COMMISSIONER OF INCOME TAX. V. SIMRON PRINTS P. LTD

TAX APPEAL NO. 1051 of 2006

AI Insights

The case involves multiple tax appeals by the Commissioner of Income Tax against Simron Prints P. Ltd., concerning discrepancies between stock values reported in the company's books and those submitted to Oriental Bank of Commerce for a cash credit facility. The primary legal question was whether the ITAT was justified in deleting the addition made by the Assessing Officer (A.O.) of the differential stock value. The ITAT had previously found that the assessee's books were genuine and supported by necessary vouchers, leading to the deletion of the addition. The High Court, referencing a similar case, upheld the ITAT's decision, emphasizing that such discrepancies, when used for availing credit and not affecting the actual tax liability, do not justify additions to the income.

• Counselvise Citation: [2006] 140 COUNSELVISE.COM (IT) 361536 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 26-11-2006
• Appeal Filed By: Department
• Assessment Year: 1998-1999
• Other Referred Cases: Commissioner of Income-tax, Ahmedabad-III v. Riddhi Steel and Tubes (P) Ltd., CIT v. Arrow Exmi (P) Limited, CIT v. Veerdip Rollers Private Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NOTICE SERVED
• Assessee Lawyers: PRANAV DESAI
• Keywords: Assessment Scrutiny; Credit Facilities; Income Tax; Stock Discrepancy
• Section: 143(3); 133(6); 260A

Judgement Text

"O/TAXAP/1051/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1051 of 2006 With TAX APPEAL NO. 1064 of 2006 TO TAX APPEAL NO. 1066 of 2006 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 ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus SIMRON PRINTS P. LTD.....Opponent(s) ================================================================ Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 NOTICE SERVED for the Opponent(s) No. 1 Page 1 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 26/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. These matters involve common questions on law and facts and therefore, they are decided by this common judgment. 2. In T.A. No.1051/2006 filed u/s.260A of the Income Tax Act, 1961, challenge is to the judgment and order dated 31.01.2006 passed by the Income Tax Appellate Tribunal, Rajkot Bench in ITA No.2065/RJT/2002 for the A.Y. 1998-99 whereas, in T.As. No.1064/2006 to 1065/2006, challenge is to the common judgment and order dated 23.11.2005 passed by the ITAT, Ahmedabad Bench in ITA Nos.24/AHD/1999 & 25/AHD/1999 and in T.A. No.1066/2006 challenge is to the judgment and order dated 28.02.2006 passed by the ITAT, Rajkot Bench in ITA No.132/RJT/2005. For the purpose of narration of facts, Tax Appeal No.1051/2006 is taken as the lead matter. 3. Briefly stated, the facts are that the assessee-firm is engaged in the business of printing work and manufacturing of packing Page 2 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT materials. On 30.11.1998 the assessee filed its return of income declaring total loss of Rs.10,81,210/-. The assessee had obtained cash credit facility from Oriental Bank of Commerce. Information u/s.133(6) of the Income Tax Act, 1961 was called for regarding the statement of stock submitted by the assessee to the Bank. The reply of the Bank was received vide letter dated 27.12.2000. 4. It was found that the assessee had shown stock of Rs.19,16,000/- as on 31.03.1998 with Oriental Bank of Commerce. However, the assessee had shown closing stock of Rs.2,28,931/- as on 31.03.1998 in its return of income. The assessee was asked to show cause why there is difference of Rs.16,87,069/- in the stock statement submitted to the Bank and the stock as per its books of accounts and to show why it should not be added back to its total income. Assessment scrutiny was undertaken u/s.143(3) of the Act and ultimately, the A.O assessed the total income of the assessee at Rs.6,05,859/-, vide order dated 15.01.2001. 5. Against the above order of the A.O., appeal was filed before the CIT(A). The CIT(A) allowed the appeal filed by the assessee vide order dated 26.08.2002 and deleted the addition of Page 3 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT Rs.16,87,069/-. 6. Being aggrieved by and dissatisfied with the order of CIT(A), the Revenue filed appeal before the ITAT. Vide impugned judgment and order dated 31.01.2006, the ITAT dismissed the appeal of the Revenue. Hence, these Tax Appeals. 7. The appeals were admitted on the following common substantial question of law; “Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in deleting the addition made by the Assessing Officer of the differential stock statement as recorded in the books of accounts as against the same submitted before the bank?” 8. We have heard learned counsel for the Revenue and perused the record of the cases. The issue involved in these appeals is already concluded by a decision of this Court in the case of Commissioner of Income-tax, Ahmedabad-III v. Riddhi Steel and Tubes (P) Ltd., [2013] 40 taxmann.com 177 (Gujarat). The observation s made in Paras – 6, 7 & 9.2 are relevant for our purpose and it reads as under; ““6. The Court relied upon a decision in case Page 4 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT of CIT v. Arrow Exmi (P) Limited [Supra], which is essentially depended upon by the Tribunal. In the said decision, there was a difference in the value of the closing stock, hypothecated and not pledged with Bank which were inflated in the statement given to the bank to avail higher credit facilities. The same was accepted by the Tribunal on the ground that the assessees books of account and the accounting system have been found to be genuine and is supported by requisite vouchers, etc. The Court held, thus - “5. The much emphasis given by learned counsel Mrs. Mauna Bhatt that the Tribunal has erred in making this observation that it was for the A.O to establish that the sale is not genuine and the observation that the A.O has failed to establish any unaccounted purchases outside the books of account to establish that the stock as per the books is incorrect, is contrary to the material on record when admittedly the statement before the bank is different than the books of account. However, this submission referring to this observation has to be considered in light of the entire discussion wherein the Tribunal has, referring to the CIT (A) order in detail has accepted the explanation given by the assessee and in that context has stated that when the books of account or the accounting system has been found to be genuine supported by vouchers, etc., the addition was not justified. 6. It is required to be mentioned that the stocks are hypothecated and not pledged, which was explained by the assessee and therefore in order to avail higher credit facilities the statement was given, but the stock was with the Page 5 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT assessee, and therefore, the submissions are misconceived.” 7. This Court in case of CIT v. Veerdip Rollers Private Limited [Supra] had dismissed the appeal at the admission stage where the addition was made under Section 69B of the Act by the Assessing Officer on account of difference in the closing stock furnished before the banking authorities for availing higher credit facilities as against the same disclosed in the books of account furnish before the Income-tax authorities. Various decisions had been discussed by the Tribunal in its order and reproducing all of them, the Court deemed it fit to dismiss the appeal in limine. 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 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.”” 9. Considering the facts of the present cases and the principle rendered in the above decision, these appeals will be squarely governed by the aforesaid decision of this Court. Since we are concurring with the view taken by the coordinate Page 6 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION O/TAXAP/1051/2006 JUDGMENT Bench of this Court, no elaborate reasons are being assigned by us while disposing off the present set of appeals on similar grounds. Hence, the question of law raised in these appeals is answered in favour of the assessee and against the Revenue. 10. The appeals, accordingly, stand rejected. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 7 of 7 Downloaded on : Tue Jun 03 16:25:32 IST 2025 Uploaded by PRAVIN KARUNAN(HC00181) on Wed Dec 03 2014 2014:GUJHC:31886-DB NEUTRAL CITATION "