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2013 (10) TMI 291 - HC - Income TaxAddition on the basis of inflated stock statement submitted to bank - Addition under Section 69B - Held that - Only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities - If, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the stock statement had reflected inflated value of the stock, both for the purpose of value as well as quantity, addition can not be made Decided against the Revenue.
Issues Involved:
1. Deletion of addition made under Section 69B of the Income Tax Act due to the difference in the quantity and value of stock shown in the books vis-a-vis the stock statement furnished to the Bank. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 69B of the Income Tax Act: The appellant-Revenue challenged the order of the Income Tax Appellate Tribunal (Tribunal) which deleted an addition of Rs. 10,39,75,306 made by the Assessing Officer (A.O) under Section 69B of the Income Tax Act, 1961. This addition was on account of the difference in the quantity and value of the stock as shown in the books of account compared to the stock statement furnished to the Bank. The case of the assessee, engaged in manufacturing MS Seamless pipes, was selected for scrutiny for the Assessment Year 2009-2010. The A.O noted a discrepancy where the closing stock as per the books was Rs. 6,86,41,931, while the stock statement furnished to the Bank for securing a cash credit facility showed a higher value. The assessee explained that the stock figures given to the Bank were inflated estimates to avail higher credit, and the actual stock received in April 2009 was included in the March 2009 stock statement. The A.O added the difference under Section 69B and initiated penalty proceedings under Section 271(1)(c). The assessee's appeal to the Commissioner of Income Tax (Appeals) [CIT(A)] was partially allowed, but the CIT(A) concurred with the A.O's findings. The Tribunal, however, independently examined the issue and ruled in favor of the assessee, leading to the Revenue's appeal. The Revenue argued that the Tribunal's decision was flawed as it did not consider the difference in stock quantity, not just valuation. The Court, however, opined that the issue was factual and did not raise a substantial question of law. The Court referred to previous judgments, including CIT v. Meico Boards Private Limited and CIT v. Arrow Exim Private Limited, where it was held that discrepancies in stock statements given to banks for higher credit facilities, if satisfactorily explained, do not warrant additions under Section 69B. The Tribunal noted that the stock statement to the Bank was inflated on an estimate basis and that there was no physical verification of the stock by the Bank as of 31st March 2009. The Court found that the assessee's books were audited and accepted by various authorities, including the Excise Department, and no discrepancies were found. The Court held that inflated statements for availing higher credit facilities, if satisfactorily explained, do not justify additions under Section 69B. The Tribunal also reviewed financial ratios over seven years and concluded that the A.O's additions would distort the financial statements. The Court found no reason to interfere with the Tribunal's decision, stating that the appeal raised no substantial question of law and that the Tribunal's decision was flawless. Conclusion: The Court dismissed the Revenue's appeal, upholding the Tribunal's decision to delete the addition made under Section 69B, as the inflated stock statements were satisfactorily explained and did not justify the addition.
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