2012 (1) TMI 92 - HC - Income Tax

Unexplained Investment Search conducted assessee declared undisclosed investment of Rs.42,65,924/- - A.O. made addition of Rs 61,64,407/ on ground of undisclosed stock - CIT(A) deleted addition of Rs 23,08,033/- as assessee established that belonged to third parties balance addition was deleted by Tribunal Held that - Assessee in their explanation had pointed out that the valuation reports had taken the value of 24 carat gold at Rs.790 per gram but did not correspondingly reduce the value of 18 carat and 22 carat gold. Further, even the stock, recorded in the books of account, was valued as per the market rates, which is not correct, and under the mercantile system of accounting an assessee is entitled to value the stock in hand (declared stock) at cost price or market price, whichever is lower . The assessee had valued the stock at cost price. The cost price as recorded in the books was not rejected or adversely commented upon in the assessment order. Thus an obvious mistake has been corrected by the Tribunal Decided in favor of assessee.

Summary

Issues:
1. Valuation of undisclosed stock found during a survey under Section 133A.
2. Addition of undisclosed stock under Section 69B by the Assessing Officer.
3. Reconciliation of stock valuation by the respondent-assessee.
4. CIT (Appeals) decision on undisclosed stock belonging to third parties.
5. Tribunal's decision on valuation of gold and stock in the books of account.

Valuation of Undisclosed Stock:
The case involved a survey under Section 133A where undisclosed investment was found. The Assessing Officer added an amount under Section 69B, stating the stock found was valued higher than declared. The respondent-assessee argued that the valuation was incorrect and provided a detailed reconciliation, which was not considered properly by the tribunal. The CIT (Appeals) granted relief for stock belonging to third parties but disagreed on the rest, suggesting the assessee should have objected during the survey valuation.

Addition of Undisclosed Stock:
The Assessing Officer added an amount under Section 69B due to the difference in stock valuation found during the survey and in the books of account. The respondent-assessee contended that the stock was valued at cost price, which was not rejected in the assessment order. The tribunal corrected this apparent mistake, noting that no profit arises until the stock is sold, and the stock should be valued based on the rule "cost price or market price, whichever is lower."

Reconciliation of Stock Valuation:
The respondent-assessee provided a detailed reconciliation of the stock, which was not adequately considered by the tribunal. The CIT (Appeals) granted relief for stock belonging to third parties but disagreed on the rest, emphasizing the importance of objecting to the valuation during the survey.

CIT (Appeals) Decision on Third-Party Stock:
The CIT (Appeals) granted relief for undisclosed stock belonging to third parties but disagreed on the rest, suggesting the assessee should have objected during the survey valuation process.

Tribunal's Decision on Gold Valuation:
The tribunal allowed the respondent-assessee's appeal, noting discrepancies in the valuation of gold and stock in the books of account. The respondent-assessee argued that the valuation reports did not adjust for different carat values and that stock should be valued at cost price until sold. The tribunal corrected this mistake, highlighting that the decision was not perverse and that the respondent-assessee had already surrendered a portion of the undisclosed stock.

In conclusion, the High Court dismissed the appeal, upholding the tribunal's decision on the valuation of undisclosed stock, the correction of valuation discrepancies, and the importance of objecting to stock valuations during surveys. The judgment clarified the principles of stock valuation and the need for proper consideration of reconciliation details in such cases.