Mr. M.L. Krupal, Somwarpet V. ITO, Madikeri

ITA 1234/BANG/2010

• Counselvise Citation: 123421114 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 12-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE JT
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Unexplained investment; Unexplained expenditure; Source of fund
• Section: 142(1); 133A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1234/BANG/2010 ASSESSMENT YEAR : 2004-05 MR. M.L. KRUPAL, PROP.: M/S. PRIME COMMODITIES, BLV COMPLEX, IB ROAD, SOMWARPET 571 236. KODAGU DISTRICT. PAN : ACNPK 9093N VS. THE INCOME TAX OFFICER, WARD 1, MADIKERI. APPELLANT RESPONDENT APPELLANT BY : SHRI K.Y. NINGOJI RAO, C.A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JT.CIT(DR) DATE OF HEARING : 19.07.2012 DATE OF PRONOUNCEMENT : 31.08.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 15.09.2010 OF THE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2004-05. 2. THE CONCISE GROUNDS OF APPEAL FILED BY THE ASSES SEE DATED 23.03.2012 RAISED BY THE ASSESSEE READS AS FOLLOWS: - ITA NO.1234/BANG/2010 PAGE 2 OF 15 1. THE IMPUGNED ORDER OF ASSESSMENT IS LIABLE TO SET ASIDE IN SO FAR AS IT IS INCORRECT, IMPROPER, IRREGULAR, OPP OSED TO FACTS AND CIRCUMSTANCES OF THE CASE AND OPPOSED TO THE LAW. 2. THE IMPUGNED ASSESSMENT OF THE SUM OF RS.35,74, 910/- AS THE UNEXPLAINED INVESTMENT IS MADE U/S 69B OF THE I T ACT FOR THE A.Y.2004- 05 WITH COMPLETE DISREGARD TO THE EXPLANA TIONS OFFERED BY THE APPELLANT. 3. THE IMPUGNED ADDITION OF RS.35,74,910/- IS MADE U/S 69B OF THE ACT DISREGARDING THE FACT THAT THE APPELLANT DID NOT HOLD THE ALLEGED STOCKS DECLARED TO THE BANK. 4. THE IMPUGNED ADDITION OF RS.35,74,910/- IS MADE U/S 69B DISREGARDING THE FACT THAT RS.25,20,239.88 BORROWED FROM CANARA BANK TOWARDS THE OVERDRAFT ACCOUNT AS AT 31.3.2004 IS AN AVAILABLE SOURCE FOR THE ALLEGED UNEXPLAINED INVEST MENT. 5. THE IMPUGNED ADDITION OF RS.35,74,910/- IS MADE U/S 69B OF THE ACT WITHOUT TAKING IN TO COGNIZANCE OF THE S TOCK OF RS.43,65,075/- AS AT 31 .3.2003 SHOWN TO THE CANARA BANK. 6. THE IMPUGNED ADDITION OF RS.35,74,910/- IS MADE U/S 69B WITH COMPLETE DISREGARD TO THE FACTS OF THE CASE AN D TO THE PROVISIONS OF THE INCOME TAX ACT 7. THAT THE IMPUGNED LEVY OF INTEREST OF RS.5,35,9 65/- U/S 234B IS LIABLE TO SET ASIDE IN SO FAR AS THE APPELL ANT IS NOT LIABLE THERE FOR. 8. THAT THE IMPUGNED LEVY OF INTEREST OF RS.777/- U/S 234C IS LIABLE TO SET ASIDE IN SO FAR AS THE APPELLANT IS N OT LIABLE THERE FOR. 3. THE ASSESSEE IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS OF TRADING IN COFFEE UNDER THE NAME & STYLE, M/S. PRI ME COMMODITIES AT SOMWARPET. FOR THE A.Y. 2004-05, THE ASSESSEE HAD FILED A RETURN OF INCOME DECLARING AN INCOME OF Q 1,79,720 ON 31.10.2004. AN INTIMATION U/S. 143(1) OF THE ACT WAS ISSUED. 