2014 (12) TMI 972 - AT - Income Tax

Addition on surrender made by assessee deleted Difference in physical stock found at the time of survey and stock as per books of accounts Held that - CIT(A) was rightly of the view that the assessee explained the variation in stock supported by its stock register, purchase bills, sale register and reconciliation in respect of each and every item of stock inventory drawn at the time of survey - Though assessee had surrendered for the difference in stock as per physical stock and stock as per books of account but later on while finalizing its accounts, the assessee noted certain mistakes in the recording of certain transactions, therefore, he prepared a reconciliation statement and submitted the reconciled statement along with the explanation and all documentary evidences to the AO - AO did not comment upon such explanations. Again during assessment proceedings, the assessee had submitted the same explanation to which also AO failed to offer any comments - it was the duty of AO to verify the explanations given by assessee and should have found fault in the reconciliation before making addition - there was no change in the quantitative stock as on date of survey and as per books of accounts on the date of survey - the difference in quantities had occurred only due to wrong recording of certain transactions and the reconciliation was supported by documentary evidences - The submission of correct calculation of stock on the basis of documentary evidence and explanation cannot be termed as retraction as it is in the common knowledge that during survey operations in a limited period of time, exact stock cannot be calculated specifically in a case like this where different qualities and different products were dealt by the assessee - the action of assessee in submitting rectified position of stock was justified and therefore, action of Ld. CIT(A) in giving relief to the assessee is justified specifically in view of the fact that AO instead of verifying the claim just ignored it thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Addition of Rs. 54,40,436/- due to the difference between physical stock found during survey and stock as per books.
2. Retraction by the assessee after six months, alleged as an afterthought to reduce tax liability.

Issue-wise Detailed Analysis:

1. Addition of Rs. 54,40,436/- due to the difference between physical stock found during survey and stock as per books:

The Revenue appealed against the order of the CIT(A) dated 21.06.2012, which deleted the addition of Rs. 54,40,436/- made by the A.O. The A.O. conducted a survey under section 133A on 01.10.2008, revealing a difference of Rs. 83,06,867/- between physical stock and stock as per books. The assessee initially offered this amount as income but later declared only Rs. 46,19,039/- in the return, attributing the difference to valuation methods and clerical errors. The A.O. added Rs. 54,50,436/- to the income, representing the difference between the initially surrendered amount and the amount declared in the return. The CIT(A) deleted this addition, noting that the assessee provided a detailed reconciliation and correction of errors in the stock register, supported by documentary evidence. The CIT(A) concluded that the A.O. ignored these submissions without justification.

2. Retraction by the assessee after six months, alleged as an afterthought to reduce tax liability:

The Revenue argued that the retraction made after six months was an afterthought to evade taxes. The D.R. contended that the stock inventory was prepared with the assessee's help, and there was no coercion. The CIT(A) accepted the assessee's explanation that the retraction was due to the discovery of clerical errors and incorrect valuation methods. The CIT(A) referenced the Delhi High Court's decision in CIT vs. Dhingra Metal Works, which held that statements made during surveys are not conclusive evidence and can be corrected if discrepancies are reconciled with relevant evidence. The CIT(A) found that the assessee's reconciliation was supported by purchase bills, sale registers, and stock registers, and the A.O. did not point out any discrepancies in these records.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, noting that the A.O. failed to verify the assessee's explanations and documentary evidence. The Tribunal found no change in the quantitative stock and concluded that the assessee's rectification of stock valuation was justified. The appeal by the Revenue was dismissed, affirming the deletion of the addition of Rs. 54,40,436/-. The Tribunal emphasized that the A.O. should have verified the reconciliation before making the addition and that the submission of correct stock calculations cannot be termed a retraction. The order was pronounced in the open court on 23rd Dec., 2014.