1971 (3) TMI 43 - HC - Income Tax

Whether it was legal for the Tribunal to work out unaccounted-for stocks pledged with the bank as on 8th April, 1957, with the assessee s stocks as obtaining on 8th April, 1957 - discrepancy between the stock book and goods pledged with bank - whether only the stock on last day of the accounting year should be considered in determination of suppressed income - fact that assessee itself had tabulated its stock as on next day (8th April, 1957) after the accounting year was immaterial for determining the suppressed profit for the relevant accounting period - question referred to us in the negative and in favour of the assessee

Summary

Issues:
Interpretation of relevant accounting year for determining suppressed profits based on stock position discrepancy.

Analysis:
The case involved a reference under section 66(2) of the Indian Income-tax Act, 1922, regarding the legality of working out unaccounted-for stocks pledged with a bank. The assessee, engaged in rice milling and other businesses, had discrepancies in stock positions between its books and the bank's records. The Income-tax Officer concluded that the assessee had suppressed income based on these discrepancies, adding the amount to taxable profits. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision.

In the appeal before the Tribunal, the assessee argued that the suppressed profits should have been calculated based on the stock position as of April 7, 1957, rather than April 8, 1957, which would have reduced the discrepancy amount. The Tribunal dismissed the appeal, stating that the stock position as on April 8, 1957, was valid for determining the suppressed income. The High Court was tasked with determining whether the authorities were correct in using the stock position as on April 8, 1957, for calculating suppressed profits.

The High Court analyzed the Tribunal's observations and found that the relevant accounting year ended on April 7, 1957, as established by the Appellate Assistant Commissioner. The Court emphasized that even if the assessee had compiled stock data up to April 8, 1957, suppressed income should be calculated based on transactions within the relevant accounting year, ending on April 7, 1957. Therefore, the stock position as of April 7, 1957, should have been used to determine suppressed profits, not April 8, 1957. The Court ruled in favor of the assessee, answering the question in the negative and directing the Commissioner of Income-tax to pay costs to the assessee.

In conclusion, the judgment clarified the importance of using the correct stock position date for calculating suppressed profits and upheld the assessee's contention that discrepancies should be based on the stock position as of April 7, 1957, in line with the relevant accounting year.