The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]’s decision to delete the addition of Rs. 2.92 crore made by the Assessing Officer (AO) under Section 69B of Income Tax Act,1961 for alleged undervaluation of closing stock.
The revenue-appellant, appealed against the order dated 12.05.2023 for Assessment Year 2017-18 passed by the CIT(A).In this case,Damodardas Mohanlal Chokshi,respondent-assessee, filed a return declaring income of Rs. 7,95,73,300/- on 16.10.2017. The return was processed under Section 143(1) and selected for scrutiny. A notice under Section 143(2) was issued on 11.09.2018, followed by another notice with a questionnaire on 04.09.2019.
A survey under Section 133A was conducted on 20.12.2016. The AO noted discrepancies, including demonetized cash deposits in several bank accounts. The statement of Shri Piyush Choksi, a partner, was recorded during the survey.
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The AO found a stock discrepancy of Rs. 26,77,800/- and added it to the income. He also added Rs. 12,83,75,566/- as unexplained cash credits under Section 68 and Rs. 2,92,90,122/- for incorrect valuation under Section 69B of the Act.
The assessee appealed to the CIT(A) against the assessment, and the CIT(A) partly allowed the appeal.
The Departmental Representative(DR) claimed the CIT(A) erred in deleting the Rs. 2,92,90,122/- addition under Section 69B for undervaluation of closing stock. The Assessing Officer had noted the appellant lacked a basis for valuing the free stock and the earning stock at Rs. 940 per gram, contrary to Institute of Chartered Accountants of India (ICAI)’s Accounting Standard-2. The DR supported the AO’s decision.
The two member bench comprising Suchitra Kamble (Judicial Member) and Makarand V.Mahadeokar(Accountant Member) reviewed the relevant material and found that the AO did not account for purchases and direct expenses corresponding to sales of Rs. 12,83,75,566/-. The undervaluation of closing stock was unjustified, as the books of accounts were not rejected but deemed unreliable. The AO had contradicted himself by accepting the books for the addition of Rs. 12,83,75,566/-.
In short,the appeal filed by the Revenue was dismissed.
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