2016 (7) TMI 965 - HC - Income Tax

Difference in the amount declared in books of accounts and statement furnished to Bank - Addition on difference between the stock 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 - As 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 ALLIANCE INDUSTRIES Versus INCOME TAX OFFICER 2014 (11) TMI 935 - GUJARAT HIGH COURT - Decided in favour of assessee

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition to stock difference in books and bank statement.

Analysis:
1. The appellant challenged the Tribunal's order regarding the addition of ?17,99,280 as a difference in stock between regular books and bank statement for a hypothecation facility. The appellant argued that no actual verification of stock was done, and the addition was not based on quantity difference or undisclosed investments. The CIT (A) had deleted the addition, citing lack of evidence and following judicial precedents. The appellant also relied on a previous court decision in similar cases.

2. The respondent contended that the Tribunal's decision was justified, as the bank statement showed a specific quantitative difference in stock, supported by witness statements. The Tribunal upheld the addition partially based on this difference. The respondent argued that the Tribunal and Assessing Officer's views should be accepted, dismissing the appeal.

3. The High Court analyzed the arguments, referring to a previous court decision that emphasized the importance of consistent accounting methods and the lack of discrepancies in audits. The court held that inflated statements for credit facilities did not warrant additions if explanations were satisfactory. As no physical verification was conducted, the court found the issue covered by the previous decision. Consequently, the court ruled in favor of the appellant, allowing the appeal and quashing the Tribunal's order. The court held that the Tribunal erred in restoring the addition without proper verification, concluding in favor of the appellant against the revenue authorities.