TMI Blog2005 (7) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... t of closing stock as shown in the balance sheet and as given to the bank as at the close of the relevant previous year, i.e., 31st March, 1994. He, accordingly, initiated proceedings under s. 147 of the IT Act, 1961 ("Act" hereinafter), which were complied with by the assessee disclosing the same amount of loss as originally returned. 3. During the reassessment proceedings, on being queried as to the said difference of Rs. 74,12,304, it was submitted by the assessee that there was no difference between the total quantity of sugar bags as reflected in the inventory of its closing stock as at the end of the year in its final accounts, and that as submitted to the bank, both being derived from its stock records, i.e., at 4,39,119 bags. However, the difference in valuation arises on account of the difference in the bifurcation of the sugar bags into levy and non-levy (free) sugar in the two statements. A chart, exhibiting the said position was submitted, as : -------------------------------------------------- Partic Shown in bank As per P L a/c ulars statement -------------------------------------------------- Bags Rate Amount Bags Rate Amount - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in due course. It also filed certain documents in support of its averments, being the copy of the Government notifications, the auditors certificate in respect of the following of the consistent practice of dividing the stock as per the Government notification, and its valuation, the RBI circular, etc. The AO, however, was not convinced with the assessee's explanations and proceeded to effect an addition of the amount of difference between the value of stock as per the two statements, i.e., Rs. 74,12,304, relying upon the decision of the Hon'ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT (1989) 79 CTR (All) 87 : (1989) 180 ITR 651 (All). 4. Before the learned CIT(A), the assessee pleaded likewise, submitting the statement of its closing stock for the asst. yrs. 1992-93, 1993-94 and 1995-96 to 1997-98, to show that the valuation as per its books, and declared per its final accounts, was more than that as per the corresponding statements of stock provided to the bank as at the same dates, to prove its bona fides, as well as the fact that no difference in its income for any year would accrue on following this consistent practice, irrespective of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts who is liable to expend the same for the various purposes for which these are retained. While that is true in general, the exact nature of the deposits would need to be ascertained, to arrive at a definite conclusion as to its assessability in the assessee's hands. However, in view of the fact that the amount is nominal, and would not even qualify for being appealed against, we decline to go into merits of the case, and dismiss this ground, relying upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. Cameo Colour Co. (2002) 173 CTR (Bom) 255 : (2002) 254 ITR 565 (Bom). 8. As far as the second ground of the Revenue's appeal, which relates to the addition of Rs. 80,000 effected by the AO on account of provision of doubtful debts, we find that the same does not arise out of the order of the learned CIT(A), having not been contested by the assessee before him. The same is, therefore, dismissed as unqualified. 9. The third ground of the Revenue's appeal being general in nature, does not warrant any specific adjudication. 10. The only effective ground of the Revenue's appeal in appeal No. 1031/ Ahd/2003 relates to the deletion of addition of Rs. 74,12,304 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs' to it, irrespective of the said fact of a temporary accommodation through conversion aforesaid. The impact of such practice on the profits would be nil, which would, rather, creep in if the stock ratio gets distorted by co-opting therein the factor of conversion aforesaid. True, in the extreme case, where the total stock would fall below the converted stock, i.e., where the converted stock stands sold, it would lead to a disturbance of true profits, but that is an extreme possibility, and one, if and when it arises, could be suitably, (e.g., by passing an entry debiting account of Government of India dealt with by the assessee (for example, in the present case, against the stock of 1.76 lakhs and 2.63 lakhs bags of levy and non-levy sugar, respectively, the conversion quantum is 0.29 lakh bags only). Further, furnishing the bank, the quantum of its levy and non-levy sugar, i.e., as arrived after the conversion, is also in order, and rather preferable, as its next sales of levy and non-levy sugar would only be on that basis, and the bank(s) being advised to extend credit facilities on that basis. Besides, as these figures, through the financial institutions, and thus, the RBI (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting ratio of 40 per cent, as has also been done by it; the ratio falling to 30 per cent w.e.f. 1st Jan., 2000. As such, it becomes incumbent to determine if the transfer of 28,772 bags from levy to non-levy sugar represents a permanent shift, i.e., one that does not arise out of a loan, which would, by definition, be temporary in character getting adjusted in due course through Government's action, or only representing a timing difference. 14. In view of the foregoing, while a definite answer in assessee's favour emanates out of question No. 1, the same cannot be said in respect of question No. 2, which is not able to be answered, one way or the other, on the basis of the material on record. 15. We, therefore, remit this matter to the file of the AO to determine, whether the reduction in the quantity of levy sugar with the assessee as at 31st March, 1994 has resulted on account of a temporary or a permanent reason. For, if temporary, as contended, no adverse inference whatsoever can arise on account of the 'apparent' variation between the two set of documents, while if it is not so, the same could have material implications for the assessee's valuation of its stock as at 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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