2019 (10) TMI 510 - AT - Income Tax

Additions made by AO - excess stock found during the course of survey - Addition made in respect of net profit - HELD THAT - The basis of making addition is the statement recorded during the course of survey. Ld. Counsel for the assessee has taken me through the statement so recorded. It is stated that the whole purchases have been through banking channels - Considering the fact that the assesse has demonstrated that purchases were made through banking channels and have been recorded in the books of accounts, the revenue has not brought any contrary material on record. Under these undisputed facts, the A.O. is hereby directed to delete the addition of ₹ 16,80,000/- as made in respect of the excess stock. However, the addition in respect of net profit @ 2% is sustained on this addition - appeal allowed in part.

Issues:
1. Addition of excess stock during survey operation.

Analysis:
1. The appellant challenged the addition of ?16,80,000 made by the Assessing Officer as excess stock found during a survey. The appellant argued that the addition was erroneous both on points of law and fact. The appellant maintained that proper books of accounts were maintained and audited under section 44AB of the Income Tax Act. The appellant contended that since the assessing officer did not reject the books under section 145 of the Act, the addition should be deleted. The appellant further argued that the assessing officer solely relied on the statement recorded during the survey without independently verifying the alleged difference in stock. The appellant requested that the relief claimed be allowed and the assessing officer's order be modified accordingly.

2. The main issue in the case was the addition of ?16,80,000 as excess stock found during a survey operation at the business premises of the assessee. The assessing officer framed the assessment under section 143(3) of the Income Tax Act, based on the discrepancy of cash and stock found during the survey. The assessing officer made the addition based on a statement recorded during the survey where the assessee admitted the discrepancy. The CIT(A) upheld the addition, leading to the present appeal by the assessee. The appellant argued that the authorities were unjustified in not accepting the explanation provided and making or sustaining the addition. The appellant contended that the statement recorded during the survey should not be the sole basis for the addition, as it lacks evidentiary value. The appellant also argued that the assessing officer failed to provide any material supporting the statement recorded during the survey.

3. The appellant's counsel argued that the purchases were supported by evidence, and any unrecorded stock found during the survey was later reconciled in the stock register. The counsel contended that the alleged excess stock was duly accounted for and should not have been added without deducting the cost of such stock. The counsel highlighted that the assessing officer did not disbelieve the accounts and that the addition was made solely on the basis of the survey statement. The Departmental Representative opposed the submissions, stating that the assessee failed to reconcile the stock during the survey and should have provided material evidence to support the stock position.

4. After considering the submissions and evidence, the Tribunal directed the assessing officer to delete the addition of ?16,80,000 made in respect of the excess stock. The Tribunal noted that the appellant demonstrated purchases made through banking channels and reconciled sales and purchases in the books of accounts. As no contrary material was presented by the revenue, the addition was deemed unwarranted. However, the Tribunal sustained the addition in respect of net profit at 2% on the initial addition amount.

5. In conclusion, the appeal filed by the assessee was partly allowed, with the addition of excess stock being deleted but the addition of net profit at 2% being sustained.

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