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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE MADHUMITA ROY, JUDICIAL
The instant appeal filed by the Revenue is directed against the order dated 21.02.2018 passed by Ld. CIT(A), Ujjain (M.P) arising out of the order dated 29.12.2017 passed by the ITO-Agar Malwa u/s 143(3) of the Income Tax Act 1961(herein after referred to as ‘Act’) for Assessment Year 2015-16.
The brief fact relating to this issue is this that the firm derived income from wholesale trading of grains and transport business filed its return of income declaring total income at Rs.1,73,430/- on 20.09.2015. The assessee had availed cash credit limit from State Bank of India, Agar, Malwa against hypothecation of stock. The assessee maintained books of accounts manually and all the information submitted to Krishi Upaj Mandi Samiti, Agar Malwa/Bank/ Sales Tax Department/Income Tax Department as well as to the auditors regarding value and quantity of purchase, sales and closing stock, excess/shortage based on the ledger cum stock register of goods. However the Ld. A.O made the addition of Rs.2,14,89,267/- u/s 69/115BBE of the Act as an unexplained money on the basis of difference in stock statement submitted to the lender bank and Krishi Upaj Mandi Samiti, Agar Malwa.
Assessee finally succeeded in appeal before Ld. CIT(A) when the addition ultimately got deleted. Hence the instant appeal is before us. 2
We have heard the relevant submissions made by the respective parties. We have also perused the relevant materials available on records. This case of the appellant is that the addition made by the Ld. A.O is not justified. The result reflected in the books of accounts or stock shown in the books of accounts has not been considered in its proper perspective by the Ld. A.O. The Ld. A.O had taken the following difference in stock statement submitted to the bank as well as to the Krishi Upaj Mandi Samiti, Agar Malwa; Chart of S.No. Date Total difference of stock amount 1 31.05.2014 5536054.00 2 30.09.2014 15953213.37 Total 21489267.37
It is the further case of the assessee that the appellant is maintaining all the books of accounts and these books were audited by the Chartered Accountant where no adverse comment was made for that quantitative details as maintained by the assessee. The main contention of the assessee is that stock in quantity and the value reflected on estimated basis in the statement furnished to the bank authorities was to avail higher financial credit. Moreso, this 3 inflated and estimated stock is hypothecated and not pledged.
Apart from that, the statement given to the bank was estimated basis without any actual physical verification and the same was not supported by the books of accounts. On the other hand the quantitative detail of goods traded being part of the audit report of Form No.3CD for the relevant assessment year show that such details are fully reconciled and are tallied with the books of accounts. No discrepancy, however, to the sales, purchase and expenses was found by the tax auditor. Neither the Ld. A.O found these books of accounts defective or non genuine. Such negative view is neither reflected on the accounts maintained by the assessee in regard to the Krishi Upaj Mandi Samiti, Agar Malwa and the Commercial Tax Department. Further that the assessee submitted stock statement to the Mandi on fortnightly basis and on monthly basis to the bank. During the assessment proceeding the following explanation was made by the appellant in support of the reason for the difference in these two stock statements as directed by the Ld. A.O:-
Sr. Date of Amount of Reason for difference Remarks No. stock difference statement (Rs.) 1 31.05.2014 55,46,054 Statement submitted to bank Addition (PB 68) – is dated 12.06.2014 made by Ld. Statement submitted to AO (AO page KUMS – is dated 31.05.2014 4, Chart 1 Thus, the two statements are and PB 168) not comparable. Statement submitted to bank is prepared considering the market value of the stock to get drawing power on higher limit from Bank. On the other hand, statement submitted to KUMS is based on cost (PAPER BOOK 57-58) 2 30.09.2014 1,59,53,213 Statement submitted to Addition (PB 69) KUMS and Bank – At Mandi, made by Ld. the weighment continues till AO (AO page midnight. Hence it is not 4, Chart 2 possible to submit to bank and PB 168) the exact stock statement of a particular date. Owing to this, there is a difference in stock submitted to KUMS and Bank (PB 58-59) 3 31.12.2014 1,50,328 Statement submitted to No addition (PB 70) KUMS and Bank –In the made by Ld. statement submitted to A.O (PB 169 – KUMS, weight of gram is Chart-3) stated at 552.34 quintals (qtls) which includes weight of gram dollar of 33.60 qtls.
In the statement submitted to Bank, weight of gram and gram dollar are separately mentioned at 518.40 qtls and 33.60 qtls respectively which totals to 552 qtls.
Difference in weight of maize of 1.08 qtls is due to 5 moisture and dust. Thus there is no difference in the two stock statements (PB 58-59) 4 28.02.2015 1,56,110 Statement submitted to bank No addition (PB 71) – This document has two made by Ld. dates, 11.03.2015 and A.O (PB 169 – 28.02.2015. Thus, it is not Chart 4)az clear as to which date the stock position relates.
Statement submitted to KUMS – This document is dated 28.02.2015. Weight of gram is stated at 552.34 quintals (qtls) which includes weight of gram dollar of 33.60 qtls.
In the statement submitted to Bank, weight of gram and gram dollar are separately mentioned at 518.40 qtls and 33.60 qtls respectively which totals to 552 qtls.
Difference in weight of wheat of 4.97 qtls is due to excess which has been shown in the yearly statement at 14.15 qtls.
