2022 (3) TMI 841 - AT - Income Tax

Stock discrepancy u/s 69 - suppressed sales - During the course of survey u/s 133A conducted on the premises of the assessee the survey team found discrepancy in stock - HELD THAT - AO could not pin point any discrepancy in the books of accounts produced by the assessee during the assessment proceeding. It was also brought to the notice of the AO that inventory taken by the survey team was taken on estimation and was not correct. We note that the AO simply brushed aside the plea of the assessee that these stocks and sales as found during the survey were duly recorded in the books and income was determined and return of income was filed accordingly. AO has not rejected the books of accounts of the assessee and AO failed to point out any defect or deficiency in the same. In our opinion, the AO cannot make the additions without rejecting the books of accounts and without pointed out specific defects. The assessee has been claiming that correct amount of stocks and sales were recorded in the books which were produced before the AO and the AO has failed to point out as to how the books of account were not correct. CIT(A) has held that amount of undisclosed stock and sale were not accounted by the assessee without giving any findings as to how the books of account produced by the assessee were not correct. In our opinion, the addition of such types which are made during the course of survey on oath cannot be made unless there is a supporting material. In our opinion, the addition on estimated basis cannot be justified for reasons, the AO has not rejected the books of account. We are inclined to set aside the order of CIT(A) and direct the AO to delete the addition in respect of stock discrepancy and in respect of suppressed sales - Decided in favour of assessee.

Summary

Issues:
1. Addition of ?22,62,597 under section 69 of the Income Tax Act due to stock discrepancy.
2. Addition of ?1,23,067 for suppressed sales.

Analysis:
1. Addition of ?22,62,597 under section 69:
The appeal pertains to the assessment order passed under section 143(3) of the Income Tax Act. The primary issue raised by the assessee is the addition of ?22,62,597 by the Assessing Officer (AO) on account of stock discrepancy under section 69 of the Act. During a survey conducted under section 133A, a stock discrepancy of ?22,62,597 was identified. The assessee argued that the excess stock and unrecorded sales were duly accounted for in the books, and the income tax return was filed based on the same. However, both the AO and the Commissioner of Income Tax (Appeals) upheld the additions, stating that the assessee had admitted to the discrepancies during the survey. The ITAT Kolkata found that the AO did not reject the books of accounts or point out specific defects, and the additions were made on an estimated basis without proper justification. Therefore, the ITAT directed the AO to delete the addition of ?22,62,597 related to the stock discrepancy.

2. Addition of ?1,23,067 for suppressed sales:
The second issue raised in the appeal concerns the addition of ?1,23,067 for suppressed sales. Similar to the stock discrepancy, the AO added this amount to the assessee's income, which was confirmed by the CIT(A). However, the ITAT Kolkata noted that the AO failed to identify any discrepancies in the books of accounts provided by the assessee. The tribunal emphasized that additions made on an estimated basis without rejecting the books of accounts or pointing out specific defects are not justified. Therefore, the ITAT directed the AO to delete the addition of ?1,23,067 related to suppressed sales.

In conclusion, the ITAT Kolkata allowed the appeal of the assessee, setting aside the orders of the lower authorities and directing the AO to delete both additions. The tribunal emphasized the importance of proper assessment based on concrete evidence and rejected additions made without sufficient supporting material or rejection of books of accounts.