No Discrepancy Found in Quantitative Stock Quantity for Valuation: ITAT Deletes Addition, Upholds Consistent Valuation Method [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) deleted an addition of ₹95,07,903 made on account of alleged excess stock valuation for the Assessment Year (A.Y.) 2021-22 and ruled that there was no discrepancy in the quantity of stock found during the search and the stock recorded in the books.

Silver & Arts Palace (assessee), a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile, and handicraft items. A search action under Section 132 of the Income Tax Act was carried out on the assessee's premises on January 19, 2021. The Assessing Officer (AO) initially made a massive addition of ₹32,55,85,384/- for excess stock.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) deleted a major portion and restricted the addition to ₹95,07,903.

This sustained addition represented the difference in the valuation of stock, which arose because the lower authorities valued the stock at market price, whereas the assessee consistently followed the method of "lower of cost or market rate". Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench, comprising Dr. S. Seethalakshmi (Judicial Member) and Gagan Goyal (Accountant Member), noted that both the AO and the CIT(A) acknowledged that there was practically no discrepancy in the quantity of stock found during the search and the quantity recorded in the assessee's physical stock control sheet.

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The tribunal observed that the minor difference of 100.552 grams in a total stock of 5,08,573.380 grams was considered negligible (0.02% of total stock) and was ignored.

The tribunal observed that the CIT(A) had admitted that the assessee was consistently following the method of valuation at "lower of cost or market price," which is a regular and consistent method that cannot be discarded by the AO.

The Tribunal held that when there was no difference in the quantity of stock, and the difference was purely one of valuation, adopting a different valuation method was not valid. The tribunal held that the addition was deemed a notional addition on account of mere valuation, which was outside the scope of Section 69B of the Act.

The tribunal relied on precedents, including its own Jaipur Bench decision in Amrapali Jewels Pvt. Ltd. vs. ACIT, which upheld the deletion of an addition where the discrepancy was only in valuation and not quantity. The Tribunal deleted the entire addition of ₹95,07,903. In the result, the appeal filed by the assessee was allowed.

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