2005 (8) TMI 686 - HC - Income Tax

Cash credit - Addition on account of closing stock position in the books of account - Whether the assessee had sufficiently proved that the declaration made to the bank was for the purpose of availing higher cash credit facility and it did not reflect correct position regarding the closing stock - HELD THAT - We find that in the stock position shown to the Bank the assessee had not disclosed quantity and weight of the stock but had only given particulars of the goods and their value. Whereas the Assessing Authority as well as the Tribunal laboured under the impression that the quantity and weight of the goods declared to the Bank differed with that shown by the assessee in the trading account. It is thus clear that addition has been made neither on the ground that the assessee had more stock on 31-3-1990 nor on the ground that the assessee had any concealed income which had been invested by it in the closing stock but simply on the ground that the closing stock declared in the trading account after physical verification and value thereof differed with the stock position given to the Bank. While making the addition, the Assessing Authority as well as the Tribunal ignored the important fact that the goods/stock shown in the trading account on 31-3-1990 were as per verification and valued at cost whereas in the declaration made to the Bank the stock was not valued at cost but was on rough estimate. As a matter of fact, no statement of stock as on 31-3-1990 was filed before the Bank. It was only for the period ending up to 15-2-1990. The assessing authority and the Tribunal thus have completely mis-read the document (declaration) furnished by the assessee to the Bank and, therefore, the order of the assessing authority as well as of the Tribunal are not sustainable in law. Thus, the appeal is allowed and the order dated 14-12-1999 passed by the Income-tax Appellate Tribunal is set aside and that of the Commissioner Income-tax (Appeals), Jammu dated 19-5-1993, is restored.

Summary

Issues:
Appeal against order under section 254(1) of the Income-tax Act for assessment year 1990-91 - Addition of closing stock position in books of account - Discrepancy in value of stock declared to bank and shown in books of account.

Analysis:

Issue 1: Addition of Closing Stock Position
The appellant, engaged in glassware and crockery business, filed return for assessment year 1990-91 showing taxable income of Rs. 67,160. The Assessing Officer added Rs. 5,76,736 to income on account of closing stock position discrepancy. The appellant had inflated stock value for cash credit limit increase, but the Commissioner of Income-tax (Appeals) deleted the addition citing various reasons. The Tribunal reversed this decision based on stock statement submitted to the bank, leading to the current appeal.

Issue 2: Burden of Proof and Declaration to Bank
The appellant argued that the Tribunal erred in considering the declaration made to the bank as the sole basis for the addition. The burden of proof was on the appellant to show that the declaration was for cash credit purposes and did not reflect actual closing stock. The Tribunal and Assessing Authority relied on the declaration without considering that it lacked quantity and weight details, unlike the trading account. The judgment emphasized that an admission is not conclusive and must be corroborated with evidence.

Issue 3: Misinterpretation of Declaration to Bank
The court found that the addition was solely based on the discrepancy between stock values declared to the bank and shown in the trading account. However, the stock position in the trading account was verified and valued at cost, while the bank declaration was a rough estimate without a statement for 31-3-1990. The Assessing Authority and Tribunal misinterpreted the bank declaration, leading to an unsustainable decision. The judgment set aside the Tribunal's order and restored the Commissioner of Income-tax (Appeals) decision.

In conclusion, the judgment highlighted the importance of corroborative evidence, burden of proof on the appellant, and proper interpretation of documents in tax assessments. The court's decision favored the appellant by overturning the addition to income based on the discrepancy in stock values, emphasizing the need for accurate assessment based on verified information.