TMI Blog2013 (11) TMI 1617X X X X Extracts X X X X X X X X Extracts X X X X ..... A) ought to have appreciated the fact that AO determined the difference in closing stock by taking into account of the closing stock as on 31.3.2001 which is the opening stock as on 1.4.2001 and the closing stock given to bank as on 31.3.2002 . 2.2 The Ld. CIT(A) has failed to appreciate that the bank authorities had inspected stock every quarter and had furnished a report thereon which clearly demonstrate that the stock was closely monitored by the bank and was literally inexistent. 2.3 The Ld. CIT(A) as further failed to appreciate that the loan obtained by the assessee did commensurate with the stock secured by the bank by hypothecation which had been recorded, inspected and approved by the bank authorities. 2.4 The Ld. CIT(A) has further failed to appreciate that the evidences such as verification, insurance and sanction of loan commensurate-with the stock clearly proves that the assessee had deliberately furnished a lessor stock for the purpose of Income Tax Asst. which the Assessing Officer is entitled to make good by restoring to addition of the difference. 2.5 The Ld. CIT(A) failed to note that the contention of the assessee of inflated reporting of stock to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the assessee preferred a petition before the JCIT u/s 144A of the Act. On 10.5.2011, the JCIT, Business Range-IX, directed the Assessing Officer, inter alia, to adopt closing stock figure of assessment year 2001-02 as opening stock and to recast total trading account after obtaining and verifying purchases etc., to obtain a clarification from the bank manager whether the impugned stock had been completely verified for assessment year 2002-03, to obtain sales tax assessment order, to check inspection report obtained by the bank and also to consider any independent evidence. He also observed in his order that in case there is no other evidence supporting the department, assessee s book stock be accepted as correct. 6. In furtherance to the aforesaid directions, the Assessing Officer sought information from Bank of India, whose manager replied on 14.11.2011 that the stock had been verified as on 3.9.2001 but inspection reports thereof were not available. Thereafter, on 20.12.2011, he informed that the stock had been only randomly verified. In addition to this, the Assessing Officer could not find any other evidence to come to the conclusion that the actual stock of assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the circumstances, collection of any independent evidences regarding the stock is not possible. Further, the AO observed that - The assessee is under an obligation to place all details before the Assessing Officer. The copy of the inventory given to the bank was not furnished. The basis for revising the income of the assessee is that the assessee had availed a huge bank loan of ₹ 7,23,98,153/-. Every banker is under an obligation to verify and satisfy himself that the bank loan is adequately covered by security. For a cash credit loan the security is the stock and property. For a term loan the security is the immovable property. The term loan had been only ₹ 92,60,211/-. The cash credit loan alone had been ₹ 6,55,16,993/-. It is hard to believe two contradictory statements of the assessee one to the bank and other to the bank. The assessee has stated in the course of hearing that the bank did not depend upon the stock statement alone to test the credit worthiness of the assessee. The assessee has stated that the value of stock given to the bank should not be taken for IT purposes. 7.2 From the above it is seen that the AO could not get any independe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue stands covered in favour of the appellant, I hereby direct the AO to delete the addition. This ground of appeal is allowed. Therefore, the Revenue is in appeal. 8. We have heard both parties and perused the case file as well as catena of case law. Undisputedly, this is not the first round of the very issue having cropped up between the parties. In preceding assessment year 2001-02 as well, the Assessing Officer had made addition in assessee s case solely on the ground that the declaration of stock made by the assessee to the bank authorities at the time of availing loan facility read much higher than that maintained in the books. However, the very basis was stuck down by the co- ordinate bench of the tribunal in I.T.A.No. 2013/Mds/2005 decided on 27.7.2007 by observing as follows: 6. We have heard the rival contentions and perused the relevant records. Before us the assessee s submissions are as under: 1. The Department itself having verified the real physical stock which is near the Book .stock figure, for the purpose of assessment is not justified in relying upon the inflated stock figure furnished to the Bank. Such stock statement furnished to the Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee's stock is not maintained properly and going back on stock statement given to bank was bad morality on the party of assessee, the Assessing Officer made the addition solely on the basis of stock statement furnished to bank. We also note here that this is not the case where the stock was actually physically verified by the bank at the close of the year. Further, the books of accounts have neither been rejected nor any defect pointed out except for the absence of stock book. This, in the auditor's report has been explained that, since the number of items dealt with is innumerable, it is practically impossible to maintain day-to-day stock of goods. Physical stock is taken at the end of each Financial Year. 8. As regards the Assessing Officer's reference to bad morality on the part of assessee, we find that the Hon'ble Apex Court in the case of T.A. Qureshi Vs. CIT 287 ITR 547 had held that, cases are to be decided by Court on legal principles and not on one's own moral views. We further find that in the case of Pandit Bros. Vs. CIT 26 ITR 159 the Hon'ble Punjab High Court had held that, the fact that profit appeared too low or that no stock regist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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