JYOTI INDUSTRIES vs. INCOME TAX OFFICER

Facts

The assessee, Alliance Industries, filed returns of income for Assessment Year 1990-91 showing income of Rs. 58,255/- and Rs. 34,700/- respectively. The returns were processed under Section 143(1)(a) and selected for scrutiny. Following a notice under Section 143(2), the assessees produced their books of account. The Assessing Officer passed assessment orders, which were appealed to the CIT(A) and allowed. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the Revenue's appeals. The present Tax Appeals are filed by the assessees challenging the ITAT's orders dated 21.9.2000 (ITA NO. 5108/A/94) and 28.2.2001 (ITA No. 14138/A/95). The dispute involves an addition of Rs. 4,97,819/- representing the difference between the stock as on March 31, 1990, shown in the regular books of accounts and that declared in a statement furnished to a bank for hypothecation facility.

Held

The High Court held that the issue in the present appeals is covered by its own decision in Commissioner of Income-Tax, Ahmedabad III v. Riddhi Steel And Tubes Pvt. Ltd. The Court noted that in Riddhi Steel, it was held that it is settled law that an addition cannot be made solely on account of inflated statements furnished to banking authorities for the purpose of availing larger credit facilities, if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. If the stock statement reflected an inflated value of the stock purely on an inflated estimate basis for fulfilling margin requirements of the bank, and there is otherwise a satisfactory explanation for both value and quantity, there is no reason to interfere with the order of the Tribunal (which in that case had deleted the addition). Applying this principle, the High Court found no reason to interfere with the assessee's appeals. The substantial question of law was answered in favour of the assessee and against the Revenue. The impugned orders of the ITAT were quashed and set aside. Both Tax Appeals were allowed.

Key Issues

1. Whether on the facts and in the circumstances of the case, the Tribunal has substantially erred in law in restoring the addition of Rs. 4,97,819/- by way of difference between the stock as on March 31, 1990 shown in the regular books of accounts of the appellant and that declared in the statement furnished to the Bank in respect of hypothecation facility availed of by it? Assessee's Contention: The assessee contended that the issue is covered by the decision of the High Court in Commissioner of Income-Tax, Ahmedabad III v. Riddhi Steel And Tubes Pvt. Ltd. (40 taxmann.com. 177), particularly paragraphs 9.1 and 9.2. This decision held that no addition can be made solely on account of an inflated stock statement furnished to banking authorities for availing credit facilities, especially when the books of account are otherwise found to be true and correct after statutory and tax audits, and the accounting method has been consistently followed. Revenue's Contention: The judgment records that the learned advocate appearing for the respondent (Revenue) was not in a position to dispute the assessee's contention.