4. THERE WAS A SURVEY U/S. 133A OF THE ACT CONDUCTE D IN THE CASE OF THE ASSESSEE ON 09.03.2007. IN THE COURSE OF SURVE Y, SALES TAX ITA NO.1234/BANG/2010 PAGE 3 OF 15 ASSESSMENT ORDER WAS FOUND, WHICH REVEALED THAT THE SALES DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME WAS LOWER THAN WHA T WAS DECLARED FOR SALES TAX PURPOSES. THE AO THEREFORE ISSUED NOTIC E U/S. 148 OF THE ACT ON 31.01.2008, DULY SERVED ON THE ASSESSEE ON 02.02.20 08. THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME IN RESPONSE TO TH E NOTICE U/S. 148 OF THE ACT. NOTICES DATED 11.03.08 AND 15.10.08 WERE ISSU ED U/S. 142(1) OF THE ACT AND A LETTER DATED 24.10.08 WAS ALSO ISSUED. T HE ASSESSEE DID NOT MAKE PROPER COMPLIANCE WITH ANY OF THOSE NOTICES NO R DID THE ASSESSEE PRODUCE THE BOOKS OF ACCOUNTS AS DEMANDED BY THE AS SESSING OFFICER. 5. IN THE COURSE OF SURVEY, A DOCUMENT VIZ., STOCK STATEMENT GIVEN TO CANARA BANK, SOMWARPET BRANCH, WAS FOUND. AS PER T HE SAID STOCK STATEMENT, THE VALUE OF CLOSING STOCK LYING WITH TH E ASSESSEE AS ON 31.03.2004 WAS Q 35,74,910. IN THE RETURN OF INCOME FILED BY THE A SSESSEE AND THE TRADING & BALANCE SHEET FILED ALONG WITH TH E SAME, NO SUCH CLOSING STOCK WAS RECORDED. 6. WHEN THE ASSESSEE WAS QUESTIONED ON THE ABOVE AS PECT, THE ASSESSEE BY REPLY TO THE AO DATED 10.12.08 POINTED OUT THAT THE STOCK STATEMENT GIVEN TO THE BANK WAS CONTRARY TO THE REA L SITUATION AND THE ASSESSEE DID NOT HAVE ANY CLOSING STOCK STATEMENT A S ON 31.03.04. THE ASSESSEE ALSO POINTED OUT THAT THE ASSESSEE GIVES A DVANCES TO COFFEE GROWERS AND IF THOSE ADVANCES ARE SHOWN AS SECURITY , THE BANKS WILL NOT GIVE OVERDRAFT (OD) FACILITIES AND THEREFORE THE AS SESSEE HAD SHOWN THE CLOSING STOCK AS SECURITY FOR THE BANK. THE ASSES SEE ALSO POINTED OUT THAT EVEN THE AMOUNTS DUE TO CANARA BANK (UNDER OD FACIL ITY) AS ON 31.03.04 ARE NOT REFLECTED IN THE BOOKS OF ACCOUNTS. THE AS SESSEE ALSO PLEADED ITA NO.1234/BANG/2010 PAGE 4 OF 15 IGNORANCE AS TO WHY THE ACCOUNTANT AND THE AUDITORS DID NOT INCLUDE THE OD ACCOUNT IN THE BOOKS OF ACCOUNT. THE ASSESSEE S UBMITTED THAT IF THE CLOSING STOCK IS CONSIDERED TO BE HELD BY THE ASSES SEE AS ON 31.03.04 AS PER THE BANK STATEMENT, THEN CORRESPONDING COST OF PURCHASE THEREOF SHOULD BE CONSIDERED AS OUT OF THE SOURCE OF LOAN D UE TO CANARA BANK WHICH WAS NOT DISCLOSED IN THE BOOKS OF ACCOUNT. T HE AO, HOWEVER, DID NOT ACCEPT THE PLEA OF THE ASSESSEE. HE HELD AS F OLLOWS:- 3.5 THE ASSESSEE FAILED TO SUBSTANTIATE THAT THERE IS NO STOCK AS AT 31/03/2004 AND 31/03/2005. FURTHER, CONSIDERING THE STOCK STATEMENT GIVEN TO CANARA BANK