Physical stock valued at selling price while books at cost requires GST and profit adjustments under section 69

The ITAT Chennai upheld the CIT(A)'s decision to delete the addition made under section 69 for excess physical stock found during survey. The assessee successfully demonstrated that physical inventory was valued at selling price while book stock was at cost price, requiring adjustments for GST and gross profit components. The CIT(A) correctly directed assessment of only gross profit on stock difference as business income rather than unexplained investment under section 115BBE. The AO failed to controvert the assessee's reconciliation workings and relied merely on survey statements without additional verification efforts.

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Issues involved:
The judgment deals with the addition of excess physical stock found during a survey for Assessment Year 2020-21.

Assessment Proceedings:
The assessee, engaged in retail trade of textiles, faced a stock variation of Rs.415.48 Lacs during a survey. The managing partner admitted the difference and offered additional income if discrepancies were found. The assessee explained the stock valuation adjustments for GST and Gross Profit components, arriving at a corrected stock value of Rs.1084.96 Lacs. The Assessing Officer (AO) rejected the explanations and added Rs.415.48 Lacs as unexplained investment under Sec. 69, taxable at rates under Sec. 115BBE.

Appellate Proceedings:
The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee that the AO did not disprove the explanations provided. The CIT(A) noted the stock valuation should have been at cost price, excluding GST and gross profit. The assessee's corrected stock value was accepted, with a sustained addition of Rs.3.69 Lacs as business income. The revenue appealed further.

Findings and Adjudication:
The judgment emphasized the need to adjust physical stock for GST and Gross Profit components to align with book values. The AO failed to refute the assessee's workings and objections raised during the survey were addressed during assessment proceedings. The CIT(A) correctly estimated gross profit against the unrecorded sales, affirming it as business income. The decision was upheld, dismissing the appeal.

Order pronounced on 20th February, 2024.

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