TMI Blog1981 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank that their verification was hundred per cent. accurate. It was stated, for instance, that where stocks were held loose and also where work was in progress, the bank's inspecting staff merely accepted without a word the assessee's statement as to the quantity. In the course of proceeding for the assessee's assessments to income tax for 1959-60 and 1960-61, the ITO got hold of the assessee's applications for key-loans and other secured loans from the bank. He then compared the stocks declared by the assessees to the bank in those statements with the stocks as disclosed by the assessees in their own accounts on crucial days. His examination revealed that the stocks of goods in the accounts fell short of the stocks declared to the bank. The value of the difference between the two amounted to Rs. 94,900 in one year and Rs. 81,845 in the other year. The officer pinned down the assessees to the declarations to the bank and held that they represented their true stocks and not the lesser quantity disclosed in their accounts. He accordingly added Rs. 94,900 and Rs. 81,845 respectively in the assessee's assessments to income-tax for 1959-60 and 1960-61. The AAC of Income-tax, on app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es' income from undisclosed sources. The Tribunal further pointed out that there was no material either to show how these estimated excess stocks were ultimately disposed of by the assessees. According to the Tribunal, in the absence of any evidence that the excess stocks had been sold, they would remain with the assessees as closing stocks, in which event, on the principle of stock valuation " cost or market, whichever is lower ", no profit element could really be attributed to the value even of this suppressed stock. The Tribunal also referred to and relied on the AAC's remarks in the course of which it was pointed out that the assessees, as borrowers from the bank, were likely to have manipulated their stock figures just for the sake of getting loans for the needed amounts. Having regard to these considerations, the Tribunal, held that there was no evidence of actual concealment of income. In this view, the Tribunal cancelled the penalties. The Tribunal have now stated a case at the instance of the Incometax Department, referring the following question of law for our decision : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich appropriate findings will have to be made by the taxing authorities and by the Tribunal in appeal. At the present stage of reference, the inquiry is much more limited. We only have to see whether the conclusion of the Tribunal, on facts, is based on materials. We have earlier referred to the finding of the AAC which he had rendered in the appeal against the assessments. That finding was to the effect that quite an exaggerated version of the stocks must have been declared by the assessees to the bank with a view to get more overdraft facilities. Indeed, it is precisely this consideration on which the AAC pursuaded himself to delete a big slice out of the additions made by the ITO towards suppressed stocks. Apart from this consideration, there is really no evidence to show that the declarations made by the assessees before the bank for the stock particulars reflected the true stock position, to the last bale. The ITO had called for the remarks of the bank as to the manner and accuracy of verification of the declarations of stock made by the assessees. According to the bank, their inspection staff did, in manner of speaking, verify the stock of cotton, kappas, and other goods w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any material to show that this excess estimated stock was acquired by the assessees from out of income which had been kept out of their accounts, it is not possible to hold from mere estimation of the excess stock that it represented the assessees' concealed income. As we earlier observed, therefore, this matter of penalty, in this case, as in others, has got to be examined objectively on the basis of materials and by examining the legitimacy of findings and inferences drawn by the Tribunal on the basis of those materials. There can be no rule of law in matters of this kind, much less precedents, on the basis of which we could decide this case, or any other case on hand, relating to penalty. In the course of arguments before us, a few decided cases were cited. Some of them dealt with the question of levy of penalty in regard to a finding of stock suppression on the assessees' declaration before the bank, which was at variance with the figures entered in the account books of the assessees. In some cases the penalties levied by the departmental authorities were sustained. In some other cases there were opposite decisions. Whatever might be the results of the exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the two assessment years 1959-60 and 1960-61. We also pointed out that the additions made by the ITO in the two assessments were mainly based on what the ITO regarded as understatement of stocks in the assessees' accounts when judged in the face of the assessees' declaration of stocks to the bank. For the assessment year 1959-60, there was an additional factor which went to make up the total additions made by the ITO to the income returned. That was a cash credit of Rs. 7,000 which was found in the assessees' books in the relevant account year. It may be observed that the assessees did not make any grievance of this addition, since they practically offered the amount for assessment, not being able to explain the nature and source of the credit. Quite naturally, therefore, in the appeals against the assessment, this addition of Rs. 7,000 was confirmed without much discussion. When the Tribunal had to deal with the penalty for 1959-60, they had necessarily to take note of the addition made by the ITO in the assessment towards the cash credit of Rs. 7,000. While sustaining the addition of Rs. 7,000 in the assessment, the Tribunal, however, thought that the mere addition of Rs. 7,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
