ITAT Jaipur overturns excess stock addition, approves ICAI method for stock valuation, dismisses challenge to notice

The ITAT Jaipur allowed the appeal of the assessee, overturning the addition of excess stock amounting to Rs. 5,39,033 during assessment. The challenge to the legality of the notice issued for Assessment Year 2014-15 was dismissed, with the ITAT holding that no prejudice was caused to the appellant despite the unnecessary notice. The ITAT upheld the appellant's method of stock valuation, approved by the ICAI, leading to the deletion of the addition.

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Issues involved:
1. Legality of notice u/s 142(1) r.w.s. 153A for Assessment Year 2014-15
2. Addition of excess stock amounting to Rs. 5,39,033 during assessment

Issue 1: Legality of notice u/s 142(1) r.w.s. 153A for Assessment Year 2014-15:

The appellant contended that the notice u/s 142(1) r.w.s. 153A for the Assessment Year 2014-15 was beyond the AO's legislative powers as the financial year 2013-14 was the search year. The AO completed the assessment u/s 143(3) r.w.s. 153B(1)(b) of the Act, resulting in a total income of Rs. 5,66,220/-. The CIT(A) held that although the notice u/s 153A was not required for the instant assessment year, it did not prejudice the appellant. The CIT(A) noted that no legal or procedural disputes were raised by the appellant during the assessment process. The ITAT Jaipur concurred with the CIT(A)'s decision, dismissing the appellant's appeal in Ground No. 1.

Issue 2: Addition of excess stock amounting to Rs. 5,39,033 during assessment:

During assessment, the AO made an addition of Rs. 5,39,033 in the appellant's income under section 69B of the Act due to excess stock found during the search. The appellant's contention that employees present during the search were not aware of the cost and quoted sales price was rejected by the AO. The CIT(A upheld the addition, stating that the valuation of stock was done in the presence of independent witnesses and no objections were raised during the search. However, the ITAT Jaipur, following the decision of the ITAT Chandigarh Bench in a similar case, allowed the appellant's appeal on this ground. The ITAT noted that the method of valuation consistently followed by the appellant since the inception of the firm was valid, as approved by the ICAI, and hence, the addition was deleted.

In conclusion, the ITAT Jaipur allowed the appeal of the assessee, overturning the addition of excess stock and dismissing the challenge to the legality of the notice issued for the Assessment Year 2014-15.

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