Addition on account of undisclosed stock/ production is not justified where no physical discrepancy was found/detected by the survey team and excess value of stock was merely because of difference in valuation of closing stock.
Accounts Difference in valuation of stock A survey u/s 133A was carried out Stock of the firm was valued by assessee approximately at Rs. 1,20,00,000/- and same was valued by Survey team at Rs. 1,70,02,024/-, difference in two valuations was considered as alleged excess stock by survey team Excess stock was worked out by taking margin and no inventory was taken Difference in value of stock was surrendered for taxation by assessee Survey team visited both, factory and head office Statement on oath was recorded in factory of Sh. R, Production Manager and Sh. S, partner of firm at head office Survey team inspected books of accounts including stock register and excise records During scrutiny assessment, AO noted that assessee had set off brought forward losses of AYs 2004-05 and 2005-06 AO computed net taxable income after setting off brought forward losses Thereafter, assessee moved an application u/s 154 on account of brought forward losses Accordingly, SCN u/s 145(3) was issued to assessee AO considered debit entries to arrive at Rs. 77,00,000/- advance and amount received back from time to time was not considered as per assessee Calculation of interest on daily outstanding balance at 12% payable by AO TDS on rent for factory was deducted u/s 194I and paid into Government treasury Books of accounts with voucher and stock register etc. were produced for examination of AO AO completed assessment after making additions to assessee’s incomeCIT(A) granted partial relief to assessee Held, no physical discrepancy was detected by survey team and excess value of stock was merely because of difference in valuation of closing stock Survey team took valuation applying MRP- GP% whereas as per assessee, since as per normal trade practice sales were generally made after giving discounts @ 30% to 60%, stock was valued at MRP-Discounts-GP% This discrepancy in valuation method was duly elucidated before AO by assessee Statement showing valuation of closing stock at actual sale price supported by relevant invoices to prove assessee’s claim of overvaluation of stock by survey team Per unit consumption of inputs say, raw material, electricity, diesel etc was directly proportional to no. of cores in wire i.e. as no. of cores increases per unit consumption of input increases A six core cable was nearly equal to six single core cablesAssessee demonstrated conversion of 5 variety of multiple core wire, which constituted 91% of total production by assessee, into single core wires which shows that production in meters per unit of electricity consumed had increased in subject year through a table before AO Assessee also showed comparative chart in respect of production of multiple core cable had increased in subject year as compared to PYs and also demonstrated total production of wires in meters, if same was converted to single core wires further substantiating assessee’s claim that per unit production had increased in subject year to AO Revenue’s ground dismissed.
ASSISTANT COMMISSIONER OF INCOME TAX vs. NATIONAL CABLE INDUSTRIES
(2019) 57 CCH 0104 DelTrib