2021 (10) TMI 680 - AT - Income Tax

Excess stock of gram pulses not recorded in the books of account - As per assessee stock taking was not done either in the presence of the assessee or his Authorized Representative - assessee also submitted that the basis of calculation of excess stock and short stock and the inventory sheet prepared during the course of survey should be provided - CIT-A deleted the addition - HELD THAT - We observe that the search was conducted on Dudani Group on 05.10.2015 u/s 132 - A survey action was also conducted on the assessee firm premises. Physical stock was done by the survey team. Additions were made by the ld. AO on the basis of inventories of stock and trading account prepared by survey team which were allegedly different from the amounts as per books of accounts maintained by the assessee. Assessee has submitted a summary of stock as on the date of survey i.e. 05.10.2015, as per books of account of the assessee and alleged stock inventories prepared by the survey team. CIT(A) deleted the impugned additions on appreciating the following facts - i). Survey team did not consider the stock kept at Pragati Warehouse ii). Survey team wrongly analyzed the stock of Channa as stock of Channi which was actually recorded in the regular books of account as stock of Channa which was kept at Narmada Valley Warehouse . iii). Revenue authorities not providing the basis of valuation of physical stock to the assessee, thus denying the principles of natural justice. iv). Revenue failed to bring any instance of bogus purchase made by the assessee. v). No cogent/positive/incriminating material was found during search/survey to support the alleged addition. Find no infirmity in the finding of Ld. CIT(A) and the same stands confirmed. Accordingly all the grounds raised by the revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of excess stock of gram pulses not recorded in the books of account.
2. Deletion of addition on account of bogus purchases of stock recorded in books of account and disallowed under Section 37 of the Income Tax Act, 1961.
3. Deletion of addition on account of undisclosed stock found at Narmada Valley Warehouse.
4. Jurisdictional issue raised by the assessee regarding the assessment order under Section 143(3) instead of Section 153C.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Excess Stock of Gram Pulses:
The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of ?75,66,250/- made by the Assessing Officer (AO) due to excess stock of gram pulses not recorded in the books. The CIT(A) found that no proper inventory of stock was prepared during the survey/search, and the AO's additions were based on deemed fiction without cogent/positive/incriminating evidence. The CIT(A) noted that the stock kept at Pragati Warehouse was not considered, and the inventory sheets were not provided to the assessee, violating principles of natural justice. Consequently, the CIT(A) deleted the addition, and the Tribunal upheld this deletion, finding no infirmity in the CIT(A)'s findings.

2. Deletion of Addition on Account of Bogus Purchases:
The AO made an addition of ?2,14,30,211/- for bogus purchases, alleging less stock of various items. The CIT(A) observed that the AO did not conduct specific inquiries from Mandi Parishad or other sellers and failed to bring any instance of bogus purchases. The CIT(A) highlighted that the AO's findings were based on guesswork and imagination, lacking supporting evidence. The Tribunal agreed with the CIT(A)'s assessment that the AO's additions were not sustainable and upheld the deletion of the addition.

3. Deletion of Addition on Account of Undisclosed Stock at Narmada Valley Warehouse:
The AO added ?52,01,496/- for undisclosed stock found at Narmada Valley Warehouse. The CIT(A) found that the stock was actually "Channa" and not "Channi" as recorded by the AO, and it was duly recorded in the books of the assessee. The CIT(A) concluded that the AO's addition was based on incorrect assumptions and deleted the addition. The Tribunal upheld this deletion, agreeing with the CIT(A)'s findings.

4. Jurisdictional Issue Raised by the Assessee:
The assessee raised a jurisdictional issue, arguing that the assessment order should have been passed under Section 153C read with Section 143(3) instead of Section 143(3) alone. However, the assessee chose not to press this cross-objection, and it was dismissed as not pressed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of additions totaling ?3,41,97,957/- on account of excess stock, bogus purchases, and undisclosed stock. The Tribunal found that the AO's additions were based on deemed fiction without substantial evidence, and the principles of natural justice were not followed. The Tribunal upheld the CIT(A)'s findings and dismissed the cross-objection raised by the assessee regarding jurisdictional issues.