.One lakh and estimation of GP @ 4%. The assessee did not contest the addition regarding the deficit cement stock of Rs.One lakh, however the assessee challenged the action of the AO regarding the addition by estimating GP @ 4%. The assessee contended before the CIT(Appeals) that when there was no discrepancy in the books of account and the AO has not rejected the books of account, then there is no justification estimating the GP of the assessee over and above the GP admitted by the assessee in the books of account.
The CIT(Appeals) did not accept the contention of the assessee and confirmed the addition made by the AO.
Before us, the ld. AR of the assessee has reiterated its contention that the AO without finding any defect or discrepancy in the books of account of assessee has estimated the GP @ 4% as against the GP admitted and declared by the assessee in the books of account @ 2.45%.
He has vehemently contended that when the books of account are not rejected, then the AO has no jurisdiction or authority to estimate the GP of the assessee.
On the other hand, the ld. DR has submitted that during the course of survey, the assessee himself has undertook to offer the income by considering the GP @ 4%, however in the return of income the assessee did not honour his undertaking made during the survey. He has relied on the orders of authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute that apart from the deficit of stock of cement which was detected during the survey proceedings, there is no other discrepancy either in the stock or in any other item during the survey for the year under consideration. Further, the survey was conducted in the midst of the financial year relevant to assessment year and therefore when the assessee has prepared its final accounts as on 31.3.2007, then the books results of the assessee was to be examined by the AO without placing sole reliance on the statement made by the assessee during the survey proceedings. We find that the AO has not brought on record any discrepancy or any other material disclosing or indicating any income which has not been disclosed by the assessee in the books of account. Further, the AO has not rejected the book results and therefore merely on the basis of the statement recorded during the survey u/s. 133A, the AO is not permitted to make the addition by estimating the GP.
In the case of CIT v. S. Khader Khan Son, 210 Taxman 248 (SC), the Hon'ble Supreme Court has upheld the judgment of the Hon'ble Madras High Court in 300 ITR 157 wherein the Hon'ble High Court has held that the statement recorded in the survey operation is not a conclusive piece of evidence and consequently the addition made solely on the basis of statement recorded during the survey without any supporting evidence is not justified.
In view of the above said proposition of law, when the AO has not brought any material on record to show that assessee has suppressed the income and further when the books of account of the assessee are not rejected by the AO, then the addition made by the AO by estimating GP of the assessee is not justified. We further note that GP declared by the assessee as per books of account is very much in line of GP for the earlier as well as subsequent assessment years. Accordingly, we delete the addition made by the AO on this account.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 31st day of March, 2016.