INCOME TAX ACT, 1961

Section 143

Assessment - Addition to income - Alleged shortfall in the value of inventory -

AO noticed that value of inventory as on 31-3-2010 declared to the bank was Rs. 70.62 crores, while value of inventory shown in the Balance Sheet stood at Rs. 38.40 crores. Thus, there was difference between stock value shown in books and bank statement to the extent of Rs. 32.22 crores. AO noticed that above said shortage included a sum of Rs. 22 crores written off by assessee in its books of account as stock shortage/valuation difference. When questioned, assessee explained that stock statements given to Bank were provisional statements and correct figures were later submitted to the bank through CMA data and audited balance-sheet. It was explained that the stock shown in the balance-sheet was arrived at after taking inventory of physical stock. AO not being convinced with explanations given by assessee, made addition of Rs. 22 crores. Held: Special auditors had reported that manipulation in the value of stock had happened from financial year 2004-05 onwards. Hence, shortage of stock quantified related to the conditions existing as on 31-3-2010 and it materially affected determination of value of assets as on Balance Sheet date. Accordingly, as per AS-4, the effect of the same was to be given as on 31-3-2010, even though report of special auditors was received only in July, 2010. Hence, it could not be considered as a prior period expenditure as opined by AO. Accordingly, assessee was justified in accounting the shortage during the year ending 31-3-2010, no addition relating to shortfall in the value of inventory was called for.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11 to 2012-13

INCOME TAX ACT, 1961

Section 36(1)(iii), Proviso

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