Madhya Pradesh High Court
Commissioner Of Income-Tax vs Hindustan Mills And Electrical Stores on 8 May, 1996
Equivalent citations: [1998]232ITR421(MP)
Author: A.K. Mathur
Bench: A.K. Mathur, Chief Justice
JUDGMENT A.K. Mathur, C.J.
1. This is an income-tax reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs. 29,735 made by the Assessing Officer under Section 69B of the Income-tax Act, 1961 ?"
2. The brief facts giving rise to this reference are thus : The assessee is a dealer in mill machinery. On May 31, 1978, there was a search and seizure operation in the premises of the assessee in the course of which inventory of available trading stock as on that day was prepared. Undisputedly, the value of stock on that day was Rs. 5,79,139, as per the inventory so prepared. The difference, if any, between the stock as per the books and the stock as per the inventory was certainly liable to be held as undisclosed stock and investment therein was liable to be added to the total income under Section 69B if the stock as per the inventory was found to be excessive in comparison to the stock as per the books and there was no satisfactory explanation of the assessee for this excess stock. The Assessing Officer during the course of assessment prepared two trading accounts, i.e., one from the 1st day of the accounting year to May 31, 1978, and the other from June 1, 1978, to the last date of the accounting year. While preparing the first trading account, the closing stock was taken at Rs. 5,79,139. The stock as on May 31, 1978, could not be ascertained as per the books. However, taking this closing stock, the gross profit was taken out which showed the gross profit at 19.4 per cent. of the sales. The Assessing Officer applied this gross profit rate to the second period's sale (for both the periods, the G. P. rate of 20 per cent. was applied.)
3. On appeal, the Commissioner of Income-tax (Appeals) set aside the assessment on this issue with a direction to the Assessing Officer to re-examine the book results carefully and the stock position and bring out any omission or defect, if there is any. The Commissioner of Income-tax (Appeals) was of the view that there was no justification for examining the trading results for the two periods separately. When the assessment was taken up afresh, the Assessing Officer found that the method of valuing the closing stock adopted by the assessee was to value it as a balancing figure applying the G. P. rate on sales. The Assessing Officer after taking a sample of several items found that the average G. P. rate for both the periods was 17.78 per cent. He found that on application of this G. P. rate to the sales of the first period, the stock on the date of search as per books was Rs. 29,735 less than the stock as per inventory. Therefore, he made an addition of Rs. 29,735 under Section 69B of the Act. On appeal, the Commissioner of Income-tax (Appeals) held that Section 69B of the Income-tax Act is not applicable in the present case as there was no undisclosed investment in the stock. It was also held by the Commissioner of Income-tax (Appeals) that the method of working out the stock by the Assessing Officer was on the basis of different rate of G. P. applied by him, which is not correct. The G. P. rate, i.e., 17.78 per cent. was satisfactory for the whole of the year and, therefore, the appellate authority found that Section 69B of the Income-tax Act is misconceived. Thereafter, the matter was taken up in appeal by the Department and the Tribunal found that Section 69B of the Income-tax Act, is not applicable in the present case. As, according to the Tribunal, Section 69B can only be invoked, if it is found that the assessee had made investment or the assessee is found to be the owner of any bullion, jewellery or other valuable article and it is found that the amount expended on making such investments or in acquiring such bullion , jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account and the assessee offers no explanation about such excess amount or the explanation offered by him was not satisfactory, then that amount can be added to the income of the assessee as an undisclosed income. There is no such evidence of such nature, therefore, the Tribunal affirmed the finding of the Commissioner of Income-tax (Appeals) and held that Section 69B of the Income-tax Act is not applicable.
4. We have also gone through the order passed by the three authorities and we are of the opinion that the approach of the Tribunal appears to be justified. In the present case, it is only a pick and choose method adopted by the Income-tax Officer and he had applied the gross profit rate on sale for two varying periods and then worked out the amount of Rs. 29,735 as excess ; that is not correct. The appellate authority has found that the average rate of 17.78 per cent. was satisfactory ; therefore, two varying periods of the gross profit rate adopted by the Income-tax Officer was not correct. As per the finding of the Tribunal, there is no room or scope for making any presumption about existence of any of the requisite circumstances. Therefore, the question of excess amount being found on any principle was per se illegal. Hence, the application of Section 69B was not proper. We are fully in agreement with the view taken by the Tribunal and we answer the aforesaid question in favour of the assessee and against the Revenue.