2022 (11) TMI 525 - AT - Income Tax

Tribunal deletes Rs. 44,06,108/- addition to income for unexplained excess stock

The Tribunal allowed the appeal, deleting the addition of Rs. 44,06,108/- made to the income of the assessee on account of unexplained excess stock. The ... Unexplained excess stock - Addition on difference in the stock found during the course of survey - HELD THAT:- We find that Revenue has erred in comparing two accounting statements, which are un-comparable to each other because Revenue has taken book stock on the basis of Tally Software, whereas physical stock on the basis of ORIEL Software. It is also observed that AO failed to appreciate the explanation of the assessee in right perspective. The assessee with the help of audited accounts explained to the ld. AO that taxable income is being computed on the basis of ORIEL POS Software details. Excess stock has been worked out by AO on the basis of an erroneous mathematical exercise. This stock has been worked out not on account of particular items, rather on account of valuation difference, which has been worked out by appreciating two different Softwares for the purpose of book stock, vis-a-vis actual stock and if some exercise is being carried out in this manner, then difference is bound to happen. AO failed to appreciate this aspect during the assessment proceedings, when it was duly explained by the assessee. We have made reference to Closing Stock for A.Y. 2012-13 simply for the reason that these details are not being put up before us as a consequence to the survey, rather these details were put up before the Revenue prior to the survey. Therefore, in our opinion, addition is not sustainable. We allow this ground of appeal and delete the addition made to the income of the assessee on account of unexplained excess stock. Appeal of the assessee is allowed. Issues Involved:1. Confirmation of addition of Rs. 44,06,108/- on account of alleged difference in stock found during the survey.Issue-wise Detailed Analysis:1. Confirmation of addition of Rs. 44,06,108/- on account of alleged difference in stock found during the survey:The main grievance of the assessee is the confirmation of the addition of Rs. 44,06,108/- by the CIT(A) due to the alleged difference in stock found during the survey conducted under section 133A of the Income Tax Act on 11.12.2012. The assessee filed its return of income disclosing a total income of Rs. 85,22,230/- for the Assessment Year 2013-14. The survey team computed the physical stock available in the store using the ORIEL POS Software System and compared it with the stock figures maintained in Tally Software, finding a significant discrepancy.The assessee contended that there was a casting mistake of Rs. 18,75,185/- in the physical stock valuation by the survey team. The assessee further rectified the casting mistakes to Rs. 21,14,900/-, arriving at a physical closing stock value of Rs. 4,25,28,255/-.The assessee also explained that the inventory of stock in Tally ERP-9 was as on 04.12.2012, while the physical stock was taken on 11.12.2012. The reconciliation of stock as per Tally ERP as on 11.12.2012 showed a closing stock of Rs. 3,76,75,180/-, leading to a discrepancy of Rs. 44,06,108/- when compared to the physical stock.The Revenue, however, did not accept the assessee's explanation, providing five reasons for the rejection:(a) Uncertainty about which software (Tally ERP or ORIEL POS) was used for final accounts.(b) The unexplained reason for maintaining stock in both Tally ERP and ORIEL POS.(c) Discrepancy of Rs. 44,06,108/- still existing after updating Tally ERP.(d) The question of why the stock as per Tally ERP was not correct if actual valuations were entered in it.(e) Absence of mention in the audit report that the valuation of closing stock was done by ORIEL POS software.The assessee's appeal to the CIT(A) did not bring any relief. The assessee argued that the Revenue compared two incomparable systems, leading to the erroneous calculation of excess stock. The assessee maintained that the ORIEL POS Software tracked purchases and sales with barcodes, providing cost-specific identifiable inventory items, while Tally Software was used for general accounting.The Tribunal found that the Revenue erred in comparing two un-comparable systems (Tally Software and ORIEL POS Software). The assessee demonstrated through audited accounts that taxable income was computed based on ORIEL POS Software details. The Tribunal noted that for the Financial Year 2011-12, the closing stock as per audited accounts (ORIEL POS) was Rs. 3,39,87,692/-, while as per Tally Software, it was Rs. 2,33,48,269/-. The discrepancy was due to the use of different software systems for book stock and actual stock.The Tribunal concluded that the excess stock was worked out by the Assessing Officer based on an erroneous mathematical exercise, not on account of particular items but due to valuation differences between two different software systems. The Tribunal allowed the appeal, deleting the addition of Rs. 44,06,108/- made to the income of the assessee on account of unexplained excess stock.Conclusion:The appeal of the assessee was allowed, and the addition of Rs. 44,06,108/- on account of unexplained excess stock was deleted. The Tribunal found that the Revenue's comparison of two un-comparable systems led to an erroneous calculation of excess stock.