M/S G. PAUL & SONS,KOLKATA vs. ITO, WARD 43(1), KOLKATA, KOLKATA

The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in making an addition of Rs.15,91,226/- on account of under valuation of closing stock.

The addition was made by the AO and confirmed by the CIT(A) in the following circumstances : The Assessee is a partnership firm. It is engaged in the business of reselling tea. The assessee was availing cash credit facilities from Canara Bank, M.D.Road Branch. The credit facilities was allowed on security of stock in trade. As per the statement of stock submitted by the assessee to the bank the stock of tea shown by the assessee was 20,255 kg valued at Rs.21,68,035/- as on 05.04.2010. As per the closing stock reflected in the books of accounts the closing stock was shown at 4657 kg valued at a sum of M/s G.Paul & Sons A.Yr.2011-12 Rs.5,76,809/-. The difference was added as unexplained investment in stock by the AO which was confirmed by the CIT(A).

Before me the ld. Counsel for the assessee pointed out that the assessee had furnished day-to-day stock position before the AO as per the books of accounts. The AO has not found any discrepancy whatsoever in that statement. It was also submitted that the stock disclosed to the bank was for getting higher credit limits. The ld. Counsel brought to our notice the decision of the Hon’ble Calcutta High Court in the case of CIT vs Shib Sankar Das [2017] 83 taxmann.com 193 (Cal)/396 ITR 39(Cal), wherein the Hon’ble Calcutta High Court after analysing several decisions including the decision of the Hon’ble Gujarat High Court in the case of CIT vs Riddhi Steel & Tubes (P)Ltd 220 Taxmann 149 (Guj) came to the conclusion that the addition made on the basis of stock statement submitted by the assessee to a bank for providing enhanced facilities cannot be made. The ld. DR relied on the order of the CIT(A).

I have given careful consideration to the rival submissions. The main basis on which the AO made the impugned addition is on the basis of the difference in the value of stock as reported by the assessee to the bank and the value of stock as recorded by the assessee in the books of accounts as on 31.03.2011. It is seen from the paper book filed by the assessee that the assessee has filed statement of stock item-wise as per the books of accounts for the period 01.04.2010 to 31.03.201. The figure of sales as recorded by the assessee in the books of accounts and the figure of opening stock and the closing stock as per books has been accepted as correct by the AO. It is therefore clear that there was no attempt to verify the existence physically of the stock declared by the assessee to the bank. The impugned addition has been made by the AO as per the provision of section 69B of the Act viz. amount of investment not fully disclosed in the books of accounts. It is necessary for invoking the said provision that there should be a finding of investment in stock by the assessee which is not recorded in the books of 2

The circumstance in the present case does not show that the assessee would have made investment in stock which is not reflected in the books of accounts. The statement of stock, a copy of which is placed at pages 28 to 30 of the assessee’s paper book gives date-wise details of stock. As I have already stated the statement of stock filed was along with the books of accounts by the assessee before the AO. The addition is therefore made only on the stock statement filed by the assessee with the bank for the purpose of availing of credit limits. The Hon’ble Gujarat High Court in the case of Riddhi Steel & Tubes (P)Ltd in an identical situation took the following view :-

In the result the appeal of the assessee is allowed.