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

ITA 331/AHD/2025

AI Insights

The case revolves around an appeal by the Deputy Commissioner of Income Tax, Vadodara against M/s. Aditya Forge Limited concerning the assessment year 2015-16. The primary issue was the deletion of an addition of Rs.3,03,91,873 by the CIT(A), which was initially added by the Assessing Officer (AO) due to alleged undervaluation of closing stock. The AO had found discrepancies in the quantity and valuation of the closing stock reported by the assessee. However, the CIT(A) found that the discrepancies were due to a typographical error in the tax audit report and that the valuation of the closing stock was correctly done at a reduced value due to damage from rains. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had correctly reported the stock and valued it appropriately considering the damages.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838023 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 12-02-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMBHARE
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Undervalued stock

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 331/Ahd/2025 (िनधा[रण वष[ / Assessment Year : 2015-16) Deputy Commissioner of Income Tax Circle-1(1)(1), Vadodara बनाम/ Vs. M/s. Aditya Forge Limited Ramangamdi Por, Baroda,Vadodara, Gujarat – 391243 Öथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCA7948P (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Arvind Kumbhare, Sr.DR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Mehul K. Patel, Advocate Date of Hearing 19/01/2026 Date of Pronouncement 18/02/2026 (आदेश)/ORDER PER ANNAPURNA GUPTA, AM: The present appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 06.12.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2015-16. Printed from counselvise.com ITA No. 331/Ahd/2025 [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 2 – 2. The grounds of appeal raised by the Revenue are as under: “i) \"On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.3,03,91,873/- without appreciating the findings of the AO that there was huge difference in the cost per unit of the opening stock and closing stock of assessee.\" ii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.” 3. The solitary grievance of the Revenue against the order of the Ld. CIT(A) pertains to the deletion of addition made by the AO on account of undervaluation of closing stock amounting to Rs.3,03,91,873/-. 4. The assessment order reveals that the AO found the assessee to have undervalued stock by Rs.3,03,91,873/- on account of both the quantity and the rate adopted for its valuation being taken less/short by the assessee, and also for not including the variation in stock reported in the audited financial statements. He found the assessee to have short reported stock by 13515 units and applying the rate at which opening stock was valued, i.e Rs.819 per unit, he found the assessee to have short valued its closing stock by Rs. 2,07,57,739/-. Further he found the assessee to have not considered the change in inventory of finished goods, work-in- progress and stock–in-trade of Rs.96,34,134/- for valuation of stock. Accordingly, he added both the amounts to the income of the assessee, amounting in all to Rs. .3,03,91,873/- (Rs.2,36,08,494 + Rs.96,36,134) on account of under valuation of closing stock. Printed from counselvise.com ITA No. 331/Ahd/2025 [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 3 – 5. The Ld.CIT(A) however found no discrepancy in the valuation, after considering assessees explanation/clarification to the discrepancies noted by the AO. 6. 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. 7. 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: Printed from counselvise.com ITA No. 331/Ahd/2025 [DCIT vs. M/s. Aditya Forge Limited] A.Y. 2015-16 - 4 – “10.3 I have considered the assessment order and the submissions carefully. The quantitative details of finished product reproduced from Form 3CD by the AO are as below: Item Name Unit Opening Stock Purchases during previous Year Quantity manufactured Sales during previous Year Closing stock Flanges Nos. 15227 0 15227 1628 15331 In the above table, opening stock of flanges is same as quantity. manufactured. This is indicative of error in Form 3CD as both the figures possibly could not have been same for a year. The appellant has also given reconciliation vis-a-vis raw material used for manufacturing of forged flanges. The purchases billets used for manufacturing weighed 50,897 kgs and were valued at Rs 18,90,330/-which was included in total purchases of Rs. 1,48,88,698/- as per the audited balance sheet. This quantity of billet was used for manufacturing 1712 flanges which weighed 47,986 kgs. The appellant has also explained that majority of the purchases by value were that of furnace oil which was used not only in manufacturing but also in job work. “10.4 Considering the explanation given and document submitted before the AO and submissions made during the appeal, appellant's claim of inadvertent mistake in Form 3CD appears to be correct. When so accepted, there is no discrepancy in closing stock and no impact on profit. Therefore, the addition made by the AO is held to be non sustainable and is hereby deleted.” 8. 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. 9. 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 Printed from counselvise.com ITA No. 331/Ahd/2025 [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. 10. 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 . 11. 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 Printed from counselvise.com ITA No. 331/Ahd/2025 [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/-. 12. 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. 13. 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/- 14. 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. 15. With respect to the variation in stock of Rs, .96,36,134/- added by the AO, we find that he has completely misunderstood Printed from counselvise.com ITA No. 331/Ahd/2025 [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). 16. 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. 17. In the result, appeal filed by the Revenue is dismissed. This Order pronounced on 18/02/2026 Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 18/02/2026 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "