2021 (8) TMI 869 - AT - Income Tax

Excess stock found during the survey - Foreign exchange fluctuation was debited in the account after the post survey period and due to this abnormal loss excess stock found during the survey had been adjusted - HELD THAT - It is relevant to mention that such foreign exchange loss was not found to be genuine by the Ld. AO. When the profit earned due to foreign exchange fluctuation in the earlier year was offered to tax while filing return by the appellant, the foreign exchange loss in the year under consideration should also be allowed on the same analogy has also been considered by the Ld. CIT(A). In fact, the Ld. CIT(A) observed that the excess stock found during the survey has already been included in the closing stock and thereby the closing stock in the books of accounts has been increased. The said fact is also emanated from the records filed before us. In that view of the matter the contention of the appellant that the addition tantamounts to double taxation is in fact justiciable. Over all the decision of addition on the observation that the appellant has not offered the additional stock found during the survey as made by the Ld. AO is under the present facts and circumstances of the Act not sustainable which has rightly been taken into consideration by the CIT(A) while deleting addition without any ambiguity so as to warrant interference. Hence, the appeal filed by the Revenue is found to be devoid of any merit and, thus, dismissed. Disallowance of stores and spares expenses - HELD THAT - Upon perusal of the record particularly the ledger account of stores and spares of the firm, we find that it is specifically demonstrates the expenses in question which has further been debited in the books of accounts. Moreover, similar expenses have also been allowed in the previous year. Thus, the view taken by the Ld. CIT(A) is found to be contradictory and we do not find any rational in such decision made by the CIT(A) when the primary onus on the part of the assessee is discharged and no evidence is found that purchase has been used for non-business purposes. Thus, we do not find any justification in disallowing the said expenses out of stores and spares account in the present facts and circumstances of the case taking into consideration the assessee line of business and hence we allow the same.

Summary

Issues Involved:
1. Deletion of addition of ?2,50,98,362/- on account of excess stock surrendered during the survey as undisclosed income.
2. Disallowance of ?4,66,795/- out of stores and spares expenses.

Issue-wise Detailed Analysis:

1. Deletion of addition of ?2,50,98,362/- on account of excess stock surrendered during the survey as undisclosed income:

The Revenue challenged the deletion of the addition of ?2,50,98,362/- made by the Assessing Officer (AO) on account of excess stock found during a survey conducted on 23.09.2011. The AO added this amount to the total income of the assessee, arguing that the excess stock was not included in the books of accounts or the return of income filed for A.Y. 2012-13. The CIT(A) deleted this addition, leading to the Revenue's appeal.

The assessee, engaged in ship breaking, argued that the stock was maintained on an estimate basis due to the nature of the business. The AO accepted the purchases, sales, and stock positions without rejecting the books of accounts, indicating acceptance of the closing stock and sales out of excess stock. The assessee contended that the addition would result in double taxation since the excess stock was already included in the closing stock.

The CIT(A) observed that the foreign exchange fluctuation resulted in a loss of ?4,41,43,245/-, which was debited post-survey and adjusted against the excess stock. The AO did not dispute the genuineness of this loss. The CIT(A) concluded that the excess stock was included in the closing stock, and the addition would amount to double taxation. The Tribunal upheld this view, finding no merit in the Revenue's appeal and dismissing it.

2. Disallowance of ?4,66,795/- out of stores and spares expenses:

The AO disallowed ?4,66,795/- out of stores and spares expenses incurred between 10.03.2012 to 31.03.2012, doubting the frequency and necessity of such expenses. The assessee argued that these were routine business expenses for gas cutting stores and spares essential for ship breaking operations.

The CIT(A) upheld the AO's disallowance, stating that the expenses were not debited to the stores and spares account. However, the Tribunal found that the ledger account of stores and spares demonstrated the expenses, which were debited in the books of accounts. Similar expenses were allowed in the previous year without disallowance. The Tribunal found the CIT(A)'s view contradictory and allowed the expenses, finding no justification for the disallowance.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding the deletion of the addition of ?2,50,98,362/- and partly allowed the assessee's cross-objection by allowing the disallowance of ?4,66,795/- out of stores and spares expenses. The second ground of the cross-objection was dismissed as not pressed. The order was pronounced in open court on 18/08/2021.