2017 (7) TMI 728 - AT - Income Tax

Addition on account of excess stock - difference in stock statement submitted with bank and as per books of accounts - Held that - CIT(A) has correctly stated that during the year there is only a difference of 3 bags of sugar which is practically negligible looking to the operation of the assessee. Further it is not the case of the revenue that assessee has pledged the stock to the banker it is merely a case of hypothecation of the stock where the possession of the stock remains with the assessee and not under the lock and key of the banker. As we do not see any infirmity in the order of the Ld. CIT appeal we confirm his finding in deleting the addition of ₹ 113905000/ made by the assessing officer on account of excess stock on basis of stock statement given to the banker. Further the various decisions cited by the revenue were with respect to the pledge of the goods which is not the case here as it is a case of hypothecation of the goods, valuation of the closing stock which is inflated the case cited by the revenue whereas in the present case there is no allegation of the inflation of quantity of stock material in view of this the reliance placed by the revenue on all those decision does not help its case. Ground No. 1 of the appeal of the revenue is dismissed

Issues Involved:

1. Deletion of addition of ?11,39,05,000/- made by the Assessing Officer on account of excess stock.
2. Substantiation of the difference between the stock reported to the bank and the stock as per books of accounts.

Detailed Analysis:

Issue 1: Deletion of Addition of ?11,39,05,000/- on Account of Excess Stock

The revenue appealed against the deletion of the addition of ?11,39,05,000/- made by the Assessing Officer (AO) on account of excess stock. The assessee, a sugar manufacturing company, had filed its return of income declaring nil income. During assessment, the AO noted a discrepancy between the stock reported to the bank and the stock recorded in the books. The stock reported to the bank was 3,98,125 bags valued at ?5,453.16 lakhs, whereas the stock as per the assessee’s records was 3,10,934 bags valued at ?4,314.10 lakhs, resulting in a difference of 87,191 bags valued at ?11,39,05,000/-.

The CIT (A) initially confirmed the addition, but upon reassessment, deleted it, leading to the revenue's appeal.

Issue 2: Substantiation of the Difference Between Stock Reported to the Bank and Stock as per Books of Accounts

The departmental representative argued that the discrepancy in the stock figures (87,191 bags) between the bank statement and the books of accounts was not justified. The representative relied on several high court decisions to support the AO's addition.

The authorized representative of the assessee referred to the coordinate bench's order, which directed verification of bank statements and excise records. The CIT (A) was to provide a reasonable opportunity for the assessee to present evidence showing the bank stock statement was incorrect and the books of accounts were accurate. The CIT (A) found that the discrepancy was due to non-existent stock from the 1996-97 season.

The CIT (A) verified the reconciliation of the stock as per excise records and bank records, concluding that there was only a negligible difference of 3 quintals of sugar. The CIT (A) emphasized that the stock statements given to the bank were for obtaining credit limits and should not be given undue weight.

Judgment:

The tribunal upheld the CIT (A)'s decision, noting that the sugar is a controlled commodity and its production and purchase are closely monitored by government authorities. The AO had not found any discrepancies in the production records or the trading results. The tribunal agreed with the CIT (A) that the stock statement given to the bank was for credit purposes and not a reflection of the actual stock.

The tribunal dismissed the revenue's appeal, confirming that the negligible difference of 3 quintals did not warrant an addition of ?11,39,05,000/-. The reliance on high court decisions by the revenue was deemed inapplicable as those cases involved pledged goods, whereas this case involved hypothecated goods.

Conclusion:

The appeal filed by the revenue was dismissed, and the order of the CIT (A) deleting the addition of ?11,39,05,000/- on account of excess stock was affirmed. The tribunal found no infirmity in the CIT (A)'s findings and concluded that the stock discrepancy was negligible and did not justify the addition.

← Previous Next →