Loading judgment…
Facts
A survey conducted on the assessee's poultry business revealed a stock difference of Rs. 1,01,77,956/-. The assessee's Managing Director initially offered Rs. 80 lakhs during the survey but later explained the discrepancy as an inadvertent software error and stated that the full amount had already been factored into the returned income for AY 2018-19. The Assessing Officer re-opened the assessment and made an addition under Section 69, which the Ld. CIT(A) deleted.
Held
The Tribunal upheld the Ld. CIT(A)'s decision to delete the addition, noting that a statement recorded under Section 133A has no evidentiary value for making an addition, as per Supreme Court precedent. The Tribunal found the assessee's explanation regarding the software non-integration plausible and also observed that the assessee's net profit ratio for the year indicated the inclusion of the stock difference in its returned income. Consequently, no further addition was warranted.
Key Issues
Whether an addition for stock difference found during a survey can be made solely based on a statement recorded under Section 133A, and whether the assessee's explanation for the discrepancy due to a software error and its inclusion in the returned income is valid.
Sections Cited
133A, 147, 148, 69
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the Revenue and Cross-Objection filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter in short "the Ld.CIT(A)”), Chennai-19, dated 12.07.2024 for the Assessment Year (hereinafter in short "AY”)
2018-19.
At the outset, the Ld. Counsel for the assessee submitted that there is a delay of ‘42’ days in filing of Cross-Objection and pointed out the cause for the delay and pleaded that since the assessee was prevented by sufficient cause, delay may be condoned which reasons/cause, the Ld.DR couldn’t contradict. Hence, we condone the delay of ‘42’ days and proceed to admit the Cross-Objection also for adjudication.
The main grievance of the Revenue is against the action of the Ld.CIT(A) deleting the additions made by the AO on account of excess stock of Rs.1,01,77,956/- for AY 2018-19.
The brief facts are that the assessee company had filed its return of income (RoI) for AY 2018-19 on 30.09.2018 admitting total income at Rs.3,77,13,008/-. The AO had resorted to re-opening of the assessment for AY 2018-19, taking note of the survey which was conducted on 13.02.2018 in the premise of the assessee [which is into the business of poultry farm i.e. Eggs, chicks and birds and various items of poultry feed]. The AO noted that during the course of survey, survey team took physical stock as [on the date of survey] and found the value of the stock was at Rs.3,14,73,874/- whereas assessee’s book reflected stock as on 31.01.2018 to be at Rs.2,12,95,918/-. Therefore, the assessee was requested to explain the difference of Rs.1,01,77,956/- and the assessee in his statement recorded u/s.133A of the Act explained that the difference in stock valuation might be because the physical stock has been valued by survey team at higher selling price rather than at lower cost price. But, he offered Rs.80 lakhs on account of difference in stock at the time of search. Thereafter, the assessee had filed the RoI on 30.09.2018 admitting total income at Rs.3,77,13,008/- [which RoI was not picked up for scrutiny].
