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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A), Durgapur vide Appeal No. 118/CIT(A)/ASL/ITO/Suri/Wd-3/BWN/09-10 dated 24.01.2014. Assessment was framed by ITO, Ward-3, Suri, Birbhum u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2007-8 vide his order dated 29.12.2009.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) is justified in upholding the addition of Rs.87,562/- made on account of stock valuation in the facts and circumstances of the case.
3 Brief facts of this issue are that the assessee is engaged in hardware business which is a trading activity and in view of innumerable number of items involved in such trading, day to day stock register was not maintained item wise by the assessee. It is the practice of the assessee to have the physical verification of the stocks conducted by his Chartered Accountant once in a year and based on that valuation of closing stock it is reflected in the accounts. The assessee gave a declaration before the AO that he had not maintained stock in trade register for closing stock reflected in the accounts at Rs.4,37,812/-. The AO made ad hoc addition at 20% of the closing stock and made an addition of Rs.87,562/- in the assessment for non-maintenance of stock register which was also confirmed by the Ld.
2 Sadhan Mondal., AY 2007-08 CIT(A) in first appeal. Aggrieved, the assessee is in appeal before us on the following ground no.1:
1. That the order of the Ld. CIT(A), confirming the addition of Rs.87,562/- being 20% of stock valuation on estimation made by the AO is erroneous in law as well as on the facts of the case.”
None appeared on behalf of the assessee. Ld. DR vehemently relied on the orders of the authorities below.
We have heard the submission of Ld. DR and gone through facts and circumstances of the case. We find that on going through the nature of business in which the assessee is engaged, the assessee had expressed his inability to maintain the stock register in view of innumerable number of items involved in the trading of hardware items. In any case, there cannot be any addition for non-maintenance of stock register on an estimate basis at 20% of closing stock. Hence, we hold that the lower authorities have grossly erred in framing this addition. Accordingly, we direct the AO to delete this addition in the sum of Rs.87,562/-. Accordingly, the ground no.1 raised by the assessee is allowed.
The next ground to be decided in this appeal is as to whether the Ld. CIT(A) is justified in determining the net profit of the business of the assessee at 5% in the facts and circumstances of the case.
Brief facts of this issue is that the assessee has shown net profit at 2.97% of the turnover. The AO observed that in this type of business, the ratio of net profit generally varies from 7 to 10%. Accordingly, he arrived the net profit of the assessee for the year under appeal at 9% of turnover and brought the difference of 6.03% (i.e. 9% -2.97%) to tax and added back the same to the total income and made an addition of Rs.2,22,627/- thereon. On appeal, the Ld. CIT(A) went by the past history of the assessee wherein he found that the assessee for the immediately preceding previous year relevant to AY 2006-07 had declared net profit at 5% and in the immediately succeeding year relevant to AY 2008-09 had declared net profit at 3.15%. Accordingly, he arrived at the net profit of 5% for the year under appeal and directed the AO to make an addition only to the extent of Rs.71,764/- towards the same. Aggrieved, the assessee is in appeal before us on the following ground no.2:
3 Sadhan Mondal., AY 2007-08 “2. That the order of the ld. CIT(A) estimating the net profit of the appellant at 5% against a net profit of 2.97% disclosed by the assessee in its return of income is erroneous in law as well as on the facts of the case.”
None appeared on behalf of the assessee. The Ld. DR heavily relied on the order of the Ld. CIT(A).
We have heard Ld. DR and gone through facts and circumstances of the case. We find that the Ld. CIT(A) had gone by the past history by following the net profit as declared by the assessee in the immediately preceding previous year relevant to AY 2006-07. However, we still find that earning net profit at 5% in this line of business would still be difficult. Hence, we hold that determination of net profit at 4% of turnover would meet the ends of justice. We direct the AO accordingly. Ground no. 2 raised by the assessee is partly allowed.
In the result, the appeal of assessee is partly allowed.
Order is pronounced in the open court on 09.12.2016