2022 (8) TMI 221 - AT - Income Tax

Undisclosed stock - discrepancies in the stock between the value of stock shown in the Profit Loss Account and the value of stock shown in the ACEM Software - excess stock was found and the same was offered as additional income by revising the return of income - HELD THAT - Assessee firm had discharged primary onus lying upon it by explaining the difference between the stock as per Profit Loss Account and stock as per stock register maintained through computer software ACME Software . On receipt of the explanation, AO had not done anything to verify the veracity of the explanation of the respondent-assessee firm. He simply proceeded with by making addition by observing that the explanation of the respondent-assessee firm cannot be believed for the reason that stock received from the customers in respect of the gold, diamond, silver jewelleries either under gold deposits scheme or gold received for making ornaments were not accounted in the books of accounts of the respondent-assessee firm. This reasoning of AO has no legs to stand in view of the well-settled position of law that the presence and absence of entries in the books of accounts do not determine the true nature of the transaction. Reference in this regard can be made to the decision of Kedarnath Jute Mfg. Co. Ltd. 1971 (8) TMI 10 - SUPREME COURT - Further, it is not even the case of the Assessing Officer that the respondent-assessee firm had failed to discharge the primary onus lying upon it i.e. filing full details of the customers from whom gold was received under gold deposits scheme or for the purpose of making the ornaments. Without making any further enquiries,AO cannot make any addition based on the conjectures and assumptions as well as without bringing any conclusive evidence on record. Reference can be made on the decision in the case of Dhakeswari Cotton Mills Ltd. 1954 (10) TMI 12 - SUPREME COURT . In these circumstances, we are of the considered opinion that the order of the ld. CIT(A) is fair and reasonable and based on the appreciation of material facts of the case. - Decided against revenue.

Summary

Issues:
- Discrepancies in stock valuation between Profit & Loss Account and software
- Addition made by Assessing Officer
- Appeal by Revenue against CIT(A) order

Discrepancies in Stock Valuation:
The appeal pertains to a partnership firm engaged in trading gold and silver ornaments, where discrepancies were found in stock valuation during a survey operation. The Assessing Officer estimated the difference in stock value as Rs.4,11,88,184, leading to an addition of Rs.3,75,44,292 in the assessment. The firm explained that certain items were not part of its stock but were accounted for in the software. The firm reconciled the difference and offered Rs.36,43,892 as additional income. The CIT(A) deleted the addition considering the explanation and past practices of the firm.

Addition Made by Assessing Officer:
The Assessing Officer added Rs.3,75,44,292 to the firm's income due to discrepancies in stock valuation. The firm's explanation regarding items not included in stock but accounted for in the software was considered. The firm provided details of customers and transactions to support its claim. The CIT(A) overturned the addition, noting the firm's adherence to accounting practices and TDS deductions on interest paid. The Revenue challenged this decision in the appeal.

Appeal by Revenue against CIT(A) Order:
The Revenue contended that the CIT(A) erred in accepting the firm's explanation for the discrepancies in stock valuation. It argued that the firm possessed excess stock not recorded in its accounts. The Revenue questioned the credibility of the firm's explanation, citing the revised income declaration. The CIT(A)'s decision was defended by the firm, emphasizing the details provided and the Assessing Officer's oversight in verifying the explanation. The ITAT upheld the CIT(A)'s decision, emphasizing the firm's compliance with disclosure requirements and dismissing the Revenue's appeal.

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