2025 (2) TMI 1029 - AT - Income Tax

Unexplained stock differences under 10% deleted as estimation error, 10% expense disallowance removed without evidence

The ITAT Delhi allowed the assessee's appeal, deleting additions made for unexplained stock differences. The tribunal held that no addition could be made ... Unexplained stock - Difference between the stock submitted to bank and the stock found during the course of the survey - Addition on account of difference between the physical stock and the stock position submitted to the bank, which were held as unexplained stock - HELD THAT:- Hon’ble Gujarat High Court in the case of Avi Polymers Limited [2016 (7) TMI 965 - GUJARAT HIGH COURT] also held that no addition could be made on account of difference between the stocks as per the books and the stocks statements submitted to the bank. Therefore, we are of the view that, for computing the stocks position as per the books of accounts as on the date of survey, the AO should have taken into consideration the stocks as per the books of accounts as on 31.01.2015, as against the stocks as per the statement submitted before the bank. Value of the stock - Physical valuation is reduced, and difference which is less than 10% of the stock physically found and valued by survey authorities. This difference could be for the reason that the valuation at the time of survey was based on an estimate value stated / informed by the assessee without referring to the bills and vouchers, in this regard. Therefore, such difference is nothing but due to such estimation.We find that the stock of the assessee as on the date of survey was in parity with the stock physically found and, therefore, no addition is required to be made, and accordingly, the assessee will get the relief. Disallowance made on account of various expenses @ 10% for possible personal purposes - CIT(A) concurred with the findings of the AO without going into the merits. After going through the orders of the lower authorities, we find that no single instant of personal use were pointed out by the AO and only on whims and fancies, the disallowance were made. No disallowance can be made in the present case of the assessee, more particularly, when there was a survey carried out in the case of the assessee, and revenue has failed to bring any evidence of personal use gathered as a result of survey. As the result, ground of assessee’s appeal is allowed. The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) in relation to various grounds of appeal. The key issues considered in the judgment were:1. Valuation of Stock:The primary issue revolved around the addition of Rs. 43,88,755 made by the Assessing Officer due to the difference between the physical stock and the stock valuation submitted to the bank. The Assessee argued that the stock valuation submitted to the bank was inflated to avail larger bank limits and that the stock valuation as per the books of account should be considered. The Assessee relied on judgments from the Delhi High Court and Gujarat High Court to support their case. The Tribunal found that the addition made by the AO solely based on the stock valuation submitted to the bank was incorrect. The Tribunal held that the stock valuation as per the books of account should have been considered, and no addition could be made based on the difference between the stock as per the books and the stock statements submitted to the bank. Consequently, the Tribunal allowed the Assessee's appeal on this ground.2. Disallowance of Expenses:Another issue addressed in the judgment was the disallowance of Rs. 2,63,163 made on account of various expenses at 10% for possible personal purposes. The AO and the CIT(A) had presumed the possibility of utilizing these expenses for personal purposes without concrete evidence. The Tribunal found that no instances of personal use were pointed out by the AO and that the disallowance was made without proper basis. The Tribunal held that no disallowance could be justified without evidence of personal use, especially when a survey was conducted, and no evidence of personal use was presented by the revenue. Consequently, the Tribunal allowed the Assessee's appeal on this ground as well.In conclusion, the Tribunal allowed the Assessee's appeal on both grounds, ruling in favor of the Assessee in relation to the valuation of stock and the disallowance of expenses. The judgment emphasized the importance of considering the stock valuation as per the books of account and the necessity of concrete evidence to support disallowances of expenses.