2018 (11) TMI 472 - AT - Income Tax

Addition of closing stock - Shortage of closing stock - AO multiplied the shortage with average value of the stock available with the assessee in the closing stock and worked out addition in both the years - Held that - Explanation of the assessee is plausible because on account of different weigh-bridges, possibility of different measurements in weight could not be ruled out. However, the assessee has been showing the loss consistently in the same ratio on similar products In the asstt.Year 2009-10, it has made purchases of 9990.716 MTs. In the next year it has made purchases of 10995.363 MTs. and in both the years, the loss claimed at 17.393/17.130 MTs. It creates a suspicion of being adopted a particular modus operandi by the assessee to inflate purchases and manipulate value of closing stock, but again we do not have any supporting evidence qua this suspicion. Therefore, looking to the facts and circumstances, we are of the view that an adhoc disallowance to the extent of ₹ 2,00,000/- in each assessment year is being sustained, then it can take care of any such steps at the end of the assessee. Accordingly, addition is restricted to ₹ 2,00,000/- (Rupees Two Lakhs only) to each assessment year and the balance in both the years is deleted. Ground of appeal of the assessee in both the years is partly allowed.

Summary

Issues Involved:
Addition in value of closing stock due to claimed weight-loss.

Analysis:

Issue 1: Addition in value of closing stock
The appeals were filed by the assessee against the orders of the ld.CIT(A) confirming the addition of specific amounts in the value of closing stock for the assessment years 2009-10 and 2010-11. The assessee claimed weight-loss in the stock of iron and steel, which was disputed by the AO. The AO found discrepancies in the claimed weight-loss and confronted the assessee about the same. The explanation provided by the assessee was that the shortage was normal and not abnormal, attributing it to the difference in weighment methods at the supplier's place and the receipt location. The AO, however, was not convinced and made additions to the closing stock value. The Tribunal observed that the nature of items dealt with by the assessee did not typically result in such losses, as they were not perishable items prone to pilferage or evaporation. While acknowledging the plausibility of the assessee's explanation regarding different weighment methods, the Tribunal noted a consistent pattern in the claimed losses over the years, raising suspicions of manipulation. Despite the lack of concrete evidence supporting the suspicion, the Tribunal decided to sustain an adhoc disallowance of a specific amount in each assessment year to address any potential manipulation. Consequently, the addition was restricted to a certain amount, and the balance was deleted for both years, partially allowing the appeals of the assessee.

This detailed analysis highlights the key aspects of the judgment, including the nature of the dispute, the arguments presented by the parties, the Tribunal's reasoning, and the final decision regarding the addition in the value of closing stock due to claimed weight-loss.