Income Tax Appellate Tribunal - Amritsar
Ito vs Tilak Rice Mills on 23 October, 2001
Equivalent citations: (2002)75TTJ(ASR)20
ORDER
N.K. Saini, A.M. This is an appeal filed by the assessee (sic-revenue) against the order of the Commissioner (Appeals), dated 15-3-1994, relating to assessment year 1990-91.
2. The only ground raised by the department pertains to the decision of addition of Rs. 6,00,000 made by the assessing officer on account of unexplained difference in stocks as declared by the assessee to the bank and as declared in the trading account filed along with the return.
2.1. The relevant facts appearing from the assessment order in brief are that during the year relevant to the assessment year under consideration, the assessee obtained loan facility from the Punjab National Bank, R.S. Pura, as shown limit of Rs. 2 lakhs against the hypothecation of stock. The assessing officer obtained the copy of the stock statement from the bank furnished by the assessee to verify the position of stock and noticed that there was difference in the stock statement as furnished to the bank vis-a-vis declared by the assessee in the books of account. After taking the peak difference in the stock as on 31-8-1989, to the tune of 1,700 quintals the assessing officer made the addition of Rs. 6,00,000 considering the same as purchases outside the books of account not disclosed to the department.
3. In the first appeal before the learned Commissioner (Appeals) it was submitted that the assessee was maintaining proper books of accounts but not maintaining day-to-day stock records. Thus, there was no question of comparing the stock position on a particular day with the stock shown to the bank. It was further stated that the stock statement submitted to the bank was not subject to any verification by the bank officials. Since it was submitted for the purpose of having more drawing powers, the stocks in the same might have been inflated. It was also submitted that the goods hypothecated remained in the possession of the borrower and not under the lock and key of the bank. It was also submitted that the stock of agriculturists of nearby villages were also stored in the godown of the assessee because they had no storage facility with them and also at most of the times the assessee was the only buyer of those stocks lying in the godown of the mill of the assessee. It was also submitted that the figures of the stocks of agriculturist lying in their godown had also been included while filings the stock statement submitted to the bank. It was also argued that the position narrated above was also submitted before the assessing officer but the same was not considered by him. It was, therefore, contended that the assessing officer without controverting the submissions and the explanations and without pointing out any defect in the books of account made the addition arbitrarily at Rs, 6,00,000. The reliance was also placed on the following judgments, viz.:
1. CIT v. Baij Nath (1984) 148 ITR 135 (P&H);
2. Uganda Industries Co. v. CIT (1986) 158 ITR 567 (Guj);
3. CIT v. Rama Krishna Mills Ltd. (1974) 93 1TR 49 (Mad); and
4. CIT v. Prem Singh & Co. (1987) 163 ITR 434 (Del).
After considering the submissions of the assessee; the learned Commissioner (Appeals) came to the conclusion that he was unable to sustain the addition of Rs. 6 lakhs in the trading results because the assessing officer had not given any reason for coming to the conclusion that there was difference in the two stocks and the difference represented the income of the assessee. Even he had not mentioned the relevant section in which the addition had been made. The learned Commissioner (Appeals) further observed that even if there was difference in two stocks, the same could not be made a basis for the addition under section 69 of the Income Tax Act. He, therefore, deleted the addition of Rs. 6,00,000.
4. Being aggrieved the department is in appeal. The learned Departmental Representative relied on the order of the assessing officer but failed to rebut the findings of the learned Commissioner (Appeals).
5. In his rival submissions, the learned authorised representative strongly supported the order of the learned Commissioner (Appeals) and reiterated the arguments placed before the authorities below. It was also submitted that the stock statements furnished to the bank were not subject to verification. In this regard, he brought our attention towards the certificate given by the manager of the Punjab National Bank placed at page 3 of the paper book wherein it was mentioned that the stock statement submitted by M/s. Tilak Rice Mills during the financial year 1989-90 were not physically verified as on date of stock statement. The learned authorised representative vehemently argued that the assessing officer made the addition on the basis of surmises and conjectures even without considering the explanation and submissions of the assessee that the stock submitted to the bank was inflated. He also placed his reliance on the decision of the Hon'ble Madras High Court in the case of CIT v. N. Swamy (2000) 241 ITR 363 (Mad).
