2024 (2) TMI 984 - AT - Income Tax

Excess stock found during the course of survey - unexplained investments u/s 69 r.w.s.115BBE - HELLD THAT - Assessee having given the explanation which was plausible explanation which stands verified in inquiry by the AO the same cannot be rejected arbitrarily by indulging into surmises - Assessee has produced complete books of accounts during assessment proceedings. No defects have been pointed out and the books of accounts have been accepted. Thus when the difference in physical stock found during survey and as recorded in the books is duly reconciled by the assessee and supporting evidences have also been furnished before the AO CIT(A) in which no defect or discrepancy whatsoever has been pointed out by the AO or CIT(A), no addition is called for. Merely because some differences were found in stock during survey would not indicate any automatic addition be made in the hands of the assessee when assessee has duly reconciled the differences with necessary evidences and neither the AO nor CIT(A) has pointed out any defects or discrepancies in the reconciliation submitted by assessee or the documents and evidences furnished by the assessee. Thus, addition made by the AO on account of excess stock found during the course of survey is directed to be deleted - Decided in favour of assessee.

Issues Involved:

1. Legality of the CIT(A)'s order.
2. Confirmation of addition of Rs. 6,13,75,028/- as unexplained investments.
3. Misinterpretation of the partner's statements.
4. Ignoring audited books of accounts.
5. Lack of corroborative evidence for the addition.
6. Reconciliation of the difference in stock.

Summary:

1. Legality of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A)-23, New Delhi, dated 31.08.2021, as bad in law and on facts.

2. Confirmation of Addition of Rs. 6,13,75,028/-:
The CIT(A) confirmed the addition made by the AO on account of excess stock found during the survey, holding it as unexplained investments under Section 69 read with Section 115BBE of the Income Tax Act. The assessee argued that the addition ignored detailed submissions and explanations reconciling the stock difference.

3. Misinterpretation of Partner's Statements:
The CIT(A) was alleged to have misinterpreted the statements of the partner of the assessee firm recorded by the survey authorities. The partner, Shri Sanjay Malhotra, had stated, "I am not able to explain it right now," which was not an admission of undisclosed income.

4. Ignoring Audited Books of Accounts:
The CIT(A) confirmed the addition despite the assessee's contention that the books of accounts were duly audited, and no defects were pointed out by the AO during the survey or assessment proceedings.

5. Lack of Corroborative Evidence:
The CIT(A) was criticized for confirming the addition without any corroborative evidence to justify the AO's additions. The assessee argued that no adverse findings were given by the AO regarding the submissions and explanations reconciling the stock difference.

6. Reconciliation of the Difference in Stock:
The assessee provided a detailed reconciliation of the difference in stock, including invoices of undelivered goods, ledger accounts, bank statements, stock ledger, and inventory report. The AO conducted an independent inquiry and received confirmations from the parties involved, yet made the addition. The CIT(A) rejected the reconciliation as an afterthought, but the tribunal found this reasoning incorrect and against the facts.

Conclusion:
The tribunal held that the assessee's explanation was plausible and verified by the AO. No defects were found in the books of accounts, and the reconciliation of the stock difference was duly supported by evidence. The addition of Rs. 6,13,75,028/- was directed to be deleted, and the appeal of the assessee was allowed.

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