2006 (10) TMI 124 - HC - Income Tax

Addition on the closing stock - difference between the value of closing stock declared to the bank and to the income-tax authorities - maintaining books of account on day-to-day production - derives income from manufacture of tape back up units for personal computers and computers - HELD THAT - We find there is evidence to show that stock declared to the Income-tax Department was supported by books of account. No detailed inventory was also available in the statement made to the bank. Except a mere value declared for overdraft purposes to the bank there were no detailed items of stocks in support of the declared value. It was also pointed out that there was no physical verification of stock either by the assessee or the bank at the time of furnishing the stock statement. The Tribunal as well as the CIT(A) have given a concurrent finding that the assessee declared closing stock for assessment purpose which is based on actual physical verification. There are enough materials available on record and the conclusion reached by the Tribunal is based on valid materials and evidence. In view of the same there is no basis to treat the difference in value as the assessee s under-valuation of stock or undisclosed income. The Tribunal also rightly followed the principles enunciated by this court judgment reported in CIT v. Sri Padmavathi Cotton Mills 1997 (3) TMI 26 - MADRAS HIGH COURT . Thus we are of the view that there is no error or legal infirmity in the order of the Tribunal so as to warrant interference. Hence we answer the questions of law in favour of the assessee and against the Revenue and the tax case is dismissed.

Summary

Issues:
1. Interpretation of the difference in value of closing stock reported to the bank and the Income-tax return.
2. Determining if the value of stock reported to the bank can be added to the closing stock for Income-tax purposes.
3. Assessing whether different stock values can be adopted for bank and Income-tax purposes.

Analysis:
The appeal under section 260A of the Income-tax Act, 1961 was filed by the Revenue against the Income-tax Appellate Tribunal's order for the assessment year 1991-92. The substantial questions of law revolved around the addition made to the closing stock due to the difference in value reported to the bank and in the Income-tax return. The assessee, a private limited company manufacturing tape back up units, disclosed varying stock values to the bank and for Income-tax assessment purposes.

The Assessing Officer added the difference in stock value to the total income, alleging inflation of stock figures for obtaining higher loan facilities. However, the Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, emphasizing that the declared closing stock for assessment was based on actual physical verification, supported by day-to-day production accounts and vouchers for purchases and sales.

The Tribunal's decision was upheld as it found no evidence of under valuation or undisclosed income by the assessee. The stock value declared to the bank was on an estimated basis without physical verification, unlike the value reported for Income-tax assessment, which was based on actual verification. The judgment referenced principles from a previous court case to support the conclusion that the difference in stock value did not indicate any wrongdoing by the assessee.

Ultimately, the High Court dismissed the Revenue's appeal, affirming the Tribunal's decision and ruling in favor of the assessee. The court found no legal basis to interfere with the Tribunal's order, concluding that the assessee's approach to stock valuation for Income-tax purposes was justified based on valid materials and evidence, maintaining the separate treatment of stock values for bank and Income-tax purposes.