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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER Assessment Year : 2013-14 ITO, Ward-2 Vs. M/s.Faiz Industries Morbi. B-1, National Highway Lalpar, Tal. Wankaner अपीलाथ�/ (Appellant) �� यथ�/(Respondent) Assessee by : Shri D.M. Rindani, ld.AR Revenue by : Shri Shramdeep Sinha, ld.CIT-DR सुनवाई क� तार�ख/Date of Hearing : 16/10/2023 घोषणा क� तार�ख /Date of Pronouncement: 31/10/2023 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the Revenue against order passed by the ld.Commissioner of Income Tax(Appeals)-3, Rajkot [hereinafter referred to as “Ld.CIT(A)under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) dated 31.1.2017 pertaining to the Asst.Year 2013-14.
Solitary ground raised in the appeal reads as under:
“1. On the facts and circumstances of the cases and in law, the ld.CIT(A) has erred in deleting the addition of Rs.5,03,99,748/- made on account of difference of quantity and value of stock without considering the facts of the case as the assessee could not just get away just by stating that statement of stock was given to the bank to avail the higher overdraft facility.”
The issue raised by the Revenue in the above ground is that the ld.CIT(A) had failed to appreciate the fact that the difference in value of stock, i.e. the value of closing stock as per the books and the value of closing stock declared to the bank for availing credit facilities, being Rs.5,03,99,748/- was concealed income and to be treated as unaccounted income earned by the assessee through undisclosed sources.
We would take note of brief facts from relevant orders of the Revenue authorities that the assessee is a manufacturer and trading in root cotton seeds and job work activity relating to the cotton. During the assessment under section 143(3) of the Act, it was revealed to the AO from the stock statement furnished by the assessee for availing credit facilities from the bank that there was a difference between the stock details furnished to the bank and the stock details as per the audit report. The details of value of difference of stock noted by the AO in his impugned order at page no.15 are as under:
Sr. Item Difference Rate/kgs Amount No. in Kgs
1 Kapas 795500Kgs 50.50 Rs.4,01,72,750/- 2 Cotton Seed 344873Kgs 18.75 kgs Rs.64,66,369/- 3 Wash OH 25263Kgs 58 Rs.14,65,254/-
4 Cake 153025 Kgs 15 Rs.22,95,375/- Total Rs.5,03,99,748/-
The AO was of the view that the assessee had submitted actual stock report to the bank while for calculating the income for the year under consideration, the assessee had submitted incorrect and wrong information with regard to value of closing stock in order to 3 suppress the income and evade due tax liability. In other words, the AO construed that the assessee has reported actual stock to the bank, but did not fully disclose the stock while computing the income for tax purpose. The AO accordingly issued show cause notice to the assessee as to why the difference of value of stock being Rs.5,03,99,748/- should not be added to the income of the assessee. The assessee explained that the stock statement furnished to the bank was inflated to avail higher credit facility from the banks; that the stock was hypothecated to the bank and not pledged; quantitative details of all the material were available on record; that the AO has any material with him to substantiate suppression of stock value, and merely relying on the stock furnished to the bank, which was on estimate basis to avail higher credit he made the impugned addition; that the accounts of the assessee was subjected tax audit under section 44AB and the auditors had qualified the report. The assessee also relied on various case laws to support its case that addition could not be made on account of difference arising in the quantity and value of the stock shown in the books of accounts and the statement to the bank authorities; that stock register giving complete quantitative details including month-wise details of raw-materials, finished goods and semi-finished goods were maintained and furnished; that the assessee has been filing regular returns since last 10 years and has been consistently following method of accounting as prescribed under section 145 of the Act and valuing closing stock and inventories as prescribed under the Act and no error or defects has been pointed out by the lower authorities in this behalf. Thus, the assessee contended that the proposed addition was unjustified.
However, the ld.AO did not accept the explanation of the assessee. He maintained his view of deliberate suppression of value
4 of closing stock by the assessee in order to minimize the income and avoid payment of income-tax, and he accordingly made difference of stock of value of Rs.5,03,99,748/- as concealed income representing the stock difference.
