2015 (11) TMI 1679 - AT - Income Tax

Addition of discrepancy found in stock during the course of survey - Held that - The difference in stock thus was worked out by the Assessing Officer without taking into consideration the movement of stock during the period from 01.09.2007 to 14.09.2007 and in our opinion there was thus basic infirmity in the order of the Assessing Officer inasmuch as the Oil Mills of the assessee being in operation during the said period the movement of stock should have been taken into consideration by him. In this regard it is also observed that although such working was stated to be filed by the assessee showing the relevant transactions for the period 01.09.2007 to 14.09.2007 before the ld. CIT(Appeals) there is no such specific mention in the order of the Assessing Officer about the said working having been filed by the assessee. Although the ld. CIT(Appeals) has brushed aside the said working by treating the same as an after-thought we are of the view that the said working prepared and furnished by the assessee to reconcile the difference in stock as taken by the Assessing Officer of different dates i.e. 01.09.2007 and 14.09.2007 is relevant and it should be considered and verified before making any addition on account of the alleged shortage of stock. We therefore consider it just and proper and in the interest of justice to set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the same to the file of the Assessing Officer for deciding the same afresh. Addition on the basis of entries found recorded in the diary during the course of survey - Held that - As rightly submitted by the assessee both the entries in question dated 18.03.2007 and 20.03.2007 are falling in the financial year 2006-07 relevant to the assessment year 2007-08 and therefore the amount reflected therein aggregating to 3, 00, 000/- cannot be added to the total income of the assessee for the year under consideration i.e. A.Y. 2008-09. Ld. D.R. has not been able to raise any contention to dispute this position. We therefore delete the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue holding that both the entries found recorded in the diary being dated 18.03.2007 and 20.03.2007 the addition for the same could be made only in assessment year 2007-08 and not in the year under consideration i.e. A.Y. 2008-09. Disallowance out of various expenses - Held that - The assessee has not been able to raise any material contention except stating that the disallowance of 10% made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of various expenses is excessive and unreasonable. We are unable to accept the contention of the ld. Counsel for the assessee. Having regard to all the facts of the case including the type of expenses claimed by the assessee the nature of business of the assessee and the quantum of expenses we are of the view that the disallowance of 10% made by the Assessing Officer and confirmed by the ld. CIT(Appeals) for want of supporting vouchers and bills is quite fair and reasonable. We therefore uphold the impugned order of ld. CIT(Appeals) on this issue and dismiss the Ground of the appeal of assessee.

Summary

Issues:
1. Addition of Rs. 27,81,670 on account of stock discrepancy during survey.
2. Addition of Rs. 3,00,000 based on diary entries found during survey.
3. Disallowance of Rs. 2,75,000 out of various expenses claimed.

Analysis:
1. The main issue in Grounds No. 2 & 3 pertains to the addition of Rs. 27,81,670 due to a stock discrepancy identified during a survey. The Assessing Officer treated the stock shortage as sales made outside the books, adding it to the total income. The CIT(A) confirmed this addition, rejecting the reconciliation statement filed by the assessee. However, the ITAT found a fundamental flaw in the AO's approach. The physical inventory was based on incomplete books, neglecting stock movements. The ITAT directed a fresh assessment, emphasizing the importance of considering the reconciliation statement provided by the assessee.

2. Ground No. 4 concerns the addition of Rs. 3,00,000 based on diary entries discovered during the survey. The AO and CIT(A) upheld this addition despite the entries belonging to a prior assessment year. The ITAT agreed with the assessee that these entries could not be added to the current year's income. Consequently, the ITAT deleted the addition, highlighting the chronological mismatch in the entries.

3. The issue raised in Ground No. 6 involves the disallowance of Rs. 2,75,000 from various claimed expenses. The AO disallowed this amount due to lack of supporting documentation, which the CIT(A) upheld. The ITAT, after considering the arguments, found the disallowance of 10% reasonable given the absence of verifiable evidence. Therefore, the ITAT upheld the CIT(A)'s decision on this issue, dismissing the assessee's appeal.

In conclusion, the ITAT partially allowed the assessee's appeal, directing a fresh assessment on the stock discrepancy issue, deleting the addition based on diary entries from a prior year, and upholding the disallowance of expenses due to insufficient documentation.