2021 (7) TMI 151 - AT - Income Tax

Addition on account of under valuation of closing stock of tea bags - CIT-A deleted the addition - assessee is a wholesale dealers of tea bags whose assessment under Section 143(3) was completed - HELD THAT - In view of case particularly the damaged stock due to heavy rainfall sold on 02.11.2016 and further that the claim of such damaged stock and subsequent settlement which took place between the assessee and the New India Insurance Company Ltd. in A.Y. 2006-07 supported by corroborative evidence keeps no option for disallowance and addition thereof as made by the Ld. AO is, therefore, not sustainable. Taking into consideration this particular aspect of the matter we do not find any ambiguity in the order passed by the Ld. CIT(A) for deleting the addition so as to warrant interference. Hence, the Revenue's appeal is dismissed.

Summary

Issues:
Addition of under valuation of closing stock of tea bags.

Analysis:
The case involved the addition of ?8,09,567 on account of under valuation of closing stock of tea bags, which was initially deleted by the Ld. CIT(A), leading to the Revenue's appeal. The assessee, a wholesale dealer of tea bags, had its income assessed at ?6,52,300 under Section 143(3). Subsequently, an order under Section 263 directed the AO to assess the income at ?15,81,353, including the disputed addition. The Ld. CIT(A) confirmed the addition, prompting an appeal to the Ld. Tribunal. The Tribunal set aside the issue to the AO, directing verification of the claim in line with the decision in V.K.J. Builders & Contractor Pvt. Ltd. vs. CIT. The assessee contended that the unsold damaged stock from the previous year, due to heavy rains, was correctly valued at ?6/kg and eventually sold in a later year. The Ld. CIT(A) deleted the addition, citing the submission of relevant documents supporting the claim.

The Ld. CIT(A) observed that the appellant justified its claim with supporting documents, including fire insurance claim forms, ledger accounts, and confirmation of sale at ?6/kg. The Tribunal found that the circumstances, including the sale of damaged stock in a subsequent year and the settlement with the insurance company in the previous year, supported the deletion of the addition. The Tribunal concluded that the Ld. CIT(A)'s decision to delete the addition was justified, given the specific facts of the case regarding the damaged stock and the substantiating evidence provided by the assessee. Consequently, the Revenue's appeal was dismissed, upholding the Ld. CIT(A)'s decision to delete the addition based on the merits of the case.