2016 (5) TMI 622 - AT - Income Tax

Undisclosed stock found during survey u/s 133A - Held that - We find that the stock difference is duly explained by the assessee by offering the sum of ₹ 1.80 crores in Asst Year 2008-09 which would offset all the discrepancies found during the course of survey and there is no scope for making further addition towards discrepancies in stock of jewelleries either in Asst Year 2007-08 or in Asst Year 2008-09. Hence we hold that the Learned CIT(A) had rightly deleted the addition made by the Learned AO. - Decided against revenue

Summary

Issues Involved:
1. Whether the sum of ?83,45,740/- as undisclosed stock found during the survey u/s 133A of the Income Tax Act could be added in the Assessment Year 2007-08.

Issue-Wise Detailed Analysis:

1. Allegation of Undisclosed Stock:
The main issue revolves around whether the sum of ?83,45,740/- identified as undisclosed stock during a survey conducted under section 133A of the Income Tax Act could be added to the income for the Assessment Year (AY) 2007-08. The assessee, a partnership firm running a jewelry shop, maintained regular books of accounts audited under section 44AB of the Act. A survey conducted on 18-03-2008 (relevant to AY 2008-09) led to the impounding of several documents, including a Bound Register marked as BBD-2, which became central to the controversy.

2. Examination of Books and Records:
The Assessing Officer (AO) examined the books of accounts and found no defects. However, based on the Bound Register BBD-2, the AO added ?83,45,740/- to the income for AY 2007-08, alleging it represented undisclosed stock. The assessee contended that BBD-2 was a memoranda record for internal control over stock displayed in the showroom and not systematically maintained.

3. Assessee's Explanation:
The assessee explained that many items recorded in BBD-2 were sold within the financial year 2006-07 and duly recorded in the regular stock book. The assessee provided a statement detailing items recorded in BBD-2 sold within the relevant financial year, arguing that undated entries should not be presumed to relate to AY 2007-08.

4. AO's Allegations and Assessee's Rebuttal:
The AO alleged that entries in BBD-2, excluding three pages, related to FY 2006-07. The assessee rebutted this, stating that entries without dates should not be assumed to relate to FY 2006-07. The AO also noted that some items bore delivery dates in FY 2007-08 and FY 2008-09, contradicting his own allegation that all entries related to FY 2006-07.

5. Noting on Cover Page of BBD-2:
The AO relied on a noting on the cover page of BBD-2, stating it was for FY 2006-07. The assessee argued this noting was made at the insistence of the AO during the survey and had no evidentiary value. The presence of entries with dates in FY 2007-08 and FY 2008-09 further supported the assessee's contention.

6. Double Taxation Argument:
The assessee declared the excess stock found during the survey as income for AY 2008-09 and paid taxes on it. The assessee argued that taxing the same stock for AY 2007-08 would result in double taxation, which is not sustainable in law.

7. CIT(A)'s Decision:
The Commissioner of Income Tax (Appeals) [CIT(A)] appreciated the assessee's contentions and deleted the addition made by the AO. The revenue appealed against this decision, arguing that the CIT(A) erred in deleting the addition.

8. Tribunal's Findings:
The Tribunal found that the impounded document BBD-2 contained entries with dates in both FY 2006-07 and FY 2007-08. The assessee had offered ?2,12,400/- for AY 2007-08 based on dated entries in BBD-2 and ?1.80 crores for AY 2008-09 towards the difference in book stock and physical stock found during the survey. The Tribunal held that undated entries in BBD-2 should be presumed to relate to the year of the survey (AY 2008-09) under section 292C of the Act. The Tribunal concluded that the stock difference was duly explained by the assessee's offer of ?1.80 crores in AY 2008-09, covering all discrepancies found during the survey. Therefore, there was no scope for further addition in either AY 2007-08 or AY 2008-09.

9. Revenue Neutral Argument:
The assessee argued that the addition of ?83,45,740/- as closing stock for AY 2007-08 would automatically become the opening stock for the next financial year, making it revenue neutral with no tax effect. The Tribunal did not adjudicate this aspect as the assessee was granted relief on the merits of the addition.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?83,45,740/- for AY 2007-08, concluding that the stock difference was already accounted for in the declaration made for AY 2008-09. The order was pronounced in open court on 13-04-2016.