2021 (5) TMI 19 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on inventory report & excess stock value

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. It upheld the CIT(A)'s decision to discard Page 76 of the ... Excess stock found during survey - AO made addition and also the Gross-Profit (GP) on it - HELD THAT:- Having regard to the working statement of the survey team it cannot be denied that the survey team had physically found stock having selling value of ₹ 1,43,00,000/-. Applying the GP rate of 6.74%, the cost price of such stock works out to Rs, 1,33,97,040/-. As noted earlier, and also at Para 3 of the assessment order, the stock available in the books as on the date of survey was ₹ 1,10,80,923/-. Giving the benefit of the dead stock of ₹ 8,79,415/-, as allowed by the AO at Para 5 of the impugned order, the discrepancy in the stock works out to ₹ 14,36,702/-[₹ 1,33,97,040 - ₹ 1,10,80,923 - ₹ 8,79,415]. Considering the aforesaid facts and circumstances, we are of the view that the value of excess physical stock found in the course of survey can be reasonably estimated at ₹ 14,36,702/- and G.P rate of 6.74% on it are sustained (BOTH). The CO of the assessee is partly allowed to this extent. Issues Involved:1. Partial relief by CIT(A) regarding excess stock found during survey.2. Gross-Profit (GP) addition on the excess stock.3. Validity of the survey report and the inventory discrepancies.4. Admission and retraction of undisclosed stock by the assessee.5. Violation of Rule 46A of Income Tax Rules, 1962.Detailed Analysis:1. Partial Relief by CIT(A) Regarding Excess Stock Found During Survey:The Revenue challenged the CIT(A)'s decision to provide partial relief to the assessee by deleting a substantial portion of the excess stock found during the survey. The CIT(A) confirmed only Rs. 27,84,000/- out of the Rs. 2,47,24,399/- added by the AO. The CIT(A) based this decision on the discrepancies found in the inventory report, particularly on Page 76, which the assessee claimed was fabricated. The CIT(A) conducted a detailed analysis, including calling for architectural drawings and photographs of the storage area, concluding that the assessee's premises could not accommodate more than 2500 sarees, thereby validating the assessee's claim of discrepancies in the survey report.2. Gross-Profit (GP) Addition on the Excess Stock:The AO added a GP of Rs. 20,34,881/- on the undisclosed stock, assuming it was sold during the relevant assessment year. The CIT(A) reduced this addition to Rs. 2,36,362/-, corresponding to the confirmed excess stock of Rs. 27,84,000/-. The CIT(A) justified this by stating that the excess stock, if sold, would only generate a GP at the rate of 8.49%, which was the GP rate of the assessee's disclosed turnover.3. Validity of the Survey Report and the Inventory Discrepancies:The CIT(A) found significant discrepancies in the survey report, particularly on Page 76, which listed 5596 sarees valued at Rs. 2,38,88,000/-, a figure that was starkly different from the other pages. The handwriting on Page 76 was different, and the details lacked the specificity found on other pages. The CIT(A) noted that the assessee's premises could not physically store the number of sarees listed, based on the architectural drawings and photographs provided by the assessee. This led to the conclusion that the inventory on Page 76 was fabricated to match the extracted admission of undisclosed stock.4. Admission and Retraction of Undisclosed Stock by the Assessee:The AO relied heavily on the admission made by the assessee's director during the survey, where he agreed to an undisclosed stock of Rs. 2.5 crores. However, the CIT(A) noted that this admission was made under duress and was retracted by the director soon after receiving the inventory report. The retraction was supported by detailed explanations and discrepancies in the inventory report, particularly Page 76. The CIT(A) emphasized that statements made during a survey under Section 133A do not have evidentiary value, as they are not made under oath.5. Violation of Rule 46A of Income Tax Rules, 1962:The Revenue argued that the CIT(A) violated Rule 46A by not giving the AO an opportunity to file a remand report against the new evidence presented by the assessee. The CIT(A) countered this by stating that the additional evidence was called for under Section 250(4) of the Act, which allows the CIT(A) to make further inquiries. The Tribunal supported the CIT(A)'s use of Section 250(4) to call for additional evidence, as it was necessary to verify the assessee's claims and uncover the truth.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. The Tribunal upheld the CIT(A)'s decision to discard Page 76 of the inventory report and confirmed the addition of Rs. 14,36,702/- as the value of excess physical stock found during the survey, along with the corresponding GP addition. The Tribunal found that the CIT(A) acted within his powers under Section 250(4) and did not violate Rule 46A.