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2013 (2) TMI 504 - AT - Income TaxAddition on account of Value of Closing Stock AO added an amount under the head under valuation of closing stock weight of closing stock in the valuation report of valuer and closing stock on the date of survey differ Held that - Assessee is a registered dealer of gold ornaments having TIN and duly filed the quarterly returns of VAT - VAT audit report was also obtained from the Chartered Accountant certifying the total turnover and stock, reflecting the gross weight of ornaments and net weight contents of gold in the ornaments as also the method of stock valuation VAT audit report was duly submitted with the sales tax authorities and no objection and/or adverse inference was drawn by Department. Further excess closing stock was incorrectly ascertained on the basis of figures as per the stock records in GS- 1 I and GS-12 which were not up to date in respect of all the entries as on the date of survey There was difference of 91.365 gms. in gross weight, this difference is considered to be quiet negligible - Addition made by the A.O. on account of excess stock deserves to be deleted because there was no excess stock and that the approved valuer has not correctly ascertained the net weight of gold ornaments valued by him Case of Prakash Motwani Vs. ITO 2009 (6) TMI 650 - ITAT AGRA is relevant here Against the revenue.
Issues Involved:
1. Deletion of addition on account of undervaluation of closing stock. Comprehensive, Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Undervaluation of Closing Stock: The Revenue appealed against the order of the CIT(A)-XII Kolkata, which deleted an addition of Rs. 46,59,300/- made by the AO on account of undervaluation of closing stock for the assessment year 2006-07. The AO had added this amount during the scrutiny assessment, based on the results of a survey conducted under section 133A of the Act on 28.09.2005. The AO observed discrepancies between the physical stock and the stock recorded in the books, leading to the addition. The AO's assessment was based on a valuation report by an approved valuer, which indicated a significant difference between the gross weight and net weight of gold ornaments. The AO concluded that the difference in net weight (7,240.056 gms) indicated undisclosed stock, resulting in an addition of Rs. 46,59,300/- to the assessee's income. On appeal, the CIT(A) considered the written submissions of the assessee, the Remand Report from the AO, and the assessee's response to the Remand Report. The CIT(A) noted that the valuer's report did not account for the weight of stones and other materials in the ornaments, leading to an inflated net weight of gold. The CIT(A) found that the gross weight of the stock as per the books (22,805.045 gms) was almost identical to the gross weight as per the valuer's report (22,896.410 gms), with a negligible difference of 91.365 gms. The CIT(A) concluded that the AO's reliance on the net weight difference was misplaced and restricted the addition to Rs. 58,800/-, corresponding to the minor difference in gross weight. The Revenue, dissatisfied with this reduction, appealed to the ITAT. The DR for the Revenue relied on the AO's observations, while the AR for the assessee supported the CIT(A)'s decision, emphasizing the accuracy of the stock records and the flaws in the valuer's report. The AR highlighted that the AO had accepted the sales and purchases recorded in the books, which supported the assessee's claim of accurate stock records. The ITAT, after hearing both parties and reviewing the materials on record, upheld the CIT(A)'s decision. The ITAT noted that the AO had not disputed the accuracy of the sales and purchases recorded in the books. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal, confirming the deletion of the addition on account of undervaluation of closing stock. Conclusion: The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to restrict the addition on account of undervaluation of closing stock to Rs. 58,800/-. The ITAT agreed with the CIT(A) that the AO's reliance on the net weight difference was incorrect and that the gross weight difference was negligible, supporting the accuracy of the assessee's stock records.
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