2014 (10) TMI 845 - AT - Income Tax

Addition on account of deficit closing stock during the course of survey proceedings under section 133A - CIT(A) deleted the addition - Held that - No reason to interfere with the order of the Ld. CIT(A). Revenue did not bring out any evidence about the deficit stock and assessment order is not speaking about how the deficit stock was arrived at in the course of survey proceedings even though the same was quantified at ₹ 39,28,298. Aassessee has accounted for sales of the deficit stock but as seen from the order of Ld. CIT(A), the same was accounted at ₹ 48,83,168. This aspect has not been reconciled by the ITO. Not only that assessee also admitted additional income of ₹ 10 lakhs which factor was also accepted by the A.O. by making only addition of ₹ 40 lakhs. Since, entire deficit stock cannot be considered as income of assessee, Ld. CIT(A) is correct in deleting the addition made by A.O. as assessee has already admitted gross profit at 25% which is in tune with the gross profit earned during the year on other turnovers. In fact, A.O. himself has recorded the facts that turnover for the year is increased by 31.13% and gross profit by 50%. Since A.O. accepted the book results and nothing was brought on record other than the so-called statement of the partner admitting additional income, we uphold the order of Ld. CIT(A) and dismiss Revenue grounds. - Decided against revenue

Summary

Issues:
Deletion of an amount of Rs. 40 lakhs disclosed on account of deficit closing stock during survey proceedings under section 133A.

Analysis:

Issue 1: Deletion of Rs. 40 lakhs from income declared by the assessee
The Revenue appealed against the deletion of Rs. 40 lakhs from the income declared by the assessee, which was disclosed on account of deficit closing stock during survey proceedings under section 133A. The Managing Partner admitted to this amount during the survey, but the assessee only declared income of Rs. 17,20,015 in the return, including Rs. 10 lakhs credited to the Profit & Loss Account as additional income. The Revenue made the addition of Rs. 40 lakhs to the declared income, leading to the appeal. The assessee argued before the Ld. CIT(A) that the total income declared already included the impact of deficit stock, and adding the Rs. 40 lakhs would result in double addition. The Ld. CIT(A) considered the submissions and deleted the addition, emphasizing that deficit stock alone cannot be considered as income.

Issue 2: Lack of evidence and reconciliation by the Revenue
The Tribunal observed that the Revenue failed to provide evidence regarding the deficit stock and did not explain how the deficit stock amount was determined during the survey proceedings. The assessee had accounted for the sales of the deficit stock, but there was a discrepancy in the amount accounted for compared to the amount quantified during the survey. The ITO did not reconcile this discrepancy. Additionally, the assessee had admitted an additional income of Rs. 10 lakhs, which the A.O. accepted. Since the entire deficit stock could not be treated as income, the Ld. CIT(A) rightly deleted the Rs. 40 lakhs addition. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the A.O. accepted the book results and did not provide any evidence beyond the partner's statement to support the addition.

Conclusion
The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order to delete the Rs. 40 lakhs addition to the assessee's declared income. The decision was based on the understanding that deficit stock alone cannot be considered as income, especially when the assessee had already admitted additional income and maintained gross profit levels consistent with previous years. The lack of evidence and reconciliation by the Revenue further supported the deletion of the addition.