2015 (3) TMI 934 - AT - Income Tax

Tribunal affirms CIT(A) order, dismisses Revenue's appeal on undisclosed stock addition.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order deleting the addition of Rs. 32,42,815/- on account of undisclosed stock. The ... Undisclosed stock - CIT(A) deleted the addition - Held that:- No difference in quantity of stock is reported by the Revenue. The AO has not made any enquiry in respect of the explanation of the assessee that the stock belonging to other entity was included into the stock statement submitted to its banker. The AO has observed that even if the stock of Auto Agency has been considered while submitting the stock statement of the company, then the stock statement ought to have exceeded the value as declared by the assessee before its banker. The claim of the assessee is that it was distributor of M/s.Eicher Motors Ltd., who subsequently appointed other entity, through which the assessee was making purchases. Undisputedly, the AO has not made any enquiry from M/s.Eicher Motors Ltd. with regard to purchases made by the assessee. No evidence is brought on record that apart from M/s.Eicher Motors Ltd. the assessee was also making purchases from third parties which has not been recorded by the assessee in its books of account. In the absence of such specific finding, we do not see any reason to interfere with the order of the ld.CIT(A). Therefore, respectfully following the ratio laid down in the judgement of the Hon’ble Jurisdictional High Court in the case of CIT vs. Veerdip Rollers P.Ltd.(2007 (10) TMI 376 - GUJARAT HIGH COURT), this ground of Revenue’s appeal is rejected. - Decided in favour of assessee. Issues Involved:1. Deletion of addition in respect of undisclosed stock of Rs. 32,42,815/-.Issue-wise Detailed Analysis:1. Deletion of Addition in Respect of Undisclosed Stock of Rs. 32,42,815/-:The appeal by the Revenue challenges the order of the Commissioner of Income Tax (Appeals)-VI, Ahmedabad (CIT(A)), which deleted the addition made by the Assessing Officer (AO) in respect of undisclosed stock amounting to Rs. 32,42,815/-. The case revolves around the discrepancy between the value of closing stock reported to the Revenue and the value reported to Nutan Nagarik Sahakari Bank Ltd.Facts and Assessment:The assessee's case was reopened for assessment for AY 2005-06, and the assessment was framed under section 143(3) read with section 147 of the Income Tax Act, 1961. The AO made an addition based on the difference in the value of closing stock reported to the Revenue and the bank. The CIT(A) considered the assessee's submissions and partly allowed the appeal.Submissions by the Assessee:The assessee argued that the higher value of closing stock reported to the bank was due to a genuine mistake by the accountant, who included stock belonging to 'Auto Agency,' a new entity formed during the year, in the stock statement of the assessee company. The assessee maintained that the stock statement given to the bank was based on estimates and not on actual quantitative records. The assessee also pointed out that in previous and subsequent years, the stock reported to the bank was less than the stock in the books, indicating that the stock statements were not reliable indicators of actual stock.CIT(A)'s Findings:The CIT(A) observed that the stock statement given to the bank did not contain quantitative details and was merely an aggregate value. The CIT(A) noted that the assessee maintained complete stock records with no discrepancies in quantity. The CIT(A) accepted the assessee's explanation that the stock value reported to the bank was an estimate and not based on actual records. The CIT(A) relied on various judicial precedents, including the Gujarat High Court rulings in CIT v. Arrow Exim (P.) Ltd. and CIT v. Veerdip Rollers (P.) Ltd., which supported the assessee's case.Tribunal's Analysis:The Tribunal noted that the Revenue did not dispute the lack of quantitative discrepancies in the stock. The Tribunal found that the AO did not conduct any inquiries with M/s. Eicher Motors Ltd. or provide evidence of unrecorded purchases. The Tribunal upheld the CIT(A)'s decision, emphasizing that the stock statement given to the bank was based on estimates and not actual records. The Tribunal cited the Gujarat High Court's judgment in CIT v. Veerdip Rollers (P.) Ltd., which held that additions based on inflated stock values reported to banks for obtaining higher credit facilities were not justified when the books of account were found to be genuine.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order deleting the addition of Rs. 32,42,815/- on account of undisclosed stock. The Tribunal concluded that the difference in stock value reported to the bank was due to estimation and not indicative of unaccounted stock.Order Pronouncement:The order was pronounced in the Court on Thursday, the 19th day of March, 2015, at Ahmedabad.