2021 (6) TMI 244 - AT - Income Tax

Addition u/s 69/115BBE - unexplained money on the basis of difference in stock statement submitted to the lender bank and Krishi Upaj Mandi Samiti, Agar Malwa - A.O made addition on the ground that the appellant has shown more stock to the bank as hypothecated than in the books of accounts - Assessee argued that result reflected in the books of accounts or stock shown in the books of accounts has not been considered in its proper perspective by the Ld. A.O - HELD THAT - As appellant is subjected to the statutory audit under the various Act, 1961 and Excise Act. No discrepancy was found by the department. It is the settled position of law that addition cannot be made u/s 69B of the Act based on stock shown and inflated quantity/value of stock given to bank to avail higher credit facilities. If the addition made was allowed to continue, the financial statement would get completely distorted. Such an addition on account of difference in stock can only be made on adequate material which admittedly was filed to be relied upon by AO. We have also considered the order passed in the case of CIT V/s Arrow Exim (P) Ltd 2010 (1) TMI 769 - GUJARAT HIGH COURT where the stock hypothecated with bank valued higher than shown in the books of accounts. When no defect is found with the accounts of the assessee explanation rendered by the assessee that the inflated statement was given to the bank to avail higher credit is to be considered in its proper perspective, no interference in deleting such addition either by Ld. CIT(A) or by the Tribunal is called for as of the observation of the Hon'ble Court. Considering the explanation rendered by the appellant in support of the accounts maintained by the assessee for inflated statement submitted to the bank to avail higher credit, we find no justification in the order passed by Ld. CIT(A) in deleting such addition made by the Ld. A.O on account of unexplained investment without any ambiguity so as to warrant interference. Hence we find no merit in the appeal preferred by Revenue and the same is, thus, hereby dismissed.

Issues Involved:
1. Justification of addition made by the Assessing Officer (A.O) under Section 69/115BBE of the Income Tax Act, 1961 based on the difference in stock statements submitted to the bank and Krishi Upaj Mandi Samiti.
2. Validity of the explanation provided by the assessee regarding the difference in stock statements.
3. Applicability of judicial precedents in the context of inflated stock statements for availing higher credit facilities.

Detailed Analysis:

1. Justification of Addition Made by the Assessing Officer:
The core issue revolves around the addition of ?2,14,89,267/- made by the A.O under Section 69/115BBE of the Income Tax Act, 1961. The A.O based this addition on the discrepancy between the stock statements submitted by the assessee to the bank and to the Krishi Upaj Mandi Samiti, Agar Malwa. The A.O noted that the stock hypothecated to the bank was significantly higher than the stock recorded in the books of accounts, leading to the conclusion that the difference represented unexplained money.

2. Validity of the Explanation Provided by the Assessee:
The assessee explained that the stock statements submitted to the bank were inflated on an estimated basis to avail higher financial credit. These statements were not based on actual physical verification and were not supported by the books of accounts. The assessee maintained that the books of accounts were audited and no discrepancies were found by the auditors. The stock statements submitted to the Krishi Upaj Mandi Samiti were based on cost, whereas the statements to the bank were based on market value. The assessee provided detailed explanations for the differences in stock statements on various dates, which were accepted by the A.O for some dates but not for others.

3. Applicability of Judicial Precedents:
The judgment referenced several judicial precedents to support the assessee's position. The Hon'ble High Court of Gujarat in CIT vs. Arrow Exim (P) Ltd held that when no defects are found in the books of accounts, the explanation that inflated stock statements were given to the bank to avail higher credit should be accepted. Other cases cited, such as CIT vs. Sri Padmavathy Cotton Mills Ltd and CIT vs. Relaxo Footwear, reinforced the principle that additions based on inflated stock statements given to banks for credit facilities are not justified if the books of accounts are otherwise in order.

Conclusion:
The Tribunal concluded that the A.O's addition was not justified as the assessee's explanation regarding the inflated stock statements was reasonable and supported by judicial precedents. The books of accounts were audited without any adverse remarks, and the difference in stock statements was adequately explained. The Tribunal upheld the order of the CIT(A) deleting the addition of ?2,14,89,267/-, dismissing the Revenue's appeal.

Final Judgment:
The appeal of the Revenue was dismissed, and the order pronounced in the open Court on 20.05.2021 affirmed the deletion of the addition made by the A.O.

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