The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that no addition on account for sales suppression shall be made solely based on the abstract data by the Ministry of Textiles.
The assessee being a resident corporate is stated to be engaged in the manufacturing of cotton yarns. Upon perusal of the stock valuation as submitted by the assessee, the Assessing Officer observed that sales were made at Rs.150/- per Kg as against the fact that opening and closing stock was valued at Rs.195/- per Kg and Rs.214/- per Kg respectively.
The Assessing Officer held that the value of the finished goods was valued very less in sales. The assessee justified the same on the ground that some portion of the finished good contained Hank Yarn which is priced at a lower rate. However, no such proof could be adduced. In one of the sale bills, the yarn was sold for Rs.195/- per kg.
It was further observed that the price ranges from Rs.250 to Rs.222 per Kg for Hank Yarn and Rs.210 to Rs.184 per Kg for Cones and therefore, the sales were undervalued. Thus, the Assessing Officer adopted an average rate of Rs.184/- per Kg and applied the same to the quantity of finished goods sold, and computed alleged suppression of sales for Rs.176.65 Lacs and added the same to the income of the assessee.
The accounts are subjected to audit. No single instance of suppression of sales has been brought on record by the Assessing Officer and no discrepancies in the stock statement have been pointed out. There was no allegation that the assessee’s gross profits are not commensurate with earlier years or there is a substantial change in the same.
The Two-member bench comprising of Durga Rao (Judicial member) and Manoj Kumar Aggarwal (Accountant member) held that no such addition shall be made merely by relying upon abstract data as issued by the Ministry of Textiles. The sale price would depend upon multiple factors viz. quality as well as quantity. The average price computed by the Assessing Officer at Rs.150/- is completely erroneous. Therefore, this addition has no legs to stand. Thus, the same was deleted and the appeal of the assessee was allowed.
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