2014 (11) TMI 935 - HC - Income Tax

Addition made Difference in the amount declared in books of accounts and statement furnished to Bank - Whether the Tribunal has substantially erred in law in restoring the addition by way of difference between the stock as on March 31, 1990 shown in the regular books of accounts of the appellant and that declared in the statement furnished to the Bank in respect of hypothecation facility availed of by it Held that - Assessee rightly contended that in Commissioner of Income Tax - III Versus Riddhi Steel And Tubes Pvt. Ltd. 2013 (10) TMI 291 - GUJARAT HIGH COURT the same matter has been decided - No errors were found at any stage in the report submitted by these auditors and for the past eight years, the assessee had been following continuously/ consistently the method of accounting, as provided u/s 145 of the Act, valuing the closing stock and inventory, as provided u/s 145 A of the Act - 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 the order of the Tribunal is set aside Decided against revenue.

Summary

Issues:
Challenging judgments by the Income Tax Appellate Tribunal for AY 1990-91 regarding addition of stock difference in books and bank statements.

Analysis:
1. Substantial Question of Law: The High Court framed the substantial question of law regarding the Tribunal's alleged error in restoring the addition of stock difference in the appellant's accounts. The question focused on the discrepancy between stock values in regular books and those declared to the bank for a hypothecation facility.

2. Factual Background: The case involved two assessees filing income tax returns showing specific incomes, which were processed under section 143(1)(a) and selected for scrutiny. After producing account books in response to notice under section 143(2), assessment orders were passed. Subsequent appeals by the assessees were allowed by the CIT(A), leading to Revenue's appeal before the ITAT and further to the High Court through Tax Appeals.

3. Legal Arguments: The appellant's advocate relied on a previous court decision to support their case, emphasizing the consistency in accounting methods and audit findings over the years. The court highlighted the importance of accurate stock valuation and the acceptability of explanations for discrepancies, especially in cases where inflated statements were furnished for banking purposes without affecting the actual stock value.

4. Court Decision: After considering submissions from both parties, the High Court found in favor of the assessee. The court noted the lack of dispute from the respondent's advocate regarding the cited legal precedent. Consequently, the appeals were allowed, the Tribunal's orders were quashed, and the appeals were decided in favor of the assessee against the Revenue.

This detailed analysis covers the issues, legal arguments, and the court's decision in the judgment delivered by the High Court.