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Sukumar Solvent Pvt. Ltd. Vs. A.C.I.T. - (Income Tax Appellate Tribunal) (16 Mar 2023)

Only profit element in excess stock should be brought under the purview of the tax


Direct Taxation

The assessee is a private limited company engaged in rice bran (solvent) and rice bran oil refinery. A survey was conducted under Section 133A of the Income Tax Act, 1961 (IT Act) in the case of assessee. The case of the assessee was selected for scrutiny. Accordingly, notices under Section 143(2) and 142(1) of the Act were issued upon the assessee. The learned AO while examining the various documents and other transactions connected to the said survey proceedings and after due consideration of the submission of the assessee and examining the necessary documents as well as books of accounts, the additions were made under various heads.

The learned CIT(A) observed that, the addition made by the AO on account of excess stock of Rs. 53,94,245 has been justified under the provisions of law and sustained the addition of Rs. 53,94,245 in the hands of assessee. He further sustained the addition of Rs. 4,30,000 on account of non deduction of TDS on freight charges. Dissatisfied with the order, assessee preferred an appeal before the Tribunal against confirmation of addition of Rs. 53,94,245 and Rs. 4,30,000 respectively by the CIT(A).

The instant issue of addition of excess stock of Rs. 53,94,245 made by the AO in the hands of assessee during the course of survey and the fact remain undisputed that, the alleged stock is part of business income and the fact that it has been confirmed by the learned AO in his order also. However, it is judicially settled principle that only profit element in such excess stock should be brought under the purview of the tax.

In view of the gross profit rate and net profit rate disclosed by the assessee in the audited financial statements and also taking into consideration the submissions that the assessee is ready to offer 12% profit on excess stock and with a view to end of dispute between the parties sustained the addition on account of undisclosed stock of Rs. 6,47,310 i.e. 12% of undisclosed stock of Rs. 53,94,245 and partly allowed ground raised by the assessee. Therefore, the impugned addition made by the learned CIT(A) is set aside.

Another ground raised by the assessee is regarding the confirmation of TDS addition on freight charges. In the case of ACIT vs Mr. Mohammed Suhail, it was specifically held that, provisions of Section 194C(6) is independent of Section 194C(7) and just because there is violation of provisions of Section 194C(7) disallowance of under Section 40(a)(ia) does not arise if the assessee complies with the provisions of Section 194C(6) of the Act.

The assessee complies with the provisions of Section 194C(6), disallowance under Section 40(a)(ia) does not arise just because there is violation of provisions of Section 194C(7) of the Act. The authorities below are not justified in treating the expenses incurred by the assessee for freight charges as disallowable under Section 40(a)(ia) of the Act and adding back Rs. 4,30,000 claimed as expenses towards freight charges and such addition shall stand deleted. Appeal of the assessee is allowed.


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