DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), VADODARA vs. M/S ADITYA FORGE LIMITED, VADODARA

The quantity of closing stock was noted by the AO to be reported less by 13515 units from the details of stock furnished in the tax audit report of the assessee. The AO noted therefrom that while the assessee had shown opening stock of finished products to be 15227 in numbers, no purchases made during the year, quantity manufactured to be 15227, sales made to be 1628, he found the assessee to have shown closing stock 15311 numbers. Based on the figures so reported, as per the AO the closing stock quantity was 28826 numbers and not 15311 shown by the assessee and accordingly found the assessee to have short reported quantity of stock by 13515 units.

Before the Ld.CIT(A) the assessee, we have noted explained the o discrepancy in the quantity of closing stock to have occurred due to typographical error of having mentioned the figure of opening stock again as stock manufactured during the year. He submitted the actual quantity of stock manufactured, duly supported with excise records, and demonstrated that there was no discrepancy in the closing stock reported by the assessee. The Ld.CIT(A) after considering the contentions of the assessee found the same to be correct. And held so at para 10.3-10.4 of his order as under:

The Ld.CIT(A), we find, has found as a matter of fact the reporting of units manufactured to be an incorrect and a typographical error of repeating the figure of opening stock of 15227 units against the units manufactured. He found the assesse to have supported his contention of having actually manufactured only 1712 units with documentary evidences, i.e. excise records, ledger of purchase of raw material etc. Accordingly, he rejected AO’s finding of the assessee having more than the stock reported in its tax audit report.

The Ld.DR, except for relying on the order of the AO had nothing more to state to support the addition made by the AO. He [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 5 – was unable to dislodge in any way the factual findings of the Ld.CIT(A) of the quantity of units manufactured being wrongly reported in the tax audit report and being a typographical error of repeating the opening stock quantity as also the fact of assessee having manufactured only 1712 units, resulting in no shortage in quantity of closing stock.

We see no reason therefore to disagree with the Ld.CIT(A)’s finding that there was no short reporting of quantity of closing stock by the assessee. The assessee admittedly had furnished the correct quantitative tally of stock, pointing out that it was on account of wrong reporting of figure of stock manufactured that the discrepancy had resulted. The assessee had also substantiated its quantity of stock actually manufactured during the year with the excise records and details of purchases made of raw material etc. Also we find that the Ld.CIT(A) has rightly found the quantity of opening stock and stock manufactured to be typographical error since the figures admittedly are the same and the assessee had furnished the correct figures duly supported with evidences. No discrepancy being pointed out in the explanation of the assessee, either by the AO or the Ld.DR, we find no infirmity in the order of the Ld.CIT(A) holding that there was no short reporting of stock by the assessee .

With regards to the finding of the AO of the closing stock being undervalued, his order reveals that he found that despite the tax audit report revealing the opening and closing stock quantity [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 6 – to be almost the same, i.e. 15227 units and 15331 units respectively, yet he found a stark difference in the value of both, the opening stock value being Rs.1.24 Crs. and the closing stock value being Rs28,50,755/-.

This we find the assessee had explained was on account of the closing stock being damaged due to rains and therefore being valued at their market value which was far reduced due to damage. The assessee had pointed out this method of valuation to be in accordance with accounting principles of valuing stock at cost or market price whichever is less. The assessee had also submitted evidence of unusually heavy rains and flooding in the area where the factory was located resulting in damage to the stock.

The Ld.CIT(A) appreciated all the explanation and evidences so furnished by the assessee and accepted the valuation of closing stock of Rs.28,50,755/-

The Ld.CIT(A) we have noted has appreciated all facts before him while upholding the valuation of closing stock to be correct. In the absence of any infirmity pointed out by the AO/ Ld.DR vis a vis the explanation of the assessee, we see no reason to interfere in the order of the Ld.CIT(A) finding the valuation of closing stock to be correct.

With respect to the variation in stock of Rs, .96,36,134/- added by the AO, we find that he has completely misunderstood [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 7 – the nature of the same. The variation in stock is the difference in the opening and closing stock figures. It takes into consideration the value of both opening and closing stock. This variation does not reflect any separate stock. The AO having already considered the quantity details of stock for valuing the closing stock, there is no question of any stock remaining to be included. The addition to the closing stock of variation in stock has therefore, we hold, rightly been deleted by the Ld.CIT(A).

In view of the above, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made to the income of the assessee on account of under valuation of closing stock to the tune of Rs.3,03,91,873/-. Ground raised by the Revenue is dismissed.

In the result, appeal filed by the Revenue is dismissed.