2020 (5) TMI 72 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on stock value discrepancy, emphasizing importance of accurate bookkeeping

The tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer due to a discrepancy in stock values between the stock ... Shortage of stock - Addition u/s 69 - Difference in Stock as per stock statement filed before Bank and as per books - CIT-A deleted the addition - HELD THAT:- CIT (A) has noted that the assessee has duly explained the difference in the valuation of the stock as given to the bank and as compared with the books of account of the assessee. CIT (A) has rightly observed that the method of accounting followed for valuation of the closing stock should have been applied in respect of the valuation of the opening stock also. CIT (A) has rightly noted from the statement of the Bank Manager that the stock was not physically verified by the bank at the spot. The assessee has duly explained through the charts that if the adjustment of shortage usually booked on the last date of the financial year as per the regular accounting policy followed by the assessee taken into consideration, there remains no / negligible difference between the stock statement given to the bank. The Ld. Counsel for the assessee in this respect has also explained that the stock statement given to the bank was on estimation basis and that the minor difference in this respect was required to be ignored. - Decided against revenue. Issues Involved:1. Deletion of addition made by the Assessing Officer on account of difference in stock as per stock statement filed before the bank and as per books.2. Request to set aside the order of CIT(A) and restore that of the AO.Detailed Analysis:Issue 1: Deletion of Addition Made by the Assessing Officer on Account of Difference in StockThe Revenue challenged the deletion of an addition made by the Assessing Officer (AO) due to a discrepancy in stock values between the stock statement filed with the bank and the books of account. The AO had noted a difference of Rs. 1,81,57,649/- in the stock values, leading to the addition under section 69 of the Income Tax Act, 1961. The assessee explained that the stock statement given to the bank was based on estimates as of 28.03.2011, not 31.03.2011, and that the difference was due to wastage and moisture loss, which were accounted for at the end of the financial year.The CIT(A) deleted the addition, observing that the AO had compared stock figures from different dates and ignored the wastage factor. The CIT(A) noted that the stock statement submitted to the bank contained fewer items than those in the books and that the AO did not consider several items while calculating the stock difference. The CIT(A) also highlighted that the bank did not physically verify the stock, as confirmed by the bank manager during cross-examination. The CIT(A) referenced judicial precedents, including CIT v Sidhu Rice and Gen Mills and CIT v Sanspareils Greenlands Private Limited, to support the view that stock figures in properly maintained books should be preferred over those submitted to the bank for availing higher drawing power.Issue 2: Request to Set Aside the Order of CIT(A) and Restore That of the AOThe Revenue argued that the stock statement submitted to the bank should be considered accurate and that the assessee's explanation for the discrepancy was not substantiated. The Revenue cited the case of B.T. Steels Ltd. v CIT, where the High Court upheld an addition based on a stock statement submitted to the bank, and argued that the same principle should apply here.The assessee countered that the addition was made without rejecting the books of account and without considering the wastage factor. The assessee provided a detailed yield chart and explained that the stock statement given to the bank was based on estimates. The assessee also pointed out that the AO ignored the difference in opening stock while making the addition.Conclusion:After considering the submissions, the tribunal found no infirmity in the CIT(A)'s order. The CIT(A) had correctly noted that the method of accounting for closing stock should apply to opening stock as well. The tribunal agreed that the stock statement given to the bank was based on estimates and that the minor difference should be ignored. The tribunal upheld the CIT(A)'s decision to delete the addition and dismissed the Revenue's appeal.Final Judgment:The appeal of the Revenue was dismissed, and the order of the CIT(A) was upheld. The tribunal found that the CIT(A) had rightly deleted the addition made by the AO, considering the explanations and evidence provided by the assessee.