2020 (8) TMI 472 - AT - Income Tax

Unexplained investment in stock and spares - Addition u/s 69A - HELD THAT - It is the not the case of the Revenue that the assessee has not accounted for certain purchases and is having excess stock than what is shown in its books of account. Moreover, the AO has not denied that the assessee has capitalised stock of stores and spares to the plant and machinery. The value of stock and spares is found to be capitalised in the plant and machinery and, therefore, the same could not have been found in the closing stock shown in the books of account. Stock of stores and spares which have been shown to the bank are reflected in the books of account under the head Plant and Machinery as the same were capitalised. Except for this, there is no evidence brought on record to suggest that the assessee has made investment in its stocks outside the books of account. Considering the totality of the facts, we are of the considered view that the provisions of section 69A of the Act do not have any application on the facts of the case in hand. We, accordingly, direct the Assessing Officer to delete the addition - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition of unexplained investment in stock and spares by the Assessing Officer.

Analysis:
The appeal was filed against the order of the ld. CIT(A) confirming the addition of ?66,92,164 made by the Assessing Officer as unexplained investment in stock and spares for the assessment year 2011-12. The Assessing Officer found discrepancies in the stock details provided by the assessee to Punjab National Bank, specifically related to stock and spares. The assessee explained that the stock and spares value given to the bank was estimated and included items like machinery, repair, maintenance, rolls, and dyes. However, the Assessing Officer was not convinced and treated the difference as unexplained investment in stock based on a decision of the Hon'ble Madras High Court. The ld. CIT(A) upheld the addition.

During the proceedings, the assessee reiterated that the stock and spares value given to the bank were part of plant and machinery for accounting purposes and were correctly reflected in the books of account. The Inspection Report of the Senior Manager of Punjab National Bank supported this claim. The ld. counsel argued that the difference was due to accounting treatment and not actual discrepancy in stock. On the other hand, the ld. DR supported the Assessing Officer's findings, stating that the onus was on the assessee to reconcile the discrepancy.

The Tribunal carefully analyzed the situation and noted that the Assessing Officer did not identify any defects in the books of account. It was observed that the stock of stores and spares shown to the bank was capitalized under 'Plant and Machinery' in the books of account. After reviewing the financial statements, the Tribunal agreed with the assessee's contention. It was concluded that the value of stock and spares was correctly reflected in the plant and machinery, and there was no evidence of undisclosed investment in stocks outside the books of account. Consequently, the Tribunal directed the Assessing Officer to delete the addition of ?66,92,164 under section 69A of the Income Tax Act, as it was deemed inapplicable to the case.

In conclusion, the appeal of the assessee was allowed, and the addition made by the Assessing Officer was directed to be deleted.