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If difference in the sale and purchase is properly explained than AO cannot make any addition by their own

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Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
The assessee is engaged in the business of trading in chemicals. The sales shown in the Profit & Loss Accounts were Rs. 3,15,85,478/- and against that purchases were shown as Rs. ,93,31,117/- on which gross profit of Rs. 7.95% was declared. The assessee was required to submit month-wise details of sales and purchases according to which the total sales were reported at Rs. 3,22,81,924/- and purchases were reported at Rs. 3,04,17,709/-. Thus, it was observed by the Assessing Officer that there was a difference of Rs. 6,96,447/- in the sales and Rs. 10, 86,596/- in the purchases. The assessee was required to explain the same and the assessee tried to explain the difference by reducing the GP @ 8% and on these calculation the Assessing Officer observed that the shortage of stock available for sale with the assessee in the month of May, 2005 was to the extent of Rs. 71,835/- and, therefore, the Assessing Officer observed that the assessee had made sales out of the books. Similarly, in the month of November, 2005 the Assessing Officer noticed that sales were made to the tune of Rs. 28,39,639/- against the available stock of Rs. 20,27,795/- which also resulted in the shortage of stock of Rs. 5,84,672/-. He further found that during the month of December, 2005 to March, 2006, according to the purchases and sales made by the assessee, the stock available with the assessee was Rs. 18,67,797/- against which the closing stock was disclosed only at Rs. 9,38,250/-. The Assessing Officer made addition of the difference between these two which has been computed at Rs. 9,29,547/- being the difference in stock as at the end of the year. The Assessing Officer asked the assessee to explain the same and the assessee submitted the reconciliation and the sales included the sale return as well as the purchase return. The Assessing Officer did not believe the explanation of the assessee on the ground that prior to that this explanation was not furnished by the assessee and he has added the said amount to the income of the assessee. Similarly, on the excess sales which was found to be made by the assessee in the month of May and November, 2005, the Assessing Officer has computed 8% gross profit on these sales of Rs. 6,96,447/- and further addition of Rs. 55,715/- has been made.

Citation :
ACIT,Circle, Noida G Block,Shopping Complex,Sector 20, Noida.(Appellant) Vs.Surjeet Kaur,Prop. Ajmani Chemicals,E-82, Sector 27, Noida.PAN: AKUPK2464L (Respondent)

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: G: NEW DELHI

BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER

AND

SHRI K.D. RANJAN, ACCOUNTANT MEMBER

ITA No.4450/Del/2011

Assessment Year :2006-07

ACIT,

Circle, Noida G Block,

Shopping Complex,

Sector 20, Noida.

(Appellant)

Vs.

Surjeet Kaur,

Prop. Ajmani Chemicals,

E-82, Sector 27, Noida.

PAN: AKUPK2464L

 (Respondent)

Assessee by: Shri M.P. Rastogi, Advocate &

Shri P.N. Sasthri, CA

Revenue by: Smt. Renu Jauhari, CIT, DR

ORDER

PER I.P. BANSAL, JUDICIAL MEMBER

This is an appeal filed by the revenue. It is directed against the order passed by the CIT (A) dated 26th July, 2011 for Assessment Year 2006-07. The grounds of appeal read as under:-

“1. Ld. CIT (A) has erred in law and on facts by allowing relief of Rs.9,29,547/- to the assessee on the issue of suppressed closing stock without appreciating the facts mentioned by the A.O. in the assessment order.

2. Ld. CIT (A) has erred in law and on facts by allowing relief of Rs.57,715/- to the assessee on the issue of profit on excess sales without appreciating the facts mentioned by the A.O. in the assessment order.

3. That the order of Ld. CIT (Appeals) being erroneous in law and on the facts deserves to be set aside and the order of the A.O. be restored.”

