2013 (5) TMI 578 - AT - Income Tax

Addition on account of negative stock - CIT(A) deleted the addition - Held that - Assessee has maintained proper books of accounts with no defect pointed out with the quantitative details of stock were duly certified by the Auditors. AO has not been able to make the case of inflated purchases or unaccounted sales, purchase, sale gross profit & net profits amount remained the same. The quantitative details as submitted duly explained that there was no negative stock in any of the month. Thus AO has erred in his approach and the figure of negative stock arrived is totally erroneous. In favour of assessee. Interest paid on the loans and advances disallowed - Held that - As from the figures of the opening and closing capital of the assessee it is evident that assessee has sufficient own funds to cover the interest free loans / advances of Rs. 42,52,300/-. As AO has not been able to dispute the assessee s submission that assessee had adequate own funds out of which interest free loans and advances no disallowance is called for. Similarly, again on similar facts in A.Y. 2007-08 CIT(A) deleted the similar additions by the AO and the decision of CIT(A) was not challenged by the Department in higher forums. In favour of assessee.

Summary

Issues:
1. Deletion of addition of Rs. 49,68,844/- on account of negative stock.
2. Deletion of addition of Rs. 63,628/-.

Issue 1: Deletion of addition of Rs. 49,68,844/- on account of negative stock:
The case involved the deletion of an addition of Rs. 49,68,844/- made by the Assessing Officer on account of negative stock in the month of February, 2008. The Assessing Officer had added this amount to the total income of the assessee under section 69B of the Act, considering it as unexplained investment in stocks. The Commissioner of Income Tax (Appeals) deleted this addition after finding that the books of accounts were audited, quantitative details were provided, and no inflated purchases or unaccounted sales were identified. The Commissioner held that the Assessing Officer's approach was erroneous, and the figure of negative stock was incorrect. The Tribunal affirmed the Commissioner's decision, stating that the Assessing Officer failed to prove any infirmity in the books of accounts, and the quantitative details submitted showed there was no negative stock.

Issue 2: Deletion of addition of Rs. 63,628/-:
The second issue pertained to the deletion of an addition of Rs. 63,628/- by the Assessing Officer concerning proportionate disallowance from interest expenditure. The Assessing Officer computed this disallowance based on interest-free non-business advances given by the assessee. However, the Commissioner of Income Tax (Appeals) found that the assessee had sufficient own funds to cover the interest-free loans and advances, and therefore, no disallowance was warranted. The Tribunal upheld this decision, noting that the Assessing Officer failed to dispute the assessee's claim of having enough own funds to cover the interest-free loans and advances. Additionally, the Tribunal highlighted a similar decision made by the Commissioner in a previous assessment year, where similar additions were deleted, and the Revenue did not challenge that decision in higher forums.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decisions of the Commissioner of Income Tax (Appeals) in both issues.