Closing Stock Addition Deleted for Wrongly Deducting Sales Value: ITAT Delhi

Blackrock Securities Private Limited Vs DCIT (ITAT Delhi)

Sales Value Cannot Be Subtracted From Stock At Cost—Delhi ITAT Deletes “Suppressed Closing Stock” Addition

Summary: The Delhi Bench of the Income-tax Appellate Tribunal has deleted an addition made for alleged suppression of closing stock after finding that the Assessing Officer had committed a fundamental accounting error by subtracting the sales value of shares from the opening stock and purchases recorded at cost. The Tribunal held that the Assessing Officer failed to account for the profit or loss embedded in the sales figure. It also deleted a disallowance under section 14A because the assessee had not earned any exempt income during the year.

Facts of the case

The assessee was engaged in trading in shares and securities. For AY 2018-19, it filed its return on 7 October 2018 declaring nil income after reporting a current-year loss of ₹20,66,694.

The case was selected for compulsory scrutiny. During the assessment proceedings, the Assessing Officer examined the purchase and sales ledgers and noticed the following figures:

• Opening stock of shares: ₹92,23,701;
• Purchases during the year: ₹12,91,194;
• Sales during the year: ₹53,12,935; and
• Closing stock declared by the assessee: ₹36,02,141.

The Assessing Officer added the opening stock and purchases, arriving at total available stock of ₹1,05,14,895. From this amount, he deducted the sales figure of ₹53,12,935 and concluded that the closing stock should have been ₹52,01,960.