2021 (7) TMI 505 - AT - Income Tax

Difference in stock - Additions u/s 69B - difference between the statement given by the assessee wherein he has given estimation of the stock and the stock as valued by the valuer at the time of survey - Addition on the basis of statement during the course of survey - HELD THAT - Admittedly, there is no difference in the quantitative tally or any discrepancy in purchase and sales or any excess quantity of jewellery was found so as to draw any adverse inference. Albeit the addition is based on the statement given by the assessee in respect of stock value at the time of survey and even in the statement there is no reference of excess quantity. CIT (A) analysis is de hors the basic fact that there was no difference in the quantitative tally nor the books of account have been rejected or the sale and purchase has been disputed. Once the opening stock, purchase and direct cost on the debit side is not in dispute; and on credit side sales have been accepted and there is no difference in the quantitative tally in the closing stock, then no addition can be made in the trading account. Here the addition is not based on undervaluation of closing stock but undisclosed investment in closing stock. Simply because there is a difference in the valuation made by the valuer and the value stated by the assessee during the survey in his statement as an approximate estimate of the stock available with him, addition cannot be made as undisclosed investment. Had it been case where there is excess quantity of stock found not recorded in the books or not explained, then perhaps addition on account of undisclosed investment could have been made.No reason to sustain the addition; therefore, the same is directed to be deleted. - Decided in favour of assessee. Disallowance of interest on the advance - HELD THAT - Assessee had interest free unsecured loan from friends and relatives and this fact has also been noted by the Ld. CIT(A). Simply because the assessee has secured loan from Standard Chartered Bank that does not mean that same interest bearing fund have been given for interest free loan to other party. If assessee has interest free funds which far exceed the advance given, then there cannot be any presumption that such advance has been given only out of such interest bearing funds. Once the assessee has substantial interest free fund, then no addition/disallowance can be made on this score. Accordingly, this ground is allowed.

Summary

Issues Involved:
1. Addition on account of difference in stock under Section 69B of the Income Tax Act, 1961.
2. Disallowance of interest on loan borrowed under Section 36(1)(iii).
3. Disallowance of interest paid on delay in deposit of TDS.

Issue-wise Detailed Analysis:

1. Addition on Account of Difference in Stock (Section 69B):

The assessee, engaged in retail trading of jewelry, faced a survey operation under Section 133A, revealing a discrepancy between the actual stock found (?1,68,97,325) and the stock recorded in books (?1,23,00,000), resulting in an excess/unaccounted stock of ?45,97,325. The assessee attributed this discrepancy to gold rate fluctuations. However, the Assessing Officer (AO) made an addition based on this difference.

The CIT (A) confirmed the addition, analyzing average cost and sale prices of gold, and noting inconsistencies in the appellant's stock valuation methods. The CIT (A) found the appellant's figures unreliable and pointed out that the appellant's quantitative stock details suggested possible unrecorded sales, thus justifying the addition.

The Tribunal, however, noted no quantitative discrepancy in stock or sales, and held that the addition based solely on valuation differences without evidence of excess quantity found was unjustified. The Tribunal referenced the Delhi High Court's ruling in CIT vs. Dhingra Metal Works, emphasizing that additions cannot be made solely on survey statements. Consequently, the Tribunal directed the deletion of the addition.

2. Disallowance of Interest on Loan Borrowed (Section 36(1)(iii)):

The AO disallowed ?1,08,000 of interest on the grounds that the assessee had advanced ?9 lakhs to M/s. Akash Hi Tech without receiving interest, while incurring interest on a loan from Standard Chartered Bank. The CIT (A) upheld this disallowance, noting the lack of business nexus for the loan advance.

The Tribunal, however, observed that the assessee had substantial interest-free unsecured loans amounting to ?42,15,000 from friends and relatives. It ruled that the presence of ample interest-free funds negated the presumption that the interest-bearing loan was used for the interest-free advance. Hence, the Tribunal allowed this ground, overturning the disallowance.

3. Disallowance of Interest Paid on Delay in Deposit of TDS:

The assessee challenged the disallowance of ?704 for interest paid on delayed TDS deposit. However, since no arguments were presented regarding this ground, the Tribunal dismissed it as not pressed.

Conclusion:

The appeal was partly allowed. The Tribunal deleted the addition of ?45,97,325 made under Section 69B and allowed the ground concerning disallowance of interest on the loan. The disallowance of interest on delayed TDS deposit was dismissed. The judgment underscores the importance of substantive evidence over estimations and survey statements in tax assessments.