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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’, KOLKATA
Before: Shri P.M. Jagtap, AM]
order : June 20, 2018 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 6, Kolkata dated 28.07.2017 and the solitary issue involved therein relates to the addition of Rs. 10,00,890/- made by the AO and confirmed by the Ld. CIT(A) on account of difference in valuation of stock as reflected in the accounts of the assessee and as shown in the stock statement submitted to the bank.
The assessee in the present case is a partnership firm which is engaged in the business of trading of building materials. The return of income for the year under consideration was filed by it on 28.03.2012 declaring a total income at Nil. In the assessment originally completed under section 143(3) vide an order dated 13.12.2012, the total income of the assessee was determined by the AO at Rs. 1,21,390/- after making an addition of Rs. 1,21,390/- on account of discrepancy found in the stock statement. The said assessment was subsequently
Assessment Year: 2010-11 M/s. Madan Mohan Engineering & Hardware set aside by the Ld. CIT vide its order under section 263 with the direction to the AO to complete the same afresh after making enquiry on the issue of difference in valuation of closing stock as reflected in the balance sheet of the assessee and as shown in the stock statement submitted by the assessee to the bank. As per the direction of the Ld. CIT given in the order u/s 263, the issue relating to difference in the value of closing stock was enquired by the AO. On such enquiry, he found that the value of stock declared by the assessee in the stock statement submitted to PNB for availing cash credit facility was Rs. 15,29,500/- while the valuation of closing stock as reflected in the balance sheet of the assessee was Rs. 5,28,610/-. Since the assessee could not offer any explanation as regards this difference of Rs. 10,00,890/- in the value of closing stock to the satisfaction of the AO, the later made an addition of Rs. 10,00,890/- to the total income of the assessee in the assessment completed under section 143(3) read with rule 263 vide an order dated 24.08.2015.
Against the order passed by the A.O. u/s 143(3) read with rule 263, an appeal was preferred by the assessee before the Ld. CIT(A) challenging the addition made by the AO on account of difference in the value of closing stock and since the submission made by the assessee in support of its case on this issue was not found acceptable by the Ld. CIT(A), the latter confirmed the addition made by the AO on account of difference in the value of closing stock for the following reasons given in paragraph nos. 5.1, 5.2 and 5.3: “5.1 I am therefore of the view that the case law cited by the AR of the appellant are distinguishable from the case of the appellant. In the case of the appellant a clear cut discrepancy in the quantity of stock has been detected which remains unexplained. I will therefore place reliance on Assessment Year: 2010-11 M/s. Madan Mohan Engineering & Hardware Kolkata ITAT’s Order in the case of M/s. Estee Export Pvt. Vs ITO, for A.Y. 2006-07 dated 09.08.2012. In this case also difference in stock as per books of accounts and stock statements submitted to bank was noticed. Investigation revealed that while appellant was in the possession of 213,138 Metric tons of goods having a value of Rs. 46,27,535/-, in books of accounts stock to the extent of only 180.927 metric tons valued at Rs. 43,67,515/- was reflected. Therefore, stock to the extent of Rs. 32.211 metric tons of goods valuing Rs. 2,60,020/- was not reflected in the books of accounts whereas the bank statement showed so. The Ld. ITAT at para 11 to its order concluded as below: ‘Having heard the rival submissions and perused the materials available on record and having gone through the various documents and the findings arrived at in the impugned order, I am of the view that in the peculiar facts and circumstances of the case, in the facts as it stand, the ground raised
by the assessee deserves to be rejected. Even when the arguments advanced on behalf of the assessee are accepted for the moment, it is seen that the figures do not reconcile even then. Thus the assessee despite being given more than sufficient opportunity has not been able to explain the discrepancy in stock. No new document or evidence has been brought to the notice of the Bench, nor has the assessee been able to show how the document has been wrongly considered. As such neither on facts nor on law the assessee’s explanation is acceptable, as the alleged practice cannot be given judicial notice. Reliance is placed upon Coimbatore Spinning & Weaving Co. Ltd. V. CIT (1974)
95. ITR 375 (Mad), Ramanlal Kacharulal Tejmal V. CIT (1984) 146 ITR 368 and Dhansiram Agarwala V. CIT (1993) 201 ITR 192 (Gau).
5.2. In this context the ratio laid down by the Hon’ble Madras High Court in the case of “Coimbatore Spinning & Weaving Co. Ltd. V. CIT (1974) 95 ITR 375 (Mad) is mentioned. The Hon’ble High Court observed that the alleged practice said to be followed by business houses of declaring larger stocks to the banks for the purpose of getting higher loans or overdraft facilities has neither been shown to exist nor recognised in commercial circles or by courts and even assuming that such a practise exists, the Tribunal is not expected to take judicial notice of such sub standard morality on behalf of the assessee so as to enable them to go back on their own sworn statements given to the banks as to the stocks held or hypothecated by them in the banks.
5.3. In view of a clear cut judgment of the Jurisdictional Tribunal as mentioned above in cases where clear cut quantity stock discrepancy is Assessment Year: 2010-11 M/s. Madan Mohan Engineering & Hardware noticed and which cannot be explained by the appellant, the normal conclusion should be to confirm addition made by the A.O. passed on such unexplained discrepancy. I am therefore of the view that addition on account of stock discrepancy to the extent of Rs. 10,00,890/- made by the A.O. should be confirmed. Accordingly Grounds No. 1, 2 and 3 of the appeal of the appellant are dismissed. Ground no. 4 is general in nature and does not require any separate adjudication.”
I have heard the arguments of both the sides and also perused the relevant material available on record. Although the learned DR has strongly relied on the impugned order of the Ld. CIT(A) in support of the revenue’s case on the issue under consideration, it is observed that this issue is squarely covered in favour of the assessee, apart from the various decisions of this Tribunal, by the decision of Hon’ble Madras High Court in the case of CIT vs App Com Computers Pvt. Ltd. 158 taxman 363 and Hon’ble Rajasthan High Court in the case of CIT vs Relaxo Footwear 123 taxman 322. As held by the Hon’ble Madras High Court in the case of Apcom Computers Pvt. Ltd. (supra), difference in value of stock based on the inflated stock statement given by the assessee to bank for obtaining higher loan facilities on an estimate basis without any actual physical verification could not be treated as the undisclosed income of the assessee. To the similar effect is the decision of Hon’ble Rajasthan High Court in the case of Relaxo Footwear (supra) wherein it was held that no addition could be made to the income of the assessee on the basis of stock statement submitted to the bank which was deliberately inflated by the assessee only to get higher limit of credit from bank. Respectfully following the said judicial pronouncements, I delete the addition of Rs. 10,00,890/- made by the AO and confirmed by the Ld. CIT(A) on Assessment Year: 2010-11 M/s. Madan Mohan Engineering & Hardware the basis of inflated value of stock declared by the assessee to the bank for availing higher credit facility.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 20th June, 2018.