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The ITO Versus Apco Motor (India) Pvt. Ltd.

2015 (3) TMI 934 - ITAT AHMEDABAD

Undisclosed stock - CIT(A) deleted the addition - Held that:- No difference in quantity of stock is reported by the Revenue. The AO has not made any enquiry in respect of the explanation of the assessee that the stock belonging to other entity was included into the stock statement submitted to its banker. The AO has observed that even if the stock of Auto Agency has been considered while submitting the stock statement of the company, then the stock statement ought to have exceeded the value as d .....

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ssessee in its books of account. In the absence of such specific finding, we do not see any reason to interfere with the order of the ld.CIT(A). Therefore, respectfully following the ratio laid down in the judgement of the Hon’ble Jurisdictional High Court in the case of CIT vs. Veerdip Rollers P.Ltd.(2007 (10) TMI 376 - GUJARAT HIGH COURT), this ground of Revenue’s appeal is rejected. - Decided in favour of assessee. - I.T.A. No.2449/Ahd/2011 - Dated:- 19-3-2015 - G.D. Agarwal And Shri Kul Bhar .....

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On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above, since the assessee has failed to disclose his true income. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2. The only effective ground is against the deletion of addition in r .....

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raming the assessment, the Assessing Officer (AO in short) made addition on account of the difference in value of closing stock as submitted before the Revenue and before Nutan Nagarik Sahakari Bank Ltd. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. 4. The ld.Sr.DR supported the order of the AO. 5. We have heard the ld.Sr.DR, perused the material available on record and go .....

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untant of the assessee company who has stated such higher value of closing stock to the bankers without verification of quantitative records maintained by the company and under a bonafide belief that if belongs to the company due to following reasons: (i) At the outset, if is submitted that the assessee company was having Cash Credit facilities of ₹ 35 lakhs from Nufan Nargik Sahkari Bank Ltd against the hypothecation of stock in trade during the year under consideration. The assessee comp .....

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sells the goods to the various parties including the assessee company. (iii) The Principal Company Eicher Motors Ltd. therefore requested the assessee company's group to form a new entity which should work as its consignment agent. The group therefore established a new entity namely "Auto Agency", a partnership firm w.e.f. 14/05/2004 to act as consignment agent of the principal company Eicher Motors Ltd. (iv) That on formation of the Consignment Agent, the Principal Company Eicher .....

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he stock of "Auto Agency" as stock of the assessee company while submitting the stock statement of the company as he was of the opinion that the said stock like in previous years is also that of the assessee company. He accordingly under such bonafide belief submitted a stock statement of ₹ 61,98,448/- to the bank. However, while doing so, as stated hereinabove, he mistakenly overlooked the fact that "Auto Agency" having came into existence during the year itself was no .....

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of the Paper Book furnished. Considering the aforesaid facts, no adverse inference is warranted on the basis of statement of closing stock furnished to bankers as the same was furnished without verification of the records and under the bonafide belief and/or mistake on the part of the accountant as stated herein above. 2. That apart, your honour will appreciate on perusal of the stock statement furnished to the bankers that the same is merely on letter head of the company and shows only the valu .....

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s wholly unwarranted and bad in law in absence of any material brought on record to establish that the appellant company had in fact actual stock to the extent of ₹ 61,98,448/-. 3. It is contended that the assessee company is maintaining day-to-day quantity wise records and no defects have been found either in the books of accounts or the accounting system followed by the assessee company during the course of regular assessment proceedings u/s. 143(3) of the Act by the then assessing offic .....

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discrepancies have been brought on record by the then assessing officer in respect of the quantitative details furnished by the assessee company during the course of original assessment proceedings. 4. It may not be out of place to mention here that there is not an iota of evidence to suggest that there is a case of purchase or sale outside the books of account resulting in such excess stock. Thus, no credence is required to be given to the stock statement furnished to the bank and the actual s .....

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meeting with the terms of the bank and to avoid penal interest in case of shortfall in stock position. Accordingly, the stock position was given on approximate and adhoc basis every month since it is impossible and impracticable to physically check and verify the stock in the middle of the year. 7. It is further contended that the stock was merely hypothecated to the bank, the possession of which remained with the assessee and since there is usually no physical verification of the stock by the .....

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the preciseness of the stock on hand. It may also be noted that there is a real difference between the pledging and hypothecation of goods because in the case of pledging, the goods remain under the lock and key of the bank authorities and are therefore, liable to be physically checked and examined. But in the case of hypothecation such goods remain in the custody of the assessee and the physical verification of the goods hypothecated to the bank is normally not done. The above fact is to bring .....

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accounts. Does this mean that the stock submitted to the bank is the correct stock? Will the department accept such position and reduce the income of the company for such years. A yet another question arises as to whether the A.O. will adopt the figure of closing stock taken by him during the year as opening stock for subsequent year since if this figure is considered along with the figure of closing stock figure submitted to the bank in subsequent year which is less than the book stock, then i .....

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e same criteria requires to be adopted for the previous as well as subsequent years which would result in reduction in total income of the company for such years. 13. In support of the above contentions, the following decisions of various courts of law including the jurisdictional High Court requires to be taken due cognizance of:- CIT v. Arrow Exim (P.) Ltd. (2010) 230 CTR 293 (Guj.) Where addition was made on account of excess stock as there was discrepancy between stock as per books of accoun .....

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e and, therefore, in order to avail higher credit facilities the statement was given, but the stock was with the assessee. Thus, the deletion of addition was justified. CIT v. Veerdio Rollers (P.) Ltd. (2010) 323 ITR 341 (Gui.) Addition was made on account of difference in the closing stock furnished before the bank authorities for availing of credit facility as against the same disclosed in the books of account furnished before the income-tax authorities. It was found that the assessee had subm .....

