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TMI Blog2013 (11) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... s addition has been made towards unexplained investment covered under section 69 of Income Tax Act, 1961 wherein provisions of section 145 of Income Tax Act, 1961 are not applicable. 4. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.8,13,31,097/- holding that there was no adequate material whereas (a) stock of gold/diamond cannot be stated by the assessee on estimate basis as such purchases/stock are recorded by various agencies dealing in this business at various levels and which the assessee failed to disclose in books of accounts and (b) Bank allowed credit facility of about Rs.15 crores on the basis of such declaration of stock. 5. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.8,13,31,097/- without any material on record to the contrary to prove that the assessee had not disclosed such excess stock to Banks." 2. Ground No.1 is general. 3. Ground Nos.2 to 5 pertain to a single common issue, i.e., challenge to the CIT (A)'s action in deleting the addition of Rs.8,13,31,097/-, made by the AO on account of difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s backdrop, the assessee was asked vide order sheet entry dated 12.12.2008 to explain the different items of stock shown by it in Annexure-A and Annexure-B and also to reconcile the difference in the total value of stocks as per those Annexures.. In response to the said query, the assessee vide its letter dated 15.12.2008 has submitted as under:- "In this connection it is submitted that the stock statement filed with the lending bank was for the purpose of availing maximum amount of credit limit sanctioned by them. Accordingly this statement was prepared without physically verifying the stock lying at the business premises of the assessee as well as without consulting its value as per books of accounts. This is the usual practice of every businessman who is availing such cash credit facility. They filed stock statement keeping in view the amount of credit facility available to him. Because this statement is used for calculating drawing power of the assessee hence prepared either on inflated prices or inflated quantity or both" 4.1 The assessee in continuation of its earlier submission, further submitted on 18.12.08 as under:- "In continuation of our letter dated 15.12.2008 on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vail maximum credit limit from the bank, that it had inflated the stock quantity and the valuation submitted to the bank, was also not acceptable, since as per the certification given to the bank, the stock stood valued in the same manner as that shown in the Company's audited accounts, at cost price; and that even otherwise, since verification is made by the banks, the explanation of inflation proffered by the assessee could not stand. 4.4 It was in this manner that the AO added the excess value of the item- wise stock shown by the assessee in the stock statement submitted to the bank to the value of the closing stock shown in the balance sheet. 5. The ld. CIT (A) deleted the addition. 6. The ld. DR has contended that the order of the ld. CIT (Appeals) is not correct in law and facts; that the ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.8,13,31,097/- made by the AO on account of difference in stock value as per statement submitted to the bank by the assessee; that the ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.8,13,31,097/- being discrepancy between stock statements filed in Bank and stock shown in books of accounts hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared on estimate basis, since such sales are recorded by various authorities; that besides, the assessee has given all details to the banks; that the ld. CIT (A) has erred in placing reliance on 'CIT vs. Shree Padmavathy Cotton Mills', 236 ITR 340 (Mad), since in that case, the stock position was tallied with the RG Register which is not the position herein; that 'CIT vs. Gopal Rice Mills', 211 ITR 492 (All) has also been wrongly relied on; that in that case, there was a second inspection by the Regional Food Controller and so, the bank statement was not considered reliable; that in the present case, such facts are not present; that in 'CIT vs. Khand Sirohi and Steel Rolling Mills', 200 CTR 595 (All), the matter was decided by the Tribunal on the basis of the practice of declaring higher stock to the bank to get higher loan facility; that the Hon'ble High Court upheld this Order of the Tribunal; that however, this position is against 'Shree Padmavathy Cotton Mills' (supra); that in 'CIT vs. Das Industries', 303 ITR 199 (All), no OD facility was involved and therefore, this decision is also not applicable hereto; that 'N. Swamy', 241 ITR 363 (Mad) is also not applicable on facts; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overall valuation of the stock. The assessee's case is that the stock quantity and valuation submitted to the bank had been inflated only so as to avail maximum credit limit. 9. The Assessing Officer, however, made the addition by observing, inter alia, that as certified by the Director of the Company itself before the Bank, the stock have been valued in the same manner as that depicted in the audited accounts of the Company, i.e., at cost price and not at market value; and that even otherwise, banks themselves make verification in such matters. 