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2019 (9) TMI 1264 - AT - Income TaxAddition on stock difference or understatement of sundry debtors - assessee has over stated the values by inflating the unit rates to increase the value of closing stock to the bank, but the quantity remained the same - HELD THAT - Value of the stock declared in the books of accounts is as per the purchase bills and correctly reported. There was no difference in physical stocks declared to the bank and accounted in the books of accounts. The value of closing stock declared in the books of accounts was duly supported by the purchase bills. We also observe that the sundry debtors were also correctly reported and grouped in the books of accounts and no other evidence was brought on record by the department to controvert the above findings. The department did not make out a case of unaccounted stock or the suppression of trade debtors. The facts of the assessee s case are similar to the decision of M/S. SRI TARAKA JEWELLERS, NEW PARKASHAM BAZAR, NALGONDA 2013 (7) TMI 1091 - ANDHRA PRADESH HIGH COURT and the decision of this Tribunal in the case of Thatavarthi Ramesh Babu 2017 (12) TMI 577 - ITAT VISAKHAPATNAM . Therefore, respectfully following the view taken by Hon ble High Court and the ITAT, we hold that there is no reason for making the addition on stock difference or understatement of sundry debtors, hence, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. - Decided in favour of assessee.
Issues Involved:
1. Delay in filing the appeal. 2. Addition made by the Assessing Officer (AO) regarding the difference between closing stock and sundry debtors balances declared to the bank and accounted in the books of accounts. 3. Confirmation of the addition by the Commissioner of Income Tax (Appeals) [CIT(A)]. 4. Assessee's contention regarding the overvaluation of stock and sundry debtors for availing better credit facilities. 5. Reliance on judicial precedents by both parties. Detailed Analysis: 1. Delay in Filing the Appeal: In this case, there was a delay of 11 days in filing the appeal. The assessee filed a condonation petition, citing hospitalization due to an accident. After hearing both parties, the delay was condoned, and the appeal was admitted. 2. Addition Made by the AO: The AO collected information from Axis Bank regarding securities pledged and stocks hypothecated for availing Over Draft (Cash Credit) facilities. The AO found discrepancies between the closing stock and sundry debtors declared to the bank and those accounted for in the books of accounts. The closing stock was declared at ?1,80,34,903/- to the bank, whereas it was ?89,68,749/- in the books, resulting in a difference of ?90,66,154/-. Similarly, sundry debtors were declared at ?69,35,805/- to the bank against ?42,83,258/- in the books, resulting in a difference of ?26,52,547/-. The AO brought the overstated amount of ?1,17,18,701/- to tax under section 69B of the Income Tax Act, 1961. 3. Confirmation by CIT(A): The assessee appealed against the AO's order to the CIT(A), who followed the decision of the Hon’ble High Court of Calcutta in the case of Binod Kumar Agarwala Vs. CIT and confirmed the addition made by the AO, dismissing the assessee’s appeal. 4. Assessee's Contention: During the appeal hearing, the assessee argued that the stock and sundry debtors were overvalued to avail increased credit facilities from the bank. The assessee provided detailed explanations and purchase bills to demonstrate that the quantities were correctly reported in both the bank statements and the books of accounts. The stock was slightly overvalued for the bank, and non-trade debts were included in the sundry debtors declared to the bank. The assessee argued that the correct values were reported in the books of accounts, and the discrepancies were due to different unit rates adopted for the bank and financial statements. 5. Judicial Precedents: The assessee relied on the decision of the Hon’ble jurisdictional High Court of Andhra Pradesh in the case of CIT-6, Hyderabad Vs. Sri Taraka Jewellers, which held that no addition is called for solely on account of the difference in the value of stock submitted to the bank and the value shown in the books of accounts. The Tribunal also referred to its own decision in the case of ACIT Vs. Thatavarthi Ramesh Babu, which supported the assessee's contention. Conclusion: The Tribunal found that the assessee had correctly reported the value of the closing stock and sundry debtors in the books of accounts, supported by purchase bills. The discrepancies were due to overvaluation for bank purposes. The Tribunal held that merely declaring excess stock to the bank cannot be the sole reason for making additions to the returned income. The Tribunal set aside the order of the CIT(A) and deleted the addition made by the AO. The stay application filed by the assessee was dismissed as withdrawn since the main appeal was adjudicated. The appeal of the assessee was allowed.
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