9911796707
TMI Blog1973 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------------------------------------------- Cotton 80 candies 20 candies Cotton seeds 3,500 bags. 2,100 bags Kappas 900 pothis nil -------------------------------------------------------------------------------------------------------------------------------------------------- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tton seeds and kappas. As regards the discrepancy in the stock of cotton seeds, the Tribunal took note of the fact that the loan from the bank was an open loan, that, the stock of cotton seeds actually continued to be in the physical possession of the assessee, that 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 foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, it is not possible to assume that the stocks of kappas could not have been purchased by the firm. The Tribunal took note of the fact that though the Hindu joint family had just started to run the business as a separate concern, earlier the eldest member of the family 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 verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, it also said that the discrepancy was due to anticipated arrivals of fresh stocks of kappas. But, the actual explanation given by the assessee at the time of bearing before the Appellate Assistant Commissioner was that it had made only a rough estimate of the stocks available 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the entries made in the assessee's accounts. Reference is also made to a decision of this court in State of Tamil Nadu v. Indian Crafts and Industries, to which one of us was a party. In that case the assessee, in order to obtain a quota to import a higher quantum of raw 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the assessee that the stock declarations given to the banks were only rough estimates and not accurate, should be accepted in the face of the returns submitted by the assessee to the Textile Commissioner at Bombay which corroborated the entries in the stock books. This 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of the explanation given by the assessee could not convert the question of inflation of wages which was essentially a question of fact into a question of law. Though for deciding the questions referred to us in this case we have to go into the facts, the field of interference is considerably limited, for this court is not exercising the powers of an appellate court. Though the learned counsel may be right in his submission that there is no positive material to establish that 500 pothis of kappas were held by the assessee on December 31, 1959, the Tribunal is justified in proceeding on the basis of the entries made in the declarations given by the assessee to the bank. The Tribunal has chosen to give an estimate after giving due allowance for the probable inflation which the assessee could have made. We are not, therefore, in a position to say that there was no material for the Tribunal to hold that there were unaccounted stocks of kappas on December 31, 1959. In this view, we have to answer both the questions referred to us in the affirmative and against the assessee. The assessee will pay the costs of the revenue. Counsel's fee Rs. 250. - - TaxTMI - TMITax - Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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