2005 (1) TMI 680 - HC - Income Tax

Unexplained investment in the trading account - Income from undisclosed sources - Onus to prove stock statement submitted to the bank showed inflated figures? - Whether, the Tribunal s order deleting the addition is not vitiated on account of its failure to consider all relevant facts? - HELD THAT - It observed that the statement submitted by the assessee was not verified by the Bank Officials. The stocks were only hypothecated and not pledged. The Income-tax Officer could not point out any defect in the trading account of the assessee and the books of account maintained by it which has also been accepted by the Central Excise Department as well as by the Sales Tax Department could not be disbelieved. The explanation given by the assessee was that it inflated the value and quantity of the stocks in the bank declaration to obtain a number of drafts from the bank. This explanation was accepted by the Tribunal. The matter came up before this Court and it was held that Tribunal s decision was correct. The Tribunal has also found that there was actually no verification of the stock made by any bank official. The learned standing counsel could not point out any contrary decision to show that a practice to inflate stocks hypothecated with the bank with a view to avail higher overdraft facilities, is not prevalent in business community. In view of the fact that the explanation has been accepted by the Tribunal, we do not find any error in the order of the Tribunal. Thus, we answer both the questions referred to us in affirmative, i.e., in favour of assessee and against the revenue.

Summary

Issues Involved:
The Income-tax Appellate Tribunal referred two questions of law u/s 256(2) of the Income-tax Act, 1961 to the Allahabad High Court for opinion. The issues were:
1. Whether the Tribunal's order deleting the addition of Rs. 13,96,080 is vitiated due to failure to consider all relevant facts?
2. Whether the assessee proved that the stock statement submitted to the bank showed inflated figures?

Issue 1:
The case pertained to the assessment year 1979-80. The Income-tax Officer found discrepancies in the stock and fixed assets values compared to the overdraft obtained by the assessee. The Officer made additions to the assessee's income, which were confirmed by the Commissioner of Income-tax (Appeals). However, the Tribunal overturned these additions, citing the practice of declaring higher stock to banks for increased loan facilities as a common occurrence in business.

Issue 2:
The assessee provided a stock statement to the bank, which was not verified by bank officials. The Tribunal accepted the explanation that the inflated stock value was to secure more overdrafts. The Tribunal relied on previous cases to support this practice of inflating stocks for obtaining higher loan facilities. The Tribunal's decision was upheld by the Court, emphasizing the acceptance of the explanation and lack of contrary evidence against the prevalent business practice.

The Tribunal's findings were based on the lack of verification of stock by bank officials and the acceptance of the explanation provided by the assessee regarding inflating stock values for obtaining more overdrafts. The Court upheld the Tribunal's decision, concluding that there was no error in the order. Consequently, both questions referred were answered in favor of the assessee, and no costs were awarded in the case.