2002 (8) TMI 248 - AT - Income Tax

Summary

Issues Involved:
1. Discrepancies in stock statements submitted to the bank versus those shown in the closing inventory.
2. Addition of Rs. 4,35,263 due to excess stock reported to the bank.
3. Addition of Rs. 2,90,700 due to alleged sale of PVC resin outside the books.

Detailed Analysis:

1. Discrepancies in Stock Statements:
The assessee, engaged in the manufacture and sale of PVC PP bags and PVC Rolls, had discrepancies between the stock statements submitted to the Bank of Baroda and the closing inventory as per the audit report. The discrepancies were noted in items like Tin, finished goods, PVC Resin, Expoxy, DOP, and Lubricants. The assessee explained that the inflated stock values were necessary to maintain the cash credit facility and comply with bank and insurance requirements.

2. Addition of Rs. 4,35,263 Due to Excess Stock:
The Assessing Officer (AO) added Rs. 4,35,263 to the assessee's income, invoking Section 69, based on the excess stock reported to the bank. The AO relied on several judicial precedents to support this addition. The CIT(A) deleted this addition, considering the assessee's need for credit facilities. However, the Appellate Tribunal reversed the CIT(A)'s decision, emphasizing that the assessee failed to provide evidence to prove the stock hypothecation statement was false. The Tribunal noted that the stock statement was detailed and authenticated by the assessee, who benefited from the overdraft facility. The Tribunal cited various High Court decisions, including the Gauhati High Court in Dhansiram Agarwalla v. CIT, which held that a heavy burden lies on the assessee to disprove the correctness of the stock hypothecation statement.

3. Addition of Rs. 2,90,700 Due to Alleged Sale of PVC Resin Outside the Books:
The AO added Rs. 2,90,700, concluding that 8075 kg of PVC resin was sold outside the books. The CIT(A) deleted this addition based on the assessee's explanation that 17000 kg of PVC resin was stored in a bonded warehouse and subsequently cleared for consumption. The Tribunal upheld the CIT(A)'s decision, finding the AO's conclusion baseless and unsupported by evidence.

Conclusion:
The Tribunal partly allowed the revenue's appeal. It reversed the CIT(A)'s deletion of the Rs. 4,35,263 addition, sustaining it due to the assessee's failure to disprove the stock discrepancies. However, it upheld the deletion of the Rs. 2,90,700 addition, agreeing with the CIT(A) that the AO's findings were without basis.