2022 (2) TMI 1037 - HC - Income Tax

Addition of investment in unexplained stock - burden of proving excess stock - Whether Tribunal is right in holding that the burden of proving excess stock is on the revenue when the assessee himself has admitted the availability of excess stock and thereby deleting the addition ? - HELD THAT - It is the case of the Assessee that the closing stock declared by the Assessee and accepted by the Commercial Tax Department has been rightly accepted by the Income Tax Department (the Assessing Officer) and therefore the confirmation of the same by the Income Tax Appellate Tribunal has to be upheld. Assessee has brought to the notice of this Court the decision rendered by this Court in SK. USMAN ALI 2015 (3) TMI 891 - MADRAS HIGH COURT relating to the same assessee (for the Assessment year 2001-2002) whereunder relying upon the decision reported in Sakuntala Devi Khetan 2013 (3) TMI 270 - MADRAS HIGH COURT it has been held that the Assessing Officer has to adopt the figures and turn over finally assessed by the Sales Tax Authorities. This decision is binding upon the Revenue. Therefore the contention of the Revenue that it has powers to tinker with the stock estimated by the Sales Tax Authorities cannot be accepted. Therefore the appeal filed by the Revenue fails

Summary

Issues:
Challenging order of Income Tax Appellate Tribunal regarding excess stock addition in assessment years 2005-06 and 2008-09.

Analysis:
The tax case appeals were filed by the Revenue against the order of the Income Tax Appellate Tribunal, challenging the addition of investment in unexplained stock for the assessment years 2005-06 and 2008-09. The primary question of law revolved around the burden of proving excess stock, with the Revenue contending that the burden should not fall on them when the assessee had admitted to the availability of excess stock. The case involved a dealer in sanitary wares who inflated stock for higher loan limits. Despite a search under section 132 revealing no unaccounted excess stock, the assessing officer added the difference between declared book stock and inflated stock to the bank, leading to the assessment of unexplained investment in stock. The CIT(A) allowed the appeals, but the Tribunal dismissed them based on a previous order related to the same assessee's case for the assessment year 2001-02.

The learned counsel for the appellant/Revenue acknowledged that the issue was unfavorable to the Revenue based on a judgment from the court in a previous case involving the same assessee. The court referred to previous decisions emphasizing the need for the Revenue to prove errors in stock statements submitted to authorities. The court highlighted that the burden lay with the Revenue to demonstrate inaccuracies in the stock statements, especially when no mistakes were found in the books of account. The court also noted the importance of accepting figures assessed by sales tax authorities. The judgment emphasized that the Revenue's argument of having the power to adjust stock estimates from sales tax authorities was not valid.

The court relied on previous judgments related to the same assessee to dismiss the appeals. The judgments emphasized the importance of upholding figures accepted by sales tax authorities and rejected the Revenue's argument of being able to modify stock estimates. The court concluded that the substantial question of law favored the assessee, leading to the dismissal of the tax case appeals without costs.

In conclusion, the court's decision was based on established legal principles regarding the burden of proof on the Revenue, the acceptance of figures assessed by sales tax authorities, and the rejection of the Revenue's authority to adjust stock estimates. The judgments in previous cases involving the same assessee were crucial in determining the outcome of the appeals, ultimately resulting in the dismissal of the tax case appeals in favor of the assessee.