2014 (4) TMI 469 - AT - Income Tax

Addition on valuation of stock and excess cash by A.O. - Margin of profit @ 27% was reduced from value of stock - Held that - Inventory was made at MRP during survey operation - After making adjustment @ 27%, actual difference in stock worked out at Rs.27,49,000/- and after adding cash difference a lump-sum discloser of Rs.30 lacs was made - Considered the assessee s plea regarding adjustment for VAT which was 12.5% during relevant period on the goods sold by assessee - Considering totality of facts, CIT (A) was justified in deleting the addition and directing the Assessing Officer to reduce the addition on account of valuation of stock to be restricted by allowing margin of 26.88% from value of excess stock inventorised at MRP during the survey operation Decided against Revenue.

Issues Involved:
Valuation of stock during a survey operation, adjustment for VAT, excess cash found during survey, addition made by Assessing Officer, deletion of addition by CIT (A), calculation of margin of profit, reduction of addition on account of valuation of stock.

Valuation of Stock During Survey Operation:
The appeal filed by the revenue was based on the valuation of stock found during a survey operation at the business premises of the assessee. The assessee, a partnership firm engaged in retail trade of watches and clocks, had made a disclosure of excess cash and stock inventory during the survey. The Assessing Officer made an addition to the disclosed amount, which was later deleted by the CIT (A). The CIT (A) considered the valuation of stock made at MRP basis during the survey and the adjustment required for margin of profit. The CIT (A) directed the Assessing Officer to reduce the addition on account of the valuation of stock by allowing a margin of 26.88% from the value of excess stock inventoried at MRP during the survey operation.

Adjustment for VAT:
The assessee's plea regarding the adjustment for VAT, which was 12.5% during the relevant period on the goods sold, was considered. The appellant counsel argued that the margin of profit included the amount towards Value Added Tax, which is chargeable at 12.5%. The appellant maintained VAT separately in the ledger account and argued for adjustment considering the VAT paid. The CIT (A) found merit in the submission regarding VAT adjustment and directed the Assessing Officer to reduce the addition on account of the valuation of stock accordingly.

Excess Cash Found During Survey:
During the survey operation, excess cash amounting to Rs.3,13,009/- was found compared to the cash balance in the cash book. The total stock inventory valuation at the time of survey was at Rs.1,34,91,790/-. There was a variation in the value of stock found during the survey and the inventory made on the basis of tag price. The Assessing Officer did not accept the disclosed amount by the assessee, leading to the addition made, which was later deleted by the CIT (A) based on the valuation and adjustment considerations.

Calculation of Margin of Profit:
The contention regarding the calculation of the margin of profit was crucial in this case. The appellant argued that the margin of profit included VAT and that the Assessing Officer did not consider this aspect. The CIT (A) acknowledged the appellant's claim and directed the reduction of the addition on account of the valuation of stock by allowing a margin of 26.88% from the excess stock value found during the survey operation.

Reduction of Addition on Account of Valuation of Stock:
Considering the totality of facts and the adjustments required for VAT and margin of profit, the CIT (A) was justified in deleting the addition made by the Assessing Officer. The direction to reduce the addition on account of the valuation of stock by allowing a margin of 26.88% from the excess stock inventoried at MRP during the survey operation was upheld, resulting in the dismissal of the revenue's appeal.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented, and the final decision rendered by the authorities involved in the case.

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