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TMI Blog1973 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------------------------------------------------------------- The assessee was called upon to explain the above discrepancy, The assessee's explanation was as follows : So far as cotton was concerned, there was a sale of 112 candies on December 31, 1959, and if the stock of cotton is taken into account, the actual stock as per the assessee's books of account would be 132 candies. As regards the cotton seeds, the assessee stated that there was a sale of 104 bags on December 31, 1959, and if this was taken into account, there would be a stock of 2,204 bags. The declaration to the bank was made only on a rough estimate of the stock without any physical verification. It was also stated that the assessee inflated the stock of cotton seeds for the purpose of obtaining a higher loan from the bank and this is a normal practice resorted to by the ginning factories to cover the loan desired by them. As regards the stocks of kappas, the assessee stated that it had in its possession 153 pothis belonging to the customers who brought the same for ginning and this stock was inflated and shown as 900 pothis in the declaration given to the bank w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of the nature of the loan it is possible that the stocks should have been inspected by the bank in a cursory manner and that the discrepancy might be due to a rough estimate made of the total stock. In that view, the Tribunal chose to accept the assessee's explanation as regards the discrepancy in the stock of cotton seeds. With regard to the discrepancy in the stocks of kappas, however, the Tribunal was not inclined to accept the assessee's explanation that the stocks were inflated for the purpose of getting a higher loan from the bank. Therefore, the Tribunal set aside the order of the Appellate Assistant Commissioner and restored the additions made by the Income-tax Officer to the extent of Rs. 70,000 for the year 1960-61 and Rs. 3,500 for the year 1961-62. Having failed to get a reference from the Tribunal, the assessee moved this court for a reference under section 66(2) of the Income-tax Act and the following questions have been referred by the Tribunal on the directions of this court : "(i) Whether the Tribunal had any material to hold that 500 pothis of kappas where held by the assessee as stock of kappas ? and (ii) Whether the finding of the Tribunal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily had carried on the same business with his brother as a partnership concern. The Tribunal also considered the assessee's case that it was not selling kappas at any time, but actually found that the books of the assessee did disclose sales of kappas as such, and that, therefore, it is possible for the assessee to have sold the excess stocks of kappas. The Tribunal, therefore, felt that the consumption of electricity would not be quite relevant for the purpose of deciding whether the assessee was in possession of the stocks of kappas in excess of the stocks shown in its books of account. As regards the assessee's explanation that the stocks had actually been inflated for the purpose of raising a loan from the bank, the Tribunal felt that even if there is such a practice prevailing in the trade, inflation to such an extent could not have been possible in the case of the stocks of kappas as the stocks had been verified by the bank authorities. The Tribunal took note of the following circumstances: The bank had informed the Income-tax Officer by its letter dated August 2, 1962, to the effect that the officers of the bank had inspected the assessee's stocks on December 30, 1959, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable and that there was a tendency to over-estimate the stocks for getting a larger loan. These varying explanations were taken by the Tribunal as showing that they had been offered according to its own convenience and that they cannot be true. It is true, as pointed out by the assessee's learned counsel that the books of account produced by the assessee had not been commended upon adversely by any of the authorities and they have only proceeded on the basis of the stocks declaration made by the assessee to the bank showing a large discrepancy between the stocks held by the assessee and the stocks declared to the bank. In view of the said discrepancy in the stocks, though there was no specific rejection of the books of accounts of the assessee, it can be inferred that the Income-tax Officer was not inclined to accept the book results and chose to make an estimate on the basis of the declaration given by the assessee to the bank. One of the circumstances as to why the book results had not been accepted is the large variation between the stocks disclosed in the books and the stocks shown in the declarations given to the bank. The assessee's explanation for such variation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw material, inflated production figures in his application to the Director of Industries and Commerce. But he was always granted by the Director of Industries only less than 1/4th of the quantum applied for. The actual quantity allotted has been properly accounted for in the books of the assessee. But the assessing officer, relying on the figures furnished in the application for import licence, reopened the assessment of the assessee under section 16 of the Tamil Nadu General Sales Tax Act on the ground that the account books did not reflect properly the actual production. The Sales Tax Tribunal held that there was no suppression. This court, on a revision by the State, held that merely because the assessee conducted himself in a manner which was not conducive to ethics, the taxing officer could not invoke the provisions of reassessment and penalise him, and that the finding of the Tribunal that the assessee utilised in his business only the actual quantum of raw material granted by the Director of Industries and that had been duly accounted for in the books of account was essentially a finding of fact which could not be interfered merely on the basis of suspicion. In that case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision cannot be taken to be an authority recognising the so-called commercial practice of inflating the value of stocks for the purpose of getting higher loan from the bank, as urged by the assessee's counsel. We, therefore, find that none of the decisions cited by the assessee's learned counsel establish the proposition that the stock declarations given to the banks for the purpose of raising a loan cannot under any circumstances form the basis for rejection of the assessee's accounts and for making an estimate ignoring the book results. It cannot be disputed that if there is actual discrepancy in the stocks of kappas the assessee has to explain the same, as otherwise the assessee's accounts showing a lesser stock cannot be accepted in the face of it solemn declaration made by the assessee to the bank showing a larger stock. If there is no proper and acceptable explanation forthcoming from the assessee, the Income-tax Officer is justified in rejecting the accounts on the basis of the said stock declarations. In this case the assessee gave various explanations, the main explanation being that stocks on hand were actually inflated for the purpose of getting a higher loan from t ..... 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