2012 (5) TMI 458 - AT - Income Tax

Addition of Rs.47,72,525/- u/s 69C as unexplained stock - During the course of assessment proceedings the assessee was asked to submit item wise and month wise quantitative details of raw materials as well as sale of finished products - On verification of books of accounts of the assessee and the details as produced before the AO, it was observed that the assessee was maintaining detailed record of purchases, sales and issue of these goods for mixing/preparation of other spices but not produced the same before him - According to the AO, the assessee had showed negative stock and the assessee was asked to explain the negative stock and also why the discrepancy should not be treated as unexplained expenditure incurred by the assessee on purchase of hing - learned DR relied upon the orders of the authorities below and submitted that the assessee has failed to explain the discrepancies in hing account and there was negative balance in the stock on certain dates - Held that instead of making huge addition against the assessee, it could be reasonable and proper for the AO to reject the book results of the assessee and to make reasonable addition considering the history of the assessee The stock during the course of the proceedings was found to be negative, therefore, it could be presumed that the same was sold outside the books of accounts - The assessee deals in several varieties of the items and as such it would be difficult to maintain details of the stock. The assessee produced all the books of accounts and sales and purchases vouchers before the AO for verification - Decided in favor of the assessee by way of addition of Rs.47,72.525/- is restricted to Rs.3,00,000

Summary

Issues Involved:
1. Addition of Rs.47,72,525/- under Section 69C as unexplained stock.
2. Alternative plea for considering only the peak negative stock instead of the total negative stock.

Detailed Analysis:

1. Addition of Rs.47,72,525/- under Section 69C as unexplained stock:

The assessee, engaged in the manufacture of cooking spices, was unable to submit item-wise and month-wise quantitative details of raw materials and sales of finished products during the assessment proceedings. Despite several opportunities, the assessee failed to provide these details, claiming it was difficult or impossible since they did not maintain quantity details of purchases. The AO observed that the assessee maintained detailed records of purchases, sales, and issue of goods for mixing/preparation of other spices but did not produce the same. The AO noted that the quantitative details were not given purposely and found instances of negative stock in the computerized books of accounts. The AO treated the discrepancy as unexplained expenditure under Section 69C of the IT Act, amounting to Rs.47,72,525.25.

The assessee argued that the discrepancies were due to clerical errors, differences in billing units, late recording of purchase bills, and minor discrepancies adjusted in the audit report. The learned CIT(A) upheld the AO's addition, noting that the assessee failed to furnish reconciliation statements or proper explanations for the discrepancies.

The Tribunal, considering the submissions and material on record, found that instead of making a huge addition, it would be reasonable to reject the book results and make a reasonable addition considering the history of the assessee. The Tribunal noted that the assessee's profit rate was better compared to earlier years and that the entire amount of negative stock could not be treated as unexplained expenditure. The Tribunal decided that a lump sum addition of Rs.3,00,000/- would be appropriate, modifying the orders of the authorities below.

2. Alternative plea for considering only the peak negative stock instead of the total negative stock:

The assessee alternatively argued that only the peak negative stock should be added instead of the total negative stock. The Tribunal noted that the peak negative stock was Rs.2,10,452.35 and agreed that the entire amount of negative stock could not be treated as unexplained expenditure. The Tribunal found that the approach of the AO was not in accordance with the law and that it would be better to reject the book results and estimate the profit considering the history of the assessee or the peak addition suggested by the assessee's counsel.

Conclusion:

The Tribunal partly allowed the appeal of the assessee, modifying the addition of Rs.47,72,525/- to Rs.3,00,000/-. The Tribunal emphasized that the discrepancies in the stock were not fully explained, but a reasonable addition should be made considering the overall facts and circumstances of the case. The appeal was partly allowed, and the order was pronounced in the open court on 20.10.2011.