2024 (2) TMI 1044 - AT - Income Tax

Addition made towards excess physical stock during the survey - unexplained investment u/s 69 taxable at rates prescribed u/s 115BBE - CIT(A) deleted addition and directing to assess only Gross profit on stock difference as per the working given by the assessee during the assessment proceedings - assessee submitted that physical inventory was valued at selling price which would require adjustment of GST component as well as adjustment of Gross Profit component to bring the stock at cost price which was the basis of valuation of closing stock in the books maintained in the software - as argued AO should not have merely relied upon sworn statement but should have made additional efforts in proving that the findings of survey were right. HELD THAT - From the facts, it emerges that physical stock was taken at selling price whereas the stock in the books of accounts was being reflected at cost price. Therefore, the physical stock was required to be adjusted for GST component as well as for Gross Profit component to make the two items comparable. The assessee furnished necessary workings in this regard during the course of assessment proceedings which could not be controverted by Ld. AO. No defect has been pointed out by Ld. AO in assessee s workings. No quantitative differences have been noted. The Ld. AO has merely raised an objection that the assessee did not object to the valuation at the time of survey. As in the statement recorded during survey, the assessee demanded more time to reconcile the two components. The same was done at the time of assessment proceedings. Obviously, the onus was on Ld. AO to controvert the working of the assessee which was not done. CIT(A), in our considered opinion, clinched the issue in correct perspective. The deficit in stock could be termed as sales effected but not recorded in the books of account. CIT(A) has already estimated gross profit against the same and sustained the addition to that extent which is quite appropriate on the facts and circumstances of the case. The same has rightly been held to be business income - Decided against revenue.

Summary

Issues involved:
The judgment deals with the addition of excess physical stock found during a survey for Assessment Year 2020-21.

Assessment Proceedings:
The assessee, engaged in retail trade of textiles, faced a stock variation of Rs.415.48 Lacs during a survey. The managing partner admitted the difference and offered additional income if discrepancies were found. The assessee explained the stock valuation adjustments for GST and Gross Profit components, arriving at a corrected stock value of Rs.1084.96 Lacs. The Assessing Officer (AO) rejected the explanations and added Rs.415.48 Lacs as unexplained investment under Sec. 69, taxable at rates under Sec. 115BBE.

Appellate Proceedings:
The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee that the AO did not disprove the explanations provided. The CIT(A) noted the stock valuation should have been at cost price, excluding GST and gross profit. The assessee's corrected stock value was accepted, with a sustained addition of Rs.3.69 Lacs as business income. The revenue appealed further.

Findings and Adjudication:
The judgment emphasized the need to adjust physical stock for GST and Gross Profit components to align with book values. The AO failed to refute the assessee's workings and objections raised during the survey were addressed during assessment proceedings. The CIT(A) correctly estimated gross profit against the unrecorded sales, affirming it as business income. The decision was upheld, dismissing the appeal.

Order pronounced on 20th February, 2024.