2019 (12) TMI 350 - AT - Income Tax

Estimate on account of alleged excess stock - value adopted by the survey team for inventorised/taking valuation of stock - HELD THAT - Valuation of stock in hand the general rule adopted is cost price or fair market value whichever is less whereas in the present case the survey team has valued the stock of assessee by taking MRP without considering some relevant factors viz., (i) sales price includes GP approximately 8 to 10%; (ii) the stock inventorised includes old and absolute stock also and rebate onaccount of damaged, discolour and outdated materials should be allowed and (iii) MRP printed on the items cannot be taken as basis for valuation of stock because MRP is generally 20 to 25% higher than the actual purchase price charged by the manufacturer/wholesaler. The assessee has not disputed quantum of material/stock inventorised by the survey team - valuation of stock should have been done by considering the said three factums as noted above, therefore, direct the AO to allow 20% rebate on the value adopted by the survey team for inventorised/taking valuation of stock. AO is directed to estimate the value of stock accordingly and to recalculate/estimate the excess Stock, if any, found during the course of survey. Addition on the basis of third party statement - HELD THAT - AO has made addition without any basis and ld. CIT(A) while confirming the same noted that the assessee is continuously changing its stand about the actual date of payment, which brings his submission under serious suspicion. The Assessing Officer has also asked the assessee for the payments made by the assessee, however, the assessee could not reply the same, therefore, the Assessing Officer observed that the assessee has made the said expenditure out of books and added the same to the total income of the assessee. From the above observations of the both the authorities below, do not find any good reason to interfere in the findings recorded by the CIT(A) and I uphold the same and dismiss the ground No.3 of the assessee. Charge of interest u/s 234A, 234B, 234C and 234D - HELD THAT - Issue is covered in favour of the assessee on the decision of Hon ble Jharkhand High Court in case of Ajay Prakash Verma 2013 (1) TMI 140 - JHARKHAND HIGH COURT wherein held that interest u/s. 234B can be levied only on the returned income and not on the assessed income. We direct the AO to recompute the interest u/s.234A, 234B, 234C 234D of the Act on the basis of total income declared by the assessee in the return filed. This ground of appeal of the assessee is allowed.

Summary

Issues:
1. Addition of ?6,27,496 on estimate of excess stock
2. Addition of ?10,000 based on third party statement
3. Charge of interest under sections 234A, 234B, 234C, and 234D

Issue 1: Addition of ?6,27,496 on estimate of excess stock

The appellant contested the addition of ?6,27,496 made by the Assessing Officer for alleged excess stock. The appellant argued that the stock valuation was incorrect, and no excess stock existed. The appellant claimed that the survey team had not considered rebates for damaged or outdated goods, which should have been allowed. The Appellate Tribunal observed discrepancies in stock valuation methods and directed the Assessing Officer to allow a 20% rebate on the value adopted by the survey team for stock valuation. The Tribunal partially allowed ground No.2 of the appellant, instructing a reassessment of the stock value.

Issue 2: Addition of ?10,000 based on third party statement

The appellant challenged the addition of ?10,000 based on a third party statement, arguing that the payment was duly reflected in the books of accounts. The Appellate Tribunal noted inconsistencies in the appellant's submissions regarding the payment date, leading to suspicion. As the appellant failed to provide satisfactory explanations, the Tribunal upheld the addition of ?10,000, dismissing ground No.3 of the appellant.

Issue 3: Charge of interest under sections 234A, 234B, 234C, and 234D

Regarding the charge of interest under various sections, the appellant relied on a decision of the Jharkhand High Court in a specific case. The Tribunal, following the cited judgment, directed the Assessing Officer to recompute the interest based on the total income declared in the return filed by the appellant. Consequently, the Tribunal allowed ground No.4 of the appellant, modifying the interest calculation as per the court's decision.

In conclusion, the Appellate Tribunal partially allowed the appeal, directing reassessment of stock valuation, upholding the addition based on a third party statement, and modifying the interest calculation in line with the Jharkhand High Court's decision. The judgment provided detailed reasoning for each issue raised by the appellant, ensuring a fair and thorough analysis of the case.