2021 (3) TMI 1147 - AT - Income Tax

Addition of undisclosed stock - HELD THAT - AR has cited an order of ITAT Jaipur Bench in the matter of Stone Age (P.) Ltd.. 2019 (6) TMI 388 - ITAT JAIPUR wherein it is held that where there was practically no difference in physical inventory taken by survey team viz-a-viz inventory as per books of account, impugned addition made on account of difference in value of stock was to be deleted and merely on the basis of statement recorded of the Director of the assessee-company with no corroborative material on record, had no legal force and thus same deserved to be deleted. The affidavits of the parties were rejected by the lower authorities on the basis of treating those affidavits as self-serving documents but documents submitted by the persons who were doing business from the same premises were not thoroughly examined and their Income Tax Returns were not considered by the lower authorities, wherein all the details with regard to their income were mentioned and no material was provided, on that basis addition was made and assessee was not allowed to cross-examine whose statements were relied for making addition in the hands of the assessee. In our considered opinion, whatever material or statement had been basis of the addition that should have been made available to the assessee and ought to have given opportunity to cross-examine the person and inspect the document, but in this case, such exercise was not carried out by the Department to the assessee and same amounts to miscarriage of justice. Since books of accounts were not rejected and no opportunity was provided to the assessee for cross-examination of persons who have given their statements against the assessee, so we have to give benefit of doubt to the assessee. In view of the foregoing discussion and respectfully following aforesaid judgments, we allow appeal of the assessee.

Summary

Issues:
1. Addition of undisclosed stock
2. Disallowance of unaccounted purchases

Issue 1: Addition of Undisclosed Stock
The appeal was filed against the appellate order confirming the addition of ?1,27,70,341 on account of undisclosed stock. A survey under section 133A of the Income Tax Act was conducted, revealing a valuation difference in gold and silver jewellery. The Managing Partner initially admitted the difference, but later clarified that some jewellery belonged to family members engaged in the same business. The Assessing Officer disagreed, considering the explanation an afterthought. The first statutory appeal also upheld the addition, emphasizing the physical verification of stock. However, the appellant argued that the Managing Partner retracted the statement, supported by documents and affidavits. Various individuals' income details and invoices were presented to support the claim. The appellant contended that the Assessing Officer failed to consider these documents and rejected the affidavits without thorough examination. The Tribunal noted discrepancies in the assessment process, including the lack of cross-examination opportunity and non-rejection of books of accounts. Relying on legal precedents, the Tribunal allowed the appeal, granting the benefit of doubt to the appellant.

Issue 2: Disallowance of Unaccounted Purchases
The second ground of appeal challenged the disallowance of ?1,96,677 in respect of unaccounted purchases. The Assessing Officer made this disallowance based on the findings during the survey and the subsequent explanations provided by the appellant. The CIT(A) upheld this disallowance, emphasizing the lack of explanation during the survey and the devised story regarding job-work. In the second statutory appeal, the appellant presented detailed information, including individual income records and invoices, to support the legitimacy of the purchases. The appellant argued that the Assessing Officer did not consider these documents properly and failed to provide an opportunity for cross-examination. The Tribunal, considering the overall discrepancies in the assessment process and the non-rejection of books of accounts, granted the benefit of doubt to the appellant and allowed the appeal.

In conclusion, the Tribunal, after a detailed analysis of the issues raised by the appellant and the assessment process followed by the authorities, allowed the appeal on both grounds, emphasizing the importance of providing a fair opportunity for cross-examination and thorough consideration of documentary evidence before making additions to the income.