2009 (11) TMI 43 - HC - Income Tax

Excess Stock unexplained investment - As a result of search and seizure operation conducted on 12.8.1987 at the business premises of the assessee and its sister concerns, assessment was made by making addition to the declared value of closing stock and also by holding that there was unexplained investment by the assessee. The additions were confirmed by CIT(A) but the Tribunal deleted the same accepting the explanation of the assessee held that - The Assessing Officer and the CIT(A) made and upheld addition on account of excess stock only on the basis of difference in the stock as per books of accounts and value of stock declared in the statement furnished to the bank. On examination of the matter, the Tribunal held that the value of stock as disclosed in the books of account was correct. Once that is so, no objection could be taken to the deletions on that account. If the value of the stock was accepted as correct, further inference regarding correctness of value of rolls purchased on 28.3.1988 was also rightly held to be not called for decided in favor of assessee

Summary

Issues:
- Application for reference of questions of law arising out of Tribunal's order for the assessment year 1988-89 regarding additions to closing stock and unexplained investment.
- Tribunal's deletion of additions confirmed by CIT(A) based on the explanation of the assessee.

Analysis:
1. The revenue filed an application seeking a direction to refer questions of law arising from the Tribunal's order for the assessment year 1988-89. The issues pertained to the deletion of additions to the closing stock and unexplained investment by the assessee. The Tribunal had deleted the additions, which were initially confirmed by the CIT(A), based on the explanation provided by the assessee.

2. The assessee, engaged in the manufacture of iron rolls and pattis, underwent assessment following a search and seizure operation. The additions to the declared value of closing stock and unexplained investment were made, with the CIT(A) upholding these additions. However, the Tribunal overturned these decisions, citing the assessee's compliance with the Excise Department's requirements and the absence of discrepancies in the stock register. The Tribunal referenced a similar case from the Madras High Court to support its decision to delete the disputed additions.

3. The High Court, after examining the Tribunal's findings, concluded that no question of law necessitated a reference to the Court. The Tribunal's decision was deemed non-perverse, as it relied on the correctness of the stock value as per the books of accounts. Since the value of the stock was deemed accurate, the further inference regarding the value of rolls purchased on a specific date was also considered unnecessary. Consequently, the Court found no grounds to direct the Tribunal to make a reference as requested by the revenue.

4. Ultimately, the Court dismissed the application, affirming the Tribunal's decision to delete the additions to the closing stock and unexplained investment. The judgment highlighted the importance of the Tribunal's assessment based on the accuracy of the stock value in the books of accounts, leading to the rejection of the revenue's application for a reference of legal questions.

This detailed analysis of the judgment showcases the progression of the case, the key arguments presented, and the ultimate decision reached by the High Court regarding the issues raised by the revenue.