TMI Blog2013 (11) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... and ordinarily not on the basis of the statement which the assessee may have given to a third party, unless there is material to corroborate that statement of the assessee given to a third party - Decided against Revenue. - ITA No. 3373/Del/2010 - - - Dated:- 26-11-2013 - Shri A. D. Jain And Shri Shamim Yahya,JJ. For the Petitioner : Shri Salil Kapoor Shri Vikas Jain, Advocates For the Respondent : Dr. Sudha Kumari, CIT, DR ORDER Per A. D. Jain, Judicial Member:- This is Department's appeal for Assessment Year 2006-07 against the order of the ld. CIT (A)-III, Delhi, dated 18.03.2010, taking the following grounds:- "1. The order of the ld. CIT (Appeals) is not correct in law and facts. 2. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in law and on facts in directing that addition of Rs.8,13,31,097/- made by the AO on account of difference in stock value as per statement submitted to the bank by the assessee. 3. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.8,13,31,097/- being discrepancy between stock statements filed in Bank and stock shown i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enclosed as Annexure-B and formed an integral part and parcel of the assessment order. On comparing the above two stock statements, i.e., Annexure-A and Annexure-B, it had been found that neither the quantity nor the value of any of the items of stock mentioned in Annexure-A and Annexure-B tallied with each other. For example, on perusal of both the Annexures, it had been noticed that the quantity and value of loose diamonds and pointers as per Annexure-A had been shown at 7168.57 Ct. and Rs.52,330,834/- respectively and in Annexure-B the quantity and value of the same (aggregate of the items mentioned at serial numbers 2, 4, 8 and 9) had been shown at 646.21 Ct. and Rs.8,118,378/-respectively. Thus, there was a difference of 6522.36 Cts. In the quantity of loose diamonds and pointers shown in the two different stock statements for the same period and the difference in terms of the value was Rs.44,212,456/-, which was quite substantial. Moreover, the total value of the stock was also not tallying. As per Annexure-A, the value of stock as on 31.03.2006 was Rs.14,62,56,230/- and as per Annexure-B, the value of stock as on 31.03.2006 was Rs.13,27,89,412/-. There was a difference of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioned by the bank and accordingly, this statement was prepared without physically verifying the stock lying at the assessee's business premises and also without concealing its value as per the books of account; (ii) there is no difference in overall valuation of stock as per stock statement forwarded by bank with the stock exhibit as per books of accounts, because the valuation in the bank stock statement is at market value whereas as per books, it is at cost price. If our of the valuation as per bank's stock statement, the gross profit margin is reduced, stock as per books will be more than the stock as per bank stock statement; and (iii) in order to avail maximum credit limit it has inflated the stock quantity and the valuation submitted to the bank. 4.3 The AO, however, held that while furnishing the stock statement to the bank, the assessee had also filed certificates signed by its Director, as per which, the stock had been verified and valued.; that as per one of these certificates, the stock and other assets have been valued in the same manner, as done earlier, as noted in the assessee's last audited and published accounts, as per which, the stock had been valued at cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inessmen was shown to exist, whereby businessmen declare larger stocks to banks for the purpose of getting higher loans, nor was such a practice recognized in commercial circles or courts; that even assuming that such a practice exists, the Tribunal is not unable to take judicial notice of such substandard morality on the part of the assesses so as to enable them to go back on their own sworn statement given to the banks as to the stocks held and hypothecated by them to the banks. The ld. DR has further contended that the ld. CIT (A) has erred in observing that the excess stock found during the survey was offered by the assessee as additional income for the year under consideration; that this is only partially correct; that the AO, in this regard, has observed that the assessee company had surrendered a sum of Rs.80 lacs, in the survey operation, on account of difference in the value of stock actually found at the business premises and the value of stock as recorded in the books of account on the date of the survey; that the ld. CIT (A) has gone wrong in observing that the bank authorities certified that the stock statement was on an estimate basis; that this finding of the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on account of difference in stock value as per the statement submitted to the bank by the assessee. 8. It remains an undisputed fact that the assessee had filed the stock statement with the bank for the purpose of availing maximum amount of credit limit, as sanctioned. Before the Assessing Officer, the assessee had submitted a valuation statement of stock ought to have been as per the books of account, taking the valuation as per the stock statement forwarded by the bank at Rs. 14,62,56,230/- and reducing therefrom, gross profit rate at 11.06%, amounting to Rs. 1,61,75,939/-. This valuation thus came to Rs.13,00,80,291/-. This was shown to be less than the actual stock as per the books of account at Rs. 13,27,89,412/-. It was contended that hence, there had been no leakage of revenue. It remains the stand of the assessee that the stock statement filed with the bank was prepared without actually physically verifying the existing stock position, since such statement was only for the purpose of availing maximum amount of credit limit sanctioned by the bank. It is also maintained by the assessee that the valuation in the statement furnished to the bank was at marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock as calculated at Rs. 13,00,80,291/-, considering the valuation as per the stock statement furnished to the bank, at Rs. 14,62,56,230/- and reducing therefrom gross profit of Rs. 1,61,75,939/-, @ 11.06%. 