2018 (10) TMI 292 - AT - Income Tax

Addition u/s 069 and u/s 69C - as during the course of survey excess stock was found - Held that - The assessee has included value of above stock in the closing stock. At this stage, it is pertinent to observe that as far as first fold of contention is concerned, for the assessee did not make any arguments. It is an admitted fact that during the course of survey excess stock was found. It was admitted by the director. Now this discovery of discrepancy cannot be bruised aside by merely submitting that on account of water contents in the cotton bales, their weight has been increased resulting into excess stock. This aspect ought to have contested at the time of survey by the directors. He should have not admitted working of the excess stock and objected the calculations made by the department. Subsequently, it cannot be stated that cotton was having water contents on account of rain etc. There should be a specific circumstances or specific reply. This is missing. We do not find any merit in the first fold of contention. The assessee is having excess stock of ₹ 58,02,095/-. This value of excess stock should suffer tax. Second question is, whether by inclusion of this stock in the value of the closing stock, the assessee has recognized income offered by it or not. AO without looking into the reply of the assessee extracted separately made addition. Therefore, remit this issue to the file of the AO to consider the above reply of the assessee. It is to be ascertained that excess stock found at the time of survey valued at ₹ 58,02,095/- should suffer tax. If the assessee has already included this amount in the value of closing stock, then separate addition would result double addition. Make it clear that the AO would verify the fact about the enhancement of closing stock by a sum of ₹ 58,02,095/-. There should not be any corresponding expenditure debited by the assessee. The assessee will not be entitled for corresponding expenses because this must have already been debited in the regular course of business. If it is found that the assessee included a sum of ₹ 58,02,095/- in the value of the closing stock, and not debited any corresponding expenditure, then there should not be further addition, because this stock will ultimately suffer tax on account of sale without allowing corresponding expenditure. With the above directions, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition of excess stock under section 69C of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the Assessee against an order confirming the addition of excess stock amounting to ?58,02,095 under section 69C of the Income Tax Act. The Assessee, engaged in the manufacturing business, had a survey conducted at its premises where excess stock of cotton was found. The Assessee's Director admitted to the excess stock during the survey. The Assessing Officer (AO) issued a show cause notice for not declaring this income in the return. The Assessee contended that the excess stock was due to moisture content from rain, which increased the weight of the cotton. The AO rejected this contention and made the addition. The Assessee argued that the excess stock was already included in the closing stock value, so a separate addition would be a double count. The Tribunal noted that the Assessee's auditors were satisfied that no unaccounted investment was made in procuring the excess stock. The Tribunal remitted the issue back to the AO to verify if the excess stock value was already included in the closing stock value, and if so, no further addition should be made to avoid double counting. The appeal was partly allowed based on these considerations.

This judgment primarily dealt with the treatment of excess stock found during a survey and whether it should be separately added to the income of the Assessee. The Tribunal emphasized the need for proper documentation and evidence to support claims regarding stock discrepancies. It highlighted the importance of accounting practices and the recognition of income in determining tax liabilities. The decision to remit the issue back to the AO for further verification showcased the Tribunal's commitment to ensuring a fair and accurate assessment of the Assessee's income. The judgment provided clarity on the application of tax laws concerning unaccounted income and the significance of proper record-keeping in tax assessments.