2025 (2) TMI 647 - AT - Income Tax

Excess stock addition deleted as MD's statement under section 133A lacks evidentiary value

ITAT Chennai upheld CIT(A)'s deletion of addition for excess stock in poultry business. Assessee showed stock difference of Rs. 1,01,77,956 due to ... Additions on account of excess stock - Estimation of net profit - assessee is into the business of running of poultry farm and its inventory includes raw materials, viz., eggs, chicks and birds and various items of poultry feed - CIT(A) deleted adition - HELD THAT:- As inadvertent omission to integrate the software, the difference in stock happened and hence, urged that it was wrong to allege that assessee didn’t disclose the correct stock in its ‘Tally stock register’; and moreover, having factored the alleged difference in the stock while computing the total income in its RoI, the assessee has offered the excess stock, therefore, in any case, no addition was warranted. Addition u/s. 69 of the Act which was deleted by the CIT(A) by finding that the AO erred in making addition only upon the statement recorded of MD of assessee u/s. 133A by relying on the decision of CIT vs. S. Khader Khan Sons [2007 (7) TMI 182 - MADRAS HIGH COURT] wherein held that “a statement recorded u/s. 133A(3) of the Act does not have any evidentiary value and any admission made during such statement can’t be made the basis of addition“ which decision has been upheld by the Hon’ble Supreme Court reported [2013 (6) TMI 305 - SC ORDER] since assessee has shown turnover of Rs. 22,82,96,716/- and offered income of Rs. 3,77,13,008/- and has shown net profit @16.46%, the Ld CIT(A) was of the view that the net profit ratio @16.46% couldn’t have been achieved by the assessee unless it has included the stock difference of Rs. 1,01,77,956/- which finding is not perverse and is a plausible view. Moreover, the assessee’s books are found to be duly audited and the AO didn’t reject the books alleging any infirmity, therefore, the impugned action of the Ld.CIT(A), deleting the addition on account of difference in stock, is upheld - Decided in favour of assessee. The issues presented and considered in this case are as follows:1. Whether the deletion of additions made by the Assessing Officer on account of excess stock for the Assessment Year 2018-19 was justified.2. Whether the re-opening of the assessment by the Assessing Officer was valid.Detailed Analysis:Issue 1: Deletion of Additions on Account of Excess Stock- Relevant Legal Framework and Precedents: The Assessing Officer (AO) made additions on account of excess stock amounting to Rs. 1,01,77,956 for the Assessment Year 2018-19 under Section 69 of the Income Tax Act.- Court's Interpretation and Reasoning: The Appellate Tribunal noted that the difference in stock valuation was due to a software error where the closing stock was not updated in the 'Tally Accounting Software'. The Tribunal relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. S. Khader Khan Sons to emphasize that a statement recorded under section 133A does not have evidentiary value.- Key Evidence and Findings: The Tribunal considered the explanation provided by the assessee regarding the software error and the consistency in the opening stock values in the financial records.- Application of Law to Facts: The Tribunal found the explanation provided by the assessee to be plausible and accepted that the difference in stock valuation was due to a software issue, leading to the deletion of the additions made by the AO.- Conclusions: The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the addition on account of excess stock, concluding that the AO erred in relying solely on the statement recorded during the survey.Issue 2: Validity of Re-opening of Assessment- Relevant Legal Framework and Precedents: The AO re-opened the assessment under Section 147 of the Income Tax Act, citing the failure of the assessee to disclose additional income found during the survey.- Court's Interpretation and Reasoning: The Tribunal considered the explanation provided by the assessee that the excess stock had already been factored into the Return of Income filed on 30.09.2018. The Tribunal found that the re-opening of the assessment was not justified based on the facts presented.- Key Evidence and Findings: The Tribunal noted that the assessee had included the excess stock in the total income declared in the Return of Income, which was accepted by the department.- Application of Law to Facts: The Tribunal concluded that the re-opening of the assessment was unwarranted as the excess stock had already been disclosed by the assessee in the Return of Income.- Conclusions: The Tribunal dismissed the appeal filed by the Revenue, upholding the decision of the Commissioner of Income Tax (Appeals) to delete the addition on account of excess stock and finding the re-opening of the assessment to be unjustified.Significant Holdings:- The Tribunal upheld the deletion of additions made by the AO on account of excess stock, citing a software error as the reason for the difference in stock valuation.- The Tribunal found the re-opening of the assessment by the AO to be unwarranted, as the excess stock had already been disclosed by the assessee in the Return of Income.Overall, the Tribunal dismissed the appeal filed by the Revenue and the Cross-Objection filed by the assessee, affirming the decisions made by the Commissioner of Income Tax (Appeals) regarding the deletion of additions and the validity of the re-opening of the assessment.