2018 (9) TMI 219 - HC - Income Tax

Discrepancies in valuation of stock - stock valuation was lower in the tax audit report, but the assessee wanted the Revenue to go by the tax audit report only - Held that - No explanation was given and no attempt was made to reconcile the differences. The stock registers were not produced except claiming that there is a variation due to lack of knowledge of operating computer software by the accountant. No variation statements were filed before A.O. or the ld. CIT(A) or before us. Illustrations were sought to be given to demonstrate the as to the inappropriateness of valuing the stock as Average cost method. In our considered view the burden of proof lay on the assessee to explain the variation and this was no discharged. The assessee filed a printout of the stock journal register and item register for the relevant period before the First Appellate Authority and has sought to explain the differences by way of examples. This, in our opinion, does not prove the case of the assessee. The assessee could not controvert the finding of the First Appellate Authority that he has not maintained carat wise details of the stock. In any event, opening stock as well as the closing stock for all the three assessment years have been valued on the same principles i.e. average stock method. - Decided against assessee.

Summary

Issues:
Delay in preferring the appeal, Addition of sums to income based on survey operation under Section 133(6) of the Income Tax Act, 1961, Discrepancies in stock valuation leading to addition in income for three assessment years, Burden of proof on the assessee to explain discrepancies in stock valuation, Appellate bodies' findings based on appreciation of facts.

Delay in Preferring the Appeal:
The High Court of Calcutta considered a delay of 24 days in preferring an appeal and reviewed the application for condonation of delay. The Court found sufficient cause for the delay and accordingly condoned the delay, allowing the application.

Addition of Sums to Income Based on Survey Operation:
The appellant, an assessee, contested the decision of the Assessing Officer to add certain sums to his income following a survey operation under Section 133(6) of the Income Tax Act, 1961. The discrepancies primarily arose from the valuation of stock, with the gross profit disclosed in the tax audit report differing from that in the computer print-out of accounts discovered during the survey operation. The appellant argued that the tax audit report contained the actual figures based on physical verification, while the computerized account reflected values calculated on average cost.

Discrepancies in Stock Valuation Leading to Addition in Income:
The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision for all three assessment years, emphasizing the appellant's failure to maintain detailed stock records and provide adequate explanations for discrepancies. The Tribunal also confirmed the findings, noting the appellant's inability to substantiate claims regarding stock valuation methods and discrepancies in stock registers.

Burden of Proof on the Assessee:
The Tribunal highlighted that the burden of proof lay on the assessee to explain variations in stock valuation, which the appellant failed to discharge. Despite attempts to provide examples and explanations, the appellant could not refute findings regarding the lack of detailed stock records and inconsistencies in valuation methods. The Tribunal upheld the first appellate authority's decision based on consistent valuation principles for opening and closing stock.

Appellate Bodies' Findings Based on Appreciation of Facts:
Both the Tribunal and the first appellate authority based their decisions on factual assessments, concluding that the appellant did not adequately explain discrepancies in stock valuation. The High Court found no perversity in the findings of the lower appellate bodies and dismissed the appeal, along with the stay petition, without any costs being awarded.

This detailed analysis of the judgment from the High Court of Calcutta emphasizes the issues of delay in appeal, discrepancies in stock valuation leading to income additions, and the burden of proof on the assessee to explain valuation differences, culminating in the dismissal of the appeal based on factual assessments by the appellate bodies.