Case Law Details

Case Name : DCIT Vs Shri Jitendra Maganlal Shah (ITAT Ahemdabad)
Appeal Number : ITA No. 1689/Ahd/2011
Date of Judgement/Order : 24/11/2015
Related Assessment Year : 2006-2007

The solitary grievance of the Revenue is that the learned CIT(A) has erred in deleting the addition of Rs.20,60,547/- made by the Assessing Officer on account of low G.P.

The brief facts of the case are that the assessee filed his return of income on 31.12.2006 declaring total income of Rs.1,46,69,340/-. In the case of assessee, a survey was conducted u/s 133A of the Income-tax Act on 11.11.2005 at the business premises of the assessee and during the course of the said survey proceedings, the assessee declared a sum of Rs.81,77,930/-. The case of assessee was accordingly selected for scrutiny assessment and notice u/s 143(2) dated 01.03.2007 was issued and served upon the assessee. During the course of assessment proceedings, the ld. Assessing Officer observed that the assessee declared a net profit of Rs.64,70,542/- @ 4.05%, without taking into consideration the amount surrendered by him during the survey proceedings; whereas in the immediately preceding year the NP was 5.34%.   The ld. Assessing Officer also observed that the books of accounts were not properly maintained and the bills/vouchers produced during the course of assessment proceedings were found to be self made. The ld. Assessing Officer rejected the books of accounts of the assessee by invoking provisions of Section 145(3) of the Act on the ground that the books of the assessee did not reflect the true and fair result of the assessee and it is not possible to estimate the income on the basis of same books of accounts and thus, applied the NP @ 5.34% by following the NP rate disclosed by the assessee in the immediately preceding year and thus, made addition of Rs.20,60,547/-.The ld. CIT(A) has deleted the addition by observing as under:-

“5.3 DECISION :- I have considered the observations of the AO in the assessment order as well as the contentions raised by the AR of the appellant in the written submission. I do not agree with the AO as the comparison of results with the preceding years cannot be made by excluding the figure of disclosure made during the course of survey. The appellant has shown more GP/NP post survey period compared to the pre-survey period. When the survey disclosure was accepted on a particular rate of GP/NP, the AO cannot go back to the earlier year and adopt the GP for making addition to the income of the appellant. It appears the AO has not understood the income shown by the appellant by taking the disclosed amount into the P&L a/c. The profits of the year has to be worked out taking into consideration of the survey disclosure made which the appellant has done. In my view, the addition made by the AO has no basis for the reason that he has adopted GP of the preceding year and when the GP after survey was more comparative to the pre-survey period. Therefore, the AO is directed to delete the addition. Thus, this ground of appeal is allowed.”

The ld. Departmental Representative vehemently submitted that the order passed by the ld. CIT(A) is factually incorrect as the amount surrendered during the course of survey was not part of the business receipts and consequently, should not be considered while working out the GP/NP of the assessee and therefore, prayed for setting aside the order of the ld. CIT(A) and restoring the order of the Assessing Officer.

The ld. Authorised Representative, on the other hand, submitted that the surrender was made during the course of survey in order to cover the defects in the books of account, to buy peace of mind and to avoid unnecessary litigation with the Department. The ld. Authori%ed Representative further submitted that the order passed by the ld. CIT(A) is perfect as per law and deserves to be upheld.

We have heard the rival submissions and perused the material on record. We note that the assessee surrendered  Rs.81,77,930/- during the course of survey proceedings covering the excess stock investment, expenses, etc.. We also note that the ld. CIT(A) deleted this addition by observing that the said surrender was part of the profits of the assessee and correctly arrived at the conclusion that the GP/NP should be worked out after taking into account the amount surrendered during the survey proceedings. The assessee had declared a net profit @ 9.16% if the amount surrendered is taken into account; whereas the net profit in the preceding year was 5.34% which is fair and reasonable. In view of these facts and circumstances, we are of the considered opinion that the order passed by the ld. CIT(A) is not required to be interfered and the same is hereby upheld.

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