JYOTI INDUSTRIES V. INCOME TAX OFFICER

TAXAP/229/2001

AI Insights

The case involves two tax appeals by Alliance Industries against the orders of the Income Tax Appellate Tribunal, which had restored an addition of Rs. 4,97,819 to the income of the appellant for the assessment year 1990-91. The addition was based on a discrepancy between the stock values reported in the appellant's books and those declared to a bank for availing credit facilities. The High Court examined whether such a discrepancy, without any other discrepancies in the books, justifies an addition to the income. The court referenced a similar case, Commissioner of Income-Tax, Ahmedabad III v. Riddhi Steel And Tubes Pvt. Ltd., to support its decision.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 693742 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 25-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax, Ahmedabad III v. Riddhi Steel And Tubes Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: S N DIVATIA
• Keywords: Audit; Credit Facilities; Income Tax; Stock valuation; Inflated Statements
• Section: 143(2); 145; 143(1)(a); 145A

Judgement Text

"O/TAXAP/16/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 16 of 2001 With TAX APPEAL NO. 229 of 2001 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ ALLIANCE INDUSTRIES....Appellant(s) Versus INCOME TAX OFFICER....Opponent(s) ================================================================ Appearance: MR SN DIVATIA, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 5 O/TAXAP/16/2001 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 25/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant of Tax Appeal No. 16/2001 has challenged the judgment and order dated 21.9.2000 passed by the Income Tax appellate Tribunal, Ahmedabad Bench, Ahmedabad in ITA NO. 5108/A/94 for AY 1990-91, whereas, the appellant of Tax Appeal No. 229/2001 has challenged the judgment and order dated 28.2.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ”B”, Ahmedabad in ITA No. 14138/A/95 for AY 1990-91. 2. While admitting the appeals, this Court has framed the following substantial question of law: “Whether on the facts and in the circumstances of the case, the Tribunal has substantially erred in law in restoring the addition of Rs. 4,97,819/- by way of difference between the stock as on March 31, 1990 shown in the regular books of accounts of the appellant and that declared in the statement furnished to the Bank in respect of hypothecation facility availed of by it ?” Page 2 of 5 O/TAXAP/16/2001 JUDGMENT 3. The facts of the present case are that the return of income was filed by both the assessees showing income at Rs. 58,255/- and Rs. 34,700/- respectively. The return were processed u/s. 143(1)(a) and the cases are selected for scrutiny. In response to notice u/s. 143(2) the assessees have produced books of account. After considering the material on record, the assessment order came to be passed. Against the said order, an appeal before the CIT(A) has been preferred by the assessee which came to be allowed. Against the order of CIT(A), the Revenue has preferred an appeal before the ITAT is allowed,against which, the present Tax Appeals by the assessees before this Court. 4. Heard the learned advocates appearing for the parties and considered the submissions. The learned advocate for the appellant has contended that now the issue is covered by the decision of this Court in the case of Commissioner of Income- Tax, Ahmedabad III v. Riddhi Steel And Tubes Pvt. Ltd., reported in 40 taxmann.com. 177, and more particularly, para-9.1 and 9.2, which reads as under: “9.1 Again, the Court cannot be oblivious of the fact that the assessee had been subjected to statutory audit Page 3 of 5 O/TAXAP/16/2001 JUDGMENT under the Companies Act, 1956 and also tax audit under the Income tax Act. No errors were found at any stage in the report submitted by these auditors and for the past eight years, the assessee had been following continuously/ consistently the method of accounting, as provided under section 145 of the Act, valuing the closing stock and inventory, as provided under section 145 A of the Act. The assessee was also subjected to Excise and VAT and the books of account were found genuine and no discrepancies were found even by the Excise Audit report for the period January 2009 to December 2009 which was carried out by the Excise Revenue Audit Team, wherein the Excise Department, after a detailed scrutiny of the books of account, stock register, excise records, accepted the books of account and other records maintained by the assessee to be true, correct; except finding few discrepancies in so far as inventory is concerned. 9.2 It is a settled law, as rightly held by the Tribunal, that only on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit Page 4 of 5 O/TAXAP/16/2001 JUDGMENT facilities, no addition can be made if there appears to be a difference between the stock shown in the books of account and the statement furnished to the banking authorities. If, for the purpose of fulfilling the margin requirements of the bank purely on inflated estimate basis, when the stock statement had reflected inflated value of the stock, in wake of otherwise satisfactory explanation, both for the purpose of value as well as quantity, we find no reason to interfere with the order of the Tribunal.” 5. The learned advocate appearing for the respondent is not in a position to dispute the same. In that view of the matter, we are of the opinion that the appeals deserve to be allowed. The question is answered in favour of the assessee and against the Revenue. The order impugned in both the Tax Appeals passed by the Income Tax Appellate Tribunal are quashed and set aside. Both these appeals are allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 5 of 5 "