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Before: Shri Inturi Rama Rao & Shri Duvvuru R.L. Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Coimbatore, dated 04.04.2018 for the assessment year 2008-09. The Revenue has challenged the order of deleting the addition made on account of variation in the value of closing stock declared in the balance sheet vis-à-vis that declared before the bankers, without appreciating the fact that both the figures are certified by the assessee itself.
Brief facts of the case are that the assessee engaged in the business of manufacture and sale of motors, textile machinery and allied equipment filed its return of income for the assessment year 2008-09 on 29.09.2008 declaring a loss of ₹.4,99,10,493/-. During the course of original assessment proceedings, the Assessing Officer observed that there was difference of ₹.4,40,25,685/- between the value of stock furnished before the Banks and the Income Tax Authorities. The Assessing Officer invoked the provisions of section 69 of the Income Tax Act, 1961 [“Act” in short] and made addition of the said difference amount in the income returned by the assessee. On appeal, the ld. CIT(A) deleted the addition with an observation that the Assessing Officer has not found any defects in the books of account of the assessee nor was any adverse evidence brought on record regarding the stock position as per audited accounts. Against the appeal by the Revenue, vide order in dated 29.04.2013, the Tribunal has remitted the matter back to the file of the Assessing Officer to decide the matter afresh after taking into consideration the explanation furnished by the assessee. During the course of set aside proceedings, while reconsidering the difference of ₹.4,40,25,685/- between the closing stock as per the balance sheet and closing stock submitted to the banks, the Assessing Officer treated the same as unexplained investment and assessed the same under section 69 of the Act, thereby confirming the original assessment order passed under section 143(3) of the Act. Against the order under section 143(3) r.w.s. 254 of the Act, the assessee preferred further appeal before the ld. CIT(A). After considering the submissions of the assessee and analysing the observations of the Assessing Officer in set aside proceedings and confirmation from the bank authorities, the ld. CIT(A) deleted the addition made under section 69 of the Act.
The Revenue is in appeal before the Tribunal. By relying upon the decision in the case of Coimbatore Spinning & Weaving Co. Ltd. v. CIT 95 ITR 375 (Mad) and case law, the ld. DR has submitted that when onus lies on the assessee and in the absence of any details identifying the stocks that are claimed to be overstated in the stock statement filed by the assessee before the bankers vis-à-vis the stock considered in the balance sheet, the assessee has failed to clarify the difference and thus, the ld. CIT(A) has erroneously deleted the addition made by the Assessing Officer on the difference between the value of stock furnished before the Banks and the return of income and pleaded for reversing the appellate order and restoring that of the assessment order. On the other hand, by relying on the decision in the case of CIT v. N. Swamy 241 ITR 363 (Mad), the ld. Counsel for the assessee has prayed for confirming the appellate order in deleting the addition made under section 69 of the Act.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee and case law relied on. By observing that there was difference of ₹.4,40,25,685/- between the value of stock furnished before the Banks and the return of income filed by the assessee, the Assessing Officer made addition under section 69 of the Act. In the second round of litigation, by analysing the observations of the Assessing Officer, remand report and other facts available on record, the findings of the ld. CIT(A) are reproduced as under: (a) The stock is only hypothecated and not pledged. Hence, no stock audit was conducted by the Bank for the financial year 2007-08. This is confirmed by the Banks. (b) The company has not submitted any item-wise/quality-wise list of stocks to the banks. (c) The company has valued the stocks at lower of cost or market price/net realizable value. The banks have mentioned that the company has not made a separate disclosure of stock (items, quantity and value). (d) The remand report has not clearly spelt out whether there is any mistake in the accounts maintained by the appellant except stating that the stock value furnished to the bank was different from what is disclosed in the return of income. As per the Bank’s norms, stock statement as on 31st March, 2008 (e) have to be submitted on or before 7th April, 2008, in the absence of which the unavailed limits would be frozen. There is no enough time to evaluate the stock within seven days. The other stock available with the bank is as on 8th March, 2008. (f) The AO has stated in the assessment order that the appellant could not substantiate/adjustments made in the closing stock submitted before the Bank. The appellant objected to the conclusion stating that since no stock statement was submitted to Bank, the question of substantiating the difference/adjustment made in the closing stock submitted to Bank does not arise.
(g) In the appellate order dated 17.10.2011 (Appeal No.230/10-11) passed in connection with the order u/s 143(3) for the same assessment year (AY: 2008-09), my predecessor has allowed the appeal in favour of the appellant company. The ld. CIT(A) further observed that the assessee has furnished a higher value for the stock inventory to the Bank. At the same time, the Assessing Officer has not proved why the stock details furnished to the Assessing Officer in the Return of Income is incorrect except pointing out minor errors, which could have been verified or confirmed by calling further details. Minor errors are possible in a situation where thousands of materials forming part of raw materials, semi-finished goods, and finished products are considered for valuation. It is illogical to conclude that what is furnished to Bank is correct and what is furnished after verification in the Return of Income is incorrect without gathering sufficient materials to disprove it. The ld. CIT(A) has also observed that the stock in quantity and value is inflated on estimate basis in the statements furnished to the Banking authorities to avail higher financial credits. This may be a normal business practice adopted by the corporates to obtain larger credit facilities, but 'this unethical and unholy practice has to be deprecated. But the Assessing Officer could not detect a discrepancy in stock. At the time of finalization of accounts, the statutory auditors have conducted physical verification of inventory and item-wise list of inventory which was not challenged by the Assessing Officer. The inflated and estimated stock is hypothecated and not pledged. No actual physical verification of stock is carried out by the Officer or the banking authorities during the year or as on date of valuation of stock. The assessee has maintained stock register. The assessee’s books of account are not found to be defective or non genuine by the Assessing Officer except identifying minor errors as discussed in earlier paragraphs. The books of account maintained by the assessee are accepted by the Central Excise and Sales Tax Departments as well. Under these facts and circumstances, the ld. CIT(A) deleted the addition of ₹.4,40,25,685/- made under section 69 of the Act.
4.1 Before us, the ld. DR has relied on the decision in the case of Coimbatore Spinning & Weaving Co. Ltd. v. CIT and pleaded for reversing the appellate order. We have gone through the above case law as well as the decision relied on by the ld. Counsel in the case of CIT v. N. Swamy (supra), in which the case law relied on before the Tribunal was also relied on before the Hon’ble Jurisdictional High Court and find that while applying the case law as relied on by the ld. DR as well as in the case of Parimisetti Seetharamamma v. CIT 57 ITR 532 (SC), in the case of CIT v. N. Swamy, the Hon’ble Jurisdictional High Court has observed and held as under: “4. We find it a little difficult to agree with those observations. The asses- see's income is to be assessed by the Income-tax Officer on the basis of the material which is required to be considered for the purpose of assessment and ordinarily not on the basis of the statement which the assessee may have given to a third party unless there is material to corroborate that statement of the assessee given to a third party, even if it be a bank. The mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had undisclosed income is on the Revenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income. That the burden is on the Revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income, are propositions which are well settled by the Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 which reiterates these propositions.” 4.2 Respectfully following the above decision of the Hon’ble Jurisdictional High Court, we sustain the appellate order in deleting the addition made under section 69 of the Act. Thus, the ground raised by the Revenue stands dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 02nd January, 2020 at Chennai.