CIT JALANDHAR vs. M/S BANSAL SONS INDIA LUDHIANA
What were the facts?
The Commissioner of Income-Tax, Jalandhar (the Revenue) has filed an Income Tax Reference (ITR No. 117 of 1999) before the High Court of Punjab and Haryana at Chandigarh. The reference arises from an order dated August 22, 1995, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, in I.T.A. No. 734/Chandi/1990, concerning assessment year 1988-89. The Assessing Officer (AO) had made an addition of Rs. 2,72,518/- to the income of M/s Bansal Sons, Ludhiana (the assessee), under Section 69 of the Income Tax Act, 1961. This addition was based on a perceived difference between the stock hypothecated to the bank and the stock recorded in the assessee's books of account.
What did the High Court hold?
The High Court held that the ITAT was right in deleting the addition of Rs. 2,72,518/-. The Court noted that the Appellate Authority and the Tribunal had concurrently found that the assessee had satisfactorily explained the difference between the stock statement furnished to the bank and the books of account. The Tribunal had accepted the assessee's explanation that it was a case of hypothecation, not a clear pledge, and that the bank had not verified the estimated stock statement. The Court found no other circumstances to justify the addition and observed that the gross profit rate was comparable to earlier years. The High Court referred to its own earlier decision in The Commissioner of Income-Tax, Panchkula Vs. M/s Chauhan Paper Pvt. Limited, Chhoti Line, Yamuna Nagar (ITA No. 358 of 2006 decided on 12.10.2006), which held that a mere discrepancy in the bank statement and the assessee's accounts is not sufficient to justify an addition if the position can be satisfactorily explained. The Revenue's counsel was unable to demonstrate any vitiation in the concurrent findings of the CIT(A) and the Tribunal. Therefore, the question of law was answered against the Revenue and in favour of the assessee. The reference was disposed of.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in deleting the addition of Rs. 2,72,518/- on account of the difference in the stock hypothecated to the bank and those found in the books of account, which was made under Section 69 of the Income Tax Act, 1961? The Revenue's contention, as indicated by the AO's action, is that a significant variation between the stock as per bank statements and the stock in the books justifies an addition to income. The Revenue likely argued that this discrepancy indicates undisclosed income or unaccounted stock. The Assessee's contention, accepted by the Tribunal, was that the transaction was one of hypothecation, not a clear pledge, and the bank had not verified the stock statement, which was provided on an estimated basis. The assessee argued that there were no other circumstances to justify the addition and that the gross profit rate compared favorably with earlier years. The assessee relied on the judgment in Bhalla Brothers (1981) 10 TLR 45.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh arising out of its order dated 22.8.1995 passed in I.T.A.No.734/Chandi/1990, in respect of the assessment year 1988- 89. “Whether on the facts and in the circumstances of the case, the ITAT was right in law in law in deleting the addition of Rs.2,72,518/- on account of difference in the stock hypothecated to the bank and those found in the books of account ?”
The Assessing Officer has made addition to the income declared by the assessee under Section 69 of the Income Tax Act, 1961 (for short “the Act”) on the ground that there was wide variation between the stock as per the bank statements and the stock as per the books.
The Tribunal accept
The order continues below.
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