2014 (11) TMI 1130 - AT - Income Tax

Excess value of stock - suppression of purchases or sales - Held that - The addition on account of difference in stock can be made only on the basis of adequate material, but not arbitrarily. Admittedly, there was a difference between the value of stock declared to the bank and the Assessing Officer. There was no dispute that the asssessee was maintaining books of accounts on day to day basis. The purchases and sales as on 31.3.2007 are supported by vouchers and the Assessing Officer had not pointed out any suppression of purchases or sales. Therefore, we find Ld. CIT(A) has rightly deleted the adhoc addition of ₹ 1,00,06,656/- made by the AO, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A). - Decided in favour of assessee.

Summary

Issues:
1. Addition of excess value of stock by the Assessing Officer.
2. Discrepancy in the valuation of stock presented to the bank and in the company's audited accounts.
3. Applicability of judicial precedents in determining stock value discrepancies.

Analysis:

Issue 1: Addition of excess value of stock
The Revenue challenged the deletion of an addition of Rs. 1,00,06,656 made by the Assessing Officer on account of an alleged excess value of stock. The Ld. CIT(A) ruled in favor of the assessee, leading to the appeal. The appellant contended that the stock value presented to the bank was inflated to secure a higher OD limit, while the actual stock value was lower. The Ld. CIT(A) found no suppression of purchases or sales, supported by vouchers and maintained that the addition lacked adequate material and was arbitrary. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the importance of credible evidence in such cases.

Issue 2: Discrepancy in stock valuation
The core issue revolved around the discrepancy between the stock value declared to the bank and the Assessing Officer. The appellant argued that the inflated stock value was a strategic move for obtaining a higher OD limit, while the actual stock value was accurately maintained in the books. The Tribunal noted the meticulous record-keeping by the assessee and the absence of any irregularities in purchases or sales, reinforcing the decision to delete the addition made by the Assessing Officer.

Issue 3: Applicability of judicial precedents
The Ld. CIT(A) extensively discussed various High Court decisions, emphasizing the necessity of concrete evidence to support additions based on stock discrepancies. Citing precedents, the Ld. CIT(A) highlighted the significance of genuine accounting practices and the presence of vouchers to validate transactions. The Tribunal concurred with the Ld. CIT(A)'s analysis, underscoring the requirement for substantial material before making adhoc additions to income. The decision underscored the importance of factual accuracy and adherence to legal principles in such matters.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s order to delete the addition of Rs. 1,00,06,656. The judgment underscored the critical role of credible evidence, genuine accounting practices, and adherence to legal precedents in resolving disputes related to stock valuation and income additions.