1985 (5) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Discrepancy between stock statements furnished to the bank and the actual stock as per the assessee's books of account.
2. Reliability of the stock registers and account books maintained by the assessee.
3. Justification for the addition of Rs. 1,68,410 as income from undisclosed sources.

Issue-wise Detailed Analysis:

1. Discrepancy between stock statements furnished to the bank and the actual stock as per the assessee's books of account:
The assessee, a registered firm engaged in the manufacture and sale of stainless steel utensils and underground water handpumps, had obtained overdraft facilities from the bank by hypothecating its stocks. The Income Tax Officer (ITO) discovered a significant discrepancy between the stock details provided to the bank and the actual stock as per the assessee's books on 28-2-1979. The bank's statement showed 180 kgs of stainless steel sheets and 2,301 kgs of stainless steel utensils, whereas the assessee's books showed no stock of sheets and only 455 kgs of utensils. Additionally, the bank's certificate indicated stocks of moulding leather rings and nut bolts valued at Rs. 17,650, which were not reflected in the assessee's books. The ITO directed the assessee to explain this discrepancy, suspecting it as income from undisclosed sources.

2. Reliability of the stock registers and account books maintained by the assessee:
The ITO was not satisfied with the assessee's explanation that the stock statement given to the bank was based on an estimate due to unavailability of exact stock positions. The ITO opined that the assessee's claim lacked basis, especially since there was no stock of stainless steel sheets in the branch. Furthermore, the stock registers produced by the assessee were found unreliable as they were not regularly maintained or signed by the appropriate authorities, and many pages were unused. The ITO concluded that the discrepancy indicated the presence of stocks outside the books of account.

3. Justification for the addition of Rs. 1,68,410 as income from undisclosed sources:
The ITO proposed adding Rs. 1,76,410 as the assessee's income from undisclosed sources, later reducing it to Rs. 1,68,410 after excluding Rs. 8,000 related to moulding. The assessee contended that the discrepancy arose because the head office was unaware of the sales at the branch and believed the goods were still in stock. The Commissioner (Appeals) accepted the assessee's explanation, stating that the discrepancy was due to a lack of information from the branch and that the addition was uncalled for. However, the Tribunal found substance in the revenue's argument that the discrepancy remained unexplained and that the stock registers were unreliable. The Tribunal noted that the bank had inspected the stocks on 28-2-1979 and found no discrepancies, indicating that the excess stock declared to the bank was outside the books. The Tribunal concluded that the addition of Rs. 1,68,410 by the ITO was justified and should be sustained.

Conclusion:
The Tribunal allowed the appeal in part, sustaining the addition of Rs. 1,68,410 as income from undisclosed sources due to the significant discrepancy between the stock statements furnished to the bank and the actual stock as per the assessee's books, and the unreliability of the stock registers and account books maintained by the assessee.