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TMI Blog1984 (8) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ks (at 50 per cent margin) and collateral securities of properties belonging to the firm and its partners. This loan was discharged five months later. The first declaration in pursuance of the arrangement was made on 27-12-1978 well prior to the season. Since the total value of stock available as per books was only Rs. 13,124, the ITO proposed the addition representing the difference. At the very first instance, Shri M. Nageswara Rao, partner stated that the statement to the bank, though certified, was not real and that it was meant for the bank records so as to enable the assessee to avail the cash credit limit of Rs. 1 lakh (at 50 per cent margin). It was claimed that the assessee's account with the bank was 12 years old that the arrangement which was temporary was a normal one especially when considered in the light of collateral securities offered and the standing of the firm. The bank statement, according to the assessee was to satisfy the bank records requirement. Thereupon, the ITO examined one Shri D.V. Seethapathi Rao, the then bank's branch manager who certified that the loan limit was sanctioned on the strength of the stock statement and that bank has godown-keepers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be forthcoming. He questioned all attempts to characterise the statement as casual and not serious. It is precisely this kind of light-hearted approach that has been frowned upon, he pointed out, by the High Court, in Coimbatore Spg. & Wvg. Mills' case. He contended that the assessee cannot be allowed to go back on its statement to suit its convenience. 5. We have carefully considered the records as well as the arguments. We cannot possibly dismiss the bank statement as having been 'casually' or 'not seriously' made as canvassed by the assessee. The stock list as given by the assessee to the bank hits five quantities of various materials and the statement has been certified. It has been acted upon by the bank apparently on the bona fide belief that such stock actually existed. This is clear from the statement of the bank manager. The Madras High Court as pointed out, by the ITO, observed as under: "The learned counsel for the assessee, however, submits that the Tribunal should have taken judicial notice of the practice followed by the business houses of declaring larger stocks to the banks purely for the purpose of getting higher loans or overdraft facilities. We are not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urns submitted by the assessee to the Textile Commissioner during the relevant year were found to be quite in accord with the entries made in the books of account. It was also found that the discrepancy in the stocks was due to the fact that the statement of stocks given to the banks was only on an estimated basis and not based on actuals. This Court, agreed with the view of the Tribunal taking note of the fact that the declarations made to the banks were on an estimated basis and not on actuals and that the contemporaneous documents such as the returns sent to the Textile Commissioner showed that the book entries were correct." The decision mentioned in the above passage is the one in Ramakrishna Mills Ltd.'s case. In one case, the Tribunal accepted the book stock while on the other it relied upon the bank stock. In both cases, the Tribunal's decisions were confirmed. But, there is absolutely no conflict of principles involved as explained by the High Court itself. In the case of Ramakrishna Mills Ltd., the bank statement, though false, was the only material as against all other factors leading to acceptance of books and it was for this reason that the Tribunal accepted the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------- Stock as per Average consumption bank for year with reference statement to consumption of four years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e season itself. 4. There is no allegation of any physical verification by the bank staff, though such verification was presumed. A careful reading of the branch manager's statement fully reproduced in the order of Commissioner was not indicated that the stock was at any time physically verified. In fact, the branch manager's statement indicates that, even the original bank statement filed by the assessee was not traceable by the bank. It is also clear that he had no first hand knowledge of the events leading to sanction of cash credit and was merely stating that the general practice of the bank was to sanction such limits only on their satisfaction. It is also seen that it was not a key loan where there is a day to day physical control. At any rate, on the facts of the assessee's case it is not possible to say that there was any physical check at any time. It must also be remembered that the limits were further secured by the substantial assets of the firm and its 16 partners. The firm had a long standing record of good relationship and had no liquidity problems in the past. It, therefore, stands to reason that the bankers were not too keen to verify the statement which they, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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