The New Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the excess stock addition made by the assessing officer due to the misinterpretation of the accounting system of finished goods and unsubstantiated evidence of sales.
On 23.03.2021, the assessing officer searched the premises of the assessee-company, Mahavir Transmission Ltd. During the search, the AO determined the excess stock after comparing it with the books stock and made additions solely based on the statement of the General Manager and Director of the company.
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The assessee appealed before the Commissioner of Income Tax (Appeals) against the AO’s order. The CIT(A) affirmed that the recorded statement cannot be ignored and upheld AO’s decision.
The assessee appealed against the CIT(A) order before the ITAT, New Delhi. The assessee’s legal representatives Ved Jain, Adv. and Supriya Mehta, CA argued that the assessing officer did not examine the submissions made by the assessee and made additions solely based on the statement recorded during the search ignoring the factual material on record. The revenue’s legal representative Subhra J. Chakraborty supported the orders of the authorities.
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The two-member bench comprising B.R.R. Kumar (Accountant Member) and Sudhir Kumar (Judicial Member) observed that the assessing officer made an addition solely based on the statement given by the personnel who were not directly involved in day-to-day stock management and without any corroborative evidence of unaccounted sales.
The tribunal noted that the assessing officer included the entire quantity of finished goods as unaccounted stock without considering the corresponding raw material recorded in the books of accounts. The tribunal further noted that the AO did not dispute the details and reconciliation submitted by the assessee including quantity analysis in this regard.
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In the tribunal’s observation, the AO’s additions are due to the misinterpretation of the accounting system of finished goods and solely based on the statements recorded without any corroborative evidence of unaccounted sales. No evidence of any questionable transactions outside the recorded accounts was discovered. Thus, the excess stock addition cannot be sustained. The assessee’s appeal was allowed accordingly.
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