Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer vs Mapin Publishing (P) Ltd. on 1 September, 2004
Equivalent citations: (2005)96TTJ(AHD)990
ORDER
Rajpal Yadav, J.M.
1. The present two appeals are directed by the Revenue against the separate orders of even date, i.e., 18th April, 2002, passed by the learned CIT(A) for asst. yrs. 1993-94 and 1994-95. Since the dispute raised in both the appeals is interlinked, therefore, we heard them together and deem it appropriate to dispose of these appeals by this common order.
2. The first ground raised in asst. yr. 1993-94 is to the effect that the learned CIT(A) has erred in deleting an addition of Rs. 1,03,365 added on account of difference of stock found in the statement given to the bank and disclosed in the books of account.
3. The brief facts of the case are that the assessee at the relevant time was engaged in the business of designing and publication of books and diaries. It has availed cash credit facility from the bank and, therefore, hypothecated its stock as collateral security. On scrutiny of the stock statement furnished to the bank in comparison to the stocks disclosed in the closing stock, the AO found a deficit of stock in the closing stock. According to him, the assessee has disclosed excess stock in the bank statement whereas in the books of account, it has shown lesser stock. He particularly verified the finished goods wherein such deficiency is there. On the basis of such discrepancy, he worked out an addition of Rs. 1,03,365 and added the same in the income of the assessee.
4. Dissatisfied with this addition, the assessee carried the matter in appeal before the CIT(A) and raised the following submissions :
"(i) This is on account of inclusion of value of non-moving items beyond a period of 3 years in the books of account. Banks are not allowing us cash credit facility on such stock. In support of the same, we enclose xerox copy of latest sanction letter issued by Bank of India for various facilities enjoyed by the appellant.
(ii) Moreover, the appellant is required to furnish stock statement to the bank within a period of 7 to 10 days after end of the month. If this statement is not submitted within the stipulated period, bank is charging penal interest on the borrowings so made by the appellant. In order to avoid such penal interest, items of closing stock might have been disclosed on the basis of value disclosed in last account year of estimated current value of items received during the year. While finalising the accounts, the appellant is required to arrive at actual cost of closing stock and apply the same to the quantity lying in closing stock, which is to be arrived at after considering statement of indenting agents to whom books were given on consignment basis.
(iii) In the bank statement, value of work in process might have been shown as per value declared in last audited accounts. In showing its value, project expenditure incurred during the year might not have been considered. This is to be considered while valuing the closing stock for the purpose of finalisation of accounts. This might be one of the reasons for difference in value of work-in-process.
(iv) Because of these reasons, value of closing stock shown in books of account is on higher side as compared to value of closing stock shown in bank statement.
(v) While passing the assessment order for asst. yr. 1992-93, the learned AO had made an account of estimation of gross profit. While deciding the appeal No. CIT(A)-VIII/Cir.9(1)/171/1995-96 on 17th Oct., 2001, the said addition is deleted. Copy of the said order is filed in appeal for asst. yr. 1993-94."
4.1 The learned CIT(A) has gone through the contentions of the assessee and deleted the addition. The learned Departmental Representative while impugning the order of the learned CIT(A) has contended that there is a difference in quantity in the stock disclosed to the bank as against found in the books and assessee failed to explain this discrepancy, therefore, the AO has rightly added the value of such stock in the closing stock of the assessee.
5. On the other hand, the learned counsel for the assessee relied upon the submission made before the AO and also took us through the reconciliation statement of the stock furnished before the AO. He emphasised on the point that there were 30 items in the finished goods. Out of them, roughly 13 items have been shown in excess to the bank in quantity. If these details are perused minutely, then it will reveal that out of these 13 items, in more than six items the variation is very nominal, i.e., ranging in between 1 to 10. Such variation has taken place on account of giving complimentary books to the certain persons who can advertise the product of the assessee for sale. Certain copies have been returned from the parties being defective, etc. Therefore, there is no major variation in these two statements and AO ought not to have made any addition.
6. We have duly considered the rival contentions and perused the records carefully. The assessee has been maintaining books of account according to recognised accounting principle in the ordinary course of its business. Thus, entries so made carry with them presumption of truth unless proved otherwise. If it came to the notice of AO that excess stock has been shown to the bank even in terms of quantity, then ipso facto addition should not be the result. A heavy burden would be upon the assessee to explain that books of account only depict the true state of affairs. If the assessee failed to discharge this burden, then obviously, AO would add the value of such stock. Let us see how the AO in this case has analysed the details. On going through both the assessment orders, it reveals that wherever the assessee has shown excess stock in the books, he presumed that the assessee was not having this stock with it and sold it out of books. Where the assessee is having lesser stocks in the books, he presumed that the assessee again has undisclosed the stocks. In brief, he took the statement furnished to the bank outrightly true over and above the stock statement available in the books. He has not tried to examine the details submitted by the assessee. From the reconciliation of statement, we find that variation is not of a very high magnitude against certain items. The variation is only in few numbers; i.e., 1, 3, 5, 6, etc. The stock statement furnished to the bank is required to be appreciated, keeping in view the explanation made by the assessee (extracted above), i.e., statement to the bank was submitted for availing cash credit facility. It was submitted on an estimated basis, whereas the closing stock in the books of account is being prepared on the basis of details available with the assessee, such as, sales and purchase, vouchers, other entries available in the accounts. If the AO found any other defects in the books of account of the assessee, then weightage primarily to the bank statement can be given over and above the book result, but not in an ordinary course. Thus, we do not see any good reason to interfere in the order of the learned CIT(A) on this issue. Therefore, this ground of appeal is rejected.
7. The next grievance which is common in both the assessment years is to the effect that the learned CIT(A) has erred in deleting the GP addition made on account of unaccounted sales made by the assessee. The AO noticed excess stock in the books in comparison to the stock statement furnished to the bank. He treated sale of such stock as undisclosed sale and added the GP in both the assessment years. The learned CIT(A) while deleting this addition in asst. yr. 1993-94 has observed as under :
"8.3 The logic of the AO that the excess stock as per books is treated as undisclosed sales is nothing but absurd. Had there been lower stock, there could be some presumption of sales outside the books. Therefore, the question of estimating the GP on assumed sales does not arise. The addition made on this account is, therefore, deleted."
7.1 On going through the assessment order as well as the finding of the CIT(A), we do not see any good reason to interfere in the finding of the learned CIT(A) on this count because the AO has made assumption on so many things before making this addition and we have considered his assumption in the first ground of appeal. Therefore, we find no merit in both these appeals.
8. In the result, both the appeals of the Revenue are dismissed.