2016 (10) TMI 582 - AT - Income Tax

Undisclosed sales - non-availability of information - Held that - AO raised the issue for the undisclosed sale due to non-availability of information with regard to the quantitative details of the opening stock, purchases and sales, closing stock along with their respective values in the tax audit report. During the proceedings the details were furnished by the assessee but the AO rejected the same and worked out the undisclosed sale as discussed above. At the outset, we find that AO has made the addition on surmise and conjecture without pointing out any defect in the audited financial statement. The AO has failed to bring any defect in the submission of the assessee. In the case of deviation of the Accounting standard the AO should have rejected the books of accounts but he chose not to do so. CIT(A) has correctly deleted the addition made by the AO by observing that the method of valuation adopted by the assessee is consistent. It cannot be rejected merely because it will hamper the revenue. AO has not found any actual defect in the valuation of closing stock. AO has not found any defect in the books of accounts. Even if the average cost method is applied then also the AO calculation is not done properly and closing stock, 5584 pieces of sarees @ 1624 per piece 90,68,416/- on the average price of the opening stock and purchases during the year( 24,30,650 3,72,95,387 3,97,26,037.00/ 24464). While assessee has shown the closing stock valuing 1,10,95,279/-. - Decided against revenue Addition made by the AO on account of depreciation charged on buildings - assessee claimed to have made the investment in the properties by paying composite amount - Held that - In the instant case, the ld. AR has not brought produced the details of the payment of the composite payment. But he requested to restore the issue to the AO for verification and the ld. DR raised no objection if the same is restored to the AO. Therefore, in the interest of justice and fair play we restore this matter to the file of AO with the direction that in case the assessee has made the composite payment for the purpose of aforesaid properties, then the depreciation as per the order of Ld. CIT(A) should be allowed. Hence, this ground of Revenue s appeal is allowed for statistical purpose.

Summary

Issues involved:
1. Valuation of closing stock under section 145 of the Income Tax Act, 1961.
2. Addition of undisclosed sales amount.
3. Deletion of depreciation on ownership flat and ownership shop.

Detailed Analysis:
1. Valuation of closing stock under section 145:
The Revenue challenged the deletion of an addition made by the Assessing Officer (AO) on account of undisclosed sales amounting to ?30,07,993. The AO applied the average pricing method to determine the value of closing stock due to the qualitative analysis of stock not being furnished by the assessee. The AO found a discrepancy in the closing stock quantity, leading to the conclusion of undisclosed sales. However, the Commissioner of Income Tax (Appeals) deleted the addition, stating that the method of valuation adopted by the assessee was consistent and no actual defect was found in the valuation. The Appellate Tribunal upheld the CIT(A)'s decision, noting that the AO made the addition based on surmise and conjecture without pointing out any defects in the audited financial statement, thereby dismissing the Revenue's appeal.

2. Addition of undisclosed sales amount:
The AO added ?30,07,993 to the assessee's income as undisclosed sales due to a discrepancy in the closing stock quantity. The CIT(A) deleted this addition, emphasizing the consistency in the valuation method adopted by the assessee and the absence of defects in the valuation process. The Appellate Tribunal upheld the CIT(A)'s decision, stating that the AO's addition lacked a factual basis and was made without identifying any defects in the submitted financial statements.

3. Deletion of depreciation on ownership flat and ownership shop:
The AO disallowed depreciation claimed by the assessee on an ownership flat and an ownership shop, citing missing details in the Tax Audit Report. The AO assumed one-third of the property cost as land cost and disallowed proportionate depreciation. The CIT(A) deleted this addition, stating that there was no material to support the AO's assumption regarding land cost. The Appellate Tribunal noted that the AO relied on specific judgments to disallow depreciation, but the facts in those cases differed from the present case. The Tribunal directed the issue to be restored to the AO for verification of the composite payment made by the assessee for the properties, with the possibility of allowing depreciation if a composite payment was indeed made.

In conclusion, the Appellate Tribunal partly allowed the Revenue's appeal for statistical purposes regarding the issue of depreciation on the ownership flat and ownership shop, directing further verification by the AO.