DCIT Vs Damodardas Mohanlal Chokshi (ITAT Ahmedabad)
Conclusion: CIT (A) was right in its decision to delete the addition of Rs. 2.92 crore made by AO under Section 69B for alleged undervaluation of closing stock as the books of accounts was not rejected, therefore, the observation of AO that the same were not reliable.
Held: Appellant had appealed against the order for Assessment Year 2017-18 passed by CIT(A). In this case, respondent-assessee, filed a return declaring income of Rs. 7,95,73,300/-. The return was processed under Section 143(1) and selected for scrutiny. A notice under Section 143(2) was issued followed by another notice with a questionnaire. A survey under Section 133A was conducted. AO noted discrepancies, including demonetized cash deposits in several bank accounts. AO also 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. Assessee appealed to CIT(A) against the assessment, and CIT(A) partly allowed the appeal. On appeal. It was held that CIT(A) had categorically mentioned that AO had not disputed corresponding purchases / manufacturing stocks made by assessee before sale and had not disputed quantum of closing stock. The entire sales had been made out of available stock with assessee and sufficient stock was available with assessee. Assessee further submitted that there was a free stock as mentioned by Revenue was not justifiable and thus, CIT(A) had rightly deleted the said addition. Moreover, AO had noted assessee 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. AO while estimating the business income as against the expenditure as shown Audited Annual Accounts had not taken into account the purchases and other direct expenses corresponding to sales of Rs. 12,83,75,566/-. The undervaluation of closing stock could not be justifiable when the books of accounts was not rejected but only the observation of AO that the same were not reliable. AO contracted himself as at one point accepted the books of accounts in respect of addition of Rs. 12,83,75,566/-. Thus, the plea of Revenue that there was a free stock undervaluation was not justifiable.
