C.I.T. vs. SURAXA H. DHRU

O/TAXAP/567/2003 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 567 of 2003 With TAX APPEAL NO. 568 of 2003 TO TAX APPEAL NO. 570 of 2003

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 ? ================================================================ C.I.T.....Appellant(s) Versus SURAXA H. DHRU....Opponent(s) ================================================================ Appearance: MR M.R. BHATT, SR. ADVOCATE WITH MRS MAUNA M BHATT, Page 1 of 7

O/TAXAP/567/2003 JUDGMENT ADVOCATE for the Appellant(s) No. 1 MRS. PRITI J JOSHI, ADVOCATE for the Opponent(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No.1 (In Tax Appeal No.570/2003) ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 25/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. All these appeals arise out of the common judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench and involve common questions on law and facts. Hence, they are decided by this common judgment. For the sake of convenience, Tax Appeal No.567/2003 is taken as the lead matter. 2. These Tax Appeals u/s.260A of the Income-tax Act, 1961 arise out of the judgment and order dated 19.06.2003 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench in IT(SS)A Nos.01/Ahd/2002 to 08/Ahd/2002 whereby, the appeals filed by the assessee were allowed. 3. Briefly stated, the facts are that on 13.10.1998 a search u/s.132 of the Act was carried out at the business as well as residential premises of the assessee. The search Page 2 of 7

O/TAXAP/567/2003 JUDGMENT operation concluded on 14.10.1998. Vide communication dated 25.09.2000, the assessee was asked to reconcile the stock shown in the Books of Accounts and the stock report submitted to the Bank. The reply given by the assessee was found to be unacceptable and therefore, show cause Notice was issued to show cause as to why the difference amount should not be treated as unaccounted stock. The assessee gave its reply on 13.10.2000. After hearing both the sides, the A.O assessed an amount of Rs.6,62,760/- as undisclosed income of the assessee being unexplained investment and ordered to initiate penalty u/s.158BFA(2) of the Act, vide order dated 25.10.2000. 4. Being aggrieved by the order passed by the A.O., the assessee filed appeal before the CIT(A). However, the said appeal was dismissed vide order dated 18.10.2001. Against the above order passed by the CIT(A), the assessee preferred appeals before the Appellate Tribunal. After hearing both the sides, the Appellate Tribunal allowed the appeals filed by the assessee, vide common judgment and order dated 19.06.2003. Hence, these appeals. 5. While admitting the appeals on 22.12.2003, the following common substantial questions of law Page 3 of 7

O/TAXAP/567/2003 JUDGMENT were formulated; “Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in deleting the addition made in the value of closing stock by the Assessing Officer due to different method adopted by the assessee for valuing his stock for the purpose of submitting details of stock and its valuation to the banker?” 6. We have heard learned counsel for both the sides. While disposing of the appeals filed by the assessee, the Appellate Tribunal made the following observations in Paras – 10 & 11 of the judgment; “10. We have heard the parties and considered the rival submissions. As stated by the CIT(A) there are divergent opinion on the issue regarding excess stock and that the difference has been attributed mainly on account of the pledge of the stock and hypothecation of the stock. In case of pledge, the stock is under the control of the bank and it cannot be said with certainty that the stock shown in the statement was not the real stock. In the case of hypothecation, on the other hand, only a statement is furnished to the bank and the stock remained in the possession of the assessee. No verification is also done by the bank as has been certified by the Bank Manager who was examined u/s.131 of the AO. Page 4 of 7

O/TAXAP/567/2003 JUDGMENT 11. The assessee are dealing in purchase and sale of vehicles of Hero Honda, ie Motorcycles, manufactured by Hero Honda Motors Ltd., vehicles of Maruti Udyog Ltd., selling spare parts of Hero Honda Motorcycles and in one case, dealer of Honda Motors for two wheelers. They are authorised dealers and therefore, the question of unaccounted purchase seems to be remote. In any case, the AO has made enquiries and found that the purchases recorded by the assessees in the books of accounts are tallying with the sales made by them to the assessees. Similarly, there does not seem to be a case of unaccounted sales because each motorcycle sold by the assessees is to be registered with the RTO which is possible only on production of the Sale Invoice from the assessees, the authorised dealer and also the purchase invoice from the manufacturer specifying the engine number and chassis number, etc. On the date of search, it is an admitted fact that there was no difference in the physical stock found on that date and as recorded in the books of accounts on the day of the search the assessee maintained register specifying engine number and chassis number of each of the motorcycle. The sales made by the assessees are tallying with the return submitted to the Sales-tax Department and no allegation of any excess sales or deficiency in the sales has been noticed. If the excess stock is taken as on 31.03.1996, the same is to be allowed as opening stock as on 01.04.1996. The assessment has been made by the AO by computing this income and adding therein the disclosure of Rs.4,75,000/- made by the assessee. The assessment is not completed on the basis of each year’s income for the 10 years which are included in the block period and had that been done the closing stock addition as on 31.03.1998 would have been allowed as opening stock as a Page 5 of 7

O/TAXAP/567/2003 JUDGMENT deduction.” 7. In this connection, it would be relevant to refer to a decision of this Court in the case of Commissioner of Income-tax, Ahmedabad-III v. Riddhi Steel and Tubes (P) Ltd., [2013] 40 taxmann.com 177 (Gujarat. In that case, the Assessing Officer made certain addition to income of assessee under Section 69B on plea that there was difference in quantity and value of stock shown in books of account vis-a-vis as shown to bank. The assessee, for the purpose of fulfilling margin requirements of bank in stock statement furnished to banking authorities, had reflected inflated value of stock. It furnished satisfactory explanation both for purpose of value as well as quantity. On these facts, it was held that the addition made to income of assessee under Section 69B of the Act was not justified. 8. Considering the facts of the case and the principle rendered in the above decision, we are of the view that no error has been committed by the Appellate Tribunal while passing the impugned judgment. 9. Accordingly, we concur with the view adopted by the Appellate Tribunal and answer the question raised in this appeal in favour of the assessee Page 6 of 7

O/TAXAP/567/2003 JUDGMENT and against the Revenue. It is clarified that we have not gone into the larger issue on hand but, have decided the matter on the factual aspects of the case. 10. The appeal stands disposed of accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 7 of 7