2016 (6) TMI 22 - AT - Income Tax

Addition on account of under valuation of closing stock - Held that - The assessee was valuing the closing stock at cost or market price whichever was lower and this practice was followed consistently. In the instant case, it was claimed that in the preceding year and succeeding year, similar valuation has been accepted by the Deptt. and whenever the shares were sold, the profit earned in the trading was offered for taxation, the contention of the assessee was that no trading took place as on 31s t March, 2009 in respect of the shares in question, as such the valuation on that date was not quoted and considered as nil. The above said contention was not rebutted by bringing any cogent material on record. It was also not rebutted by the department that whenever the shares were sold the profit earned on the said transaction was offered for taxation and accepted by the Deptt. We, therefore, by considering the totality of the facts, are of the view that the addition made by the AO and sustained by the ld. CIT(A) was not justified, accordingly the same is deleted - Decided in favour of assessee Undisclosed deposits in bank - Held that - It is an admitted fact that the assessees received a cheque of ₹ 1,25,000/- from Smt. Rekha Gupta and deposited the same in his bank account Smt. Rekha Gupta is proprietor of M/s. P.K.Gupta & Co. and maintained the cash book in her regular course of business. She deposited a sum of ₹ 1,25,000/- on 14.3.2008 which is evident from page no. 130 of the assessee s paper book. She also furnished her confirmation which has not been doubted, copy of the same is placed at page no. 46 of the assessee s paper book. She also disclosed her address as well as bank and Income-tax ward were she was assessed. Smt. Rekha Gupta also furnished copy of her Income-tax return which is placed at page no. 66 of the assessee s paper book. From the above narrated facts, it is clear that the assessee discharged the onus cast upon him to prove the identity of the depositor, her creditworthiness and genuineness of the transactions. Therefore, the addition made by the AO and sustained by the Ld. CIT(A) was not justified - Decided in favour of assessee Addition on account of low household withdrawals - Held that - In the present case, it is noticed that the assessee and his wife had withdrawn a sum of ₹ 1,23,730/- out of which ₹ 23730/- were on account of school fees of the children. The assessee is residing with his family in his own house, and no rent was paid. In the present case, it is not brought on record that how and in what manner the withdrawals by the assessee and his wife were not sufficient to meet out the needs of the day to day life. It, therefore, appears that the addition has been made by the AO only on the basis of presumption which is not tenable in the eyes of law. We, therefore, delete the addition made by the AO and sustained by the Ld. CIT(A).- Decided in favour of assessee

Summary

Issues:
1. Valuation of closing stock
2. Addition of amount received from a third party
3. Addition on account of low household withdrawals

Valuation of Closing Stock:
The appellant contested the addition of ?93,206 made by the Assessing Officer (AO) due to the undervaluation of closing stock. The AO believed the shares in question were undervalued, leading to the addition. The appellant argued that since the shares were not traded on the stock exchange by the end of the financial year, their valuation was nil. The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the Tribunal found that the appellant consistently valued closing stock at cost or market price, whichever was lower. The Tribunal noted that the appellant's explanation was reasonable, and there was no evidence to refute it. Therefore, the addition was deemed unjustified and deleted.

Addition of Amount Received from a Third Party:
The AO added ?1,25,000 to the appellant's income, considering it an accommodation entry. The appellant failed to explain the source of cash deposit in the bank account, leading to the addition. The Commissioner of Income Tax (Appeals) upheld this decision, citing relevant case laws. However, the Tribunal found that the appellant provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction with the third party. The Tribunal noted that the appellant had met the burden of proof, leading to the deletion of the addition.

Addition on Account of Low Household Withdrawals:
The AO added ?1,50,000 to the appellant's income due to low household withdrawals. The Commissioner of Income Tax (Appeals) agreed with this addition, considering the withdrawals insufficient for household expenses. The appellant argued that the withdrawals were adequate for their family's needs, including school fees. The Tribunal observed that the withdrawals were reasonable, especially considering the family's size and expenses. The addition was deemed baseless and was consequently deleted.

This judgment highlights the importance of providing adequate explanations and evidence to support financial transactions during income tax assessments. It also emphasizes the need for consistency in valuation practices and the burden of proof on the taxpayer to establish the legitimacy of transactions and expenses.