Aggrieved, the assessee went in appeal before the ld.CIT(A), who after considering the submissions of the assessee and also relying on various cases, notably, the decision of jurisdictional High Court in the case of CIT Vs. Sriddhi Steel & Tubes P.Ltd., Tax Appeal No.848 of 2013, accepted submissions of the assessee that the stock statement furnished to the bank was inflated to avail higher credit facility; that the stock was hypothecated only and not pledged and the bank had fixed the working capital limit on the basis of monthly statement of materials and finished goods furnished by the appellant to it without conducting physical verification. He further observed that the books of accounts of the assessee were subjected to tax audit as well as VAT audit, and no discrepancies had been pointed out by the AO; that in case the addition as made by the AO was given effect, the financial statement and consequent GP percentage would get distorted. The ld.CIT(A) accordingly deleted the impugned addition made by the AO, which is now contested by the Revenue before the Tribunal by way of the present appeal.
During the course of hearing before us, one of the arguments made by the ld.counsel for the assessee was to the effect that the stock statement presented to the bank had been incorrectly prepared by taking wrong figures of opening stock, purchases and sales; that stock statement submitted to the bank were to be prepared on the basis of correct figure of purchases, sales and opening stock, there would be no difference in the closing stock reflected to the bank. A reconciliation statement was filed before us by the ld.counsel for the assessee pointing out that fallacy in the stock statement submitted to the bank in taking figures of purchase and sales and opening stock which had resulted in excess stock of various items, dealt with by the assessee was submitted to the bank. The said statement was filed before us in the form of Annexure-A which is reproduced hereunder:
ANNUAL ANALYSIS AND RECONCILATION OF STOCK DIFFERENCE (BOOKS & BANK):
Cotton Cotton Seed Wash Oil Oil Cake Particulars/Item (Qty in Kgs) (Qty in Kgs) (Qty in Kgs) (Qty in Kgs)
(A) Difference Added by AO as excess 7,95,500 3,44,873 25,263 1,53,025 stock to Bank
Total (A) 7,95,500 3,44,873 25,263 1,53,025 (B) Reasons for difference: - Higher opening balance as per Bank St. 3,17,540 2,01,515 35,500 1,05,600 - Higher/(Lower) Receipts as per Bank St. 1,40,950 (2,04,817) (65,495) (1,51,975) - Lower/(Higher) Issue as per Bank St. 3,37,055 3,48,175 55,258 1,99,400
Total (B) 7,95,545 3,44,873 25,263 1,53,025
(C) Real Difference (A-B) -45 - - -
Further, a month-wise analysis of all the items was filed pointing out the incorrect figures of purchases and sales taken of the different months in Annexure B/1 and B/2 as under:
MONTH-WISE COMPARATIVE CHART OF STOCK AS PER BOOKS AND AS PER BANK STATEMENT
Difference Difference Difference in Closing in Issue in Cl. stock Stock Difference in KAPAS (COTTON) - AS PER BANK Opening MONTH KAPAS (COTTON) - AS PER BOOKS Stock Openin Receipt Closin Receipt g s Issue g Opening s Issue Closing
2,25,50 - - Apr-12 - 89,001 89,001 - 3,17,540 0 2,45,900 2,97,140 3,17,540 - - 2,97,140 - May-12 - 54,936 54,936 - 2,97,140 - 2,97,140 - 2,97,140 - - - Jun-12 - - - - - - - - - - - Jul-12 - - - - - - - - - - - Aug-12 - - - - - - - - - - - Sep-12 - - - - - - - - - - - Oct-12 - - - - - - - - - - -
1,70,50 - Nov-12 - - - - - 0 - 1,70,500 - - - 1,70,500
23,59,7 6,92,5 23,72,2 - Dec-12 - 00 16,67,102 98 1,70,500 00 20,02,000 5,40,700 1,70,500 - - 1,51,898
