2010 (7) TMI 627 - AT - Income Tax

Addition - Survey u/s 133A - Held that it is clear from the assessment order itself that this firm M/s. Vishal Jewellers stood dissolved with effect from 6-5-2004, and the closing stock as on 6-5-2004 was taken over by the company, M/s. Vishal Gold and Precious Stones Ltd - It is also not in dispute that the survey under section 133A was conducted on 24-2-2005 at the business premises certainly belonging to M/s. Vishal Gold and Precious Stones (P.) Ltd., as the present firm was not existing at that point of time - Therefore, any discrepancy in the stock can be considered in the hands of the company, but not in the hands of the present firm - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of addition of Rs. 26,00,000 by the Commissioner of Income-tax (Appeals) for assessment year 2005-06.

Analysis:
1. Background and Assessment by AO:
- The Assessing Officer conducted a survey under section 133A revealing the dissolution of M/s. Vishal Jewellers and its takeover by M/s. Vishal Gold and Precious Stones (P.) Ltd.
- Discrepancy of Rs. 26 lakhs in stock valuation was noted during the survey.
- Assessee voluntarily surrendered Rs. 60 lakhs for taxation, including Rs. 26 lakhs by one of the partners.
- AO added Rs. 26 lakhs to the present assessee-firm's income.

2. Decision of CIT(A):
- CIT(A) observed that the firm was dissolved before the survey and stock was taken over by M/s. Vishal Gold and Precious Stones (P.) Ltd.
- No variation in stock quantity was found.
- Letters to AO regarding stock position were not considered.
- Addition of Rs. 26 lakhs was deleted by CIT(A).

3. Appellate Tribunal's Decision:
- Tribunal noted the dissolution of M/s. Vishal Jewellers and the takeover by M/s. Vishal Gold and Precious Stones (P.) Ltd.
- Survey conducted at premises of M/s. Vishal Gold and Precious Stones (P.) Ltd., not the present firm.
- Value of closing stock should be at cost price or market price, whichever is lower.
- Addition not warranted as stock did not belong to present partnership firm.
- Upheld CIT(A)'s decision to delete the addition.

4. Conclusion:
- Revenue's appeal against deletion of Rs. 26,00,000 addition dismissed.
- Addition not justified as stock discrepancies pertained to a different entity.
- Tribunal upheld CIT(A)'s decision, ruling in favor of the assessee.