Thus there is no difference in the two stock statements (PB 59-60, 18)
The Ld. A.O in fact has accepted the above explanation for the difference in the statement dated 31.12.2014 and 28.02.2015. It is relevant to mention that the purchase as well as sales were supported by vouchers and the Ld. A.O has not pointed out any difference of sales or purchases. It appears from the records that the assessee duly explained the difference between the stock as submitted to the Mandi and to the bank as on various dates viz, 31.005.2014, 30.09.2014, 31.12.2014 and 28.02.2015 as reflected from page 167 to 169 of the paper book filed before us. Under these circumstances the question would be as to whether the addition on account of difference of stock position for certain dates in between the monthly and yearly statement is justified when the year ending statement of the Mandi reconciles with the book results. It appears that the stock as per the books and as per the statement given to the Mandi as on 31.03.2015 has been duly reconciled. The books of accounts seems to have been maintained monthly. During the season of heavy arrival of goods certain entries made remain to be included in the ledger account due to human error which are then corrected in the next fortnight or in the annual statement submitted to the Mandi as the case made out by the assessee also cannot be brushed aside. It is relevant to mention that the explanation rendered by the assessee on the difference due to excess/shortage of stock has been duly accepted by the Ld. A.O. The assessee’s contention is that this stock in quantity and value is inflated on estimated basis in the statement furnished to the bank authorities to avail higher financial credits has been sought to be supported by the assessee by relying upon the judgment passed by Hon'ble High Court of Gujarat in the matter of CIT V/s Arrow Exim (P) Ltd reported in (2010) 230 CTR (Guj.) 293.
6. Since there was difference in stock submitted to the lending bank and Krishi Upaj Mandi Samiti, Agar Malwa with whom the assessee has availed cash credit limit, the Ld. A.O made addition of Rs.2,14,89,267/- u/s 69/115BBE. The Ld. A.O made addition on the ground that the appellant has shown more stock to the bank as hypothecated than in the books of accounts.
7. Needless to mention that the appellant is subjected to the statutory audit under the various Act, 1961 and Excise Act. No discrepancy was found by the department. It is the settled position of law that addition cannot be made u/s 69B of the Act based on stock shown and inflated quantity/value of stock given to bank to avail higher credit facilities. If the addition made was allowed to 8 continue, the financial statement would get completely distorted.
Such an addition on account of difference in stock can only be made on adequate material which admittedly was filed to be relied upon by the Learned Assessing Officer.
8. We have further considered the order passed by Ld. CIT(A), the relevant portion whereof is as follows:-
“Any addition on account of difference in stock can be made only on adequate Materials, but not arbitrarily. There was a difference between the value of closing stock declared to the bank and to the income tax authorities. There is no dispute that the appellant was maintaining books of account on day to day trading. The appellant in the present case, has taken the actual physical stock for the purpose of declaring closing stock to the income-tax authorities. Further the purchase and sales were supported by vouchers and the Assessing Officer had not pointed out any suppression of sales or purchases. The statement given to the bank was on estimate basis without any actual physical verification and the same was not supported by books of account. There is evidence to show that stock declared to the income tax department was supported by books of account. No detailed inventory was also available in the statement made to the bank. Except a mere value declared for overdraft purpose to the bank, there were no details items of stock in support of the declared value. 9
It was also pointed out that there was no physical verification of stock, either by the appellant or the bank at the time of furnishing the stock statement. The appellant declared closing stock for assessment purpose which is based on actual physical verification. There was enough material available on record and the conclusion reached by the AO is based on without valid materials and evidence. In view of the same, there is no basis to treat the difference in value as the appellant under valuation of stock as undisclosed income. The same principal has been followed by following judicial authorities.
1.CIT Vs. SRI PADMAVATHY COTTON MILLS LTD "236 ITR 340. 2.COMMISSIONER OF INCOME TAX vs. ARROW EXIM (P) LTD. HIGH COURT OF GUJARAT (2010) 230 CTR (Guj) 293: 3.COMMISSIONER OF INCOME TAX vs. RIDDHI STEEL & TUBES (P) LTD.HIGH COURT OF GUJARAT Source (2014) 220 Taxman 148 (Guj). 4.COMMISSIONER OF INCOME TAX vs. RELAXO FOOTWEAR HIGH COURT OF RAJASTHAN (2003) 259 ITR 744 (RAJ.) 5.Commissioner of Income Tax vs. Sahib Sankar Das High Court of Calcutta Source (2017) 396 ITR No.215 of 2016.
Commissioner of Income Tax v. Ms. Apcom Computer (P) Ltd. Madras High Court.
INCOME TAX OFFICER vs. MAPINPUBLISHING (P) LTD. IT AT AHMEDABAD 'A' BENCH (2004) 23 CCH 0504 Ahd Trib. In view of above judicial pronouncement the AO is not justified in making
the addition. Therefore, the addition made by the AO amounting to Rs.2,14,89,267/- is Deleted. Therefore, the appeal on this ground is 10
Allowed.”
We have also considered the order passed by Hon'ble High Court of Gujarat as relied upon by the Ld. AR in the case of CIT V/s Arrow Exim (P) Ltd (supra) where the stock hypothecated with bank valued higher than shown in the books of accounts. When no defect is found with the accounts of the assessee explanation rendered by the assessee that the inflated statement was given to the bank to avail higher credit is to be considered in its proper perspective, no interference in deleting such addition either by Ld. CIT(A) or by the Tribunal is called for as of the observation of the Hon'ble Court.
Thus, taking into consideration the entire aspect of the matter, particularly the explanation rendered by the appellant in support of the accounts maintained by the assessee for inflated statement submitted to the bank to avail higher credit, we find no justification in the order passed by Ld. CIT(A) in deleting such addition made by the Ld. A.O on account of unexplained investment without any ambiguity so as to warrant interference. Hence we find no merit in the appeal preferred by Revenue and the same is, thus, hereby dismissed.
In the result appeal of the revenue is dismissed.
The order pronounced in the open Court on 20.05.2021