10. In this regard, it is seen that despite making observations as above, the Assessing Officer did not reject the books of account of the assessee, nor was any suppression of either purchases or sales was pointed out by the Assessing Officer. Both the purchases and sales were duly supported by vouchers. The bank had certified that the stock statement submitted by the assessee to the bank was on an estimate basis and that there had been no valuation of the stock by the bank experts. The difference between the value of stock as declared to the bank and that furnished before the Assessing Officer has never been denied. Additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey, i.e., on 20.01.2006 and quantity-wise and value-wise detail of stock as on 31.03.2006, as per the assessee's books of account. It stands mentioned therein (APB 41), that during the survey, the exact valuation of stock had not been asked for by the survey team from the assessee on the basis of cost system of stock valuation on FIFO basis, which was being regularly followed by the assessee since its very inception; that rather, the valuation of stock calculated by the TALLY computer software was taken as at Rs. 521,54,504/- and after taking the value of stock of Rs. 1,08,89,359/-, which had been lying with the goldsmith, the value of the stock lying at the assessee's shop came to Rs. 4,12,65,145/-, as per the assessee's books; that the departmental valuer had, on his own, valued the stock lying at the business premises of the assessee at Rs. 4,93,41,594/-; that as such, the valuation of the stock was in excess by about Rs. 80 lacs; and that the assessee company had accepted this amount of Rs. 80 lacs as additional income for the concerned year, i.e., the year under consideration. A copy of the valuation of stock as on 20.01.2006 was also filed. Copies of ledger account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -wise, was much difficult, if not impossible, the business of the assessee being that of dealing in diamonds and gold items. In fact, it is for this very reason that, as certified, services of an expert in the form of a stock audit, was required and as for the objection regarding no certification to the effect that there was no valuation by experts, this objection clearly stands overruled when the certificate states that no stock audit was done, as per records available with the bank. 15. There is also no merit in the objection of the department that the CIT (A) has not given any finding on the explanation by the assessee to the effect that the method of valuation of stock by the assessee was different for the bank and in its books. Such explanation of the assessee, as can be gathered from the drift of the impugned order, has been duly accepted by the ld. CIT (A). 16. Apropos the case laws relied on by the department, in 'B.T. Steels vs. CIT', 328 ITR 471 (P&H), the Assessing Officer had made additions to the declared income of the assessee on the basis of stock available with the assessee, but not reflected in the books of account. The stock statement of hypothecated goods furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the stock by the assessee that overdraft facility was given. On behalf of the assessee, it has been contended that 'Dhansiram Aggarwala' (supra) stands distinguished in 'CIT vs. Udaipur Chemicals and Fertilizers (P) Ltd.', 211 CTR (Raj.) 191. This has been found to be incorrect. Para 17 of the judgement deals with 'Dhansiram Aggarwala' and it has been found to be of no help to the department, on facts. Strength, however, accrues to the assessee from 'Udaipur Chemicals' (supra), in the sense that therein, there was nothing on record to suggest any actual discrepancy in the stock. 19. The department has also sought to place reliance on 'Dhansiram Aggarwala vs. CIT', 204 ITR (St.) 45, wherein, vide order dated 06.09.1993, the Hon'ble Supreme Court dismissed the SLP filed by the assessee against the aforesaid decision of the Hon'ble Gauhati High Court, observing that it remained admitted that the assessee had over valued the stock for the purpose of obtaining a larger credit from the bank. This, however, in our considered opinion, does not make the position any different. Once the High Court decision in 'Dhansiram Aggarwala' (supra) is not applicable to the present case on facts, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a loan. The Tribunal arrived at the conclusion that the closing stock declared in the return filed by the assessee was based on the books of account and it should be accepted rather than the closing stock as declared to the bank, which was made for the purpose of securing a loan. In the present case also, the books of account were never rejected by the Assessing Officer, as not representing the correct stock position. Also, a higher quantity of closing stock was declared by the assessee to the bank for the purpose of obtaining cash credit limit. It has not been shown that the return filed by the assessee was not based on the books of account. The total value of the stock was shown to the bank at market rate. In the books of account of the assessee, on the other hand, it was depicted at cost. When the gross profit was reduced from the valuation as submitted to the bank, the resulting value of stock came to Rs. 13,00,80,291/-, as per books of account. The stock as per the books of account actually was of Rs. 13,27,89,412/-, i.e., more than the stock so calculated. On facts, therefore, 'Shree Padmavathy Cotton Mills', (supra) is squarely applicable to the present case. 23. In 'CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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