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Issues:
Department's appeal against deletion of addition of undisclosed stock. Analysis: The Department appealed against the deletion of an addition of Rs. 16,87,069, representing a difference in stock disclosed to the bank for obtaining a cash credit facility and the stock recorded in the books of account. The CIT(A) deleted the addition, noting no defects in the books of account and that the stocks hypothecated to the bank belonged to the directors of the assessee. The Tribunal analyzed the case, considering the books of account maintained by the company, the audit process, and the discrepancy in stock valuation. The Tribunal found that the stock disclosed to the bank was based on estimates and included stock held by the directors in their personal capacity. The directors were proprietors of associate concerns with audited accounts, holding stock exceeding what was hypothecated to the bank. The Tribunal emphasized that the discrepancy favored the assessee, and the stock hypothecated was within the bank's expectations. The Tribunal rejected the AO's reliance on a previous judgment, as the present case lacked defects in the books of account and demonstrated the stock belonging to the company and its directors. The Tribunal distinguished the case from other judgments concerning stock discrepancies and confirmed the CIT(A)'s decision to delete the addition. The Tribunal highlighted that the sworn statements by the directors declared the stock hypothecated to the bank as either their absolute property or in which they had a legitimate interest. The stock position of the company and the directors' concerns showed a total stock value exceeding that offered for hypothecation to the bank. The directors, who guaranteed the bank's advances, were also proprietors of concerns with stock holdings. The Tribunal differentiated the case from precedents involving stock pledges, emphasizing that the stock in question was hypothecated, not pledged. The Tribunal dismissed the AO's reliance on another judgment concerning stock pledges, noting the lack of examination of the stock statement by the bank's branch officer. Ultimately, the Tribunal found no fault in the CIT(A)'s decision to delete the addition based on the stock valuation discrepancy. Consequently, the Revenue's appeal was dismissed.
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