2. The assessee is engaged in the business of trading in chemicals. The sales shown in the Profit & Loss Accounts were Rs. 3,15,85,478/- and against that purchases were shown as Rs.  ,93,31,117/- on which gross profit of Rs. 7.95% was declared. The assessee was required to submit month-wise details of sales and purchases according to which the total sales were reported at Rs. 3,22,81,924/- and purchases were reported at Rs. 3,04,17,709/-. Thus, it was observed by the Assessing Officer that there was a difference of Rs. 6,96,447/- in the sales and Rs. 10, 86,596/- in the purchases. The assessee was required to explain the same and the assessee tried to explain the difference by reducing the GP @ 8% and on these calculation the Assessing Officer observed that the shortage of stock available for sale with the assessee in the month of May, 2005 was to the extent of Rs. 71,835/- and, therefore, the Assessing Officer observed that the assessee had made sales out of the books. Similarly, in the month of November, 2005 the Assessing Officer noticed that sales were made to the tune of Rs. 28,39,639/- against the available stock of Rs. 20,27,795/- which also resulted in the shortage of stock of Rs. 5,84,672/-. He further found that during the month of December, 2005 to March, 2006, according to the purchases and sales made by the assessee, the stock available with the assessee was Rs. 18,67,797/- against which the closing stock was disclosed only at Rs. 9,38,250/-. The Assessing Officer made addition of the difference between these two which has been computed at Rs. 9,29,547/- being the difference in stock as at the end of the year. The Assessing Officer asked the assessee to explain the same and the assessee submitted the reconciliation and the sales included the sale return as well as the purchase return. The Assessing Officer did not believe the explanation of the assessee on the ground that prior to that this explanation was not furnished by the assessee and he has added the said amount to the income of the assessee. Similarly, on the excess sales which was found to be made by the assessee in the month of May and November, 2005, the Assessing Officer has computed 8% gross profit on these sales of Rs. 6,96,447/- and further addition of Rs. 55,715/- has been made.

3. The aforementioned additions were agitated before the CIT (A). Before him the reconciliation of the sales and purchases were submitted and it was explained that there was no difference which has been alleged by the Assessing Officer. The learned CIT (A), after going through the reconciliation submitted by the assessee, has given a finding that the reconciliation was absolutely proper and was as per basic principles of accountancy and book keeping; the expenses were backed by the requisite copies of accounts and documents and the assessee has corroborated this explanation from the figures of sales and purchases available in the sales-tax assessment order. In these circumstances, he has found that there was no difference whatsoever in the sales and purchases shown by the assessee and the addition was not called for. As the learned CIT (A) has deleted the basic addition, the addition made on account of application of gross profit of Rs. 57,785/- is also deleted. The department is aggrieved, hence, in appeal.

4. Relying upon the facts mentioned in the assessment order, it was pleaded by the learned DR that there was a difference between the sales and purchases shown in the Profits & Loss Account and in the month-wise details furnished by the assessee. Therefore, she pleaded that ld. Assessing Officer was right in making the addition and it has wrongly been deleted by learned CIT (A). She pleaded that the order of learned CIT (A) should be set aside and that of Assessing Officer should be restored.

5. On the other hand, it was submitted by the learned AR that there was no difference as such. The difference in the sales was on account of returned sales, sales-tax, cartage, etc. The difference in the purchase was due to the returned purchases. He also submitted that all these reconciliations were submitted to the Assessing Officer and the Assessing Officer without appreciating the position has made the addition. He submitted that learned CIT (A) has returned a finding that the difference has been reconciled by the assessee. He also drew our attention towards details filed at pages 4, 5 and 6 of the paper book in which all the differences in the sales and purchases vis-a-vis the closing stock have been explained. Referring to these details it was pleaded by the learned AR that learned CIT (A) has rightly deleted the addition.

6. We have carefully considered the rival submissions in the light of the material placed before us. It will be relevant to reproduce the reconciliation submitted by the assessee which are placed at pages 4, 5 and 6 of the paper book:-

“General calculation of stock is amount deduction GP Rate shown in Bal. Sheet of year 2005-06 as per question raised by the Department.

Month

Monthly

Opening

Stock

Net

purchase as

per Bal.

