Firm successfully reconciles excess gold stock found during survey with complete books and supporting evidence

ITAT Delhi ruled in favor of a firm engaged in gold jewellery trading regarding excess stock found during survey operations. The tribunal held that when an assessee maintains complete books of accounts with no defects pointed out by authorities, and successfully reconciles stock differences found during survey with supporting evidence, no addition under Section 69 read with Section 115BBE can be made. The AO and CIT(A) failed to identify any discrepancies in the reconciliation or supporting documents provided. The tribunal directed deletion of the addition made for excess stock, allowing the assessee's appeal.

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Issues Involved:

1. Legality of the CIT(A)'s order.
2. Addition of Rs. 6,13,75,028/- on account of excess stock as unexplained investments.
3. Interpretation of partner's statements by survey authorities.
4. Audited books of accounts and their consideration.
5. Lack of corroborative evidence for the addition.
6. Reconciliation of closing stock differences.

Summary:

1. Legality of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A)-23, New Delhi, dated 31.08.2021, arguing that it was flawed both legally and factually.

2. Addition of Rs. 6,13,75,028/- on Account of Excess Stock:
The CIT(A) confirmed the addition made by the AO for unexplained investments under Section 69 read with Section 115BBE of the Income Tax Act. The assessee argued that the addition was made despite detailed submissions and explanations reconciling the stock difference found during the survey.

3. Interpretation of Partner's Statements:
The CIT(A) allegedly misinterpreted the statements of the partner of the assessee firm, recorded during the survey, to confirm the addition. The partner had stated, "I am not able to explain it right now," which was not an admission of undisclosed income.

4. Audited Books of Accounts:
The assessee contended that its books of accounts were duly audited, and no defects were pointed out by the AO during the survey or assessment proceedings. The CIT(A) ignored this contention while confirming the addition.

5. Lack of Corroborative Evidence:
The assessee argued that the AO made the addition without bringing any corroborative evidence to justify it. The CIT(A) also ignored this contention.

6. Reconciliation of Closing Stock Differences:
The assessee explained that the excess stock was due to undelivered goods, which were later delivered post-survey. The reconciliation was supported by invoices, acknowledgments, ledger accounts, bank statements, and other documents. The AO's independent inquiry confirmed the assessee's explanation, yet the addition was made.

Judgment:
The ITAT found that the CIT(A) erred in rejecting the explanation of the assessee regarding the excess stock. The CIT(A) incorrectly mentioned the date of the partner's statement and failed to consider the independent inquiry and confirmations from the parties involved. The ITAT noted that no incriminating documents were found during the survey, and the books of accounts were accepted without defects. The ITAT relied on various judicial pronouncements to conclude that differences in stock during a survey do not automatically warrant additions if the assessee provides a plausible explanation with supporting evidence. Consequently, the addition of Rs. 6,13,75,028/- was directed to be deleted, and the appeal of the assessee was allowed.

Order Pronounced in the Open Court on 07/02/2024.

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