By Ajay R. Singh, Advocate and CA Rohit Shah
1. Search and seizure – Addition to income – Alleged difference in value of stock-in-trade as per books of account and as per valuation report of registered valuer as on the date of search- Revenue neutral exercise – No addition:
Facts:
Pursuant to search conducted at assessee’s premises, the AO framed assessment under section 153A and made addition on account of alleged difference in value of Rs. 2,12,54,055 of stock-in-trade as per books of account and as per valuation report of registered valuer as on the date of search, i.e. 28-01-2016. Assessee challenged this before CIT(A) who deleted addition.
Held:
AO had not pointed out any difference in quantity of stock as per valuation report and as per books of account. There could be no addition simply on the basis of valuation of closing stock as on the date of search unless excess quantity of stock was found. If such addition was somehow made on account of said valuation of stock and sustained in assessment, then credit of difference in quantity of stock was to be allowed in year end while computing profit at year end which was not allowed and as AO accepted the declared closing stock as on 31-3-2016 in books of account, the addition of difference in value as on date of search i.e. 28-01-2016 would get set off. The assessee carried forward closing stock of this year end as declared in books of account as 31-3-2016 as opening stock for next year. AO neither allowed credit of difference while accepting closing stock at year end but accepted closing stock declared by the assessee which was taken as opening stock in next year. In succeeding year also, no credit was allowed for enhanced stock and even if it was done it would be revenue neutral exercise. Considering the totality of facts and circumstances addition made by AO on account of excess stock found during the course of search was not sustainable and CIT(A) had rightly deleted the addition.
DCIT vs. Vikas Jewellers [ITA No.789/JP/2019 ; Bench : A Jaipur ; dt 1/11/2021; AY : 2016-17 ]
2. Depreciation- Block of Assets – Denial on the ground that individual units had lost their specific identity – depreciation on the block has been allowed to assessee in earlier years – Allowable:
Facts:
Six units were acquired by assessee in assessment year 2012-13. The units were split into two parts viz. units which were used as residence and units which were used for the purpose of profession. Depreciation on units as well as other proportionate expenditure with respect to units which were used for professional purposes was claimed as well as allowed by AO. However, during the year under consideration AO denied depreciation on the ground that individual units had lost their specific identity.
Held:
Concerned units formed part of opening block of asset in the concerned year. As per scheme of the Act, under the concept of block of asset, the assets would lose individual identity and depreciation on asset is allowed on block concept notwithstanding the fact that few of the assets were not used for business/professional purposes. As long as assets remained part of the block and were not parted with by assessee, the same remained part of the block of asset and depreciation was allowable to assessee. Since depreciation on the block has been allowed to assessee in earlier years, the same could not be denied to the assessee. Assessee, had satisfied, both the conditions since building as well as furniture was owned by assessee and same was used for the purpose of profession. The assessee has claimed depreciation proportionately on that part only which has been used for the purpose of profession. Therefore, deprecation claim on building and furniture was to be allowed.
ACIT v. Farah Khan [ITA No. 4428/Mum/2019; Bench F Mumbai; dated 29/7/2021; AY 2013-14]
3. Penalty under section 271(1)(c) – Concealment or furnishing of inaccurate particulars – Ad hoc estimation made by AO – No penalty :
Facts:
AO received information from DGIT (Inv.), Mumbai as to assessee having received accommodation entries from various dealers without making any purchases but made purchases only in grey market. AO treated such purchases as non-genuine and estimated profit element from non-genuine purchases at 17.8% and brought to tax an amount of Rs. 6,47,613/- out of purchases of Rs. 36,38,274/- for the AY: 2009-10. Assessee accepted estimation of profit element from non-genuine purchases at the rate of 17.8% made by AO. Subsequently AO levied penalty under section 271(1) (c) as regards said addition.
Held:
AO only estimated gross profit on the alleged non-genuine purhases without there being any conclusive proof of concealment of income or furnishing inaccurate particulars of such income. Therefore, no penalty could be levied under section 271(1)(c).
ITO v. Broadcasting Services[ITA No. 1312/Mum/2020; Bench SMC Mumbai; dated :13/9/2021; AY 2009-10]