2024 (3) TMI 652 - AT - Income Tax

Addition of excess stock found during the course of survey - unexplained investments u/s 69 r.w.s.115BBE - assessee is a firm engaged in sale and purchase of gold jewellery - HELD THAT - Assessee has produced complete books of accounts during assessment proceedings. No defects have been pointed out and the books of accounts have been accepted. Thus when the difference in physical stock found during survey and as recorded in the books is duly reconciled by the assessee and supporting evidences have also been furnished before the AO ld. CIT(A) in which no defect or discrepancy whatsoever has been pointed out by the Assessing Officer or ld. CIT(A), no addition is called for. Merely because some differences were found in stock during survey would not indicate any automatic addition be made in the hands of the assessee when assessee has duly reconciled the differences with necessary evidences and neither the AO nor ld. CIT(A) has pointed out any defects or discrepancies in the reconciliation submitted by assessee or the documents and evidences furnished by the assessee. Addition made on account of excess stock found during the course of survey is directed to be deleted. Assessee appeal allowed.

Issues Involved:

1. Legality of the CIT(A)'s order.
2. Addition of Rs. 6,13,75,028/- on account of excess stock as unexplained investments.
3. Interpretation of partner's statements by survey authorities.
4. Audited books of accounts and their consideration.
5. Lack of corroborative evidence for the addition.
6. Reconciliation of closing stock differences.

Summary:

1. Legality of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A)-23, New Delhi, dated 31.08.2021, arguing that it was flawed both legally and factually.

2. Addition of Rs. 6,13,75,028/- on Account of Excess Stock:
The CIT(A) confirmed the addition made by the AO for unexplained investments under Section 69 read with Section 115BBE of the Income Tax Act. The assessee argued that the addition was made despite detailed submissions and explanations reconciling the stock difference found during the survey.

3. Interpretation of Partner's Statements:
The CIT(A) allegedly misinterpreted the statements of the partner of the assessee firm, recorded during the survey, to confirm the addition. The partner had stated, "I am not able to explain it right now," which was not an admission of undisclosed income.

4. Audited Books of Accounts:
The assessee contended that its books of accounts were duly audited, and no defects were pointed out by the AO during the survey or assessment proceedings. The CIT(A) ignored this contention while confirming the addition.

5. Lack of Corroborative Evidence:
The assessee argued that the AO made the addition without bringing any corroborative evidence to justify it. The CIT(A) also ignored this contention.

6. Reconciliation of Closing Stock Differences:
The assessee explained that the excess stock was due to undelivered goods, which were later delivered post-survey. The reconciliation was supported by invoices, acknowledgments, ledger accounts, bank statements, and other documents. The AO's independent inquiry confirmed the assessee's explanation, yet the addition was made.

Judgment:
The ITAT found that the CIT(A) erred in rejecting the explanation of the assessee regarding the excess stock. The CIT(A) incorrectly mentioned the date of the partner's statement and failed to consider the independent inquiry and confirmations from the parties involved. The ITAT noted that no incriminating documents were found during the survey, and the books of accounts were accepted without defects. The ITAT relied on various judicial pronouncements to conclude that differences in stock during a survey do not automatically warrant additions if the assessee provides a plausible explanation with supporting evidence. Consequently, the addition of Rs. 6,13,75,028/- was directed to be deleted, and the appeal of the assessee was allowed.

Order Pronounced in the Open Court on 07/02/2024.

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