6,92,59 23,31,9 30,24, 23,31,9 Jan-13 8 57 - 555 5,40,700 57 20,10,150 8,62,507 1,51,898 - - 21,62,048
30,24,5 15,18,0 45,42, 14,65,0 Feb-13 55 95 - 650 8,62,507 11 14,29,018 8,98,500 21,62,048 - - 36,44,150
45,42,6 12,70,5 12,00,0 - Mar-13 50 74 58,13,224 - 8,98,500 00 13,03,000 7,95,500 36,44,150 - - 7,95,500
76,24,2 77,65,1 - Total - 63 76,24,263 - - 68 72,87,208 - - 1,40,905.00 3,37,055.00
Difference in Opening Difference in Difference in MONTH COTTON SEED - AS PER BOOKS COTTON SEED - AS PER BANK Stock Receipts Difference in Issue Closing Stock
Openin Receipt Closin Receipt g s Issue g Opening s Issue Closing - -
1,52,45 - Apr-12 - - - - 2,01,515 8 - 3,53,973 2,01,515 - - -3,53,973
1,84,22 - May-12 - - - - 3,53,973 6 1,95,370 3,42,829 3,53,973 - - -3,42,829 - Jun-12 - - - - 3,42,829 - - 3,42,829 3,42,829 - - -3,42,829 - Jul-12 - - - - 3,42,829 - - 3,42,829 3,42,829 - - -3,42,829
2,15,80 - Aug-12 - - - - 3,42,829 0 - 5,58,629 3,42,829 - - -5,58,629 - Sep-12 - - - - 5,58,629 - - 5,58,629 5,58,629 - - -5,58,629 - Oct-12 - - - - 5,58,629 - - 5,58,629 5,58,629 - - -5,58,629 - Nov-12 - - - - 5,58,629 35,800 - 5,94,429 5,58,629 - - -5,94,429
11,18,5 13,04,7 - - Dec-12 - 45 11,18,545 5,94,429 10 15,73,439 3,25,700 5,94,429 - - -3,25,700
38,42,9 2,38,0 13,06,5 - Jan-13 - 49 36,04,927 22 3,25,700 97 11,73,597 4,58,700 3,25,700 - - -2,20,678
2,38,02 2,90,4 8,85,99 - Feb-13 2 52,470 - 92 4,58,700 1 7,89,491 5,55,200 2,20,678 - - -2,64,708
2,90,49 3,10,9 7,44,00 - Mar-13 2 20,435 - 27 5,55,200 0 6,43,400 6,55,800 2,64,708 - - -3,44,873
50,34,3 48,29,5 3,48,17 Total 99 47,23,472 82 43,75,297 - 2,04,817.00 5.00 Annexure B (2) MONTH-WISE COMPARATIVE CHART OF STOCK AS PER BOOKS AND AS PER BANK STATEMENT
Difference in Opening Difference in Difference in MONTH WASH OIL - AS PER BOOKS WASH OIL - AS PER BANK Stock Receipts Difference in Issue Closing Stock
Openin Receipt Closin Receipt g s Issue g Opening s Issue Closing - Apr-12 - - - - 35,500 - - 35,500 35,500 - - -35,500 - May-12 - - - - 35,500 - 35,500 - 35,500 - - - Jun-12 - - - - - - - - - - - - Jul-12 - - - - - - - - - - - - Aug-12 - - - - - - - - - - - - Sep-12 - - - - - - - - - - - - Oct-12 - - - - - - - - - - - - Nov-12 - - - - - - - - - - - -
1,28,29 55,97 1,37,82 Dec-12 - 9 72,320 9 - 0 72,320 65,500 - - - -9,521
4,11,15 2,95,3 1,76,50 - Jan-13 55,979 7 1,71,798 38 65,500 0 1,71,798 70,202 9,521 - - 2,25,136
2,95,33 1,86,4 1,34,14 Feb-13 8 - 1,08,843 95 70,202 1 1,08,843 95,500 2,25,136 - - 90,995
1,86,49 75,23 Mar-13 5 - 1,11,258 7 95,500 25,500 20,500 1,00,500 90,995 - - -25,263
5,39,45 4,73,96 55,258. Total 6 4,64,219 1 4,08,961 - 65,495.00 00
Difference in Opening Difference in Difference in MONTH OIL CAKE - AS PER BOOKS OIL CAKE - AS PER BANK Stock Receipts Difference in Issue Closing Stock
Openin Receipt Closin Receipt g s Issue g Opening s Issue Closing - - - - Apr-12 - - - - 1,05,600 - - 1,05,600 1,05,600 - - 1,05,600 - May-12 - - - - 1,05,600 - 1,05,600 - 1,05,600 - - - Jun-12 - - - - - - - - - - - - Jul-12 - - - - - - - - - - - - Aug-12 - - - - - - - - - - - - Sep-12 - - - - - - - - - - - - Oct-12 - - - - - - - - - - - - Nov-12 - - - - - - - - - - - -
9,49,26 10,92,8 - Dec-12 - 8 9,49,268 - - 49 9,49,268 1,43,581 - - - 1,43,581
29,60,4 19,55, 9,95,82 - Jan-13 - 95 10,05,300 195 1,43,581 1 10,05,300 1,34,102 1,43,581 - - 18,21,093
19,55,1 12,97, 13,69,1 Feb-13 95 - 6,57,720 475 1,34,102 18 6,57,720 8,45,500 18,21,093 - - 4,51,975
12,97,4 6,42,4 3,00,00 - Mar-13 75 - 6,55,000 75 8,45,500 0 3,50,000 7,95,500 4,51,975 - - 1,53,025
