TMI Blog2006 (1) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... have been heard and record perused. The Revenue is aggrieved by deletion of addition of Rs. 16,87,069, found in respect of difference in stock, as per the statements submitted to the bank vis-a-vis stock disclosed in the balance sheet as per the audited books of account. The brief facts of the case are that the assessee obtained cash credit facility from the Oriental Bank of Commerce, Rajkot. Inquiry under s. 133(6) of the IT Act led to the finding that the stock disclosed to the bank for the purpose of hypothecation in order to obtain the cash credit facility was Rs. 19,16,000 as on 31st March, 1998 whereas the closing stock as on 31st March, 1998 in the return of income and, therefore, in the books of account had been Rs. 2,28,931. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative and learned Authorised Representative during the course of hearing before us. We have also gone through the detailed paper book filed by the assessee and found from the record that the books of account are maintained by the assessee-company which are subject to audit both under Company Law and under the IT Law. The presumption is in favour of the auditor's certificate that the balance sheet and the P L a/c are in agreement with the books of account of the company and that the company has maintained proper records including quantitative details, that the stock had been physically verified by the management, that the procedure of physical verification followed by the management were reasonable and adequate. In explanation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the assessee has such interest as entitles him to hypothecate them to the bank. It was explained that the assessee-company is having stock worth Rs. 2,28,931 as its absolute property and has such interest in stocks valued at Rs. 15,70,064 and Rs. 21,96,635 which, respectively were the absolute properties of the associate proprietary concerns of the directors, as entitles the company to hypothecate them to the bank. This interest is created by the fact that the proprietors of these concerns are the shareholders and directors of the assessee-company and also the guarantors of the advances to the assessee-company in respect of which the stock is hypothecated to the bank. Therefore, the stock belonging to the assessee-company and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation in the accounts of the company. The GP rate disclosed by the company is satisfactory. If any addition is sustained, it could be unrealistic. Nothing else is detected for the purpose of concluding that the books of account are incorrect or incomplete. The rejection of the books of account is also not justified. 6. The judgment relied on by the AO in the case of Coimbatore Spinning Weaving Co. Ltd. vs. CIT (1974) 95 ITR 375 (Mad) is not applicable to the facts of the case, insofar as, in that case, the books of account were defective as the difference was found in the purchases and sales and there was defect in the quantity and the GP ratio was very low. Keeping in view all these facts, the Tribunal has given the finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess purpose. In some of the cases, purchases were inflated. There was also inflation in the wages paid to workers. The stock register could not also be relied upon by the AO." 8. All the above reasons were indicative of extent of benefit taken by the assessee and so the AO rejected books of account and asked for the explanation to prove that books of account were correct and not the statement given to bank and on what consideration such statement is given; however, the same was not explained and additions were confirmed. However, the facts of the case of the assessee-company are different and following points are worth noting before applying the above case. 9. In the case of assessee-company, the sworn-in statements given by one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector in the assessee- company). Total stock as on 31-3-98 39,95,630 which can be entitled to be hypothecated to the bank ------------------------------------------------ Therefore, the company and its directors are having more stock than the stock offered to bank for hypothecation as on 31st March, 1998. We also observed that the two directors who have given personal guarantee to the bank for the advances taken by the company are also proprietors of the two concerns. The stocks held by the two proprietary concern are the properties of the directors and they have interest in the said properties, which allows them to offer such stock to the bank for hypothecation. 11. The other decision relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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