2011 (4) TMI 606 - HC - Income Tax

Difference in stock found during survey - Determining the value of stock - the Income-tax Appellate Tribunal (for brevity the Tribunal ) has reduced the addition of Rs. 25,89,823 made by the Assessing Officer on account of difference in valuation of stock of Rs. 6,77,600. The Tribunal observed that the discount of 50 per cent is given by the assessee on goods worth Rs. 5,13,928 and discount of 75 per cent was given on goods worth Rs. 33,12,908, no discount was claimed in respect of stock worth Rs. 67,19,861 and thus overall discount came to about 14 per cent with reference to total stock. Accordingly, the Tribunal took the value of stock at Rs. 92,00,000 as against the valuation made by the survey party at Rs. 1,05,46,697, thus giving relief of Rs. 14,46,697. - held that - The entire case concerns about the appreciation of facts and no question of law arises. - Decided against the revenue.

Summary

Issues: Valuation of stock based on tag price or discounted sale price, determination of profit margin for cost price calculation.

In this case, the respondent, engaged in the sale of readymade garments, had a survey conducted at their premises revealing a difference in physical stock amounting to Rs. 40,00,000. The respondent surrendered Rs. 29,00,000 during the survey, but declared only Rs. 3,10,177 as income on account of the stock difference in the income tax return. The Assessing Officer made an addition of Rs. 25,89,823 to the income of the respondent due to the variance in stock valuation. The CIT(A) upheld this addition, emphasizing that the respondent could not retract the surrender made during the survey. However, on appeal, the Tribunal reduced the addition to Rs. 6,77,600, considering the discounts offered by the respondent on various goods. The Tribunal also adjusted the profit margin for cost price calculation from 10% to 20%, resulting in a revised valuation of the stock. The Tribunal's decision was based on a detailed analysis of the discount practices and profit margins of the respondent.

The key issues addressed by the Tribunal were: whether the tag price or discounted sale price should be used to determine the stock value, and whether the profit margin for cost price calculation should be set at 10% as per the survey party or 20% as claimed by the respondent. The Tribunal found that the tag price could not be the sole basis for valuation due to the significant discounts offered by the respondent. It was noted that the respondent had been offering discounts ranging from 30% to 75%, resulting in an average discount of about 14% on the total stock. Therefore, the Tribunal adjusted the stock value to Rs. 92,00,000 from the survey party's valuation of Rs. 1,05,46,697. Regarding the profit margin, the Tribunal accepted the respondent's claim of a 20% profit margin based on previous assessments, leading to a revised stock valuation of Rs. 72,60,000. The Tribunal's decision was supported by a thorough examination of the respondent's sales practices and profit margins.

The Tribunal's findings were based on a detailed analysis of the respondent's discount policies and profit margins. It was observed that the respondent's practice of offering significant discounts justified a valuation based on discounted sale prices rather than tag prices. The Tribunal also considered the respondent's historical profit margins, accepting a 20% margin for cost price calculation instead of the 10% used by the survey party. This adjustment led to a revised stock valuation and a reduction in the addition made by the Assessing Officer. The Tribunal's decision was upheld as it provided a reasoned and logical interpretation of the facts and circumstances surrounding the valuation of the respondent's stock, demonstrating a fair and equitable approach to determining the income tax liability.