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ubmitted by the assessee to the bank as the stock position shown to the bank was on estimate basis and inflated value was shown to avail of more credit from bank. In view of the above, there was no justification for making any addition on the allegation of inflated stock shown to the bank. Whether the value of the stock shown in the books of account was genuine or not had been considered by the Tribunal and considering the facts discussed by the Tribunal there was no reason to hold that the find .....

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t the discrepancy could not be reconciled. On appeal, the assessee accepted that the discrepancy in relation to the marble blocks could not be reconciled. However, insofar as the discrepancy in the stock of marble slabs and marble tiles was concerned, the assessee submitted that the deficit in the stock of slabs would be taken care of by surplus in stock of marble tiles because tiles were manufactured from slabs. The Commissioner (Appeals) rejected the assessee's contention and upheld the or .....

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be circumstances where there may be difference in the quantity of stock, as appearing in the balance-sheet, and as appearing in the hypothecation made to the bank, and if there is any explanation coming forward for the discrepancy, then the addition need not be made. Sufficiently or reliability of the explanation, offered by the assessee, is a question of fact, and the findings thereon, as recorded by Tribunal, cannot be interfered with by the High Court, as they do not give rise to any substan .....

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n shown in the bank, it could not be said to be resulting into any income from undisclosed sources coming to the assessee capable of being added to its income. Asstt. CIT v. Jvoti Woollen Mills (2009) 125 TTJ 810 (Delhi) The assessee was in the business of manufacturing of woollen and shoddy yam and had taken loan against hypothecation of stock from SB/. During the assessment proceedings, the Assessing Officer found that the assessee had submitted a statement of stock to the bank as on 21-3-2005 .....

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ypothecation of stock and the valuation of the stock declared to the bank was higher than the actual stock available in the books of account and this inflation of the stock was done by the assessee to obtain higher credit limit from the bank. The Assessing Officer had not brought on record any evidence to show that the assessee was in fact in possession of higher quantity of stock. Therefore, on mere comparison of the stock declared to the bank and the one shown in the books of account, addition .....

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. Assessing officer made additions on account of unaccounted stock on the ground that amount of the stock disclosed to bank was higher. The stock statement given to the bank did not have any quantitative details of stock items. It only mentioned aggregate amount without any quantity details. The amount given to the bank is RS 6198448. As against this, appellant is having complete stock records and quantity tally from paper book pages 74 to 134. The total value disclosed in the books as per quant .....

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statement was given to the bank just on the basis of estimate without referring the quantitative stock records maintained by it. Appellant also argued that in the earlier year and in subsequent year, stock statement submitted to the bank reported less stock as compared to stock disclosed in books of accounts. Therefore stock figures reported to bank are just estimated and not prepared on the basis of quantity records of stock. Considering the various arguments of the appellant, it is clear that .....

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e decisions do not apply. As against this, the decisions of honorable Gujarat High Court relied upon by the appellant and quoted in the appellant's submission are clearly applicable to the facts of this case. All the decisions referred in the appellant's submission are on the identical facts and therefore appellant's case is covered by these decisions. The findings in these decisions are not repeated here but the same is squarely applicable to the facts of the appellant and according .....

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k items. The only difference is with regard to adopting the value of closing stock. We find that before the ld.CIT(A), the assessee has placed reliance on the judgement of Hon ble Jurisdictional High Court rendered in the case of CIT vs. Arrow Exim (P.) Ltd. reported at (2010) 230 CTR 293 (Guj.) and of CIT vs. Veerdip Rollers (P.) Ltd. reported at (2010) 323 ITR 341 (Guj.). The Hon ble Gujarat High Court in the case of CIT vs. Veerdip Rollers P. Ltd. has held as under:- 3. The issue raised in th .....

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the bank to obtain the cash credit facility of ₹ 20 lakhs. The bank has given the cash credit facility of ₹ 15 lakhs. The AO has verified the stock statement which was submitted along with the return. Moreover, the AO has also worked out the closing stock of emery power and machinery spares as per the return and the value comes to ₹ 14,07,156. We find that the AO has verified the value of stock which was given to the bank, wherein the assessee has inflated the value of stock an .....

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5 (Mad), the decision of the Hon'ble Supreme Court in the case of Dhansiram Agarwalla vs. CIT (1993) 111 CTR (Gau) 39 : (1993) 201 ITR 192 (Gau) and concluded that the assessee was unable to discharge the onus to prove that books of account alone give the correct picture and the statement given to the bank was motivated. In the present case at hand, it is not disputed by the Revenue that in order to avail of cash credit facility against hypothecation of stock to the bank, the assessee has su .....

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tore Spinning & Weaving Co. Ltd. vs. CIT (supra) has been relied on. In the case of Ashok Kumar vs. ITO (2006) 201 CTR (J&K) 178, the Hon'ble High Court of Jammu and Kashmir has held : 'Addition could not be made on the basis of difference between closing stock declared in the trading account and the stock shown in the statement submitted by the assessee to the bank as the stock position shown to the bank was on estimate basis and inflated value was shown to avail of more credit .....

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f ITO vs. Sphykar Aluminium Extrusion (P) Ltd. in ITA No. 626/RJT/2004 dt. 26 Nov., 2005, this Bench of the Tribunal has deleted similar addition. The CIT(A) has sustained the addition at 10 per cent, of the excess stock of ₹ 80,25,662 (i.e., ₹ 1,42,86,870 the stock as per the bank statement minus ₹ 62,61,202 as shown in the regular books of account. In view of our finding that no addition can be made on this count, the order of the CIT(A) confirming the addition cannot be sust .....

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