2018 (8) TMI 1623 - AT - Income Tax

Undervaluation of closing stock - survey operation u/s 133A(1) - Held that - We direct the assessee to submit reconciliation statement before the ld AO, showing reconciliation between stock shown in the profit and loss account and stock shown in computer and we also direct the AO to examine the reconciliation and adjudicate the issue in accordance with law, therefore, we allow this issue raised by the assessee for statistical purposes. Addition on account of overstated S/Creditors and Advance from parties in computing the total income of the assessee - Held that - Sundry debtors consist of Credit balance when advance from customers is received, normally to whom credit sales is made. The nomenclature of debtors is given when the transaction is of sales. Therefore, there are two ledgers of Sundry debtors which is being maintained by the assessee. Sundry Creditors consists of Normal trading in scrap purchase which is a credit purchase. When purchase is through auction, then the assessee makes advances,but the purchases are kept under nomenclature of sundry creditors in accounting package, therefore there are two ledgers of Sundry creditors appearing in assessee s books. We note that A.O. had called for the books of account and other details. As a result of survey the accounts maintained in tally was found showing two ledgers of Sundry debtors indicating advance from customers and credit sales. Similarly,two ledgers of sundry creditors were maintained containing advance payment for purchase and credit purchase. We note that assessee has himself pointed out the difference in the appellate proceedings, stating that if the total debit balance and credit balance is added up, the only difference as appearing in the accounts impounded during Survey and as filed in the return of income is difference in Sundry creditor of ₹ 2,28,193/- and ₹ 2,20,000/- on account of Advance from parties. Therefore, addition made on account of overstated of liability was restricted by ld CIT(A) to the tune of Rs ₹ 4,48,000/- (Rounded off amount) ( ₹ 2,28,193 ₹ 2,20,000). Before us, the ld Counsel filed paper book to explain the said difference, but we note that said difference, could not be explained properly. So far, this issue is concerned, Ld. Counsel failed to controvert the findings of ld CIT(A). Moreover, during the appellate proceedings, the assessee had himself admitted before the ld CIT(A) about the said difference that these differences would exist.

Summary

Issues Involved:

1. Undervaluation of closing stock.
2. Overstatement of sundry creditors and advance from parties.

Detailed Analysis:

1. Undervaluation of Closing Stock:

The primary issue raised by both the Revenue and the assessee pertains to the alleged undervaluation of closing stock amounting to ?49,88,155/-. A survey operation under section 133A(1) of the Income Tax Act, 1961, was conducted at the business premises of the assessee, during which the Central Processing Unit (CPU) of the computer was impounded. The Assessing Officer (A.O.) compared the e-filed return with the computerized accounts from the CPU and noted discrepancies in the closing stock valuation. The A.O. observed that the closing stock as per the e-filed return was ?2,97,78,896/-, whereas the computerized accounts showed ?3,47,67,051/-, leading to an addition of ?49,88,155/- to the total income of the assessee.

The assessee argued that the discrepancies were due to data migration issues from one version of Tally software to another, resulting in data loss and irrelevant data entries. However, the CIT(A) and the A.O. did not accept this explanation, emphasizing that the difference was specific to the closing stock and not other items in the accounts.

Upon appeal, the Tribunal noted that while maintaining a day-to-day stock register might be challenging in the assessee's line of business, it could still be maintained lot-wise or amount-wise. The Tribunal directed the assessee to submit a reconciliation statement explaining the discrepancies between the stock shown in the profit and loss account and the computerized accounts. The A.O. was instructed to examine this reconciliation and adjudicate accordingly. Thus, this issue was allowed for statistical purposes.

2. Overstatement of Sundry Creditors and Advance from Parties:

The second issue involved the alleged overstatement of liabilities towards sundry creditors and advance from parties, amounting to ?3,39,55,396/-. The A.O. noted differences between the liabilities shown in the balance sheet and those in the computerized accounts. Specifically, the sundry creditors were overstated by ?71,64,606.12, and advance from parties by ?2,67,90,790.20.

The assessee contended that these discrepancies were due to the accounting software's standard procedure of showing net figures after adjustments of debit and credit balances. The CIT(A) partially accepted this explanation and restricted the disallowance to ?4,48,000/-.

Upon further appeal, the Tribunal noted that the assessee maintained separate ledgers for sundry debtors and creditors, which included advances and credit transactions. The Tribunal found that the assessee had admitted to the differences during the appellate proceedings and had failed to provide a satisfactory explanation for the discrepancies. Consequently, the Tribunal upheld the CIT(A)'s order, confirming the addition of ?4,48,000/- and dismissed the appeals on this issue.

Conclusion:

In summary, the Tribunal allowed the issue of undervaluation of closing stock for statistical purposes, directing a reconciliation statement to be submitted and examined by the A.O. The issue of overstated liabilities was upheld as per the CIT(A)'s order, confirming the addition of ?4,48,000/-. Both the assessee's and Revenue's appeals were partly allowed for statistical purposes.