2016 (7) TMI 1293 - 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 - 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.See COMMISSIONER OF INCOME TAX RAJKOT-I. Versus PATEL PROTEINS PVT. LTD. 2014 (12) TMI 1246 - GUJARAT HIGH COURT Accordingly, the question is answered in the affirmative, i.e., against the appellant Revenue and in favour of the assessee.

Summary

Issues:
1. Challenge to judgments of Income-tax Appellate Tribunal for assessment years 2002-03 and 2003-04.
2. Substantial questions of law framed regarding addition made on account of difference in stock statement and estimated GP on unaccounted sales.
3. Confirmation of orders passed by Commissioner of Income-tax (Appeals) deleting additions based on stock differences.

Analysis:
1. The appellant Department challenged the judgments of the Income-tax Appellate Tribunal for the assessment years 2002-03 and 2003-04 through Tax Appeal No. 278 of 2008 and Tax Appeal No. 711 of 2009, respectively. The substantial questions of law framed for consideration included issues related to the addition made on account of differences in stock statements and estimated GP on unaccounted sales.

2. In Tax Appeal No. 278 of 2008, the substantial questions of law revolved around the correctness of the Tribunal's decision in deleting the addition made due to differences in stock statements for availing higher credit facility. Similarly, in Tax Appeal No. 711 of 2009, the focus was on the Tribunal's confirmation of the deletion of an addition based on the variance between stock as per books of account and stock statement provided to the bank.

3. The court referred to a previous decision in the case of CIT v. Patel Proteins Pvt. Ltd. where it was held that mere differences in stock statements submitted for credit purposes do not warrant additional assessments. Citing this precedent, the court ruled in favor of the assessee, stating that the Tribunal was correct in deleting the additions based on discrepancies in stock statements. The court emphasized that inflated statements for credit purposes alone cannot justify additional tax liabilities.

4. Based on the precedent and the specific circumstances of the case, the court concluded that the issues raised in the tax appeals should be decided in favor of the assessee and against the Department. The court's decision aligned with the principle that discrepancies in stock statements submitted to banks for credit purposes should not automatically lead to tax assessments, especially when there is no evidence of actual tax evasion or financial irregularities.