2016 (9) TMI 17 - HC - Income Tax

Addition on account of difference in stock statement as furnished before the bank and the stock recorded in the books of account - 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. 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. If, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the stock statement had reflected inflated value of the stock, in wake of otherwise satisfactory explanation, both - for the purpose of value as well as quantity and taking into account the actual non verification of stock, we find no reason to interfere with the order of the Tribunal. We hold that the Tribunal was right in law in deleting the addition made on account of difference in stock statement as furnished before the bank as compared to shown in books of account. Decided in favour of the assessee.

Summary

Issues:
Addition of &8377; 59,00,659/- made on account of difference in stock statement as furnished before the bank and the stock recorded in the books of account.

Analysis:
1. The primary issue in this case revolves around the addition of &8377; 59,00,659/- due to a difference in stock as per the books of accounts and the stock statement submitted to the bank. The Assessing Officer noted discrepancies in the stock statement provided to the bank, leading to the addition being treated as unaccounted investment in stock.

2. The CIT (Appeals) allowed the appeal filed by the assessee, leading to a further appeal before the Tribunal by the revenue. The Tribunal upheld the decision of the CIT (Appeals) and confirmed the deletion of the addition, prompting the revenue to file the present Tax Appeal challenging the Tribunal's decision.

3. The High Court referred to a previous judgment in a similar case where it was held that discrepancies between stock shown in books and statements furnished to banks do not warrant additions if there is a satisfactory explanation for the difference. The Court emphasized the lack of physical verification by banking authorities and the consistent accounting practices of the assessee over the years.

4. The Court highlighted that statutory audits and tax audits did not reveal any errors in the assessee's reports, and the Excise Department accepted the books of account as genuine. The Court reiterated that inflated statements to banks for credit facilities do not automatically justify additions if there is a reasonable explanation for the discrepancies.

5. Another judgment cited a case where the assessee demonstrated the common stock maintenance of group companies, leading to the deletion of the addition. The Court found no illegality in the Tribunal's decision to allow the deletion, emphasizing the assessee's burden of explaining the excess stock, which was satisfactorily discharged.

6. The Court dismissed the revenue's arguments, noting the absence of contrary decisions or actual stock verifications. Ultimately, the Court upheld the Tribunal's decision to delete the addition, citing previous rulings and settled legal principles regarding stock valuation discrepancies between books and bank statements.

7. Consequently, the High Court confirmed the Tribunal's order, dismissing the Tax Appeal filed by the revenue. The judgment reiterated the principle that inflated statements to banks do not automatically warrant additions if there is a reasonable explanation for discrepancies, affirming the decision in favor of the assessee based on established legal precedents.