2010 (10) TMI 848 - HC - Income Tax

Shortage of stock - Tribunal held that the stock of rectified spirit of 33,980 litres worth Rs.16,00,000/- missing in the premises of the assessee as directed by the search party which was included in the books of account s cannot be treated as the income of the assessee? - Held that - In the light of physical verification of the stock by the search party in the presence of responsible and knowledgable officials, which was confirmed by the letter of the Executive Director later, would only go to show that after due deliberations the explanation was given. Therefore, the appellate authority CIT (a) was justified in concluding that the explanation given by the assessee subsequently cannot be accepted as the truth. It is a just and proper conclusion and thus the shortage of rectified spirit as on the date of search was correctly determined. The order of the Tribunal indicated that it was based only on the explanation given by the assessee nearly six months later. In the absence of any material indicating that at the relevant point of time excise officials had an occasion to certify the stocks in the course of their regular vigil over the premises of the assessee, the conclusion of the appellate Tribunal is only based on imagination and surmises - substantial questions of law answered in favour of the revenue holding that the Tribunal was not justified in placing reliance on extraneous material.

Summary

Issues:
1. Treatment of missing rectified spirit in the books of account as income of the assessee.
2. Reliance on extraneous material by the Tribunal in forming its opinion.

Issue 1: Treatment of Missing Rectified Spirit:
The case involves a company in the liquor business for the assessment year 1993-94. During a search, 33,980 liters of rectified spirit worth Rs.16,00,000 were found missing from the premises. The assessing officer treated the missing stock as income since it was believed to have been sold outside the books. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Income Tax Appellate Tribunal overturned this, stating that the spirit could not have been sold outside as the company was under excise authorities' supervision. The Tribunal accepted the company's explanation, leading to the appeal being allowed in 2003.

Issue 2: Reliance on Extraneous Material:
The Tribunal's decision was challenged by the revenue, arguing that the Tribunal wrongly relied on the company's explanation given six months later and disregarded the physical verification done during the search. The Court noted that the Tribunal's reliance on extraneous material not relevant to the case was unjustified. It was emphasized that the Tribunal's conclusion was based on imagination and surmises, lacking evidence of excise officials certifying the stocks during regular vigil. Consequently, the Court allowed the appeal, setting aside the Tribunal's decision and confirming the assessing authority's order.

This judgment primarily addresses the treatment of missing rectified spirit in the company's books and the Tribunal's reliance on extraneous material in reaching its decision. The Court upheld the assessing officer's view that the missing stock was income, emphasizing the lack of proof for sales outside the books. Additionally, it criticized the Tribunal for basing its decision on the company's later explanation and not considering the initial search findings.