Commissioner of Income Tax vs Chemmeens

Paripoornan, J.—This is a petition filed by the Revenue u/s 256(2) of the Income Tax Act, 1961, to direct the Income Tax Appellate Tribunal to refer certain questions of law arising out of its order dated April 19, 1985. The respondent herein is an assessee to Income Tax. The matter relates to the assessment year 1976-77. The assessee is a firm doing business in the export of prawns and other sea foods. It declared the value of the closing stock at Rs. 3,22,062 in the profit and loss account. The Income Tax Officer found that the assessee had declared its closing stock to the bunk as on December 19, 1975, at Rs. 37,74,953 and on December 31, 1975, at Rs. 19,88,145. There was discrepancy between the value of stock disclosed to the bank and to the Department. The Income Tax Officer worked out the difference and made an addition of Rs. 12,65,658. In appeal, the Appellate Assistant Commissioner deleted the addition, This was affirmed by the Income Tax Appellate Tribunal. The application filed by the Revenue u/s 256(1) of the Income Tax Act was rejected. It is thereafter that the Revenue has filed this original petition.

We heard counsel for the Revenue, Mr. P.K. Ravindranatha Menon, as also counsel for the assessee-respondent, Mr. Chacko, It is common ground that there is discrepancy in the value of stock disclosed to the bank and to the Department. The sole question is whether the Income Tax Officer was justified in working out the difference and in effecting the addition. The plea of the assessee was that it was compelled to give inflated stock statements to the banks for the last so many years to raise finance. It was stated that it was being done in the previous years also and what was done in the instant year was only a repetition of the said practice. This seems to have been accepted by the Income Tax Appellate Tribunal in a sense.

Having heard the rival contentions of the parties, we are of the view that questions Nos. 1 and 4 formulated in paragraph 7 of the original petition are questions of law which do arise out of the appellate order of the Appellate Tribunal. We, therefore, direct the Income Tax Appellate Tribunal to refer questions Nos. 1 and 4, extracted hereinbelow, along with the statement of the case for the decision of this court.

Questions :

"1. Whether, on the facts and in the circumstances of the case and also in view of the fact that the assessee had declared the value of stock as on December 19, 1975 at Rs. 37,74,953 in a statement furnished to the ''bank'', the Tribunal is right in relying on the profit and loss account wherein the assessee had declared the closing stock value at Rs. 3,22,061 ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that ''there is no need to interfere with the order of the Commissioner of Income Tax (Appeals) in his deleting the addition of Rs. 12,65,658 although for a different reason'' and is not the deletion and the reasons of the appellate authorities for the deletion wrong, untenable, unwarranted, illogical and unsupported by relevant materials ?"

The original petition is allowed to the above extent.