2022 (2) TMI 1040 - HC - Income Tax

Undisclosed income u/s 69B - difference of stock between the stock submitted to the bank as on 28/3/2005 and the stock indicated in the audit report for the period ending 31/03/2005 relating to raw material stock-in-process and finished goods - HELD THAT - No evidence has been produced by the assessee of sale and purchase of raw material and finished goods during the period 28.03.2005 to 31.03.2005 as found by the Assessing Officer in the previous assessment order as well as set aside assessment order as affirmed by the Tribunal. Hence the entire gamut of matter is in the realm of facts and does not give rise to substantial question of law. Even otherwise as has been held in catena of decisions by different High Courts the practice followed by Industrialists declaring larger than actual quantity of stock to the Bank for the purpose of getting higher loans or over-draft facility in fact is not recognized as conforming to the fiscal discipline by Courts Authorities and Tribunals. Such a tendency tantamount to commercial immorality for obtaining unjustified gains in the form of higher credit facility or loans etc. by showing incorrect statement of stock position to the Bank. In any case the burden lies upon the assessee to reconcile the difference of stock position presented to the bank with the stock position mentioned in the books of accounts/audit report. Thus excess stock represented the income of the assessee from undisclosed sources. Once the Assessing Officer finds that there was excess stock in absence of explanation by the assessee the conclusion is inescapable that the excess stock if any was from undisclosed sources. Further once the assessee s explanation if any has not been accepted the resultant position is that there was excess stock un-disclosed in the books of accounts and non disclosure was only with a view to suppress the income. - Decided against assessee.

Summary

Issues Involved:
Assessment of undisclosed income under section 69B of the Income Tax Act based on difference in stock valuation between bank statement and audit report for assessment year 2005-2006.

Analysis:
1. The assessee-Company filed its return of income for assessment year 2005-2006, declaring a total turnover of &8377; 30,64,07,764/-. However, discrepancies were found in the closing stock of raw material, stock-in-process, and finished goods, leading to a difference of &8377; 2,71,47,665/- between the stock shown in the audit report and the stock statement submitted to the bank. The Assessing Officer treated this difference as unexplained investment in stock from undisclosed sources and added it to the total income of the assessee under section 69B of the Act.

2. The Commissioner (Appeals) reduced the addition made by the Assessing Officer but the Income Tax Appellate Tribunal set aside the Commissioner's order, remanding the case to the Assessing Officer for further examination. The subsequent assessment framed by the Assessing Officer reiterated the addition of &8377; 2,71,47,665/- as undisclosed income under section 69B of the Act.

3. The Tribunal, upon appeal by the Revenue, highlighted the failure of the assessee to provide evidence explaining the discrepancies in stock valuation between the bank statement and audit report. The Tribunal emphasized the need for the assessee to reconcile the stock differences but found no satisfactory explanation presented. Consequently, the Tribunal set aside the order of the Commissioner (Appeals) and upheld the addition of &8377; 2,71,47,665/- as undisclosed income.

4. The High Court affirmed the decisions of the Assessing Officer and the Tribunal, emphasizing that the burden lies on the assessee to reconcile discrepancies in stock valuation between bank statements and books of accounts. The Court noted the absence of evidence regarding sale and purchase transactions during the relevant period, leading to the conclusion that the excess stock was from undisclosed sources. The Court rejected the appellant's reliance on a previous judgment, stating it was distinguishable on facts.

5. The High Court upheld the addition of &8377; 2,71,47,665/- as undisclosed income, dismissing the appeal and emphasizing the importance of accurate stock valuation and the consequences of failing to explain discrepancies in stock positions between financial records and bank statements.

Conclusion:
The High Court upheld the addition of undisclosed income based on discrepancies in stock valuation, emphasizing the need for accurate reporting and reconciliation of stock positions between financial records and external statements. The judgment highlights the burden on the assessee to provide satisfactory explanations for such discrepancies to avoid adverse tax implications.