39,09,7 37,57,7 Total 63 32,67,288 88 30,67,888 - 1,51,975.00 1,99,400.00
Taking note of these submissions of the ld.counsel for the assessee that higher stock statement submitted to the bank was incorrect statement prepared by taking wrong figures of purchase and sales of various items, as also opening stock. The ld.DR was asked to obtain a report from the AO on this factual submissions made by the assessee after affording an opportunity of hearing. A detailed order sheet entry in this regard was passed on 12.6.2023 read as under:
“The addition in dispute before us in the present case relates to the difference in stock as reflected in the books of accounts of the assessee and that reflected in the statement filed to the bank by the assessee. One of the arguments of the ld.counsel for the assessee before us was that the stock statement submitted to the bank had been incorrectly prepared by taking wrong figures of opening stock, purchases, sales and in essence, there was actually no difference in the quantitative stock as per the books of the assessee, and as per the statement submitted to the bank. A reconciliation to this effect was also filed before us. On this aspect of the argument made before us, it is considered pertinent to seek a report from the AO on the submissions so made by the assessee, along with quantitative reconciliation filed in this regard by the assessee, since, in the circumstance, this contention of the assessee is found to be correct, there arises no cause of action for making any addition to the income of the assessee. The appeal is therefore fixed for seeking clarification of both the parties on this point. Fixed for clarification on 5th July, 2023.
Thereafter, the AO submitted his report, which was filed before us and which read as under:
During the course of hearing before us, the ld.DR contended that as per the AO’s report, the fallacy pointed out by the ld.counsel for the assessee in the figures of purchases/sales and opening stock appeared to be correct. He pointed out from the report of the AO that the AO also sought information from the bank regarding the stock verification done by the bank in the case of the assessee in the impugned year, to which the bank expressed its inability to provide the same being a very old matter. The ld.DR pointed out that even basis for granting cash credit limit to the assessee was asked for from the bank, which submitted that based on different documents i.e. audited balance sheet of the assessee, CMA data, CA’s certificate, provisional balance sheet etc. credit limited are provided to the assessee. He pointed out that the bank had submitted that stock verification was done by the bank on a quarterly basis, and therefore, the difference still remained.
Having considered arguments of ld.counsel for the assessee in this regard, and verification exercise carried out by the AO, we find that it is an admitted fact that the stock statement filed to the bank was prepared by taking incorrect figures of the opening stock, purchases and sales of various items made by the assessee. No anomaly has been noted by the AO in the books of accounts of the assessee, nor books of accounts have been rejected; purchases and sales have been verified, therefore, were submitted to the bank, was admittedly incorrect figures of stock.
In view of this fact, the ld.CIT(A), we find, has rightly deleted the addition made on account of difference in the stock as reflected to the bank.
The ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 31st October, 2023 at Ahmedabad.