12. The Department has also challenged the CIT (A)'s observation that the assessee has offered the excess stock found for taxation. It has been contended that this observation of the Ld. CIT (A) is only partially correct, the amount surrendered for taxation being much less than the excess stock found. Here, it remains undisputed that the department itself verified the assessee's stock during the year. The difference was surrendered. The books of account maintained by the assessee were never rejected by the Assessing Officer. Vouchers supporting the complete purchases and sales were submitted by the assessee before the Assessing Officer. The Assessing Officer verified the same and no discrepancy was found therein. The difference in the valuation, as found by the department was of Rs. 80 lacs only. This was the amount which was surrendered by the assessee. The assessee has filed, at pages 41-48 of the assessee's paper book, a copy of its letter dated 19.11.2008, addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard, the certificate given by the bank is at APB 109. This short certificate reads as follows:- "Date: 02.03.2010. TO WHOMSOEVER IT MAY CONCERN This is to certify that M/s Diamond Hut India Pvt. Ltd. was sanctioned Working capital limit of Rs.9.00 crore and a Stand By Line of Credit limit of Rs.1.00 crore in the month of December 2005. Permissible Drawing Power to the unit was allowed based on the Stock Statement for the month of December 2005 wherein Stocks worth Rs.13,44,40,981.80 (Rs. Thirteen crore forty four lac forty thousand nine hundred eighty one and paise 80 only) were declared by the company. The value of Stock declared by the company as on 31.03.2006 was of the order of Rs.14,62,56,230.00 (Rs. Fourteen crore sixty two lac fifty six thousand two hundred thirty only). Physical verification of the stocks is cumbersome owing to the nature, variety and sizes of the Stock and calls for services of an expert in the form of a Stock Audit. However, as per records available with us, no Stock Audit was got done during the period 2005-06. Sd/- RELATIONSHIP MANAGER (MGG)" 14. Thus, it is apparent that though the bank, in its certificate, has not employed the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er not only had the bank statement before him, but also the verification by the Regional Officer; that the stock was actually lying with the assessee; despite due opportunity to explain the difference, the assessee could not give any satisfactory explanation; and that therefore, the CIT(A) was not justified in deleting the addition, as correctly held by the Tribunal as a finding of fact. 17. From these facts, it is evident that in that case, the bank did verify the actual existing stock position with the assessee. This is directly at variance with the facts of the present case, wherein, as noted hereinabove, the bank has certified that the stock was not verified. True, that as objected by the department, in 'B.T. Steels' (supra), it has been observed that as per procedure, the bank has to inspect the stock. However, in the present case, it remains an undisputed fact, as admitted by the bank itself, that the stock herein was not verified. Now, once the stock was not verified by the bank, what remained as an option was but to resort to estimate basis. 'B.T. Steels' (supra), as such, is of no avail to the department. 18. 'Dhansiram Aggarwala vs. CIT', 201 ITR 192 (Gau.) is also di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the assessee's stock, no statutory register is shown to be required to be maintained. The assessee's books of account as well as details of complete purchases and sales were duly produced before the Assessing Officer. The Assessing Officer did not point out any discrepancy therein. Therefore, on facts, 'Recon Machine Tools' (supra) also does not aid the case of the department. 21. So far as regards 'Mak Texttchem Products vs. DCIT', 83 ITD 96 (Pune), here also, like in 'B.T. Steels' (supra), the bank had itself verified the stock and confirmed the statement given by the assessee, which is not the case herein. 22. The Ld. CIT (A) has rightly placed reliance on 'CIT vs. Shree Padmavathy Cotton Mills', 236 ITR 340 (Mad). Therein, additions were made on the ground that there was discrepancy in stock shown in books of account and in statement made to bank. The Tribunal found that there was no suppression of stock. The Hon'ble High Court held that the Tribunal was justified in deleting the additions and that no question of law arose for reference. The Tribunal had noticed that the books of account had not been rejected by the department as not representing the correct stock po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 199 (All), it was found that though the balance sheet have been presented before the bank, the bank had not verified, nor certified the stock available with the assessee; that even the Assessing Officer had not established that the assessee had a balance of stock as shown before the bank; that the explanation of the assessee, like the one in the present case, was accepted by the Tribunal; that the Hon'ble High Court did not disturb such finding of the Tribunal; and that 'Dhansiram Aggarwala' (supra) was found not applicable. 26. In 'CIT vs. Punjab Rice and General Mills', 264 ITR 482 (P H), the explanation given by the assessee was found to be satisfactory. 27. In the case of 'N. Swamy' (supra), it was observed by the Hon'ble High Court, inter alia, that the assessee's income is to be assessed by the ITO on the basis of material which is required to be considered for the purpose of assessment and ordinarily not on the basis of the statement which the assessee may have given to a third party, unless there is material to corroborate that statement of the assessee given to a third party, even if it be a bank; that the mere fact that the assessee had made such a statement by it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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