The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that an addition under head of undisclosed stock can’t be made based on incomplete tally data from discrepancies.
A survey action under section 133A of the Act was carried out in the case of the assessee and M/s. Nickunj EDM Wires and Consumables P. Ltd on 16.11.2017. Statement of Shri Vithal Gopal Patil was recorded u/s 133A of the Act on 16.11.2017. During the course of the survey, details of the stock of raw materials and finished goods and tally data extracted from the stock register were provided.
The Assessing stated that there is a huge discrepancy in stock and the closing balance maintained in the computer accounting system as against the actual calculation of the closing balance. The Assessing Officer was of the view that the value of the closing balance has to be calculated by applying the formula; opening balance + purchases -sales. He concluded that the assessee has not been able to explain the discrepancy in stock. The CIT (A)upheld the order of AO.
It was contended by the assessee that the survey team has not found any discrepancy in the physical quantity of stock. It was pointed out that the entire business of the addition of Rs. 10,58,30,961/- is based on data from 01.04.16 to 31.03.17 i.e. AY 2017-18. The AO also stated that data for the period from 01.04.16 to 31.03.17, the so-called alleged discrepancy in the stock does not pertain to the year under consideration, therefore no addition can be made in the current year u/s 69 of the Act.
A Coram comprising of Shri Amit Shukla, JM & Shri S Rifaur Rahman,AM observed that there is an inherent discrepancy, for example, there are instances where purchases have not been entered and yet there is a discrepancy in opening and closing balance and there is no reconciliation of inward or outward, opening and closing balance.
There are certain other entries where the closing balance is the same as the opening balance despite there having been outward which shows that the tally data was not at all reliable and AO should have been verified or asked the assessee to reconcile from the actual books of accounts or physical stocks.
The AO has made the addition of Rs. 10,58,30,961/- which he has noted that it pertains to the period 01.04.16 to 31.03.17. Even if the same tally data is considered to be the premise for an addition made by AO, then the addition of Rs. 10,58,30,961/- could not have been added u/s 69 as the same did not pertain to AY 2018-19. The Tribunal directed to delete the addition.
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