NEW ADARSH IND. vs. CIT ASR.
What did the High Court hold?
The High Court allowed the appeal and set aside the impugned order of the ITAT. The Court found the reasoning of the Commissioner (Appeals) to be more logical. The Court held that once the closing balance and the final books of accounts for the year were accepted by the revenue, it implicitly meant that all goods produced during the year were sold and accounted for. Therefore, any discrepancies observed on specific dates within the year, as reflected in the hypothecation register, would not be determinative of unaccounted sales, especially when the final stock and sales figures were accepted. The ratio decidendi is that accepted final accounts override interim stock discrepancies when the overall sales and stock are reconciled and accepted by the revenue. The Court did not explicitly leave any issue undecided.
What were the facts?
The assessee, M/s. New Adarsh Industries, engaged in manufacturing and sale of conduit pipes, filed its return for Assessment Year 1988-89 disclosing an income of Rs. 28,460/-. The Assessing Officer (AO) issued a notice under Section 143(2) due to a discrepancy found in the bank's hypothecation register, which showed a higher value of goods hypothecated on two dates (10.10.1987 and 15.2.1988) compared to the assessee's stock register. The AO concluded these represented unaccounted sales and added Rs. 2,44,242/-. The Commissioner (Appeals) allowed the assessee's appeal, reasoning that the final sales figures and stock as of 31.3.1988 were accepted by the revenue, implying excess stock was accounted for. The Income Tax Appellate Tribunal (ITAT) reversed this, holding the assessee failed to explain the stock discrepancies, restoring the AO's order. The assessee appealed to the High Court.
What were the issues?
1. Whether the orders of the ITAT and AO are legally sustainable, considering the facts and circumstances of the case? 2. Whether the addition of Rs. 2,44,242/- on account of alleged unaccounted sales is legally sustainable, despite the stock as per the books tallying with the stock statement furnished to the bank? 3. Whether the respondents were legally justified in making the addition of Rs. 2,44,242/- on account of unaccounted sales based on mere presumptions and surmises without independent corroborative evidence? 4. Whether the addition of Rs. 2,44,242/- is legally sustainable, given that it is based on presumptions, the sales were accepted by the Sales Tax Department, and there was no discrepancy in the stock statement as per the books of account and the statement furnished to the bank? Assessee's contentions: The assessee argued that the addition was based on mere presumptions and surmises without independent evidence. They also contended that the stock statement furnished to the bank tallied with the books of account, and the sales were accepted by the Sales Tax Department, making the addition unsustainable. The assessee relied on the reasoning of the Commissioner (Appeals). Revenue's contentions: The revenue's position, as reflected in the AO's and ITAT's orders, was that discrepancies in the hypothecation register compared to the stock register indicated unaccounted sales, which the assessee failed to explain.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
ITA-115-2000 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 386
ITA-115-2000 (O&M) Date of Decision : 17.1.2020 M/s. New Adarsh Industries ...... Appellant Versus Commissioner of Income Tax Amritsar and another ...... Respondents CORAM : HON'BLE MR.JUSTICE AJAY TEWARI : HON'BLE MR. JUSTICE AVNEESH JHINGAN *** Present : Mr. Alok Mittal, Advocate for the appellant. Mr. Vivek Sethi, Senior Standing counsel with Mr. Vivek Issar, Jr. Standing counsel for the respondents. *** AJAY TEWARI, J. (Oral)
This appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 (for short 'the Act') against the order dated 21.2.2000 of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar passed in Income Tax Appeal No. 849 (ASR)/1993 relating to Assessment year 1988-89 reversing the order of the Commissioner of Income Tax (A) and maintaining the order of the Assessing Officer. The appellant has raised following questions of law :- “(a) Whether in the facts and circumstances of the case, the orders Annexure P-1 and P-3 are legally sustainable ? (b) Whether in the facts and circumstances of the case, the addition of Rs.2,44,242/- on account of alleged unaccounted ANURADHA 2020.01.23 17:25 I attest to the accuracy and integrity of this document
ITA-115-2000 (O&M) 2 for sales is legally sustainable inspite of stock as per the books of account tallying with the stock statement as furnished to the bank ? (c) Whether in the facts and circumstances of the case, the respondents were legally justified in making the addition of Rs.2,44,242/- on account of unaccounted for sales on mere presumptions and sermises without there being any independent evidence on record to corroborate the same ? (d) Whether in the facts and circumstances of the case, the addition of Rs.2,44,242/- is legally sustainable the same being based on mere presumptions and inspite of the said sales having been accepted by the Sales Tax Department as correct and also with their being no discrepancy in the stock statement as per the books of account of assessee and as per the stock statement furnished to the bank ?”
Brief facts of the case are that the appellant was engaged in business of manufacturing and sale of conduit pipes and had filed its return of income relating to assessment year 1988-89 on 26.8.1988 disclosing an income of Rs.28,460/-. Instead of accepting the return a notice under Section 143 (2) was issued. This was done primarily on the ground that while going through the hypothecation register of the bank, it transpired that the value of the goods hypothecated to the bank on two dates i.e. 10.10.1987 and 15.2.1988 were more than those reflected in the stock register of the appellant. The Assessing Officer concluded that these were sales made outside the book of accounts and thereby added a sum of Rs. 2,44,242/-. The appellant filed an appeal which was allowed by the Commissioner primarily on the ground that even though this discrepancy was pointed out by the Assessing Officer yet the final sales, figures, stock and the book of accounts as on 31.3.1988 were accepted by ANURADHA 2020.01.23 17:25 I attest to the accuracy and integrity of this document
ITA-115-2000 (O&M) 3 the Revenue authority which meant that whatever excess stock there may have been was sold during the year, was reflected in the books of accounts. The Tribunal however, did not consider this aspect but went on to hold that the appellant had not been able to explain the discrepancies which had occurred in the value of the stock represented in the hypothication register and the stock at the premises and consequently, set aside the order of the Commissioner restoring the order of the Assessing Officer. Hence the present appeal.
Learned counsel has reiterated the argument which found favour with the Commissioner's appeal and we also find those reasons to be more logical than the decision of the Tribunal. Once the closing balance and the final books of accounts have been accepted it is clear that whatever goods were produced during the year were sold and thus the discrepancies which may existed on two days in an year would not be determinative.
Consequently, the appeal is allowed and the impugned order dated 21.2.2000 is set aside.
Since the main case has been decided, the pending application, if any, also stands disposed of.
(AJAY TEWARI)
JUDGE (AVNEESH JHINGAN) JUDGE 17.1.2020 anuradha
Whether speaking/reasoned - Yes/No Whether reportable - Yes/No ANURADHA 2020.01.23 17:25 I attest to the accuracy and integrity of this document
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