2023 (7) TMI 1052 - HC - Income Tax

Validity of Revision u/s 263 - as per ITAT direction in respect of stock differences found from the record does not require further verification - HELD THAT - The facts are, the assessment had been made on basis of audit report and copy of ledger bank statements etc., in absence of books of accounts. There was discrepancy found by the AO in taking into account difference of stock found during course of survey. It must be remembered that a survey is finding on physical verification, by survey. Hence, the difference was taken and added back as income of the assessee. Tribunal held that the order u/s 263 was a good one except the direction for verification of the stock by reason of the PCIT having discovered there was on record inflated stock statement, submitted by assessee to the bank and therefore further verification of stock was necessary. The Tribunal relied on Malabar 2000 (2) TMI 10 - SUPREME COURT for its view that the AO had correctly taken into account the position of stock of the assessee In Malabar (supra), it will appear from above quoted paragraph, the Supreme Court noted that the AO had accepted the entry in the statement of account filed by appellant in absence of any supporting material and without making any inquiry. On those facts the conclusion, the Supreme Court said, the order of the ITO was erroneous, is irresistible. Moving on to Coimbatore Spinning Weaving Co. Ltd 1973 (3) TMI 27 - MADRAS HIGH COURT it is seen that the Division Bench in the Madras High Court took view earlier in point of time, consistent with view taken by the Supreme Court in Malabar (supra). It said, once the Tribunal finds that there were excess stocks after rejecting the explanation of the assessee, the conclusion is inescapable that the excess stocks should have come from undisclosed sources. It is evident that the Tribunal, in that case, found existence of stock as unexplained. Here, the Tribunal noted that the PCIT had only come upon an inflated stock statement and there was no inquiry or verification in respect thereof. No substantial question of law arises

Summary

Issues involved:
The issues involved in this case are the direction for issuance of notice, substantial questions of law arising from the order passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, the treatment of stock differences as unaccounted sales, reliance on judgments by the Supreme Court and the High Court of Madras, the completion of assessment without production of books of accounts, the disallowance of stock difference found during a survey, and the need for further verification of stock.

Direction for Issuance of Notice:
The appellant's Senior Standing Counsel argued that there was a direction for issuance of notice by a coordinate Bench, which was served but the assessee remained unrepresented during the proceedings.

Substantial Questions of Law:
The appellant contended that substantial questions of law arose from the ITAT's order, which upheld the revision made by the Principal Commissioner of Income Tax (PCIT) but interfered with the directions regarding stock differences found in the records. The PCIT had identified an inflated stock statement submitted by the assessee to the bank, leading to the treatment of the difference as unaccounted sales.

Reliance on Judgments:
The appellant criticized the ITAT for erroneously relying on a Supreme Court judgment in Malabar Industrial Co. Ltd. v. CIT and a High Court of Madras judgment in Coimbatore Spinning & Weaving Co. Ltd. v. CIT, highlighting the importance of supporting material and proper inquiry in assessing such cases.

Assessment and Disallowance of Stock Difference:
The assessment was completed based on an audit report and other documents as the books of accounts were not produced by the assessee. The Assessing Officer disallowed the difference of stock found during a survey, leading to the PCIT's observation that the assessment was erroneous and prejudicial to the revenue's interest.

Need for Further Verification:
The Tribunal partly allowed the appeal, stating that the direction for further verification of stock differences was not necessary. However, the PCIT's discovery of an inflated stock statement submitted to the bank led to the belief that further verification was required, which the Tribunal disagreed with based on the existing record.

Conclusion:
Ultimately, the High Court found no substantial question of law warranting admission of the appeal and dismissed the case. The decision was based on the assessment process, treatment of stock differences, and the adequacy of the existing record in the case.