TMI Blog2001 (5) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to the bank regarding monthwise stock. In response to the said notice, copies of monthwise stock statements furnished by the assessee were produced by the bank before the AO and from the perusal of the same, it was noticed by the AO that the assessee has shown the closing stock of Rs. 2,36,450 in the books of account as on 31st March, 1992, as against the closing stock of Rs. 5,17,170 declared to the bank, revealing a difference of Rs. 2,80,720. The AO also compared the figures of stock declared by the assessee to the bank for each month of the relevant year with the value of closing stock worked out as per the books of the assessee and noticed that there is varied difference in these figures in almost each month with the peak difference of Rs. 2,89,700 in the month of January, 1992. He, therefore, confronted all his findings with facts and figures to the assessee and sought clarification/explanation as to why the peak difference of Rs. 2,89,700 in the value of closing stock appearing in the month of January, 1992, should not be considered as unexplained investment of the assessee. In reply, the assessee stated that the figures of stock declared to the bank are not the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were declared by the assessee to the bank for the sole purpose of availing the maximum cash credit limit. He further submitted that the stock register was not regularly maintained by the assessee and in the absence of the same the stock statements were furnished to the bank on estimated basis. He, therefore, contended that such estimated figures of stock cannot be considered as actual or real for making addition under s. 69B of the Act. Relying on the decision of Tribunal, Delhi Bench 'D' in Rajesh Gulati vs. ITO (1998) 96 Taxman 245 (Del), he contended that the existing commercial practice inflating the value and quantity of stock in the statement submitted to the bank by the business people has been recognised by the Delhi Benches of the Tribunal and the same has also been referred to by the Hon'ble Delhi High Court in the case of CIT vs. Prem Singh Co. (1986) 51 CTR (Del) 275 : (1987) 163 ITR 434 (Del). He further submitted that in the present case the stock was not pledged with the bank but was hypothecated and in such case the goods remained in the custody of the assessee with no physical control of the bank. He also submitted that looking to the nature of the assessee's bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s actual or real value as the same were inflated to serve a limited purpose of availing maximum cash credit facility from the bank. In the case of Rajesh Gulati vs. ITO, the Delhi Bench of Tribunal has observed that the existing commercial practice of inflating the value and quantity of stocks in the statements submitted to the bank by the business people has been recognised by the Delhi Benches of the Tribunal and the same had also been referred to by the Delhi High Court in the case of CIT vs. Prem Singh Co. It is also observed that the bank limit was availed by the assessee-firm against the hypothecation of stock. In the case of hypothecation the bank has no direct physical control over the stock and the same remain in the custody of the assessee and not under the lock and key of the bank as happen in the case of pledge of stock. Thus, in the case of pledge, the figure of stock being directly under the physical control of the bank, can be considered as real and authentic but such presumption in the case of hypothecation like the present case, cannot hold good especially for making addition under s. 69B where the onus is on the Department to prove/establish with supporting evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant material on record, it is observed that the addition is consequential to the addition made by AO on account of unexplained investment in stock inasmuch as the AO assumed that the excess stock alleged to have been found lying with the assessee must have been rotated by the assessee in business resulting into unaccounted purchase as well as unaccounted corresponding sale of such goods. He, therefore, worked out the g.p. on such unaccounted sale on pro rata basis and made the addition of Rs. 1,28,600 in the income of the assessee. As we have already deleted the addition made by AO on account of unexplained investment in the stock while deciding ground No. 1(a) this consequential addition made by AO in respect of estimated profit on undisclosed sale stands automatically deleted. Moreover, it is also observed that the AO has made this addition assuming parallel business and while doing so he has neither rejected the book result declared by the assessee nor has he specifically invoked the provisions of s. 145(2). We, therefore, delete this addition made by AO on this count also. 9. Ground No. 1(c) relates to the addition of Rs. 45,000 on account of unproved cash credits. 10. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account of the assessee-firm are duly tallied the AO arrived at the conclusion that the wrong posting of the said two entries have resulted into the increase in the credit side by Rs. 12,308 (i.e. Rs. 6,154 multiplied by 2). He, therefore, treated this amount as unexplained credit in the books of the assessee and made the addition on account of the same to the income of the assessee. Before us the learned counsel for the assessee has furnished copies of relevant pages of cash book and ledger at paper book page Nos. 57, 58 and 76 and from the perusal of the same it is apparent that while ledgering the said transactions from the cash book the entries have been wrongly posted to the credit side of the bank account instead of debit side. Although the learned counsel for the assessee has not placed on record the copies of ledger account of the concerned parties to support his contention that compensating mistakes were also committed while posting the other effect of the said transaction to the account of the concerned parties, we find that the mistake in posting the said entries to credit side of the bank account instead of debit side is sufficient to explain that there was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of credit item, we allow the same to be set off against the addition confirmed by us on account of unexplained cash credit amounting to Rs. 45,000 as per the telescopy theory and direct the AO accordingly. 15. Ground No. 1(f) relates to the addition of Rs. 40,000 on account of alleged unexplained deposit in the bank account. 16. After considering the rival submissions and perusing the relevant material on record it is observed that the assessee-firm deposited the cash of Rs. 40,000 in the bank account on 28th Aug., 1991, whereas the corresponding entry for the same was recorded in the cash book of the assessee-firm on the next day, i.e., 29th Aug., 1991. In this regard it was explained on behalf of the assessee before the AO that this is an inadvertent mistake on the part of the accountant and that there was sufficient cash balance on 28th Aug., 1991, as per the cash book to cover this deposit amounting to Rs. 40,000. It is observed that the AO instead of relying on this cogent explanation offered by the assessee on the basis of relevant cash book which was produced before him proceeded further to examine all the receipts recorded in the cash book of the assessee on 28t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons should not be disallowed treating the same as bogus. In reply it was submitted on behalf of the assessee before the AO that the said persons actually worked and, therefore, they were entitled to this salary. It was also submitted before the AO that payments to these persons have been made subsequently. This explanation of the assessee was not found satisfactory by the AO who proceeded to examine Shri Tahir Ali, the younger brother of one of the partners of the assessee-firm and found that he was only 15 years old at the relevant time and was a regular student of 8th standard. The other person Shri Pawan Kumar was also not produced by the assessee before AO and even his address was not informed to him in spite of several remainders. The AO, therefore, treated the salary to the extent of Rs. 37,950 as bogus salary claimed by the assessee to inflate the expenditure and accordingly disallowed the same. Similarly he also disallowed the bonus of Rs. 4,000 as the same was found to be paid mainly to the relatives of the partners of the assessee firm. Before us the learned counsel for the asssssee has submitted that the said persons were working with the assessee and the remuneration w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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