SUNIL AMBWANI, SURYA PRAKASH KESARWANI, J. - (1.) WE have heard Shri Dhananjai Awasthi, learned counsel appearing for the department. Shri S.D. Singh appears for the respondent - assessee.
(2.) THIS Income Tax Appeal under Section 260 -A of the Income Tax Act arises against the order of Income Tax Appellate Tribunal, Lucknow Bench 'A', Lucknow in respect of assessment year 2004 -05. This Income Tax Appeal has been preferred by the department on following two substantial questions of law: - "1. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in law in deleting the addition of Rs.3,06,943/ - made by the AO on a/c of unexplained investment in stock and confirmed by the Ld. CIT (A) -I, Kanpur by observing that the AO had accepted the GO rate of 19.8 percent disclosed by the assessee and also the average discount rate of 6.66 percent which was based on the sales of March, without appreciating that the assessee firm could not produce any evidence or the basis for substituting the GP rate from 20 percent to 19.8 percent and discount rate from 5 percent to 6.66 percent, respectively, or give the reason for changing the value of the stock admitted during the course of survey. 2. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in law in deleting the addition of Rs.18,10,593/ - made by the AO on a/c of excess claim of discount by observing that the AO has worked out the discount on a meager amount and the Ld. CIT (A) has also not appreciated the matter in right perspective without appreciating that assessee could not produce any evidence or basis for working out the discount at the rate of 9.79 percent whereas the AO has worked out the discount at the rate of 7.01 percent on the basis of sales bills found and impounded during the course of survey." We have examined the orders of AO, CIT (A) and ITAT and find that they have given sufficient reasons for accepting the GP rate at 19.8 percent and the discount rate at 6.66 percent. The relevant paragraphs 13, and 21, in which the ITAT has dealt with the GP rate and average rate are quoted as below: - "13. We have considered the submissions of both parties and gone through the material available on record. In the instant case, there is no dispute as regards to the stock as per books of account which was shown at Rs.1,97,44,874/ -. The only dispute relates to the valuation of stock as per physical verification. In the said valuation, the difference arose due to the application of G.P. rate and average discount rate. In the earlier calculation, the assessee itself applied G.P. rate of 20 percent and average discount at 5 percent. However, when the difference in the valuation made by the assessee and the stock found at the time of survey was pointed out to the assessee by the Assessing Officer, the assessee furnished the revised computation wherein the G.P rate was taken at 19.8 percent. The said G.P. rate had been accepted by the Assessing Officer and the average discount was taken at 6.66 percent on the basis of the sale in the month of March. In the instant case, the survey took place on 11.3.2004 and the assessee applied the discount of the said month so, that should have been accepted instead of the earlier average discount taken at 5 percent particularly when neither the Assessing Officer nor the ld. CIT (A) pointed out that the G.P rate applied by the assessee at 19.8 percent and average discount at 6.6 percent were wrong. If the said rates were to be applied there was not much difference between the stock found at the time of survey and the stock worked out by the Assessing Officer while computing the trading account from 1.4.2003 to 11.3.2004 (the date of survey). It is noticed that the assessee explained the reasons for adopting the G.P rate at 19.8 percent instead of 20 percent. The reason explained by the assessee was that the G.P rate at 19.8 percent was for the whole year. The Assessing Officer nowhere stated that the G.P. rate had not been accepted in the final accounts of the assessee, therefore, in our opinion, the said G.P. rate should have been accepted. Similarly, the average discount taken at 6.6 percent was based on sale of March i.e the month in which the survey was conducted, hence that average discount rates should have been accepted instead of 5 percent adopted in the earlier computation. We, therefore, considering the totality of the facts as discussed hereinabove, delete the addition made by the Assessing Officer and confirmed by the ld. CIT (A). This ground is allowed. 21. We have considered the submissions of both the parties and carefully gone through the material available on record. In the instant case, it is not in dispute that the books of account maintained by the assessee in regular course of business were not rejected and even the method of accounting was not doubted. The Assessing Officer did not point out any suppressed sales or inflated purchases. He had also accepted the G.P rate, in other words, all the items except discount shown in the Trading Account were accepted, so there was no occasion to doubt the discount, while is also an item of trading account. Further more, the Assessing Officer worked out the discount only on the basis of 58 bills of 10.3.2004 while the discount claimed by the assessee was for the whole year and the discount worked out by the Assessing Officer at 7.01 percent was only for the sale of Rs.2,01,530/ - whereas the total sales of the assessee was of Rs.6,51,29,275/ -. In other words, the sales considered by the Assessing Officer for calculating the discount at 7.01 percent was less than 0.33 percent of the total sales which is a meager amount, therefore, the Assessing Officer was not justified in working out the figure of discount on the basis of meager sale. In the instant case, the ld. CIT (A) also confirmed the disallowance made by the Assessing Officer without appreciating the facts in right perspective. We, therefore, considering the totality of the facts, delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT (A)".
(3.) THE books of accounts were not rejected, nor any doubts were raised on the method of accounting. The assessee had explained the profit rate and discount rate to be calculated for the whole year and not that of survey for the month of March, 2004, only. The assessee in his revised computation had explained the average GP rate at 19.8 percent and discount rate at 6.66 percent.;