IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH -MUMBAI BEFORE HONBLE SHRI RAJENDRA SINGH,(A.M.) I.T.A. NO.531/MUM /2011 ASSESSMENT YEAR : 2007-08 VIJAY PLASTICS 49, MIRZA STREET MUMBAI-400 003. PAN : AAAFV 1347 H VS. INCOME TAX OFFICER WARD-15(1)(1) MUMBAI. (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI RAKESH JOSHI RESPONDENT BY : SHRI P.C. MAURYA DATE OF HEARING : 1.12.2011. DATE OF PRONOUNCEMENT : 21 ST DECEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 21/10/2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING ADDITION MAD E ON ACCOUNT OF SHORT STOCK FOUND AT THE TIME OF SURVEY. 2. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF SURV EY CONDUCTED UNDER SECTION 133A OF THE I.T. ACT ON 8/2/2007, STOCK WA S FOUND SHORT ITA NO.531/M/11 A.Y:07-08 2 BY RS.24,54,495/- IN CASE OF THE ASSESSEE. THE ASSESSEE HAD ALSO A SISTER CONCERN IN THE NAME OF M/S. PARAS TRADING CO. (PTC ) WHICH WAS ALSO FUNCTIONING FROM THE SAME PREMISES IN WHICH CASE EXCESS ST OCK OF RS.31,82,277/- HAD BEEN FOUND. THE ASSESSEE IN THE RETU RN OF INCOME DECLARED EXCESS SALE OF RS.12.00 LACS ON ACCOUNT OF SHORT STOCK FOUND. THE AO DURING THE ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO EXPLAIN THE REMAINING SHORTAGE OF RS.12,54,495/-. THE ASSESSEE EXPLAINED THAT THE ASSESSEE AS WELL AS THE SISTER CONCERN PT C WERE RUNNING FROM SAME ADDRESS AND HAD CERTAIN ITEMS LIKE REA DYMADE GARMENTS, ACCESSORIES WHICH WERE COMMON. IT WAS POINTED OUT THAT THE PARTNER OF THE ASSESSEE FIRM AT THE TIME OF SURVEY I N RESPONSE TO Q.51 HAD STATED THAT SOME DISCREPANCY IN STOCK CAN BE ON A CCOUNT OF MISTAKE IN ASSIGNING OWNERSHIP OF STOCK BETWEEN TWO FIRM S. SUBSEQUENTLY, THE ASSESSEE VIDE LETTER DATED 21/3/2007 H AD INFORMED THAT 15% OF STOCK I.E. RS.12,37,880/- BELONGED TO THE ASSESSEE CONCERN. THEREFORE, THE ACTUAL SHORTAGE OF STOCK IN CASE OF THE ASSESSEE COULD BE ONLY RS.11,92,053/-. THE AO HOWEVER DI D NOT ACCEPT THE EXPLANATION GIVEN AND TREATED THE SHORTAGE OF STOCK OF RS.24,54,495/- AS UNACCOUNTED SALES AND APPLYING THE GP RATE OF 10.80%, MADE AN ADDITION OF RS.2,27,052/-. ITA NO.531/M/11 A.Y:07-08 3 2.1 IN APPEAL, THE ASSESSEE SUBMITTED THAT WHILE COMPUTIN G THE GP ADDITION, AO HAD IGNORED ADDITIONAL SALES OF RS.12.00 LACS DECLARED BY THE ASSESSEE AND IN CASE THE ADDITIONAL SALES WERE CONSIDERED , ADDITION CAME TO ONLY RS.1,13,485/- IN PLACE OF RS.2,27 ,852/- ADDED BY THE AO. IT WAS ALSO SUBMITTED THAT POSSIBILITY OF SOM E VERIFICATION OF STOCK BETWEEN THE RELATED CONSUMER WAS ALSO NOT CONSIDER ED BY THE AO. THE CIT(A) HOWEVER, DID NOT ACCEPT THE CLAIM MADE BY THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO, AGGR IEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. A.R FOR THE ASSESSEE REFERRED TO TH E COPY OF P&L ACCOUNT PLACED IN PAPER BOOK STATING