2018 (4) TMI 735 - AT - Income Tax

Addition on account of difference in valuation of stock under the head undisclosed investment - produced no books of account - Held that - Admittedly assessee is carrying on the business of jewellery but on the date of search the books of account or stock register was not produced. The assessee in post search enquiry has submitted the reconciliation of stock by producing the copies of the bill of purchase and sale as well as the approval notes for the goods sent and received on approval. The details before the DDI stating that there is no difference in the quantity of the jewellery. Valuation is at cost and the total quantitative details of purchase and sales and receipt and issue on approval is supported by proper documentary evidences. The assessee has also submitted the quantitative details which could not be shown to be concocted. No defect could be pointed out in such quantity details. The details of jewellery recorded on approval and sent on approval is supported by the documents produced before the ld AO but AO did not find any discrepancy in those details. Further, the valuation of jewellery made by the assessee on cost basis was also not disputed contrarily the cost of the jewellery was supported with the bills showing rates of purchases. Merely non maintenance of stock register by the assessee cannot result into addition unless the AO shows with conclusive evidence that quantitative details submitted by the assessee is incorrect. Admittedly the assessee has produced the books of account before the ld AO and DDI, no defects were pointed out therein. Therefore, merely because books were not produced at the time of search, such addition cannot be made. - Decided against revenue

Issues Involved:
1. Deletion of addition on account of difference in valuation of stock under undisclosed investment.
2. Consideration of jewellery received on approval basis.
3. Non-maintenance of stock register and its impact.
4. Credibility of the valuation method used by the Departmental Valuation Officer versus the assessee's method.

Detailed Analysis:

1. Deletion of Addition on Account of Difference in Valuation of Stock:
The revenue challenged the deletion of an addition of ?1,51,01,389/- by the CIT(A), which was made on account of a difference in the valuation of stock. The Assessing Officer (AO) had valued the stock found during a search at ?3,78,77,297/- based on the prevailing market price on the date of the search (12.04.2012), whereas the assessee had valued the stock at ?2,27,75,908/- based on the cost price at the time of purchase. The CIT(A) deleted the addition, accepting the assessee's reconciliation of stock based on purchase and sale bills and approval notes, which was supported by documentary evidence.

2. Consideration of Jewellery Received on Approval Basis:
The CIT(A) provided relief to the assessee by accepting the explanation and documentary evidence regarding jewellery received and sent on approval basis. The AO had rejected this explanation, considering it an "afterthought" and unreliable. However, the CIT(A) found that the assessee had provided complete details and reconciliations supported by vouchers and invoices, which is a common practice in the jewellery trade.

3. Non-Maintenance of Stock Register:
The AO noted that the assessee did not maintain a stock register and did not produce books of accounts during the search. However, the CIT(A) and the tribunal found that the assessee had submitted reconciliations and documentary evidence post-search, which were not found to be erroneous or unreliable. The tribunal held that non-maintenance of a stock register alone cannot justify an addition unless the AO conclusively proves that the quantitative details submitted by the assessee are incorrect.

4. Credibility of Valuation Method:
The tribunal noted that the AO compared the stock valuation based on the market price on the date of the search with the assessee's valuation based on the cost price at the time of purchase. The assessee provided detailed reconciliations and documentary evidence supporting the cost-based valuation, which the AO did not find any discrepancies in. The tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not dispute the cost basis valuation or the supporting bills provided by the assessee.

Conclusion:
The tribunal dismissed the revenue's appeal, confirming the CIT(A)'s deletion of the addition of ?1,51,01,389/- made by the AO as undisclosed investment. The tribunal found no infirmity in the CIT(A)'s order and accepted the assessee's reconciliations and documentary evidence. The cross-objection filed by the assessee, which was supportive of the CIT(A)'s order, was also allowed. The tribunal emphasized that the AO did not provide conclusive evidence to dispute the quantitative details and cost-based valuation provided by the assessee.

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