Allahabad High Court
Commissioner Of Income-Tax vs Gopal Rice Mills on 28 July, 1994
Equivalent citations: (1995)128CTR(ALL)44, [1995]211ITR492(ALL), [1994]77TAXMAN581(ALL)
Bench: A.P. Misra, T.P. Garg
JUDGMENT
1. The Revenue has made the present application under Section 262(2) of the Income-tax Act, 1961, and sought reference of the following question :
"Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in upholding the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs. 3,78,270 made by the Assessing Officer on account of variation between the stock figures of paddy disclosed to the bank and the stock as reflected in the books of account ?"
2. The present application relates to the assessment year 1978-79. The brief facts of the case are that the assessee is a registered firm and was engaged in the business of running a rice mill. The assessee had an overdraft facility with Bareilly Corporation Bank, Bisalpur, District Pilibhit. The original assessment in this case was completed on March 25, 1986, by making an addition of Rs. 3,78,270 as unexplained investment in 4,203 quintals of paddy as on November 8, 1977. The Appellate Commissioner deleted the addition, and the Revenue went in second appeal to the Income-tax Tribunal. The matter was restored to the assessing authority by the Tribunal to cross-examine one Sri Ram Pal and to go through all other relevant evidence and then come to a finding. The assessing authority, accordingly, recorded statements of Sri Ram Pal and three other persons, who acted as branch managers of the bank during different periods and concluded that the bank officers had visited the rice mill from time to time and had inspected the stock of paddy and rice hypothecated to the bank. The statement of Sri Ram Pal that the stock was inflated in order to avail of higher credit facilities to help the firm was rejected by the assessing authority. The stock of paddy was shown as 4,459 quintals in the statement sent to the bank, which was the actual stock hypothecated. On the other hand, it was found that the stock of paddy recorded in the levy register was only 2,569 quintals and on November 8, 1977, 2,322 quintals of paddy was under lock and key of the bank. Thus, the actual stock of paddy with the assessee on November 8, 1977, was 6,772 quintals, whereas the stock of paddy recorded in the levy register was only 2,569 quintals. Therefore, the difference of 4,203 quintals in the stock accounts of paddy was outside the stock register and the addition of Rs. 3,78,270 was again made.
3. The assessee again preferred an appeal. The appellate authority concluded that the inspection made by the officers of the Regional Food Controller was more thorough and constituted better evidence than the inspection, if any, made by the bank officers. Relying on the same, the appellate authority deleted the same to the tune of Rs. 3,78,270. The said addition was also maintained by the Tribunal.
4. The Revenue being aggrieved has filed the present application before this court for referring the aforesaid question.
5. The reliance placed upon the statement of Sri Ram Pal by the first appellate authority to disbelieve that the bank officers made inspection of the stock was sought to be challenged. The statement to the effect that the stock was inflated in order to avail of higher credit facilities to help the firm to obtain larger credit should not have been considered, for which the reliance was placed on the case of Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad) (headnote) :
"The alleged practice said to be followed by business houses of declaring larger stocks to the banks for the purpose of getting higher loans or overdraft facilities has neither been shown to exist nor recognised in commercial circles or by courts and even assuming that such a practice exists, the Tribunal is not expected to take judicial notice of such substandard morality on the part of the assessees so as to enable them to go back on their own sworn statements given to the banks as to the stocks held or hypothecated by them to the banks. A heavy burden lies on the assessee to prove that the books of account alone give a correct picture and the sworn statements given to the banks were motivated."
6. On the other hand, on behalf of the assessee, a case reported in India Motor Parts and Accessories (P.) Ltd. v. CIT [1966] 60 ITR 531 (Mad) was cited, on the same point (at page 536) :
"We think that this difference would not justify the rejection of the method followed by the assessee for ascertainment of his income under the Income-tax Act. What Section 13 contemplates is the method of accounting for purposes of disclosing his income and profits. The figures furnished by him to the State Bank of India for purposes of obtaining an overdraft are not concerned with the actual stock valuation for determining the trade results for purposes of ascertaining the profits and gains derived from that business. For all these reasons, we must hold that the addition made by the Income-tax Officer is unsustainable."
7. From a perusal of the aforesaid decision, it is true that in order to obtain higher credit, the figures given by the assessee are generally inflated ; of course, that is subject to scrutiny by the bank officials. However, in a case where the only evidence on record is the inflated figures given by the assessee and during the assessment proceedings he wants to wriggle out of the said figures on account of their being inflated, in such contingency, we feel that the observation in the case of Coimbatore Spinning and Weaving Co. Ltd. [1974] 95 ITR 375 (Mad) is fully justified. In such a case, it is not proper for the income-tax authority to take judicial notice of such inflated figures, which stands on sub-standard morality on the part of the assessee so as to enable them to go back on their own statement.
8. Here the first appellate authority and the Tribunal referred to the disputed stock in question on the inspection made by the officials of the Regional Food Controller on the levy register and felt it to be more reliable than that made by the officials of the bank. The assessing authority merely relied on the conveyance charged on the inspection made by the bank officials which admittedly is only indirect evidence which the appellate authority disbelieved and reliance placed on the levy register on the basis of which the inspection was made by the official of the Regional Food Controller is a finding of fact and no question of law arises. Accordingly, the present application fails and is dismissed.