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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Appellant by : Ms. Rachna Singh, CIT DR Respondent by: Sh. KVSR Krishna, CA Sh. Nirdesh Garg, Adv Date of Hearing 09/11/2016 Date of pronouncement 07/02/2017 O R D E R PER PRASHANT MAHARISHI, A. M.
This is appeal filed by the revenue against the order of the ld CIT (A)-V, New Delhi dated 21.11.2013 for the Assessment Year 1999-2000.
The revenue has raised the following grounds of appeal:- “1.1 On the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting of Rs. 113905000/- made by the Assessing Officer on account of excess stock. 1.2 On the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting the said addition made by the Assessing Officer ignoring the fact that the assessee could not substantiate the different between the stock reported to the bank and the stock as per books of the accounts.”
3. The solitary ground taken by revenue in this appeal is against the order of the Ld. CIT (A) wherein he has deleted the addition of Rs. 11, 39, 05, 000/– on account of excess stock. The brief history of the above disallowance/ addition is that assessee is Sugar manufacturing company who filed its return of income on 30/11/2000 declaring nil income. Subsequently during the course of assessment proceedings, the Ld. assessing officer made an addition of Rs. 11.39 crores on account of under valuation of closing stock. According to the Ld. assessing officer as such the stock placed with the bank consisting of 3 98125 bags of sugar of 1 printers each the value of which is Rs.
Page 2 of 7 5 453.16 Lacs is actual stock for purpose of obtaining cash credit limit whereas the Stoke of sugar as per the assessee’s record is consisting of 310934 bags amounting to Rs. 4 314.10 Lacs. Therefore, according to him there is a difference in quantity of the bags of sugar of 87191 the value of which is Rs. 1139.05 lakhs . This addition was contested by assessee before the Ld. first appellate authority who confirmed the above disallowance/addition vide order dated the 11/3/ 2008. Subsequently appeal was referred against the order of the Ld. CIT (A) before the coordinate bench and who vied order dated 30/11/2010 in ITA number 03/08/2003/del/2008 restored the issue back to the file of the Ld. that CIT (A ) for re-adjudication. The direction given by the coordinate bench is as per para No. 11 of the order of the coordinate bench. The Ld. first appellate authority who vied order dated 21 – 11 – 2013 deleted the above addition. Therefore, against the order of the Ld. first appellate authority revenue is in appeal before us contesting the above ground.
The Ld. departmental representative vehemently contested that that there is a difference of 87191 backs as per the books of accounts and as per the bank statement given to the bank for obtaining the cash credit limit. His main contention was that the closing stock of solar was also given to the bank showing 398125 quintals in same way in the books of account the closing stock of the sugar was shown as 310934 quintals therefore on the same day how there can be two stock quantity which can be obtained by the assessee. He further relied upon the decision of the Hon’ble Gauhati High Court in case of Dhansiram Agarwalla V CIT 201 ITR 192, Hon’ble Madras High Court in case of Coimbatore spinning and weaving company Ltd versus CIT 95 ITR 375, Hon’ble Karnataka High Court in case of Recon machine tools private Ltd versus CIT 286 ITR 637, Hon’ble Andhra Pradesh High Court in case of CIT versus mopeds India 173 ITR 347 and Hon’ble Bombay High Court in case of Molmould Corporation versus CIT 202 ITR 789.