THAT THE ADDITIONA L SALES OF RS.12.00 LACS HAD BEEN DECLARED IN P&L ACCOUNT WHICH HAD N OT BEEN CONSIDERED BY THE AO WHILE COMPUTING THE G.P. THE AO COMPUTED EXCESS G.P ON THE SALE OF RS.1,03,51,237/- AS PER BOOKS O F ACCOUNT AND IGNORED SALES OF RS.12.00 LACS WHICH WAS DULY SHOWN IN TRADING ACCOUNT. IT WAS ALSO SUBMITTED THAT BOTH THE AO AND CIT (A) DID NOT MAKE ANY ALLOWANCE FOR INTER MIXING OF STOCK BETWEEN TWO CONCERNS WHICH THE ASSESSEE HAD POINTED OUT AT THE TIME OF SURVEY AND HAD CLAIMED AT 15%. IT WAS SUBMITTED THAT THERE WAS NO DISPU TE THAT MANY ITEMS OF STOCK WERE COMMON IN BOTH FIRMS WHICH WERE RUNNI NG FROM THE SAME PREMISES. IT WAS ACCORDINGLY REQUESTED THAT SOME ALLOWANCE ITA NO.531/M/11 A.Y:07-08 4 MAY BE ON FOR THIS FACTOR AND MISTAKE FOR NOT CONSIDERIN G THE ADDITIONAL SALE SHOULD BE CORRECTED. THE LD. DR, ON TH E OTHER HAND, SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RE LIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDER. 4. I HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CARE FULLY. THERE IS NO DISPUTE THAT AT THE TIME OF SURVEY, SHORTAG E OF STOCK OF RS.24,54,495/- IN CASE OF THE ASSESSEE AND EXCESS STOCK OF RS.31,82,277/- IN CASE OF THE SISTER CONCERN PTC WERE FOU ND. ON ACCOUNT OF SHORTAGE, THE ASSESSEE HAD DISCLOSED ADDITIONAL SAL ES OF RS. 12.00 LACS WHICH HAD BEEN DULY SHOWN IN THE P&L ACCOUNT. THE AO TREATED ENTIRE SHORTAGE OF RS.24,54,495/- AS UNACCOUNTED SALES WHICH APPARENTLY IS ERRONEOUS. ONCE, THE ASSESSEE DECLARED ADDIT IONAL SALES OF RS.12.00 LACS ON ACCOUNT OF SHORTAGE OF STOCK, THE ENTIR E STOCK FOUND SHORT COULD NOT BE CONSIDERED AS SALES. THEREFORE, THERE IS A MISTAKE IN THE COMPUTATION MADE BY THE AO IN WHICH THE SUM OF RS.24,54,495/- IS SHOWN AS UNACCOUNTED SALES, WHICH IN FACT SH OULD BE RS.12,54,495/-. SECONDLY, BOTH THE FIRMS BELONGED TO THE SAME GROUP AND WERE RUNNING FROM THE SAME PREMISES. IN ONE CASE EX CESS STOCK WAS FOUND WHILE IN THE OTHER CASE SHORTAGE WAS FOUND. T HERE IS ALSO NO DISPUTE THAT BOTH FIRMS WERE DEALING IN SOME COMMONS ITEMS. THEREFORE, SOME INTER MIXING OF STOCK CANNOT BE RULED O UT. THE ITA NO.531/M/11 A.Y:07-08 5 PARTNER OF THE ASSESSEE FIRM AT THE TIME SURVEY ITSELF HA D POINTED OUT THAT 10% STOCK COULD HAVE BEEN WRONGLY TAKEN AS STOCK OF PTC. IN MY VIEW, ON THE FACTS OF THE CASE, 10% OF SHORTAGE OF STOCK W ILL BE TREATED AS EXPLAINED DUE TO INTER-MIXING OF STOCK BETWEEN THE TWO CONCERNS. THE AO WILL RECOMPUTE THE TOTAL INCOME AFTER MAKING A LLOWANCE FOR INTER-MIXING AS MENTIONED ABOVE AND AFTER CONSIDERING THE ADDITIONAL SALE OF RS .12.00 LACS DECLARED BY THE ASSESSEE IN THE P&L ACCOUNT. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.12.2011. SD/- (RAJENDRA SINGH ) ACCOUNTANT MEMBER MUMBAI, DATED: 21.12.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.