2013 (11) TMI 1617 - AT - Income Tax

Addition made under difference closing stock - Held that - Once the stock valuation has been accepted by the sales tax authorities it is binding on the income tax authorities as well. Therefore we hold that the CIT(A) has rightly deleted the addition in question and the findings under challenge stand confirmed.

Summary

Issues Involved:

1. Deletion of addition made under difference in closing stock.
2. Verification and reconciliation of closing stock.
3. Reliability of stock statements furnished to the bank.
4. Acceptance of stock valuation by sales tax authorities.
5. Independent evidence supporting stock valuation.

Detailed Analysis:

1. Deletion of Addition Made Under Difference in Closing Stock:

The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 1,13,68,383/- made under the difference in closing stock. The Assessing Officer (AO) had determined the difference in the closing stock by comparing the stock declared to the bank with the stock recorded in the books. The AO believed that the stock declared to the bank, which was inspected and verified by bank authorities, should be considered the actual stock. The CIT(A) deleted this addition, leading to the Revenue's appeal.

2. Verification and Reconciliation of Closing Stock:

The AO was directed by the ITAT to verify the closing stock with corroborative evidence and consider the assessee's claim based on a quantitative statement and reconciliation. The AO sought information from the bank, which revealed that the stock was only randomly verified. The AO did not find any independent evidence to conclude that the actual stock was more than the book value. The sales tax assessment showed the stock tallying with the book value, but the AO dismissed this, stating that sales tax authorities are not concerned with closing stock valuation.

3. Reliability of Stock Statements Furnished to the Bank:

The CIT(A) observed that the AO could not obtain any independent evidence proving that the stock statements furnished to the bank represented the actual closing stock. The AO relied on the stock declared to the bank, which was higher than the book value, to make the addition. However, the CIT(A) noted that the bank did not perform a full verification and only conducted random checks. The CIT(A) referred to previous ITAT decisions where similar issues were resolved in favor of the assessee, emphasizing that the burden of proof was on the Revenue to show that the stock submitted to the Revenue authorities was erroneous.

4. Acceptance of Stock Valuation by Sales Tax Authorities:

The CIT(A) highlighted that the stock valuation accepted by the sales tax authorities matched the book value. The ITAT had previously ruled that once the stock valuation is accepted by the sales tax authorities, it should be binding on the income tax authorities as well. The CIT(A) used this precedent to support the deletion of the addition made by the AO.

5. Independent Evidence Supporting Stock Valuation:

The CIT(A) concluded that there was no independent evidence available with the Revenue to support the higher stock valuation claimed by the assessee to the bank. The AO's reliance on the bank's stock declaration, without independent verification, was deemed insufficient to justify the addition. The CIT(A) directed the deletion of the addition, and this decision was upheld by the ITAT.

Conclusion:

The ITAT confirmed the CIT(A)'s decision to delete the addition of Rs. 1,13,68,383/- made under the difference in closing stock. The ITAT emphasized the lack of independent evidence to support the AO's claim and reiterated that the stock valuation accepted by the sales tax authorities should be binding on the income tax authorities. The appeal by the Revenue was dismissed, and the findings of the CIT(A) were upheld.