Commissioner of Income Tax vs Sandeep Agencies

D.A. Mehta, J.—The Appellant revenue has proposed three questions in the appeal filed u/s 260A of the Income Tax Act, 1961 (the Act):

(A) Whether the Appellate Tribunal is right in law and on facts in confirming the order of the Commissioner (Appeals) in deleting the addition of Rs. 34,38,697/- made on account of excess stock worked out on accounting method in absence of stock register ?

(B) Whether the Appellate Tribunal is empowered to ignore the fact that excess stock of Rs. 34,38,697/- was found on the date of search ?

(C) Whether the Appellate Tribunal is empowered to ignore the method of determination /calculation of stock as per books of accounts as adopted by the assessing officer on the basis of principles of accountancy ?

The assessment period is block commencing from 1.4.1989 to 1.11.1999. In the assessment framed on 29.11.2001 u/s 158BC of the Act, the assessing officer made an addition of Rs. 34,38,697/- stated to be undisclosed stock. The said addition came to be deleted by Commissioner (Appeals). Revenue carried the matter in appeal before the Tribunal but did not succeed.

Learned Advocate appearing for the Appellant submitted that the Tribunal while holding that assessing officer had not followed the correct method for making the addition did not suggest any correct method. That in fact, the working adopted by assessing officer was on the basis of principles of accountancy. That in the circumstances, the questions as proposed or any other suitable question may be formulated by the High Court after admitting the appeal.

The undisputed facts are that on 1.11.1999 proceedings u/s 132 of the Act took place at the business premises of the Assessee Firm, who is carrying on trading activity in educational books published by Navneet Publications (I) Limited. On the date of search, the officers worked out the value of the stock at Rs. 1.01 crores. Subsequently in the course of assessment proceedings, the assessing officer did not accept the closing stock shown by the Assessee at Rs. 28,60,787/- and substituted the same by figure of Rs. 62,95,394/-, thus resulting in addition of Rs. 34,38,697/-.

Both Commissioner (Appeals) and the Tribunal have accepted that the basis of recording stock in the Books of Account has duly been accepted by revenue in all the earlier assessment years as well as for subsequent assessment years, i.e. subsequent to the date of search. It has also been found as a matter of fact that, the Assessee Firm is not maintaining any stock register from the very beginning of the business. In the course of search proceedings or during course of the block assessment proceedings, no defects have been found either in the purchases or sales recorded in the Books of Account. The opening stock recorded in the Books of Account has not been disputed by the assessing officer. It has also been found as a matter of fact, that no document or any other incriminating material has been found during course of search proceedings suggesting either unaccounted purchases or sales. In fact, as can be seen from the assessment order itself, the assessing officer accepted in no uncertain terms, after random verification of purchase bills, that the stock shown was correct.

In the circumstances, Commissioner (Appeals), and the Tribunal were justified in deleting the addition which was made by the assessing officer on the basis of adopting average gross profit rate for three years and working out the closing stock based on such average gross profit rate. Once the quantity of closing stock had not been disputed in absence of any document to indicate actual variation in quantity found during course of search, it was not open to the revenue to estimate the closing stock only on the basis of adopting a different value while accepting quantity of the closing stock as recorded in the Books of Account. It is not even the case of revenue that at the time of search any discrepancy in quantity of stock was found. Thus there is no basis to make an addition only by tinkering with the value of the closing stock, without establishing that the closing stock was not valued as per accepted method/principles of accounting.

In the circumstances, in absence of any error in law committed by the Tribunal the appeal is not required to be admitted in absence of any substantial question of law. The appeal is accordingly dismissed.