The Income Tax Appellate Tribunal, Delhi, deleted the income tax addition sold based on the statements recorded without corroborative evidence of unaccounted sales.
The bench noted that the material first enters the plant and then as per store manpower availability gets unload the same day or in a couple of days. After the unloading, store in-charge verifies the same for weight and quantity measurements. After store approval, quality team inspects the material for quality. Thereafter, both the teams convey to the factory Accounts Department which tallies the quantity and quality with the suppliers bills. Various details in the bill such as GST number, name, computation, etc. are checked and verified. Finally, the bill is couriered or hand-delivered to Noida Head Office from Sikandrabad unit where all details are checked again and further it is checked by the Purchase Department and tallied with the order placed by the assessee.
The bench further noted that in case of any discrepancy, the bill approval and subsequent entry in the books is held up till the issue is resolved or the material is rejected. This entire process takes time, ranging from a couple of days up to a week depending on the case to case basis. Based on this process of updating the stock register, the material unloaded upto 24.03.2021 could not be entered into the books of account at Noida office because of the search & seizure activities being carried on during that period.
The tribunal stated that the finished goods and the raw material received were not part of the stock inventory as per books of accounts. At the time of issue for sale, the entry is passed in the stock account whereby the raw material is reduced as consumed and corresponding entry of finished goods produced is recorded with the simultaneous issue of finished goods against the sale invoice. This is the normal accounting practice of stock in any manufacturing unit.
It was observed by the tribunal that the Assessing Officer has straightaway picked up the total quantity of finished goods as on 24.03.2021 and added the same as unaccounted stock ignoring the fact of corresponding raw material being available in the books of accounts. The Assessing Officer has not disputed the details and reconciliation submitted by the assessee including the quantity analysis in this regard.
The tribunal further added that the addition made by the AO and sustained by the ld. CIT(A) are due to the misinterpretation of the accounting system of finished goods and solely based on the statements recorded without any corroborative evidence of unaccounted sales.
The bench held that nothing incriminating regarding any purchase or sales outside the books of accounts was found. Hence, the addition made on account of excess stock cannot be sustained.
Facts
A search was carried out at the premises of the assessee on 23.03.2021. During the course of the search, an inventory of the stock was prepared by the Authorized Officer on 24.03.2021. The said inventory is quoted by the AO in the Assessment Order at Pages 3 onwards. The AO determined the excess stock after comparing it with the books stock. While making the addition, the AO has also relied on the statement of Subhash Singh, General Manager of the company and Akshat Jain, Director of the company.
Case Information
Case Name: Mahavir Transmission Ltd. v/s DCIT
Judicial Level & Location : ITAT New Delhi
Case Number : ITA No. 2636/Del/2022
Date of Decision : 02/08/2024
Decision in favor of: Appellant
Judges: Dr. B. R. R. Kumar, Accountant Member and Sh. Sudhir Kumar, Judicial Member
