By TIOL News Service

MUMBAI, MAR 24, 2017: THE ISSUE IS - Whether the excess stock found on the date of survey which did not belong to assessee but to its Karta in his individual capacity, can be added to assessee's closing stock. NO is the verdict.

Facts of the case:

During the subject year, a survey action u/s 133A was conducted at the business premises of assessee, wherein, difference was found in physical inventory and stock shown in the books of account as on the date of the survey. Besides, the valuation of stock was found to be lower in its books of account than it ought to have been on the basis of the Tag Price. During the course of the assessment proceedings, the assessee explained that the excess stock found on the date of the survey as belonging to an associated concern of the Karta of the assessee HUF. The AO however added the difference in the physical stock found and that recorded aggregating to a value of Rs.1.02 crores. Besides, the stock was taken on the tag price less 30%. Thus, determining the assessee's income at Rs.90.95 lakhs. On appeal, the CIT(A) partly accepted the assessee's ground to the extent of Rs.79.91 lakhs being the stock found on the date of the survey being in excess of that recorded in the assessee's books by holding that it belonged to the karta of assessee HUF in his individual capacity. On further appeal, the ITAT upheld the findings of fact recorded by the CIT(A) in respect of the excess stock found on the date of the survey did not belong to the assessee to the extent of Rs.79.91 lakhs. So far as the valuation of the inventory at less than the Tag price was concerned, the impugned order upheld the finding of CIT(A) that the furniture was usually sold not at its MRP / Tag price but at a price which was lower then the tag price by giving discounts. This it holds is particularly so as the items of furnitures have short shelf life being subject to change of fashions. The impugned order reaches the above conclusion on noting that goods having a tag price at Rs.1.04 crores had been sold by the assessee at Rs.52 lakhs, thus, evidencing the heavy discount from the tag price to its customers. The impugned order recorded the fact that no reasons were given to justify the valuation of inventory at 30% less than the tag price.

On appeal, the High Court held that,

++ it is seen that both the CIT(A) as well as the Tribunal have rendered a concurrent finding of fact that the stock found on the date of survey to the extent of the value of Rs.79.91 lakhs did not belong to the assessee but to its karta in his individual capacity. Thus, to the above extent, it could not be added to its closing stock. This concurrent finding of fact has not been shown to be perverse in any manner. Thus, the proposed questions do not give rise to any substantial question of law. Further, it is also found that the value of closing stock at lower than the tag price of the furniture by 50% so held by the Tribunal is a possible view. In the above view, this question also does not give rise to any substantial question of law.

(See 2017-TIOL-548-HC-MUM-IT)