2023 (12) TMI 26 - AT - Income Tax

Variation in the stock found during the course of survey - unexplained expenditure being inflation of purchases - Difference between the book stock and physical stock - variation in the method of valuation adopted while ascertaining the variation - Assessee argued all the stocks of assessee were properly taken and valued, which was also accepted as correct by the Director during the course of survey also valuation of the physical stock was done as per bar coded tags, and the book value of the goods were also as per bar codes - HELD THAT - Except statement recorded from the Director of the appellant company, there is no other corroborative evidence with the AO to justify his findings that the assessee has restored to inflation of purchases. Although, the AO has considered purchases from group firm as inflation of purchases, but the total purchases from appellant sister concerns during the financial year relevant to assessment year 2014-15 is much lower than the amount of deficit stock quantified by the survey team. Therefore, from the above it is difficult to accept the reasons given by the AO to treat deficit quantified during the course of survey is on account of inflation of purchases. The assessee has explained the difference and according to the assessee, physical stock was taken at cost price, whereas the value of stock in Vahini software was at selling price. We find that, there is a force in the arguments of the assessee for the simple reason that, if you go by the nature of business carried out by the appellant, the arguments advanced by the Ld. Counsel for the assessee appears to be bonafide and acceptable. Each item of goods are created with a tag price which includes purchase price plus mark-up of the appellant. Otherwise, at the time of sales, it is difficult for the sales people to ascertain cost price of each product. If you go by the general practice of the trade, the arguments of the assessee that the value as per Vahini software was at selling price is acceptable. If you accept the arguments of the assessee that the difference is on account of comparison of cost price with selling price, then in our considered view, the AO has committed a fundamental error in ascertaining deficit stock in trade and further, assessment of said deficit as inflation of purchases. Since, the AO has not quantified any difference in quantity of stock in trade found during the course of survey and stock in trade as per books of accounts, in our considered view, reconciliation submitted by the assessee explaining difference in stock in trade appears to be bonafied and acceptable - Decided against revenue. Additions made towards unproved purchases - during the course of survey, certain loose sheets were found in the premises of the appellant pertains to purchases from certain group/sister concerns. The loose sheets were confronted to the Director of the appellant company, in a statement recorded on oath and in response to specific question, the Director of the appellant company admitted that the appellant has indulged in bogus purchases from certain group companies/firm for inflation of purchases. Since, the Director has confirmed inflation of purchases through group companies, the confirmation filed by the assessee during assessment proceedings cannot negate the findings of the survey team regarding bogus nature of purchases. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to sustain additions made towards unproved purchases - Decided against assessee. Addition of excess stock found during the course of survey for the impugned assessment year as closing stock - HELD THAT - Assessee could not explain difference in stock in trade found during the course of survey with necessary evidences. The reasons given by the assessee to reconcile excess stock found during the course of survey is not bonafied and unacceptable. CIT(A), without appreciating relevant facts simply deleted additions made by the AO - Therefore, Additions made by the AO towards excess stock found during the course of survey needs to be sustained. Thus, we set aside the order passed by the ld. CIT(A) on this issue and upheld additions made by the Assessing Officer towards excess stock found during the course of survey. Once additions is made towards excess stock found during the course of survey as income of the assessee, the said excess stock should be considered as part of closing stock of the assessee for the impugned assessment year and should be carry forward as opening stock for subsequent assessment years. Therefore, we direct the AO to consider additions made towards excess stock found during the course of survey for the impugned assessment year as closing stock and also carry forward to subsequent year as opening stock in trade of the assessee. Addition made towards inflation of purchases - only on the basis of sworn statement without there being any corroborative evidence - HELD THAT - It is well settled principle of law by the decision of CIT vs S. khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT that additions cannot be made solely on the basis of confession statement recorded during the course of survey, unless said statement is supported by corroborative evidence. In the present case, except statement from partner, no evidence with the Assessing Officer to prove that purchases from group/sister concern are bogus in nature. CIT(A), after considering relevant facts has rightly deleted additions except additions towards purchase from made from M/s. Balaji Textiles - The findings of the facts recorded by the ld. CIT(A) are uncontroverted. Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) to delete additions made towards purchases. Unexplained cash credits taxable u/s. 68 - additions towards unsecured loans received bogus accommodation entries - HELD THAT - Additions cannot be made solely on the basis of statement recorded during the course of survey, unless said statement is supported by corroborative evidence. In the present case, except statement recorded from managing partner of the appellant company, there is no evidence with the Assessing Officer to suggest that loan taken from above concerns are bogus in nature. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.

Summary

Issues Involved:

1. Deletion of addition on account of variation in stock found during the survey.
2. Addition towards unproved purchases.
3. Deletion of addition u/s 68 of the Income-tax Act, 1961, for unexplained cash credits.

Summary:

Issue 1: Deletion of Addition on Account of Variation in Stock Found During the Survey

The revenue's appeal contended that the CIT(A) erred in deleting the addition of Rs. 7,14,48,417/- made on account of variation in stock found during the survey. The CIT(A) found that the difference between the physical stock and stock as per Vahini software was due to valuation differences, as the physical stock was taken at cost price while the Vahini software recorded selling prices. The CIT(A) held that the statement given by the Director during the survey could not be taken as conclusive evidence without corroborative evidence and directed the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, agreeing that the difference was due to valuation methods and not inflation of purchases.

Issue 2: Addition Towards Unproved Purchases

The assessee's cross-objection challenged the addition of Rs. 31,46,788/- towards unproved purchases. The CIT(A) sustained the addition, noting that the purchases from group companies were not genuine, as admitted by the Director during the survey. The Tribunal upheld the CIT(A)'s decision, agreeing that the confirmation letters and financial statements provided by the assessee did not negate the findings of the survey team regarding bogus purchases.

Issue 3: Deletion of Addition u/s 68 of the Income-tax Act, 1961

The revenue's appeal contested the deletion of Rs. 1,65,00,000/- u/s 68 of the Act, arguing that the loans from group concerns were bogus accommodation entries. The CIT(A) deleted the addition, finding that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the creditors. The Tribunal upheld the CIT(A)'s decision, noting that the addition was based solely on the statement recorded during the survey without corroborative evidence, and the assessee had provided ample documentation to support the genuineness of the transactions.

Conclusion:

The Tribunal dismissed the appeals filed by the revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s decisions on all issues.