Sheet

Net

Purchase +

Opening

Stock

Net sale

after Less

deduction GP

@ 8%

Monthly

closing

stock

April, 2005

492950.00

1866926.08

2359876.08

2145380.94

214495.14

May, 2005

214495.14

2211350.00

2425845.14

2408328.76

17516.39

June, 2005

17516.39

2762891

2780407.63

2598924.56

181483.07

July, 2005

181483.07

2660948.00

2842431.07

2001686.46

840744.61

Aug, 2005

840744.61

2741878.65

3582623.26

2949369.12

633254.14

Sep, 2005

633254.14

2368912.34

3002166.48

1899355.18

1102811.30

Oct, 2005

1102811.30

2105609.34

3208420.64

23666653.08

841767.56

Nov, 2005

841767.56

1498062.88

2339830.44

2542649.72

-202819.29

Dec 2005

-202819.29

4289957.76

4087138.47

2741385.18

1345753.29

Jan 2006

1345753.29

2060255.94

3406009.23

2001234.60

1404774.63

Feb, 2006

1404774.63

2415735.10

3820509.73

2290103.10

1530406.63

Mar, 2006

1530406.63

2348584.50

3878991.13

3113569.34

765421.79

“Description of Purchase for the year 2005-06

Month

Purchase Amount

Less Pur.Amount

Total Purchase as

per B. Sheet

April, 2005

1872426.08

5500.00

1866926.08

May, 2005

2216850.00

5500.00

2211350.00

June, 2005

2762891.24

2762891.24

July, 2005

2660948.00

2660948.00

Aug, 2005

2741878.65

2741878.65

Sep, 2005

2368912.34

2368912.34

Oct, 2005

2105659.34

50.00

2105659.34

Nov, 2005

1498062.88

1498062.88

Dec 2005

4290007.76

50.00

4289957.76

Jan 2006

2301326.94

241071.00

2060255.94

Feb, 2006

2934695.10

518960.00

2415735.10

Mar, 2006

2664055.50

315471.00

2348584.50

Total

30417713.83

1086602.00

2933111.83

Description of sale for the year 2005-06

Month

Sale amount

Less sale

tax amount

Less Sale

Cartage amt.

Less Cr. Note

amt.

Net sale as

per B. Sheet

April, 2005

2380468.00

45748.00

2740.00

44.00

2331935.8

May, 2005

2678295.00

56729.25

3240.00

577.10

2617748.65

June, 2005

2876915.00

44318.00

6589.00

1090.00

2824918.00

July, 2005

2236628.65

52466.30

5451.20

2965.00

2175746.15

Aug, 2005

3277712.50

62574.50

4932.00

4370.00

3205836.00

Sep, 2005

2141887.00

37273.50

2575.50

37521.50

2064516.50

Oct, 2005

2630504.00

51441.00

6614.00

23666653.08

2572449.00

Nov, 2005

2839639.50

74098.80

1791.00

2542649.72

2763749.70

Dec 2005

3040178.00

53844.50

5628.00

939.00

2979766.50

Jan 2006

2223577.00

45567.00

2755.00

2001234.60

2175255.00

Feb, 2006

2526946.00

34035.00

2700.00

968.50

2489242.50

Mar, 2006

3429175.00

41880.00

2349.50

631.00

3384314.50

Total

32281925.65

599975.85

47365.20

49106.10

31585478.30

7. After hearing both the parties and after taking into account the aforementioned details, we are of the opinion that the difference which was pointed out by the Assessing Officer has been explained by the assessee and learned CIT (A) has rightly held that the difference has been explained by the assessee. In this view of the situation, we decline to interfere in the relief given by the learned CIT (A). As the main addition was not sustainable, there was no question of applying  any GP rate on the sales which have been allegedly found to be short by the Assessing Officer.

8. In the result, the appeal filed by the department is dismissed in the manner aforesaid.

The order pronounced in the open court on 17.02.2012.

                                                      Sd/-                                   Sd/-

                                          [K.D. RANJAN]                  [I.P. BANSAL]

                                 ACCOUNTANT MEMBER    JUDICIAL MEMBER

Dated, 17.02.2012.

dk

Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT

//TRUE COPY//

                                                                                                                             By Order,

Deputy Registrar,

ITAT, Delhi Benches

 

Ayush
on 24 February 2012
Published in Income Tax
Views : 1304
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