Thereafter, the AO re-opened the assessment u/s.147 of the Act by issuing the impugned notice u/s.148 of the Act on 06.01.2021 [approximately after three years] and pursuant to the notice, the assessee reiterated the returned income Rs.3,77,13,008/- and the AO after issuing statutory notices asked the assessee ‘as to why’ the difference in stock of Rs.1,01,77,956/- should not be brought to tax, for which, the assessee replied/explained vide letter dated 18.11.2021 [reproduced by the AO at Page No.3 of the assessment order] the reason for stock difference inter-alia was due to in-advertent, non-integration of the books of accounts of the assessee maintained in ‘Tally Accounting Software’ with the stock books which resulted in the ‘Tally Accounting Software’ taking the value of the opening stock as the value of the closing stock by default. And in this regard, pointed out to the AO that since the value of the closing stock (as on 31.03.2017) was not updated in ‘Tally Accounting Software’ as on the date of survey (13.02.2018), the computerizing books maintained in Tally Software still showed closing- stock on date of survey as that on 31.03.2017, [which is the opening stock as on 01.04.2017]. In order to support the aforesaid submissions, the assessee brought to the notice of the AO that as per the P&L A/c filed along with the RoI for AY 2018-19, the opening stock as on 01.04.2017 is shown to be Rs.2,12,95,918/- and this sum/vaue by default is adopted by the ‘Tally Accounting Software’ as the closing stock as on 31.01.2018, which value of stock has been taken note by the survey team to arrive at the stock difference of Rs.1,07,77,956; and thus, the assessee explained that there was no unaccounted stock that had been found to have been unearthed during the survey and alleged difference was due to the aforesaid software problem and assessee was under bona fide mistake of fact, when his statement was recorded at the time of survey; and to prove his contention, assessee filed along with the reply copy of Form 3CA & 3CD along with the audited financials relevant for AY 2018-19. The AO after going through the copies of the day-book, ledger, balance sheet and P&L A/c, bank statement Form 26AS, RoI, audited financials, Tax Audit Report and bills & vouchers for the Revenue expenditure and ledger accounts of purchase and sales, made a finding of fact that other than stock difference of excess stock found by the survey team, there was no infirmity with books maintained by the assessee [refer Page Nos.9-10 of assessment order]. Thereafter, the AO reproduced the statement recorded u/s.133A of the Act, wherein, assessee’s Managing Director had offered Rs.80 lakhs while explaining the difference of Rs.1,01,77,956/- and thereafter, he noted that the assessee didn’t honor his commitment by offering Rs.80 lakhs admitted during the survey proceedings, and didn’t accept the assessee’s explanation about the difference in stock as due to non-integration of the software (supra), because, the software itself can’t make any entry meaning somebody from the assessee’s Office had to enter the stock value, etc., and thereafter, he made an addition of Rs.1,01,77,956/- u/s.69 of the Act by order dated 07.03.2022.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to delete the same on merits.
Aggrieved, the Revenue is before us by preferring this appeal and the assessee has filed Cross-Objection supporting the order of the Ld.CIT(A) as well as raised a legal issue assailing the re-opening of assessment. However, we are inclined to first examine the deletion of the addition made by the Ld.CIT(A) on merits.
We have heard both the parties and perused the material available on record. We note that the assessee is into the business of running of poultry farm and its inventory includes raw materials, viz., eggs, chicks and birds and various items of poultry feed. The assessee was surveyed on 13.02.2018 u/s.133A of the Act, wherein physical stock of the inventory was taken and it was found that the total value of the stock was at Rs.3,14,73,874/- whereas the stock as per the books of accounts maintained by the assessee in ‘Tally Accounting Software’ as on 31.01.2018 was found to be Rs.2,12,95,918/-. Thus, survey team asked the assessee to explain the difference of Rs.1,01,77,956/- and the assessee’s Managing director pointed out that the survey team has valued stock at selling price whereas the stock should be valued at stock or cost, whichever is lower and having said so, he offered Rs.80 lakhs on account of the difference in stock as additional income. Thereafter, the assessee filed RoI on 30.09.2018 admitting total income at Rs.3,77,13,008/- which was accepted by the department. After an interval of three years, the AO had issued notice u/s.148 of the Act on 06.01.2021 conveying his desire to re-open the assessment on the ground that the assessee didn’t offer additional income found during the survey (difference in stock). The assessee explained/pointed out that while filing RoI on 30.09.2018, the assessee has factored in the excess stock of Rs.1,01,77,956/- and also brought to the notice of the AO that the books of accounts was maintained by assessee in ‘Tally Accounting Software’ and since, the stock book were not integrated with the financial records resulted in the ‘Tally Accounting Software’ taking the value of the opening stock as the value of the closing stock (as on 31.03.2017) by default and since the value of closing stock was not updated in the ‘Tally Accounting Software’ as on the date of survey the difference in stock valuation happened on the date of survey. In order to buttress this fact, the assessee drew our attention to its opening stock shown in the P&L A/c as on 01.04.2017 which reflects Rs.2,12,95,918/- which was the same value adopted by the software as closing stock as on 31.01.2018 by default by the ‘Tally Accounting Software’ which closing stock has been taken note by the survey team as on date of survey on 13.02.2018 i.e. Rs.2,12,95,918/- i.e.
closing stock as on 31.01.2018; and after physical stock where it was found to be Rs.3,14,73,874/-, the survey team alleged the difference in stock as Rs.1,01,77,956/- [Rs.3,14,73,874/- minus Rs.2,12,95,918/-].
