1975 (1) TMI 41 - AT - Income Tax

Issues Involved:
1. Reopening of assessment to include cash credits and interest payment.
2. Concealment of stock of 1,379 bales of Cambodia Cotton.
3. Ownership and accounting of the 1,379 bales of Cambodia Cotton.
4. Validity of the bank's loan procedures and stock declarations.
5. Applicability of presumption of ownership based on custody.
6. Relevance of previous judgments cited by the Departmental Representative.

Issue-wise Detailed Analysis:

1. Reopening of Assessment to Include Cash Credits and Interest Payment:
The original assessment of the assessee, a private limited company, was completed on 31st Jan. 1963, showing a loss of Rs. 6,78,145. The assessment was later reopened to bring certain cash credits and related interest payments to tax. The AAC deleted the cash credits and interest payment but sustained the addition regarding concealed stock. The appeal by the ITO against the deletion of cash credit is pending.

2. Concealment of Stock of 1,379 Bales of Cambodia Cotton:
The ITO found that the assessee had concealed 1,379 bales of Cambodia Cotton, valued at Rs. 5,37,810, which was added to the tax net. The AAC agreed with this addition. The assessee contended that this stock was not theirs and was managed by Vijayakumar Cotton Press, controlled by G. Krishnan.

3. Ownership and Accounting of the 1,379 Bales of Cambodia Cotton:
The stock was in the Coimbatore godown of Vijayakumar Cotton Press and was not accounted for in the assessee's books or the records of Vijayakumar Cotton Press. The ITO disbelieved the assessee's version and considered it concealed stock of the assessee. The assessee argued that the stock could have been used as security by Vijayakumar Cotton Press when finances were required.

4. Validity of the Bank's Loan Procedures and Stock Declarations:
The bank's statement and the borrower's declaration showed discrepancies in the figures, indicating a casual approach by the bank. The bank advanced 100% of the declared value, which is unusual and suggests that the bank was more concerned with the overall solvency of the assessee rather than the title of the pledged goods.

5. Applicability of Presumption of Ownership Based on Custody:
The Tribunal noted that the 1,379 bales were in the custody of Vijayakumar Cotton Press, creating a presumption of ownership by the custodian. The ITO did not examine anyone from Vijayakumar Cotton Press to deny ownership. The Tribunal found that the presumption of ownership by the custodian was not displaced by the facts presented.

6. Relevance of Previous Judgments Cited by the Departmental Representative:
The Departmental Representative cited two judgments from the Madras High Court. However, the Tribunal found these cases distinguishable as they involved inflation of stocks held by the assessee themselves, unlike the present case where the custody was with a third party.

Conclusion:
The Tribunal concluded that the ownership of the 1,379 bales of Cambodia Cotton could not be attributed to the assessee based on the evidence and circumstances. The addition of Rs. 5,37,810 as income from other sources was deleted. Consequently, the appeal for the subsequent assessment year 1960-61 was also allowed, deleting the additions of Rs. 54,375 and Rs. 68,950.

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