TMI Blog2008 (1) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... and the stock as per books. In view of the facts and submissions filed as well as legal position, the learned CIT(A) ought to have deleted the impugned addition. The appellant craves leave to add, amend alter modify or delete any of the above grounds as well as to submit additional grounds at the time of hearing of the appeal." ITA No. 3798/Ahd/2003 (by the assessee for asst. yr. 1997-98) "1. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 7,00,965 made by the AO as unaccounted profit on account of discrepancy in stock. In view of the facts and submissions filed as well as legal position, the learned CIT(A) ought to have deleted the impugned addition. 2. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 54,000 made by the AO on estimated basis as circulating capital for the difference in purchases. In view of the facts and submissions filed as well as legal position, the learned CIT(A) ought to have deleted the impugned addition. 3. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 1,58,483 made by the AO under s. 69B for the difference in the stock statement given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in relation to the first year, i.e., asst. yr. 1996-97. The AO observed that the value of the assessee's closing stock-in-trade and secured loan as at the year end (31st March, 1996) to be at Rs. 3,56,565 and Rs. 12,76,210. The said secured loan was availed by the assessee from its bank against hypothecation of its stock-in-trade, and which therefore could not presumably be less than the amount of the loan therefrom and, rather, given the fact that the bank's lending norms spell or mandate a margin towards its security (usually 25 per cent), the value of stock with the assessee as at the year end would be even more. He, therefore, required the assessee to furnish the quantitative details of the goods dealt in on a monthly basis, i.e., purchase, sale, opening and closing stock, along with their valuation. Information under s. 133(6) of the IT Act, 1961 ('the Act' hereinafter) was also secured from the assessee's bank, i.e., Union Bank of India, Maninager, Ahmedabad. On the basis of the quantity of yam (the assessee carrying business of twisting of poly yam) held by the assessee as at 1st Feb., 1996 i.e., as per the statement given by it to its bank, the AO worked out the clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Dhansiram Agarwalla vs. CIT (1993) 111 CTR (Gau) 39 : (1993) 201 ITR 192 (Gau) and Century Foams (P) Ltd. vs. CIT (1995) 123 CTR (All) 342 : (1994) 210 ITR 625 (All), with the former being approved by the apex Court, as the assessee's SLP there against stood dismissed by it [reported at 204 ITR (St) 45]. He, therefore, confirmed the addition at Rs. 7,82,036, i.e., as made. Aggrieved, the assessee is in appeal. 5. The facts in relation to the second year, i.e., asst. yr. 1997-98 are that the AO, on the basis of the stock statements furnished by the assessee to its bank, and which also carried figures in respect of purchases and sales, found the assessee to have made out of books sales and purchases at 8,551.460 kgs. (Rs. 12,41,096) and 4,493.277 kgs. (Rs. 5,40,131), respectively, so that the assessee had secured an unaccounted profit of Rs. 7,00,965 (12,41,096 - 5,40,131) and which therefore was liable to be added. As regards the unaccounted purchase of Rs. 5,40,131, the same would involve investment towards working capital as well, and which stood estimated by him at 10 per cent, making another addition for Rs. 54,000. Thirdly, the closing stock as at March end a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years (i.e., asst. yrs. 1996-97 and 1997-98) and on the order of the AO for asst. yr. 1998-99, the third year. 8. We have heard the parties and perused the material on record as well as the case law relied upon. 8.1 Before proceeding to discuss the facts and figures in relation to each year, we consider it relevant and useful to delineate, in brief, the case of the two parties, as well as the law in the matter. The assessee's case, primarily, is that recognizance be given to the stock statements as furnished to its bank, which are for the sole purpose of availing of higher credit limits from its bank, on which, therefore, no credence can be placed in the absence of any corroborative material, as (say) found in search on 5th Sept., 1999, so as to suggest of it being engaged in trading outside books. To this end, reliance stands placed by it on the decision in the case of CIT vs. N. Swamy (2000) 241 ITR 363 (Mad), apart from a few decisions by the Tribunal. The Revenue's case, on the other hand, is that the furnishing of stock statement(s) by the assessee to its bank cannot be regarded as a mere formality, and is itself a proof of it having a higher stock as at the relevant da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the fact of the assessee having actually availed of the said higher bank credit/funds there against. 8.3 However, be that as it may, we consider that the Revenue has not proceeded to effect the additions under s. 69/69B on an objective basis, and which we would clarify in the following paras. In respect of asst. yr. 1996-97, the difference in stock as at year end (31st March, 1996) stands determined by the AO by considering the figure of stock as at that date at 7,625.391 kgs., while the assessee states the said figure to be at 7,289.466 kgs., and which may result at a variance of 336 kgs. (7,625 - 7,289). Secondly, the AO has valued the excess closing stock at Rs. 192.981 per kg. (Rs. 7,82,036 / 4,052.391 kgs.), while the assessee has valued the same at Rs. 170.295 per kg. (Rs. 6,32,897 / 3,716.466 kgs.). Clearly, the facts warrant verification on these two aspects. Again, the assessee would also be entitled to credit in respect of excess stock of 316.41 kgs. found in search on 5th Sept., 1995, (i.e., during the current year), i.e., if, and to the extent, the same has been upheld, even if contested by the assessee in appeal. Subject to the same, we confirm the addition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase account (i.e., where the book purchases for a particular month exceed the purchases as per the bank statement). However, again, it needs to be clarified that the said addition could only be made where the total quantity purchased (and held) exceeds the quantity for which the total addition stands already sustained in the assessee's hands in the block assessment as well as the assessment for asst. yr. 1996-97 per this order, as the assessee can only be considered to have the necessary amount/fund to finance the said purchase/inventory. Nevertheless, the said unaccounted purchases can only be assumed as sold during the year, so that the assessee would be assessable to the gross profit on their sales (2,311 kgs.). This gross profit, both for the current as well as the preceding years, would be as assessed for the disclosed transactions per their respective assessments. As such, the assessee gets part relief and the Revenue's appeal would stand dismissed for this year. We decide accordingly. 9. The foregoing adjudicates all the grounds of both the parties, except ground Nos. 4 and 5 of the assessee's appeal for asst. yr. 1997-98, i.e., ITA No. 3798/Ahd/2003, which relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground for so inferring, i.e., in the absence of the fair market value as on the date of purchase. The learned CIT(A), however, confirmed the disallowance on the ground that the assessee had without doubt purchased goods at a rate higher than that from outside/independent parties. Aggrieved, the assessee is in appeal. 10. Before us, the learned Departmental Representative relied upon the orders of the authorities below. 11. We have heard the party before us, and perused the material on record. We find, firstly, that the AO has compared the purchase price of the goods from these two parties with the rates at which the said goods stand valued as at the year end, and which is admittedly at the lower of cost or market value. As such, there could be a case of decline in the price of the relevant goods, over time, necessitating their being- stated or valued at a lower price as at the year end, so that the said comparison by itself would not, even as stated by the assessee, lead to a positive conclusion of the assessee having incurred a higher or excessive price, and for which the valid comparison would only be with reference to the market value of the relevant goods as at the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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