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2015 (4) TMI 585 - ITAT MUMBAI

2015 (4) TMI 585 - ITAT MUMBAI - TMI - Addition on account of inventory mis-match w.r.t stock statement submitted to bank - Dis-allowance of Interest u/s 40A(2)(a) - Interest paid on unsecured loans in excess of fair market rate i.e. bank rate - Held that:- In a given case, an assessee may satisfactorily explain the difference in the stock figure/s furnished to the bank and that disclosed by its final accounts, in which case no case for addition would arise. Why, in the instant case the assessee .....

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rily explain the same, i.e., in case of a difference, the answers to which in the present case are ‘yes’ and ‘no’ respectively. We decide accordingly, and the assessee fails.

The bank rate is not strictly comparable, and some leverage would have to be allowed between the interest rate to the bank and that to the private parties, which is on an unsecured basis, even though in the instant case the same stands given by related parties to their own concerns, so that it serves a common pur .....

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t rate of 6% p.a. (21 - 12 x 1.25). We decide accordingly, and the assessee gets part relief. - Decided partly in favour of assessee. - I.T.A. Nos. 7477/Mum/2010 & 4210/Mum/2012 - Dated:- 25-3-2015 - Shri Joginder Singh And Shri Sanjay Arora JJ. For the Appellant : Shri Nishit Gandhi For the Respondent : Shri Neil Philip ORDER Per Sanjay Arora, A. M.: These are two Appeals by the Assessee i.e., for Assessment Years (A.Ys.) 2007- 08 and 2008-09, directed against the orders by the Commissioner of .....

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year-end, i.e., as disclosed by the assessee per its balance-sheet, with that furnished to its banker qua the credit facilities availed there-against, a discrepancy was found in the quantity of copper2 under-process. While book figure of the copper scrap as on 31.03.2007 was at 3.0 Metric Tons (MT), that furnished to the bank as on that date was at 5.7 MT. On being inquired in the matter, it was explained by the assessee that the figure as supplied to the bank was tentative and provisional. The .....

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the purpose of excise duty. There was accordingly no basis for it to say that the stock statement furnished to the bank, which was on 17.04.2007, i.e., over two weeks after the closing date, was at a provisional figure. Lending credence to the said explanation would, rather, imply that the stock register and/or record maintained by the assessee is not reliable, so that its book results are to be rejected. The same found acceptance with the ld. CIT(A) in appeal for essentially the same reasons. .....

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en through the details of the stock furnished to the bank (PB pg. 48); the details of the stock as per the balance-sheet as on 31.03.2007 (PB pgs. 33-34); the comparative statement between the two (PB pg. 50); the monthly plant reports for the months of February, March and April, 2007 (PB pgs. 52- 54); and the audit confirmation under excise license (PB pg. 72). The assessee s explanation before the Revenue authorities, i.e., the A.O. and the ld. CIT(A) (at PB pgs. 49, 73-83), has also been peru .....

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56.73 per kg.), as against the correct rate of ₹ 319 per kg., at which the said goods are finally valued for balance-sheet purposes. The same may well be true, so that the quantity and, thus, the value of the stock to the bank is enhanced (i.e., with reference to that reflected per its books), so as to exhibit eligibility to a higher drawing power (or credit). In which case, therefore, the assessee s books form the basis, and not the figure/s to the bank, which is the assessee s case in su .....

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n and, consequently, rejection of the assessee s books of account (also refer para 2 above, as well as paras 3.2 and 4.3 of the assessment and the impugned order respectively). That is, the assessee, by not furnishing its stock records, which it contends to form the basis of its final accounts, acts contrary to its own explanation (i.e., for the purported excess stock), defeating its case. Even the audit confirmation under excise law, as produced (PB pg. 72), is a blank page, and therefore to no .....

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n finality, being subject to due verification/validation. The question, firstly, therefore, is: What is the basis of this provisional figure? The physical verification, if that is in mind, would only be carried on 31.03.2007 itself, i.e., much earlier to the submission of the inventory statement to the bank. Further, the verification could only be with reference to the assessee s internal records, and which brings us back to the assessee s accounts and stock records. It is only for the assessee .....

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s and purports to exhibit. True, its auditors state that the balance-sheet is in agreement with the books of account (refer annual accounts at PB pgs. 3-32), but then the moot question is: Are they in agreement with the excise records, which we understand to be the only stock record maintained by the assessee? Why, if so, the assessee has not produced the excise records before the Revenue authorities, or even before us? This is puzzling indeed; more so, when the same is debilitating of its case, .....

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drawn from and in agreement therewith, i.e., the assessee s records, which it omits or fails to, contending the same to be, on the contrary, provisional. 3.3 The assessee s second plea of reflecting a higher stock to the bank for the purpose of availing a higher bank credit as on 31.03.2007 is also, factually, completely amiss. The bank statements for the period 01.03.2007 to 30.04.2007 (PB pgs. 35-46), reveals in fact a credit balance of ₹ 95,67,128/- as on 31.03.2007 (PB pg. 38), so tha .....

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pgs. 16,18 & 19), so that the assessee has adequate margin, and did not require to manipulate its stock figure to the bank so as to enable availment of a higher credit. In fact, as stated by it; there being also a difference in valuation (which though has been - and rightly so - ignored by the Revenue), the net difference between the value of the stock as per the balance-sheet and that furnished to the bank, is only to the tune of ₹ 1 lac, i.e., ₹ 1,00,475/- to be precise (PB pg .....

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is not a correct statement. But then, it is equally incumbent on it to illustrate the purpose for which the said wrong statement is given, which we have found as missing. Further, it is equally incumbent on it to, then, state the basis of its correct stock. 3.4 The assessee has also relied on case law. The matter, as would be apparent from the foregoing, is purely factual, adjudicated by us by considering the assessee s explanation with reference to the material on record. In a given case, an a .....

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would, therefore, all depend on the facts of the case - the question to be decided is whether the excess stock is inferable in the facts and circumstances of the case and, two, if the assessee has been able to satisfactorily explain the same, i.e., in case of a difference, the answers to which in the present case are yes and no respectively. We decide accordingly, and the assessee fails. 4. The second issue, common for both the years, arising in the instant appeals, is the disallowance of inter .....

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The assessee s case before us as well as before the authorities below has been that the loans under reference had been taken in the past. The assessee had consistently in the past paid interest at the rate of 21% p.a., which had not been disturbed or unaccepted by the Department. We are unable to, we are afraid, appreciate the assessee s case. Firstly, there is no material on record to show that the Revenue had at any time accepted the same. True, there has been no such adjustment in its assess .....

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same, and which may, assuming so, well be for the reason of low tax effect; the amount involved for that year being only ₹ 3,53,392/-. There is, in any case, no estoppel against law, and each year is an independent unit of assessment, and the principle of res judicata is not applicable to the proceedings under the Act. Coming to the assessee s case on merits, the assessee s contention of the loans being raised over a decade ago on the same terms is de hors any material on record. Rather, .....

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ome to the creditor. Further on, the plea has no legs to stand in-as-much as interest rates vary over time, so that what is relevant is the prevailing rate; the recent years witnessing a sharp decline in the interest rates, so that the interest rates across time are hardly comparable; more so, that obtaining a decade back, on the basis of which argument the first appellate authority allowed relief to the assessee for A.Y. 2004-05. The assessee contending that the Revenue has not shown that any e .....

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