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2015 (4) TMI 185 - AT - Income TaxAddition to income - difference in closing stock - AO observed that the assessee had raised loan from Punjab National Bank, Bathinda and closing stock of the firm as on March 31, 2009 as per audited balance sheet was ₹ 17,50,000 but the same was reported to the bank at ₹ 1,69,17,000 in the stock statement submitted to the bank on March 30/31, 2009 - Held that - Stock declared before the bank is for the purpose of raising the loan. The assessee has submitted his stock statement as on March 30, 2009 at ₹ 1,69,17,000 whereas as on March 31, 2009 it was ₹ 17,50,000 and the difference of ₹ 1,66,13,401 was booked as sales on March 31, 2009. The assessee submitted the stock statement as on March 31, 2009 showing stock at ₹ 17,50,000. The assessee also submitted an additional evidence and the explanation under rule 46A before the CIT (Appeals) which was rejected since the same was not furnished before the Assessing Officer. The reconciliation statement has not been accepted by the CIT(Appeals) for the reason since the same was not produced before the Assessing Officer. At the outset, this is not the cogent reason as mentioned by the CIT(Appeals) that something has been not produced before the Assessing Officer that cannot be produced before the learned Commissioner of Income-tax (Appeals). Therefore, the CIT(Appeals) has not acted strictly in accordance with the provisions of rule 46A of the Income-tax Rules, 1962. Even if the reconciliation statement has not been accepted, can any statement on account of, i.e., balance-sheet or profit and loss can be read in part, the answer is no . Since any document or statement has to be read in toto in settled ratio. The assessee's explanation submitted before the learned Commissioner of Income-tax (Appeals) as an additional evidence which in fact is on record that the assessee has transferred ₹ 1,66,13,401 to sales account out of the stock as on March 31, 2009. The learned Commissioner of Income-tax (Appeals) without any reason has rejected the said explanation. Something must remain, i.e., either the closing stock at the close of the year and if it is not there then there has to be the sales as claimed by the assessee. If the closing stock of ₹ 1,69,17,000 is accepted by the CIT (Appeals) then accordingly the sales to the extent of ₹ 1,66,13,401 has to be reduced which the CIT(Appeals) has not taken care of. Whereas, on the other hand, the sales are not in doubt before any of the authorities below as they have been accepted by both the authorities below. Once the sales have been accepted which includes the sales of ₹ 1,66,13,401 booked on March 31, 2009 by the CIT(Appeals), there is no possibility of the stock to be at ₹ 1,69,17,000 as at March 31, 2009. It has to be ₹ 17,50,000 which is there as per audited accounts. This is a simple accounting, which the CIT(Appeals) could not understand. No addition on this account could be made by the Assessing Officer and accordingly, we reverse the order of the CIT(Appeals). In this respect, we rely upon the decision of CIT v. Punjab Rice and General Mills 2003 (4) TMI 52 - PUNJAB AND HARYANA High Court where it has been held that the assessee has submitted satisfactory explanation for the discrepancies between the stock statement to the bank and to the Income-tax Department, the Tribunal is justified in deleting the addition. - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 1,51,67,000 on account of undisclosed investment under section 69. 2. Discrepancy between the stock declared to the bank and the stock as per the books of account. 3. Reconciliation of stock figures. 4. Admission of additional evidence under Rule 46A of the Income-tax Rules, 1962. 5. Reliance on the statement of the bank manager and physical verification of stock. 6. Admissibility of new evidence before the appellate authority. 7. Legal precedents regarding inflated stock statements to banks. Issue-wise Detailed Analysis: 1. Addition of Rs. 1,51,67,000 on account of undisclosed investment under section 69: The Assessing Officer (AO) added Rs. 1,51,67,000 to the assessee's income, citing a discrepancy between the stock declared to the bank (Rs. 1,69,17,000) and the stock as per the audited balance sheet (Rs. 17,50,000). The AO concluded that the assessee had undisclosed investments. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld this addition, noting that the assessee failed to provide a satisfactory explanation for the discrepancy. 2. Discrepancy between the stock declared to the bank and the stock as per the books of account: The AO observed that the stock declared to the bank on March 30/31, 2009, was Rs. 1,69,17,000, while the stock as per the books was Rs. 17,50,000. The assessee argued that the stock statement submitted to the bank on March 31, 2009, was the same as per the books, but the AO did not accept this explanation. The CIT(A) noted that the bank physically verified the stock and found it consistent with the stock statement submitted by the assessee. 3. Reconciliation of stock figures: The assessee provided a reconciliation statement, claiming that the stock of Rs. 1,69,17,000 on March 30, 2009, included work in progress, out of which Rs. 1,66,13,401 was booked as sales on March 31, 2009. The CIT(A) rejected this reconciliation statement, as it was not furnished before the AO during the assessment proceedings. 4. Admission of additional evidence under Rule 46A of the Income-tax Rules, 1962: The CIT(A) did not admit the additional evidence (reconciliation statement) under Rule 46A, as the assessee did not request its admission during the assessment proceedings. The CIT(A) held that none of the conditions under Rule 46A were satisfied for admitting the additional evidence. 5. Reliance on the statement of the bank manager and physical verification of stock: The CIT(A) relied on the statement of the senior branch manager of the bank, who confirmed that the stock was physically verified and found to be Rs. 1,69,17,000. The assessee argued that this statement was not confronted to them and that no stock statement was furnished to the bank as on March 31, 2009. 6. Admissibility of new evidence before the appellate authority: The assessee claimed that the CIT(A) had asked for the reconciliation chart during the hearing, but the CIT(A) denied giving any such directions. The CIT(A) held that the assessee was not entitled to produce the reconciliation chart as additional evidence, as it was not furnished before the AO during the assessment proceedings. 7. Legal precedents regarding inflated stock statements to banks: The assessee cited several legal precedents, arguing that it is common practice to inflate stock statements to banks to avail higher credit limits. The assessee contended that no addition should be made based on such inflated statements, especially when the stock is hypothecated and not pledged. Final Judgment: The Tribunal found that the CIT(A) did not act in accordance with Rule 46A by rejecting the reconciliation statement without proper consideration. The Tribunal accepted the assessee's explanation that the stock of Rs. 1,69,17,000 on March 30, 2009, included work in progress, out of which Rs. 1,66,13,401 was booked as sales on March 31, 2009. The Tribunal held that the closing stock as on March 31, 2009, was Rs. 17,50,000, as per the audited accounts. The Tribunal reversed the order of the CIT(A) and deleted the addition of Rs. 1,51,67,000. The appeal filed by the assessee was allowed.
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