6. We have heard both the parties and also perused the orders of the authorities below. It seems that the assessing officer while making the addition considered the stock statement submitted to the bank by the assessee and noticed that there was difference in the stock statement in comparison to the stock actually shown by the assessee in the books of account. It is also noticed that the assessee explained before the assessing officer that the stock statement submitted before the assessing officer was inflated to obtain higher cash credit (C/C) limit. In this regard, an affidavit is also furnished which is placed at page 1 of the paper book and the contents of that affidavit are reproduced below :
"1, Om Parkash S/o Hans Raj, age 45 years, resident of Jammu do hereby solemnly affirm and declare as under :
1. That I have availed cash credit limit of Rs. 2 lakhs from Punjab National Bank, R.S. Pura.
2. That security lodged with the bank is personal guarantee, 3rd party guarantee and mortgage of building and plant and machinery of rice sheller.
3. That the bank required me to file the stock reports being primary security to be used for calculating the drawing powers for operating the cash credit limit account.
4. That I have submitted the inflated stock statement to the bank motivated by the facts that the bank do not verify the stock with stock statements, and allow us operation of cash credit limit.
5. That no such inflated stock ever existed with me/and no additional purchases as alleged were made by me.
6. Those farmers from adjoining villages store their crops of paddy with us as they have no storage facilities and mostly those are in turn sold to us at the rate settled with them at the time of sale, and it is only then that we record the purchase of the said paddy in our books of account.
7. That I used to value the closing stock only at the close of financial year by taking stock on physical verification, Sd/-
Deponent Verification :
Verified today the 19-3-2001, at Jammu that whatever stated above is true and correct to the best of my knowledge and belief and nothing have been concealed therefrom.
Sd/-
Deponent"
It is also true that the assessing officer accepted the books of accounts maintained by the assessee and did not consider it appropriate to apply to the provisions of section 145(2). While making the addition, the assessing officer did not bring anything on record to establish that the assessee, in fact, suppressed the sales or purchases and was having more quantity of the stock than reflected in the books of account.
7. From the facts of the case as discussed above, it appears that the action of the assessing officer was not tenable in the eyes of law and considering that the learned Commissioner (Appeals) rightly deleted the addition. There is nothing available on the record to show that the assessee was having higher stock than the disclosed stock in the books of account. It is also noticed that the assessing officer did not controvert the explanation of the assessee vide letter dated 5-3-1993, submitted to him (copy on record) that the stock statements to the bank were based on rough estimates and not on actual/physical verification and the same were inflated to avail the bank overdraft facility. The Hon'ble Madras High Court in the case of CIT v. N. Swamy (supra) held that :
"The assessee's income is to be assessed by the Income Tax Officer on the basis of the material which is required to be considered for the purpose of assessment and ordinarily not on the basis of the statement which the assessee may have given to a third party unless there is material to corroborate the statement of the assessee given to a third party, even if it be a bank. The mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had undisclosed income is on the revenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income. The burden is on the revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income.
The assessee had shown the value of the stock in its books of account. The Income Tax Officer thought that the figures relating to the value of the stocks in the book could not be regarded as the correct value of the stocks as the assessee had given a declaration to the bank from which it had obtained overdraft facilities and in its declaration valued the stock at a figure higher than that in the books of the assessee. The Income Tax Officer computed the difference between the value as recorded in the books and that found in the declaration to the bank and treated the same as income from undisclosed sources. The assessee had contended that the value of the stocks as stated by him in the declaration given to the bank was inflated, that he had not suppressed the value of the stock, and that there was no income from undisclosed sources. The Appellate Assistant Commissioner to whom the assessee appealed, reduced the amount of the addition from Rs. 34,070 to Rs. 26,000. On appeal to the Tribunal, the Tribunal deleted the addition. On a reference :
Held, that the Tribunal had accepted the explanation of the assessee. The Tribunal had exercised its jurisdiction and the question decided by it was a question of fact. Therefore, there was no scope for interference with the order of the Tribunal."
Considering the totality of the facts and circumstances of the case as discussed above and especially keeping in view the ratio laid down by the Hon'ble Madras High Court in the case of CIT v. N. Swamy (supra), we find no merit in the ground raised by the department and, therefore, we decline to interfere with the order of the learned Commissioner (Appeals) and the same is hereby upheld.
8. In the result, the appeal of the department is dismissed.