Addition on Alleged Fertilizer Stock Suppression Quashed | ITAT

Case Details: Gangadhar Agarwal vs. Income-tax Officer - [2025] 178 taxmann.com 175 (Hyderabad - Trib.) 

Judiciary and Counsel Details

• Ravish Sood, Judicial Member
• G. Manjunatha, Accountant Member
• P. Murali Mohan Rao, C.A. for the Appellant
• Gurpreet Singh, Sr DR for the Respondent

Facts of the Case

The assessee was engaged in the business of trading in fertilisers. During scrutiny, the Assessing Officer (AO) observed that the quantitative details filed by the assessee did not tally with those that were placed on his record on the earlier occasion. The AO observed that the Trading, Profit & Loss account uploaded by the assessee revealed a quantitative suppression of a value of Rs. 5.19 crore, specifically suppressed purchases and sales without corresponding purchases.

Thus, the AO made an addition of Rs. 5.19 crore by treating it as unexplained expenditure under section 69C or unexplained money under section 69A. On appeal, the CIT(A) sustained the addition made by the AO. Aggrieved by the order, the assessee filed an appeal to the Hyderabad Tribunal.

ITAT Held

The Tribunal held that, upon perusing the controversy at hand, in the backdrop of the reconciliation, substance was found in the assessee’s explanation. The assessee claims that the discrepancy arose because the brand/sub-heads of the parent items traded by the assessee were considered separately by the AO, rather than the parent items themselves.

The AO had not only confined the discrepancy to the parent item but also extended it through alleged inferences regarding the brands/sub-head items. The alleged discrepancy has its roots in the AO’s failure to appreciate that the “opening stock” of MOP (the parent item) was comprised of PPL-MOP (a brand item of MOP).

Thus, the glaringly distorted quantitative facts/figures provided by the AO had resulted in the alleged discrepancies being drawn in the form of suppressed purchases, sales, and closing stock. The very basis for the adoption of the distorted figures by the AO, based on which he has drawn adverse inferences, both regarding the parent items and the brands/sub-heads (of the parent items), resulting in an exorbitant addition of Rs. 5.19 crore in the hands of the assessee, is not understandable.

The AO failed to correctly appreciate the facts of the case as were discernible from the record available to him, and thus, the same cannot be sustained.