Thus, according to the assessee, due to this inadvertent omission to integrate the software, the difference in stock happened and hence, urged that it was wrong to allege that assessee didn’t disclose the correct stock in its ‘Tally stock register’; and moreover, having factored the alleged difference in the stock while computing the total income in its RoI, the assessee has offered the excess stock, therefore, in any case, no addition was warranted. However, the AO took note of the statement of the Managing Director of the assessee recorded u/s.133A of the Act wherein assessee offered Rs.80 lakhs as additional income, the AO was of the view that assessee ought to have kept his word/offer given during survey and rejected the explanation of the assessee about non-integration of software as well as defense of bonafide mistake of fact which led him to make offer during survey; and made the addition of Rs.1,01,77,956/- u/s.69 of the Act which was deleted by the Ld.CIT(A) by finding that the AO erred in making addition only upon the statement recorded of MD of assesse u/s.133A of the Act by relying on the decision of the Hon’ble Madras High Court in the case of CIT vs. S. Khader Khan Sons reported in (2008) 300 ITR 157 (Mad) wherein the Hon’ble High Court held that “a statement recorded u/s.133A(3) of the Act does not have any evidentiary value and any admission made during such statement can’t be made the basis of addition“ which decision has been upheld by the Hon’ble Supreme Court reported in [2012] 352 ITR 480 (SC). The Ld.CIT(A) also found substance in the assertion of the assessee that the closing stock shown in its book maintained in the ‘Tally Accounting Software’ as on 31.01.2018 taken note by the survey team was nothing but opening stock reported by the assessee in its books of accounts as on 01.04.2017 [i.e. Rs.2,12,95,918/-] which was the same figure which was reflected on 31.01.2018; and therefore, the survey team found difference of stock. We note that the assessee had shown closing stock as on 31.03.2017 [AY 2017-18] at Rs.2,12,95,918/- which is the opening stock as on 01.04.2017, and the survey team has taken note of the closing stock as on 31.01.2018 at the same figure i.e. Rs.2,12,95,918/- which corroborates the assessee’s assertion that stock book was not integrated with the software-Tally and as a result, ‘Tally Accounting Software’ erroneously by default adopted the value of opening stock as on 01.04.2017 at Rs.2,12,95,918/-, as the value of closing stock as on 31.01.2018. This explanation of the assessee has been accepted by the Ld.CIT(A) which is a plausible explanation and we don’t find any infirmity in the action of the Ld.CIT(A).
Thereafter, the Ld.CIT(A) has also noted from perusal of the earlier five (5) years financials of assessee that the average net profit ratio shown for the last five years, [which was depicted in the form of chart in the impugned order] was @6.40%, whereas, in the relevant year under consideration, assessee has shown net profit @16.46% which according to him, goes on to show that it included the stock difference of Rs.1,01,77,956/-. And, since assessee has shown turnover of Rs.22,82,96,716/- and offered income of Rs.3,77,13,008/- and has shown net profit @16.46%, the Ld CIT(A) was of the view that the net profit ratio @16.46% couldn’t have been achieved by the assessee unless it has included the stock difference of Rs.1,01,77,956/- which finding is not perverse and is a plausible view. Moreover, the assessee’s books are found to be duly audited and the AO didn’t reject the books alleging any infirmity, therefore, the impugned action of the Ld.CIT(A), deleting the addition on account of difference in stock, is upheld for the foregoing reasons discussed supra. Therefore, we dismiss the appeal of the Revenue.
Cross-Objection filed by the assessee become infructuous since assessee succeeded on merits itself and the legal issue raised is left open.
In the result, appeal filed by the Revenue as well as Cross-Objection filed by the assessee are dismissed.
Order pronounced on the 05th day of February, 2025, in Chennai.