The Ld. authorized representative first referred to the para No. 11 of the order of the coordinate bench where from the issue has been restored back to the file of the Ld. CIT appeal. According to him, the matter was restored to the file of the Ld. CIT appeal was with respect to the bank statement and excise records with both of whom are official records and their needs to be verified Page 3 of 7 and therefore a specific finding is required to be given. Accordingly the Ld. CIT (A) was directed to give the assessee are reasonable unfortunately of hearing and to produce the evidence to show that what is stated in the stock statement submitted to bank was not correct in what is stated in the account book is correct. He further referred to a comparative chart of opening and closing stock of the companies finish stock as per the bank records and as per the books of accounts. He further submitted that reconciliation of excess stock as per the bank stock with the books of accounts is placed at para No. 15 of the order of the learner CIT appeal at page No. 8 where the complete reconciliation has been provided he stated that it shows that there is a non-existent stock of sugar manufactured in the season 1996 – 1997. He further referred to para No. 24 of the Ld. CIT appeal wherein he stated that the assessee has demonstrated that the addition cannot be made in the hands of the assessee by producing reconciliation of current year finish stock as per excise records and bank records, stock statement as per Central bank of India as on 31/03/1999, stock statement as per Central bank of India as on 31 – 03 – 1998, copy of the excise records for 3 seasons, reconciliation of the stock with the excise records and reconciliation of excess top as per the bank stocks statement with the books of accounts. He further referred to the page No. 14 of the order of the Ld. CIT appeal that based on the verification of the same he has deleted the addition. In the and he referred to the page No. 16 of the order of the learner CIT appeal wherein he has mentioned that after opting opening stock of sugar as well as the closing stock of sugary both are considered as per the statement given to the bank and what remains is a quantitative difference of only 3 quintiles of sugar which is part practically negligible in the case of the assessee. Therefore according to the Ld. CIT appeal from his perspective there is no ground for making addition to the income on account of excess top of sugar in the previous year relevant to this assessment year. Accordingly, he submitted that in any case only the differences of 3 quintals only. He further submitted that all the case was submitted by the revenue are only with respect to the valuation of the closing stock and not on the quantitative details, therefore they are not applicable to the facts of the present case.
Page 4 of 7 6. In the rejoinder the Ld. departmental representative submitted that assessee has hypothecated the stock and it is not pledged the stock therefore he further referred to the verification given by the assessee on the stock statement wherein it is mentioned that that the stock given to the bank is mentioned to be correct. He specifically less stress on page No. 45 of the paper book. He further referred to para No. 9 of the order of the learner CIT appeal wherein it is been mentioned by the assessee in written submission before him that on 10/03/1998 the closing stock of the sober for the season of 96-97 was 3.365 quintiles only he stated that these are the different dates then the dates on which the stock have been submitted to the bank. Therefore he submitted that according to the Ld. assessing officer the differences arising is correctly calculated and the Ld. CIT appeal has erroneously held that the differences only for three quintiles.
We have carefully considered the rival contentions. In the present case the reopening has been initiated by the Ld. assessing officer after completing the assessment under section 143 (3 wide order dated 28/03/2002, on receipt of information received from Central bank of India on the ground that assessee has understated the sugar stock by 87191 bags in the books is against the stock reported to the bank by way of pledge. This resulted into the addition of the above sum of Rs. 11.39 crores in the hands of the assessee. The fact that remained uncontroverted is that sugar is a controlled commodity and therefore it cannot be purchased from any other source other then the area allotted to them for procurement of cane which is the basic ingredient for production of sugar. Furthermore purchase of sugar cane and production of sugar is recorded in the supervision of the government authorities on a day-to-day basis in the excise records which remains uncontroverted. The assessee for the purpose of obtaining credit facility from Central bank of India was required to submit hypothecation of stock statement to the bank. Admittedly closing stock as at 31st of March 1999 as per books of accounts was 310934 bags whereas as per the bank statement given to the Central bank of India it was shown to be 398125 bags and therefore there was a difference of 87191 bags in the stock according to the books of the assessee as well as stock statement given to the bankers. At para No. 11 of the order of the learner CIT appeal a chart is reproduced which shows that in the Page 5 of 7 opening stock as per books of accounts there were 384300 bags as per the books of accounts whereas the information given to the banker in the bank stock statement was 471488 bags therefore there was a difference of 87188 bags in the opening stock. From the above chart it is apparent that during the year there was difference arising out of operation of 3 bags only i.e. ( difference of opening stock of 87188 bags minus difference of closing stock of 87191 bags). From the above chart it is apparent