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October 15, 2022

ITAT removes the excessive stock addition that was based on an erroneous mathematical exercise

ITAT removes the excessive stock addition that was based on an erroneous mathematical exercise

Facts and Issues of the case

The assessee has taken 3 grounds of appeal, out of which peripheral arguments are being taken in Grounds No. 2 & 3, which do not call for recording any specific finding separately. The substantial grievance of the assessee has been raised in Ground No. 1, wherein it is pleaded that the ld. CIT( Appeals) has erred in confirming the addition of Rs.44, 06, 108/- on account of alleged difference in the stock found during the course of survey.

The facts of the case are that the assessee has filed its return of income on 29.09. 2013 disclosing total income of Rs.85,22, 230/-. The assessee at the relevant time was engaged in the business of retailer of H/L Cotton & Art Silk, hosiery & readymade garments under the name & style of M/ s. Priya Gopal Bishoyi Grandson. A survey under section 133A of the Income Tax Act was conducted at the business premises of the assessee on 11. 12. 2012. According to the facts emerging out from the assessment order, during the course of survey, the survey team computed the physical stock available in the store and worked out its valuation on the basis of ORIEL POS .

According to the Revenue, the assessee has been maintaining its accounts in Tally Software and when the stocks were matched by the Survey Team by taking figures from the accounts maintained and under Tally Software, vis-a-vis physical stock taken under ORIEL POS Software, then a huge difference was found. During the course of assessment proceeding, the assessee was asked for an explanation. The assessee thereafter submitted detailed submissions, which have been noticed by the ld. Assessing Officer. However, he did not accept the contention of the assessee and assigned five reasons, which are recorded on the assessment order.

The appeal to the ld. CIT( Appeals) did not bring any relief to the assessee. The ld. Counsel for the assessee while impugning the findings of both the authorities contended that basically revenue has compared two un- comparable systems and worked out the excess stock. He pointed out that ORIEL POS is a Software, under which Bar Code is being placed on each item and under this Software, the purchases and sales are tracked and cost specific identifiable inventory items can be worked out. He pointed out that had any one single system taken up by the Revenue, then no excess stock would have been worked out. For buttressing his contention, he took us through the accounts. He placed on record the accounts for A.Ys. 2011-12 to 2013- 14 and submitted that in A.Y. 2012- 13 an assessment order was passed under section 143( 3). The ld. Counsel for the assesssee drew our attention towards page no. 102 of the paper book where a detailed written submission was filed before the ld. Assessing Officer explaining the method of accounting.

Ld. Counsel for the assessee took us through page no. 36 of the paper book, where Trading and Profit & Loss Account for the year ended on 31st March, 2012 is available. He submitted that in these audited accounts, the stock as on 31.03. 2012 has been worked out at Rs.3, 39,87,692/- and this very figure is available in the table extracted supra. In other words, for the purpose of income tax, assessee has been accounting the stocks on the basis of ORIEL POS Software. This calculation is prior to the survey carried out on the premises of the assessee, i.e. survey was conducted on 11.12.2012 and this statement is of 31st March, 2012. This exhibits that assessee has been computing its income for the purpose of income tax on the basis of ORIEL POS Software. The ld. Counsel for the assessee pointed out as to how this discrepancy results into two different figures of income. We have already extracted those comparative studies in the apart of this order. On the strength of all these details, he pointed out that the stock has been calculated at Rs.3, 76,75,180/- on the date of survey on the basis of Tally Software, whereas value of physical stock has been taken at Rs.4, 20,81,288/- on the basis of ORIEL POS Software and i f an exercise is being taken on such different method of Software, then some discrepancy bound to happen.

On the other hand, ld. D. R. relied upon the orders of ld. Assessing Officer as well as of ld. CIT(Appeals). He submitted that this aspect was not brought to the notice of revenue at the time of survey. It is not ascertainable whether income is being offered on the basis of the calculation made as per ORIEL POS Software.

Observation by the court

On due consideration of the above facts and circumstances, the court  find that Revenue has erred in comparing two accounting statements, which are un-comparable to each other because Revenue has taken book stock on the basis of Tally Software, whereas physical stock on the basis of ORIEL Software. It is also observed that ld. Assessing Officer failed to appreciate the explanation of the assessee in right perspective. The assessee with the help of audited accounts explained to the ld. Assessing Officer that taxable income is being computed on the basis of ORIEL POS Software details. During the course of hearing, this fact has been demonstrated before us from the audited accounts. For Financial Year 2011- 12, i.e. Assessment Year 2012- 13, the assessee has shown Closing Stock at Rs. 3,39, 87,692/-, whereas as per Tally Software, this Closing Stock was of Rs. 2,33,48, 269/-. In the Audited Accounts for A.Y. 2012- 13, which is prior to the date of survey, Closing Stock has been shown equivalent to the amount declared in ORIEL Software. The ld. Counsel for the assessee took through all these details available in the paper book.

Thus the court  are satisfied that excess stock has been worked out by the ld. Assessing Officer on the basis of an erroneous mathematical exercise. This stock has been worked out not on account of particular items, rather on account of valuation difference, which has been worked out by appreciating two different Softwares for the purpose of book stock, vis-a-vis actual stock and i f some exercise is being carried out in this manner, then difference is bound to happen. The ld. Assessing Officer failed to appreciate this aspect during the assessment proceedings, when it was duly explained by the assessee. The court  have made reference to Closing Stock for A.Y. 2012- 13 simply for the reason that these details are not being put up before us as a consequence to the survey, rather these details were put up before the Revenue prior to the survey. Therefore, in our opinion, addition is not sustainable. The court allow this ground of appeal and delete the addition of Rs. 44, 06, 108/- made to the income of the assessee on account of unexplained excess stock.


The appeal of the assesse is allowed by the court.


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