2011 (6) TMI 773 - AT - Income Tax

Summary

Issues involved:
The only issue in this case pertains to the addition of undisclosed stock found during a survey conducted under section 133-A of the Income Tax Act, 1961.

Summary:

Issue 1: Valuation of Undisclosed Stock
The appeal concerned the addition of Rs. 38,56,474/- on account of undisclosed stock found during a survey under section 133-A of the Income Tax Act, 1961. The Assessing Officer (AO) had made this addition based on the difference between the total stock value found during the survey and the stock value recorded in the books of accounts. The appellant contested this addition, arguing that the valuation of the stock by an approved valuer was done at market rates and should not result in an increase in profits. The Commissioner of Income Tax (Appeals) upheld the addition, but the Tribunal disagreed. It was held that under the mercantile system of accounting, the closing stock should be valued at cost price if lower than the market price, and no profit can be earned until goods are sold. Therefore, the Tribunal directed the AO to delete the addition as the valuation of the closing stock in the books of accounts should not be based on market rates at the time of the survey.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the addition made on account of the difference in valuation of stock between the books of accounts and market rates of gold, diamonds, and silver items found during the survey.