2017 (8) TMI 72 - AT - Income Tax

Addition on account of difference in stock - Held that - The assessee is said to be maintaining books of accounts on day to day basis and the purchase and sales were properly vouched. Section 34 of the Indian Evidence Act provides books of accounts, regularly kept in the course of business are relevant wherever they refer to a matter into which the court has to inquire. Thus, entries made in the books of accounts maintained in the ordinary course of business would be relevant evidence and, thus, they would, to some extent, carry with them a presumption of truth. The books of accounts of the assessee had been duly audited as per the requirement of section 44 AB of the Income Tax Act, 1961. The assessing officer has not pointed out any defect in the books of accounts but has simply substituted the value of stock as per books of accounts with the information supplied by the bank although the book results were held to be correct. Moreover, in the instant appeals it is a case of hypothecation and not of pledge and as such the stock is not with the bank. The Tribunal has also, on numerous occasions, held that addition on this account was not justified where the books of accounts or the accounting system had been found to be genuine duly supported by vouchers etc. Thus, addition on account of difference in stock can be made only on the basis of adequate material and not arbitrarily. Admittedly, there was a difference between the value of stock declared to the bank and the stock as per books of accounts but there is no dispute that the assessee had been maintaining proper books of accounts on the day to day basis and the sales and purchases were duly supported with vouchers and there was no finding as to suppression of any purchase or sales - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition of deemed income under section 69 of the Income Tax Act, 1961.
2. Deletion of addition on account of difference in stock and provision for rate difference.

Issue 1: Deletion of addition of deemed income under section 69 of the Income Tax Act, 1961:
In ITA No. 1677, the Department appealed against the deletion of an addition of &8377; 61,95,053 made by the assessing officer under section 69. The assessing officer treated the difference in stock valuation as income. However, the Ld. CIT (Appeals) deleted the addition, emphasizing that purchases and sales were properly vouched, payments were made through cheques, and books of accounts were well-maintained. The Ld. CIT (Appeals) relied on previous case law and upheld the deletion. The Department contended that the deletion was erroneous and not sustainable in law. The ITAT analyzed the evidence, noting that the books of accounts were regularly maintained and audited, with no defect pointed out by the assessing officer. The Tribunal held that addition based on stock differences should be supported by adequate material and not arbitrary. Considering the consistent maintenance of proper books of accounts and lack of evidence of suppression, the ITAT dismissed the Department's appeal.

Issue 2: Deletion of addition on account of difference in stock and provision for rate difference:
In ITA No. 1678, the Department challenged the deletion of two additions: one for difference in stock and the other for provision for rate difference. The assessing officer treated the stock difference as income, which was deleted by the Ld. CIT (Appeals) based on previous decisions. The Department raised grounds against this deletion. During the appeal, the Ld. AR cited a related case where a similar deletion was upheld. The Departmental Representative argued for restoration of the addition, questioning the discrepancy in stock valuation. The ITAT examined the evidence and legal precedents, emphasizing the relevance of books of accounts maintained in the ordinary course of business. The Tribunal found no justification for the addition based solely on stock differences, especially when proper accounting practices were followed. Referring to a similar case, the ITAT dismissed the Department's appeal, upholding the Ld. CIT (Appeals) decision.

In conclusion, both appeals by the Department were dismissed by the ITAT, affirming the decisions of the Ld. CIT (Appeals) in deleting the additions related to stock valuation discrepancies and provision for rate difference.