2020 (4) TMI 850 - AT - Income Tax

Tribunal upholds Revenue's additions based on stock discrepancies, advises proper record-keeping

M/s. Shobha Minerals (Kevlari) Versus Asst. CIT, Central Circle, Jabalpur (Vice-Versa) And M/s. Shobha Minerals (Dhamki) Versus Asst. CIT (Central), Jabalpur (Vice-Versa)

M/s. Shobha Minerals (Kevlari) Versus Asst. CIT, Central Circle, Jabalpur (Vice-Versa) And M/s. Shobha Minerals (Dhamki) Versus Asst. CIT (Central), ... Issues Involved:1. Whether any addition under section 69A or 69B, i.e., toward excess stock of finished goods of iron ore (manganese ore) is maintainable.2. Whether any addition toward excess book-stock of any saleable material is called for.3. The value at which the addition/s, if any, is to be made.Detailed Analysis:1. Addition under Section 69A or 69B for Excess Stock of Finished Goods:The primary contention was whether the excess stock of iron ore found during the search operation should lead to an addition under section 69A or 69B. The Revenue's case was based on the physical stock found being in excess of the book stock, indicating unaccounted production and sales. The assessee argued that the excess stock was due to the inclusion of sub-grade material, which was not properly accounted for in the books. The Tribunal found the assessee's explanation to be without merit and upheld the Revenue's approach of considering the physical stock of finished goods separately from sub-grade material.2. Addition Toward Excess Book-Stock:The Tribunal considered whether any addition was warranted for excess book-stock. It was noted that if the book-stock of finished iron ore was in excess, it implied unaccounted removal (sale) up to that date, leading to an inference of unaccounted income. The Tribunal agreed with the Revenue that the addition should be made at the gross profit rate on the sale value of the excess book-stock, as the cost of such stock would have already been absorbed in the books.3. Valuation of Addition:The Tribunal discussed the valuation of the addition, whether it should be at cost or sale value. It concluded that the sale (net realizable) value should be considered for the addition, as the cost of excavation and processing had already been absorbed in the books. The Tribunal also noted that the gross profit rate should be adjusted for royalty costs, and the average sale rate for the period up to October 2014 should be used for valuation.Conclusion:The Tribunal found that the assessee's books of account could not be regarded as properly maintained and that the excess stock of finished goods indicated unaccounted production and sales. The Tribunal upheld the Revenue's approach of making additions based on the physical stock found and the gross profit rate on the sale value of the excess book-stock. The Tribunal advised the assessee to maintain proper records to avoid future discrepancies and potential tax liabilities. The appeals of the assessees were allowed, and the Revenue's appeals were dismissed.