that even if there is a difference in the closing stock it does not arise during the year but is carried forward from the earlier year. Further the quantitative details submitted by the assessee were also reconciled with the excise records of the finished goods produced before the excise authorities too. The books of accounts of the assessee are audited and in the tax audit report the quantitative details are also mentioned. After considering the information submitted by the assessee is mentioned in para No. 24 of his order he dealt with the whole issue and decided as under:- “The short issue to be decided in this case is regarding the credence and weight to be attached to the stock statement of sugar submitted to the bank by the appellant as on 31.03.1999 as against the stock as reflected in the books of accounts maintained by the assessee, which again is backed by the RG-1 register and in Form 3CD duly audited by the auditors. The sum and substance of the argument of the appellant is that the stock statement submitted before the bank is for the limited purpose for obtaining credit limit and that beyond this no further value should be attached to this statement. The appellant has placed heavy reliance on the RG-1 Register maintained by the appellant under the Central Excise Regulations for day-to-day production of sugar and removal thereof from the factory premises / warehouses, on day to day basis. That the Register is duly verified by the Excise Inspector as evidenced by the verification available on the register itself. The AO in his order u/s 143(3) / 147 has also noted that appellant vide letter dated 15.12.2006 filed submissions before the AO including copies of the Excise Register namely RG-1 and for BISS quantity (sub-standard sugar). On the perusal of the RG I registers the opening stock of sugar as on 1.4.1998 is 3,84,300 Qtls . This comprises of stock of season 1996-97 at NIL, and for season 1997-98 at 3,84,300 Qtls and closing stock as on 31.03.1999 is 3,10,934 Qtls. which comprises of stock of season 1996-9? at NIL , for season 1997-98 at 85951 Qtls. and for season 1998-99 at 2,24,983 Qtls which is duly tallied with the audited accounts . It has also been argued that purchase of cane and production of sugar is a controlled item and that there is no way that the assessee could have either purchased unaccounted stock of sugar or would have suppressed its production records. Moreover in this context it is noted thai the AO has not rejected the production records or has found any discrepancy in the same.
Page 6 of 7 Rather the AO has accepted the book results including the trading results i.e. the production and sales during the year as there is no adverse finding on this issue by the AO. Therefore the appellant submits that there is no ground for making addition to income for the alleged excess stock of sugar in the previous year relevant to this assessment year merely on the basis of the discrepancy of stock noted on a comparison with the stock statement filed with the bank, which is for the purposes of obtaining credit limit. In view of the above primary records maintained by the appellant which are verified by the Central Excise authorities and which have not been found to be untrue or incorrect by the Assessing Officer , there is enough substance in the arguments advanced by the appellant that the books of accounts reflecting the, stock details reflect the true state of affairs. Moreover, the AO in his order has only considered the closing stock of sugar as on 31.03.1999, as per the bank statement which is at 3,98,125 Qtls. and after comparing the same with that of the closing stock as on 3 1sl March 1999 in the audited accounts i.e. 3,10,934 Qtls. and gone on to add the difference in excess stock of 87,19J Qtls. as assessee's income for the year. In this connection it is a logical step that when the AO has placed absolute reliance to the closing stock figures as per bank statement for making the above stated addition to income then he should have necessarily taken the figures of opening stock of sugar as well from the same source, namely the statement as on'31.03.1998 as furnished to the bank. This preposition is based on the principle of consistency in approach as it would be improper to place reliance on the book stock for opening balance and in the same breadth the bank statement for closing balance. Therefore, the opening stock of sugar (which has been duly verified by the Central Bank of India vide letter dated 2.9.2013, in response to notice u/s 133(6) of the Act ) as well as the closing stock of sugar, if both are considered as per the statement given to the bank then what remains is quantitative difference of only 3 Qtls. of sugar which is practically negligible. Therefore seen from this perspective too there is no ground for making addition to income on account of excess stock of sugar in the previous year relevant to this assessment year. These facts also lend credence to the submission of the appellant that the statement of stock pledged with the bank is only for availing financial credit. Consequently, the addition of Rs. 11,39,05,000/- made by the AO on account of excess stock on basis of bank statement per se is not tenable and therefore the AO is directed to delete the same.”
According to us, ld CIT (A) has correctly stated that during the year there is only a difference of 3 bags of sugar which is practically negligible looking to the operation of the assessee. Further it is not the case of the revenue that assessee has pledged the stock to the banker it is merely a case of hypothecation of the stock where the possession of the stock remains with the assessee and not under the lock and key of the banker. As we do not see any infirmity in the order of the Ld. CIT appeal we confirm his finding in deleting the addition of Rs. 113905000/– made by the assessing officer on