2012 (1) TMI 385 - AT - Income Tax

Tax Tribunal Overturns AO's Decision on Stock Shortage, Emphasizes Importance of Evidence

The Tribunal allowed the appeal, setting aside the addition of &8377;2,03,875 by the AO for stock shortage during the survey. The Tribunal found the ... - Issues Involved: Appeal against order of Ld. CIT (A)-IV, Ahmedabad regarding addition of stock short during survey and charging of interest u/s. 234B and 234C of the Income Tax Act for assessment year 2006-07.Addition of Stock Short during Survey:The assessee, engaged in manufacturing machinery, faced a stock shortage of &8377; 21,37,049/- during a survey u/s. 133A, where physical stock was less than stock as per books. The Assessing Officer (AO) applied a GP rate of 9.54% on the shortage amount, resulting in an addition of &8377; 2,03,875/-. The Ld. CIT (A) upheld the AO's decision, based on the statement of a senior citizen employee recorded during the survey, admitting to unaccounted stock. The appellant argued that the statement was unreliable due to the circumstances of its recording and subsequent clarifications made by the assessee. The appellant contended that the AO did not consider certain stock items lying in the open yard, and relied on the regular books of account and audit reports. The Tribunal noted that the AO heavily relied on the initial statement without considering the subsequent clarifications and evidence provided by the assessee. Referring to CBDT Circular No.286/2/2003, the Tribunal emphasized that no attempt should be made to obtain a confession during surveys. The Tribunal found that the AO did not investigate whether the shortage was due to sales outside the books or other factors. Therefore, the Tribunal concluded that the addition based on the profit rate applied to the stock shortage was not justified, and deleted the addition of &8377; 2,03,875/-.Charging of Interest u/s. 234B and 234C:The consequential ground in the appeal was regarding the charging of interest u/s. 234B and 234C of the Income Tax Act. However, detailed arguments or decisions related to this issue were not explicitly mentioned in the judgment. The Tribunal's decision focused on the primary issue of the addition of stock shortage during the survey, leading to the deletion of the addition amount.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the addition of &8377; 2,03,875/- made by the AO concerning the stock shortage during the survey. The decision was based on the inadequacy of evidence, failure to consider all relevant factors, and the inappropriateness of applying a profit rate without thorough examination. The order was pronounced in Open Court on 13-01-2012.