Commissioner of Income Tax vs Arrow Exim (P) Ltd.

Rajesh H. Shukla, J.—The present appeal has been filed by the appellant IT Department u/s 260A of the IT Act, 1961, proposing to raise the following question of law:

Whether the Tribunal is right in law and on facts in confirming the order passed by CIT(A) and thereby deleting the addition of Rs. 15,56,571 made on account of excess stock?

Heard the learned Counsel Mrs. Mauna M. Bhatt for the appellant.

It was submitted that the stock statement was compared with the details of stock filed by the assessee. It was revealed that the purchases were not genuine. Therefore, a detailed show-cause notice u/s 142(1) of the IT Act was issued dt. 3rd March, 2004, which has been referred to in the assessment order. The assessee submitted the details to clarify on the queries raised. Learned Counsel Mrs. Bhatt submitted that in the months of April and June, 2000, the stock in terms of quantity given to the bank is more than appearing in the books of accounts, and for all other months, the stock as given to the bank is less than the stock as per books of accounts, which would suggest that the purchases were not genuine. The learned Counsel Mrs. Mauna Bhatt further submitted that as can be seen from the stock and the value for the month of June, 2000, in case of one item SS Patta, the stock position furnished to the bank is more than the books of accounts. She therefore strenuously submitted that the assessee had deliberately either given a false statement regarding the stock to the bank for availing the credit facility, or the books of accounts are not reflecting the correct position. Learned Counsel Mrs. Mauna Bhatt therefore submitted that in any event when it is not reconciling and the explanation given by the assessee is that to avail the higher bank limit he had submitted such statements to the bank and therefore the order passed by the authorities below, including CIT(A), Ahmedabad and the Tribunal is erroneous. Learned Counsel Mrs. Bhatt further submitted that on verification of the details, the CIT(A) allowed the appeal partly and directed to delete the addition of Rs. 15,56,57 made on account of excess stock. It is against this order, an appeal was preferred before the Tribunal by the Department and the Tribunal also dismissed the appeal. Learned Counsel Mrs. Bhatt therefore submitted that both CIT(A) and the Tribunal have erred in appreciating the facts and the inconsistent or contradictory statement regarding stock, and therefore, the present appeal has been preferred. Learned Counsel Mrs. Bhatt therefore submitted that in view of the settled position, when the purchases are not found to be genuine, the appeal ought to have been allowed and therefore the order passed by the CIT(A) and the Tribunal is erroneous. Learned Counsel Mrs. Mauna Bhatt has emphasized that the Tribunal has committed an error that it was for the AO to establish, which he has failed.

Though the submissions have been made referring to these aspects, a close perusal of the orders passed by CIT(A) as well as the Tribunal would make it very clear that the AO had issued a detailed show-cause notice which is reflected in the assessment order calling upon the assessee to give the details and submit the explanation, the assessee has complied with the same and submitted the details. Not only that but in response to the query, he has also produced the stock register for Chhatral Branch and also the books of accounts and the bills for verification. After proper scrutiny, the AO has passed an order which has been challenged by the assessee before the CIT(A), Ahmedabad, which came to be allowed and also confirmed by the Tribunal. The Tribunal while referring to the order of the CIT(A) has discussed at length and quoted the observations made by C1T(A) and it has been also observed that:

The addition made to the assessee''s income on account of unexplained investment were not justified.

Further I also find that the books of account are audited and no adverse remarks have been made by the auditors, and hence the figures of stock reflected therein are required to be accepted, especially in absence of any other material brought on record by the AO. The AO has also not doubted the purchase and sales during the year as the books of accounts are duly supported by relevant vouchers and bills. The AO has also failed to establish any unaccounted purchase or sales outside books of accounts so as to establish that the stock as per books is incorrect. He has not-pointed out any defects either in the books of accounts or the accounting system followed by the appellant.

In view of the various judicial pronouncements relied upon by the appellant which have been discussed herein the above para, 1 hold that addition on account of such difference in valuation is not warranted in this case. The AO is directed to delete addition of Rs. 15,56,571 made on account of stock difference between books of account and statement given to the bank.

The much emphasis given by learned Counsel Mrs. Mauna Bhatt that the Tribunal has erred in making this observation that it was for the AO to establish that the sale is not genuine and the; observation that the AO has failed to establish any unaccounted purchases outside the books of accounts to establish that the stock as per books is incorrect, is contrary to the material on record when admittedly the statement before the bank is different than the books of account. However, this submission referring to this observation has to be considered in light of the entire discussion wherein the Tribunal has, referring to the CIT(A) order in detail has accepted the explanation given by the assessee and in that context has stated that when the books of account or the accounting system has been found to be genuine supported by vouchers, etc. the addition was not justified.

It is required to be mentioned that the stocks are hypothecated and not pledged, which was explained by the assessee and therefore in order to avail higher credit facilities the statement was given, but the stock was with the assessee, and therefore the submissions are misconceived.

In view of the discussions made hereinabove, we are not inclined to interfere with the findings arrived at by the CIT(A) as well as the Tribunal, as we see no merit. The present appeal therefore deserves to be dismissed and accordingly stands dismissed summarily.