TMI Blog1990 (10) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... represented the assessee's income not disclosed in the books and added the same. 2. At the end of the year, the stock with the assessee did not reflect this excess noticed by the ITO. He assumed that the excess must have been sold off. Since the assessee had disclosed a profit rate of 10.3%, he assumed that, on the sale of the stock outside the books, the assessee must have derived similar rate of profit. He added Rs. 1,07,986. 3. The assessee appealed. In the ground of appeal, it was submitted that there was no valid material with the ITO to reject the books of account. It was pointed out that the stock registers maintained by the assessee have been examined by several Govt. authorities, like the civil supplies authorities, the sales tax authorities and the market committee authorities. It was also submitted that the stock declared to the bank was only for hypothecation, i.e., it was not pledged. There could be inflation of the figures to get accommodation. It was further submitted before the CIT(Appeals) at the time of hearing that there was no need to show any excess of stock since the limit of hypothecation was Rs. 5 lakhs and under pledge Rs. 2 lakhs. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock to the satisfaction of the banking authorities. In hypothecation statements, the assessee furnishes only approximate figures and these cannot be taken to be correct. The stock has to be shown to cover the hypothecation loans. The bankers have not raised any objection because he submitted that the loans taken are otherwise secured by the securities offered by the partners themselves. He then relied upon the decisions, which the assessee had placed before the CIT(Appeals) and submitted that, on these facts, no addition could have been made. 6. Shri Kapur, the learned Departmental Representative, submitted that the assessee had not disputed the stock position, as submitted to the bank authorities. There is difference between the figures and it is for the assessee to prove how this difference arose. He then submitted that it is not correct to say that the assessee had utilised only the hypothecation loan. They have also utilised loan on pledge and even here, there is a difference. He pointed out that, on 5-12-1987, PR-106 paddy, as shown in the Pledge Account, was 2,478 Qtls. 45 Kgs., but, in the register, it was only 1,826 Qtls. 7 Kgs. The maximum difference arose in the Pled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be undertaken. Such an inspection was done for this year on 29-12-1986 and the inspecting authorities have satisfied themselves regarding the correctness of the stock, as shown in the assessee's books. 8. We are now confronted with this position that the stock, as disclosed in the registers, had been checked from time to time by various authorities and they have not found any discrepancy. As against this, the assessee itself has disclosed higher stock to the bank. If one should go by the evidence, one would prefer that evidence where third parties have checked and verified the correctness of the stock. That is the stock, as given in the stock register. 9. We have also before us a statement showing the quantity of stock hypothecated to the bank as per the statement and the quantity of stock given in the stock register. This statement starts from 3rd of October 1987. In the month of October, the stock shown to the bank was less than the stock shown in the registers. Obviously, this shows that the assessees were not disclosing the stock to the bank as per their stock register. But the Department has no grievance, because stock disclosed in the register is much more than that. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot merely rely on the bank statements. They have to consider all other materials. In the case of Ramakrishna Mills (Coimbatore) Ltd. the department found discrepancy between the stock in the books of account and its declarations for overdraft facilities. The High Court found that the declarations to the bank were only rough estimates, whereas in the returns submitted to the Textile Commissioner, the assessee had declared stocks which agreed with their books. So they held, no addition could be made. In this case, we have found that the stock held by the assessee has been checked and found correct by very many Govt. authorities. So that has to be preferred rather than the bank statements. 11. The Delhi High Court has also made a similar pronouncement in the case of Prem Singh Co. 12. We would now consider the decisions relied upon by the Department. The first case is that of the Punjab and Haryana High Court in the case of Khalsa Engg. Works. That was not a case of hypothecation. That was a case of pledge of goods. According to the banking practice, goods pledged are under the control of banks whereas the goods hypothecated are not. This is the essential difference between t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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