2002 (9) TMI 386 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 1,00,000 in closing stock.
2. Addition of Rs. 79,160 in closing stock.

Analysis:

Issue 1 - Addition of Rs. 1,00,000 in closing stock:
The assessee filed a return for the assessment year 1993-94 showing minimal income. During scrutiny, the Assessing Officer added Rs. 1,00,000 to the closing stock due to a difference between figures in the trading account and balance sheet. The CIT(A) deleted this addition, stating no concealment occurred. The department appealed, arguing the addition was justified. However, the assessee's counsel contended that the stock figures were not inflated to evade revenue but to secure higher credit facilities. The Tribunal agreed with the CIT(A), noting the Assessing Officer's decision was based on a wrong impression and misunderstanding, thus dismissing the ground in favor of the assessee.

Issue 2 - Addition of Rs. 79,160 in closing stock:
The Assessing Officer also added Rs. 79,160 to the closing stock due to a variance between the statement submitted to the bank and the stock shown in the books. The CIT(A) relied on precedents and deleted this addition. The department argued for restoration of the Assessing Officer's order, citing differences in stock values. However, the assessee's counsel explained that the inflated stock values were for obtaining higher credit and not for evading taxes. The Tribunal referenced a High Court decision, supporting the CIT(A)'s decision to delete the addition. Consequently, the Tribunal dismissed the appeal by the Revenue, upholding the CIT(A)'s decision.

In conclusion, the Tribunal upheld the CIT(A)'s decisions to delete both additions in the closing stock, emphasizing that the Assessing Officer's reasoning was flawed and the explanations provided by the assessee were reasonable and in line with legal precedents.