2016 (5) TMI 240 - AT - Income Tax

Addition on undervaluation of stock - Held that - Undisputedly the assessee has been following the weighted average rates method in valuing the stock and same was accepted by the Revenue in earlier years. Therefore, there is no justification in rejecting the method of valuation made by the Assessing Officer. Moreover, the Assessing Officer has not furnished the reasonable explanation of the reasons for rejecting mode of valuation adopted by the assessee. We have carefully examined the order of the CIT(A) and find that the CIT(A) has adjudicated the issue in a right perceptive in deleting the addition - Decided in favour of assessee Addition on account of unexplained investment in acquisition of excess stock of marble - Held that - Since assessee has not challenged this order of the CIT(A), it attains the finality. So far as the addition of ₹ 53,78,792/- is concerned, the CIT(A) has restricted the addition to the profit earned on the sale of stock outside the books of account at 11%, resulting into addition of ₹ 5,91,667/-. Since we do not find any infirmity in the order of Ld. CIT(A) as the addition is only to be made with respect to profit earned on stock of sale outside the books of accounts. Accordingly, we confirm the order of the CIT(A) in this regard.- Decided against revenue Addition u/s 56 - purchase of shares by the assessee from Bharat Bearings Ltd. and Shankar Telecom Ltd. for ₹ 1 per share against the face value of shares of ₹ 10/- for each share - CIT(A) deleted the addition - Held that - We find that undisputedly the transaction took place in the month of April, 2010 whereas the provisions of Section 56 (2)(viia) was made applicable w.e.f. 01.06.2010.Therefore, the provisions cannot be attracted to the present transaction. The applicability of the other provision of Section 69 and 69A was also examined by the CIT(A). Since CIT(A) has properly adjudicated the issue in the light of relevant provisions of the Act, we find no infirmity therein. Accordingly, we confirm his order.- Decided against revenue Disallowance u/s 14A - Held that - CIT(A) has calculated the disallowance as per Rule 8D and Section 14A. Since no specific defect in the calculation of disallowances were pointed out by the Ld. DR, we find no infirmity in the order of the CIT(A) - Decided against revenue

Issues Involved:
1. Deletion of addition on account of undervaluation of stock.
2. Deletion of addition on account of shortage in stock.
3. Deletion of addition on account of unexplained investment in shares.
4. Deletion of addition on account of disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition on Account of Undervaluation of Stock:
The Assessing Officer (AO) added ?10,15,162/- due to undervaluation of stock based on the difference in valuation of different varieties of timber. The assessee argued that they consistently valued the stock using a weighted average method, which was accepted in previous assessments. The CIT(A) found that the AO did not disturb the opening or closing stock values and only adopted a new method of valuation without valid reasons. The CIT(A) deleted the addition, noting that the assessee’s method was consistent and recognized by accounting standards and judicial pronouncements. The Tribunal upheld this decision, finding no infirmity in the CIT(A)'s order.

2. Deletion of Addition on Account of Shortage in Stock:
The AO noted a shortage in stock and added ?57,45,800/- assuming sales outside the books. The CIT(A) found that only the profit on such sales should be added, not the entire shortage amount. The CIT(A) confirmed the addition of ?3,67,008/- for unexplained excess stock of marble and restricted the addition for the shortage to ?5,91,667/- (11% profit on ?53,78,792/-). The Tribunal agreed, finding no infirmity in the CIT(A)'s order and confirming the restricted addition.

3. Deletion of Addition on Account of Unexplained Investment in Shares:
The AO added ?30,60,000/- under Section 56(2)(vii) for shares purchased at ?1 per share against a face value of ?10. The CIT(A) noted that Section 56(2)(vii) was applicable from 01.06.2010, whereas the shares were acquired in April 2010. The CIT(A) also found no basis for invoking Sections 69 and 69A as the investment was recorded in the books. The Tribunal upheld the CIT(A)'s decision, confirming that the provisions of Section 56(2)(vii) were inapplicable and that the AO had no grounds to make the addition.

4. Deletion of Addition on Account of Disallowance under Section 14A:
The AO made an addition of ?2,26,752/- under Section 14A. The CIT(A) recalculated the disallowance and restricted it to ?25,077/-, noting that the AO did not provide a concrete finding on the utilization of borrowed funds for investments. The CIT(A) applied Rule 8D correctly, considering the assessee’s own funds were sufficient for the investments. The Tribunal found no defect in the CIT(A)'s calculation and confirmed the order.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletions and adjustments on all grounds. The consistent application of accounting methods, proper examination of legal provisions, and correct application of Rule 8D were upheld in the judgment.

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