COMMISSIONER OF INCOME TAX RAJKOT-I vs. PATEL PROTEINS PVT. LTD.

O/TAXAP/1371/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1371 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX RAJKOT-I....Appellant(s) Versus PATEL PROTEINS PVT. LTD.....Opponent(s) ================================================================ Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR BS SOPARKAR WITH MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 6

O/TAXAP/1371/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 12/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Rajkot Bench ‘C’ (hereinafter referred to as ‘the Tribunal’) dated 31.01.2006 in ITA (SS) No. 30/Rjt/03 for the block assessment period 01.04.1994 to 08.08.2000, the revenue has preferred the present Tax Appeal. 1.1 This appeal was admitted by this Court on 27.06.2007 for consideration of the following substantial question of law: “Whether on facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in deleting the addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account for availing higher credit facility?” 2. There was a search in the premises of the respondent wherein incriminating documents were found. On comparison of stock statement furnished to bank for obtaining cash credit facility and stock as per balance sheet, it was found that there was excess stock which came to be added by the assessing officer. On appeal before CIT(A) by the assessee, the CIT (Appeals) worked out the difference and retained 10% addition. Page 2 of 6

O/TAXAP/1371/2006 JUDGMENT 3. On appeal before the Tribunal, by impugned order, the Tribunal deleted the entire addition. Being aggrieved and dissatisfied with the impugned order passed by the Tribunal, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 4. The issue involved in the present Tax Appeal is now not res integra in view of the decision of this Court in the case of Commissioner of Income – tax, Ahmedabad vs. Riddhi Steel and Tubes (P) Ltd reported in [2013] 40 taxmann.com 177 (Gujarat) (SC) wherein this Court has held as under: 9. The entire emphasis of the Revenue is that the decisions of this Court only pertain to the value of the stock and not on the factum of difference in the quantity of the stock shown in the books of account and in the documents furnished to the banking authorities for the purpose of availing credit facilities/loan. However, this version is not acceptable in as much as the Tribunal has noted that there was no physical verification of the stock by the banking authorities as on 31st March 2009. Although much reliance was placed by the Assessing Officer and CIT [A] on the godown visit by the Bank Manager after closing of the year ie., on 25th April 2009, however, no physical verification and counting of the stock took place during such visit and even otherwise, the Bank Managers report indicates that 3000 tonnes of Coil was already included in the stock of the month of March 2009 and because of such inclusion, the stock position of March 2009 has shown the increase in quantity. It also found that the stock register was maintained by the assessee giving complete quantity details; including month-wise details of raw materials, finished goods and semi- finished goods. 9.1 Again, the Court cannot be oblivious of the fact Page 3 of 6

O/TAXAP/1371/2006 JUDGMENT that the assessee had been subjected to statutory audit under the Companies Act, 1956 and also tax audit under the Income-tax Act. No errors were found at any stage in the report submitted by these auditors and for the past eight years, the assessee had been following continuously/consistently the method of accounting, as provided under section 145 of the Act, valuing the closing stock and inventory, as provided under section 145 A of the Act. The assessee was also subjected to Excise and VAT and the books of account were found genuine and no discrepancies were found even by the Excise Audit report for the period January 2009 to December 2009 which was carried out by the Excise Revenue Audit Team, wherein the Excise Department, after a detailed scrutiny of the books of account, stock register, excise records, accepted the books of account and other records maintained by the assessee to be true, correct; except finding few discrepancies in so far as inventory is concerned. 9.2 It is a settled law, as rightly held by the Tribunal, that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made 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, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the stock statement had reflected inflated value of the stock, in wake of otherwise satisfactory explanation, both - for the purpose of value as well as quantity, we find no reason to interfere with the order of the Tribunal. 10. As a parting note, it needs to be mentioned that the Tribunal also made an extensive exercise of calling for the financial ratios of seven years and of the current year under appeal and also held empathetically that after giving effect to the additions made by the Assessing Officer, the financial statement would get completely distorted; if such inclusion/ addition as made by the Assessing Officer is allowed to continue.” Page 4 of 6

O/TAXAP/1371/2006 JUDGMENT 5. Similarly, another identical issue had come up before this Court and this Court vide judgement and order dated 19.11.2014 rendered in Tax Appeal No. 198 of 2003 in the case of CIT vs. Sharp Springs & Stapples Co. (P) Ltd observed as under: “10. Insofar as question no.2 is concerned, the assessee has proved on record that the group of companies were maintaining stock at a common place. The stock of the other group concerns were given in the Bank statement. This fact was also brought to the notice of the Bank. Similarly, a letter given by the Bank Manager to the Director of the assessee was on record, which is indicative of the fact that the assessee has informed the Bank regarding common stock position at one place of the sister concerns. In this way, the assessee has duly discharged the onus of explaining the excess stock and the CIT(A) was justified in deleting the addition. 11. In our opinion, no illegality has been committed by the Appellate Tribunal by allowing the deletion. Hence, question no.2 is answered in favour of the assessee and against the Revenue.” 6. Mr. P.G. Desai, learned advocate on behalf of the revenue is not in a position to dispute the above and is not in a position to show and/or point out any contrary decision. 7. Having heard learned advocates appearing on behalf of the parties and the question posed for consideration before us reproduced hereinabove and considering the decisions of this Court, the question which is raised in the present appeal is required to be answered in favour of the assessee. We are not giving further elaborate reasons for the same as in the case of Page 5 of 6

O/TAXAP/1371/2006 JUDGMENT Riddhi Steel and Tubes (Supra) it is held by this Court that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. Accordingly, the question is answered in the affirmative i.e. against the appellant – revenue and in favour of the assessee. We hold that the Tribunal was right in law in deleting the addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account for availing higher credit facility. 8. In view of the above, the impugned order passed by the Tribunal is confirmed. Hence, the present Tax Appeal is dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 6 of 6