2014 (12) TMI 1246 - HC - Income Tax

Addition made on account of difference in stock - difference in statement as furnished before the bank as compared to shown in books of account for availing higher credit facility - Held that - As in the case of Riddhi Steel and Tubes (2013 (10) TMI 291 - GUJARAT HIGH COURT ) it is held by this Court that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. Accordingly, the question is answered in the affirmative i.e. against the appellant revenue and in favour of the assessee.

Summary

Issues:
1. Discrepancy in stock statement for availing higher credit facility.
2. Addition made by assessing officer and CIT(A).
3. Tribunal's deletion of the entire addition.
4. Legal precedent from previous judgments.
5. Applicability of statutory and tax audits.
6. Similar issue in another court judgment.
7. Advocate's inability to dispute previous judgments.
8. Decision in favor of the assessee.

Analysis:

1. The case involves a discrepancy in the stock statement submitted to the bank for obtaining cash credit facility compared to the stock as per the balance sheet. The assessing officer added excess stock, which was partially retained by CIT(A) at 10%. The Tribunal later deleted the entire addition, leading to the current Tax Appeal by the revenue.

2. The issue of discrepancy in stock statements was further examined in light of the previous judgment in the case of Commissioner of Income-tax vs. Riddhi Steel and Tubes (P) Ltd. The Court emphasized the importance of physical verification of stock by banking authorities and highlighted the consistency of the assessee's accounting methods as per statutory and tax audits.

3. Another similar issue arose in a separate judgment involving CIT vs. Sharp Springs & Stapples Co. (P) Ltd, where the Appellate Tribunal justified deleting the addition based on the assessee's explanation regarding common stock maintenance among group concerns. The Tribunal's decision was upheld, indicating a consistent approach in such cases.

4. During the proceedings, the revenue's advocate could not present any contrary decisions to challenge the established legal precedents and interpretations regarding discrepancies in stock statements for credit facilities.

5. After considering the arguments and previous judgments, the Court ruled in favor of the assessee, upholding the Tribunal's decision to delete the addition based on the inflated stock statements submitted for credit facilities. The Court affirmed that no addition could be made solely on the basis of discrepancies between stock records and bank statements for credit purposes.

6. Consequently, the Tribunal's order was confirmed, and the Tax Appeal by the revenue was dismissed, concluding the case in favor of the assessee based on the established legal principles and precedents regarding stock valuation and discrepancies in financial statements for credit facilities.