2017 (1) TMI 56 - AT - Income Tax

Additions made towards difference in value of stock in process - Held that - We find merits in the arguments of the assessee for the reason that the value of stock submitted to the bank cannot be taken to be the exact value of the stock. This is the usual practice adopted by the businessmen by inflating the stock of the assets in order to avail better financial help from the banks. The A.O. has not mentioned or observed any deviation from accounting principles adopted by the assessee for valuation of closing stock. He had also not found any defects in the books of accounts of the assessee or any bogus purchases and sales to come to the conclusion that the books of accounts along with stock registers maintained by the assessee are incorrect. In so far as stock in process, though there was a difference in quantity between the figure shown to the bank and figure shown in the books of accounts, the assessee claims that stock in process cannot be taken accurately because the items of stock in process cannot be counted accurately. The A.O. could not controverted the claim of the assessee with any positive findings to the effect that stock and financial books of accounts were found with discrepancies. Therefore, we are of the view that without any findings as to the correctness of books of accounts and stock registers, additions towards stock difference solely based on the stock statement filed with the bankers is incorrect. In view of the above, the A.O. has wrongly added the difference in the valuation as declared in the books of accounts and one which was recorded in the statements produced before the bank. Hence, the addition made by the A.O. towards stock difference is deleted. - Decided in favour of assessee Disallowance of amount paid to gratuity fund - assessee failed to furnish the copy of approval of gratuity fund from the competent authority - Held that - As contended that its gratuity fund has been approved by the Principal Commissioner of Income-Tax-2, Visakhapatnam vide his order dated 29.3.2016 and the full benefit had been given w.e.f. 7.1.2001. To this effect, it has furnished copy of order approving the gratuity fund by the competent authority. We find that the gratuity fund of the assessee has been approved by the competent authority vide its order dated 29.3.2016 w.e.f. 7.1.2001. Therefore, we are of the view that the A.O. was erred in disallowing contribution to gratuity fund.- Decided in favour of assessee

Summary

Issues:
1. Condonation of delay in filing appeal due to natural calamity.
2. Discrepancy in valuation of stock between books of accounts and stock statement.
3. Disallowance of contribution to approved gratuity fund.

Analysis:

Issue 1: Condonation of delay in filing appeal due to natural calamity
The appellant filed an appeal against the order of the CIT(A) pertaining to the assessment year 2010-11. The appellant cited a delay in filing the appeal due to a cyclone that disrupted communication. The appellant submitted an affidavit explaining the delay, attributing it to the cyclone's impact on communication. The ITAT, after considering the circumstances, condoned the delay, noting the reasonable cause for not presenting the appeal within the stipulated time. The appeal was admitted for further hearing.

Issue 2: Discrepancy in valuation of stock between books of accounts and stock statement
The case involved a company engaged in manufacturing that declared a total income for the assessment year 2010-11. Discrepancies were noted in the valuation of closing stock between the books of accounts and the stock statement submitted to the bankers. The AO made additions to the total income based on these differences, along with disallowing a contribution to a recognized gratuity fund. The CIT(A) confirmed the addition related to stock in process but directed the deletion of additions concerning raw materials and finished goods. The ITAT, after reviewing the arguments and evidence, found that the AO's additions based solely on the stock statement submitted to the bankers were incorrect. The ITAT deleted the addition made towards stock difference, emphasizing the lack of findings on discrepancies in the books of accounts.

Issue 3: Disallowance of contribution to approved gratuity fund
The AO disallowed a contribution to an approved gratuity fund due to the failure to produce approval from the competent authority. The appellant explained that the approval was pending during the assessment proceedings and later provided the order approving the gratuity fund. The ITAT observed that the gratuity fund had been approved by the competent authority, and hence, the AO's disallowance was erroneous. The ITAT deleted the additions made by the AO regarding the contribution to the gratuity fund, ultimately allowing the appeal filed by the assessee.

In conclusion, the ITAT allowed the appeal, emphasizing the importance of considering all relevant evidence and circumstances before making additions to the total income. The judgment highlighted the need for thorough assessment and proper documentation to support claims, ultimately ensuring a fair and just decision in tax matters.