1996 (6) TMI 102 - AT - Income Tax

Summary

Issues:
- Addition of Rs. 56,700 on account of discrepancies in the closing stock for assessment year 1988-89.

Detailed Analysis:
1. The assessee-firm engaged in manufacturing automobiles, tractors, oil engines, and machinery spares as a forging unit. The firm obtained a loan from a bank on the hypothecation of its stock. Discrepancies arose when the bank statement did not match the closing stock details provided by the assessee in its books of account.

2. The Assessing Officer noted discrepancies in the closing stock details, specifically regarding M.S. square and E.N. Billets. The assessee explained that the M.S. square was included in the M.S. rounds in the closing stock, and the E.N. 8 billets were part of the machinery account, mistakenly described as billets in the statement to the bank. The Assessing Officer rejected the explanation and made an addition of Rs. 56,700 for the discrepancies.

3. The assessee appealed to the DCIT(A), reiterating its submissions and arguing that even if there were differences between the bank statement and stock inventory, no addition should be made. The DCIT(A) relied on precedents and deleted the addition based on the decision of ITAT in a similar case.

4. The Revenue appealed against the DCIT(A)'s decision, arguing that the discrepancies in the stock were not adequately explained by the assessee. The Revenue contended that the statement to the bank, whether for pledging or hypothecation, needed to be explained, and the absence of a satisfactory explanation justified the addition made by the Assessing Officer.

5. The Tribunal considered the arguments of both parties and examined the material on record. It emphasized that any statement provided to the bank by the assessee, whether for hypothecation or pledging, needed to be explained. The Tribunal highlighted that the onus was on the assessee to prove the correctness of the books of account over the statement to the bank.

6. The Tribunal acknowledged that in certain cases, statements to the bank were estimates and not based on precise calculations, especially when secured by collateral security. Citing a similar case, the Tribunal noted that additions based on such discrepancies were deleted. In the present case, the Tribunal found no errors in the closing stock details provided by the assessee, and the discrepancies were attributed to estimated statements for the bank.

7. The Tribunal concluded that the revenue failed to demonstrate any unexplained investment by the assessee. The discrepancies were reasonably explained by the assessee, and the DCIT(A) did not err in deleting the addition. The Tribunal upheld the decision of the DCIT(A) and dismissed the revenue's appeal.