FOR THE ABOVE PERIOD S, I HEREBY RECAST THE TRADING ACCOUNT FOR A.Y. 2004-05 IS AS U NDER: RECASTED TRADING ACCOUNT TO OPENING STOCK 43,65,075 BY SALES 8 ,90,17,500 PURCHASES 8,71,49,496 CLOSING STOCK 35,74,910 GROSS PROFIT 10,77,839 --------------- -------------- 9,25,92,410 9,25,92,410 3.6 AS COULD BE SEEN FROM THE RECASTED TRADING ACCO UNT, THE GROSS PROFIT ARRIVED AT RS.10,77,839/- WHEREAS, THE GROSS PROFIT DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME IS AT RS.18 ,68,003/-. THUS THERE IS A DIFFERENCE OF 7,90,164/-. THE DIFFERENCE ARRIVED AT RS.7,90,194/- IS THE EXCESS GP DECLARED IN THE TRADING ACCOUNT AND THE SAME HAS BEEN CONSIDERED WHILE COMPUTING TH E TOTAL INCOME. 4.1 CONSEQUENT ON ADOPTING THE CLOSING STOCK IN TH E TRADING ACCOUNT, THE VALUE OF CLOSING STOCK SHOULD HAVE BEE N REFLECTED IN THE BALANCE SHEET UNDER THE HEAD CURRENT ASSET . ACCORDINGLY, EXCESS OF ASSET OVER LIABILITY IS WORK ED OUT AS UNDER: CLOSING STOCK NOT REFLECTED IN THE BALANCE SHEET : RS.35,74,910 LESS: CANARA BANK O.D. BALANCE NOT REFLECTED RS. NIL IN THE BALANCE SHEET ----------------- EXCESS OF ASSET OVER LIABILITY RS.35,74,910 ----------------- ITA NO.1234/BANG/2010 PAGE 5 OF 15 4.2 THE EXCESS OF ASSET OVER LIABILITY WORKED OUT OF RS. 35,74,910/- AS ABOVE HAS BEEN TREATED AS INCOME OF THE ASSESSEE AS THE SAME HAS NOT BEEN DISCLOSED CORRECTLY AND AC CORDINGLY, RS. 35,74,910/- HAS BEEN BROUGHT TO TAX. 5.1 TOTAL INCOME IS COMPUTED AS UNDER: TOTAL INCOME AS PER RETURN ON INCOME : RS. 1,7 9,720 LESS: EXCESS GP WORKED AS DISCUSSED IN: RS.(-) 7,90 ,164 DETAIL VIDE PARA 3.1 TO 3.6 OF THE ORDER ADD: 1) EXCESS OF ASSET OVER LIABILITY TREATED AS : RS. 35,74,910 INCOME AS DISCUSSED IN DETAILS VIDE PARA 4.1 & 4.2 OF THE ORDER -------------------- TOTAL INCOME RS. 29,64,466 OR RS. 29,64,470 ============ 7. BEFORE THE CIT(APPEALS), THE ASSESSEE REITERATED THE STAND AS WAS TAKEN BEFORE THE AO. THE ASSESSEE ALSO RECOMPILED THE BOOKS OF ACCOUNT INCORPORATING ALL THE BANK ACCOUNTS MAINTAINED BY H IM FOR THE YEAR ENDED 31.03.04, 31.03.05 AND ALSO GIVING THE INVENTORY DE TAILS. THE COMPUTER PRINT-OUT OF MONTHLY ABSTRACT AND STOCK ITEMS DEALT WITH WERE ALSO GIVEN. AS PER THE STOCK STATEMENT, THE ASSESSEE SUBMITTED, HE HAD THE QUANTITY OF CLOSING STOCK OF ARABICA IN TRANSIT OF 10,000 KGS. VALUED AT Q 2,75,000 AS ON 31.03.04 AND Q 6 LAKHS AS ON 31.03.05. THE ASSESSEE REITERATED T HAT THE CLOSING STOCK STATEMENT GIVEN TO THE BANK WAS CONTR ARY TO THE REAL STATE OF AFFAIRS. THE ASSESSEE ALSO RELIED ON CERTAIN JUDIC IAL PRONOUNCEMENTS IN SUPPORT OF HIS SUBMISSIONS. 8. THE LD. CIT(APPEALS) CALLED FOR REMAND REPORT FR OM THE AO AND THE ASSESSEE ALSO FILED HIS REPLY TO THE REMAND REPORT OF THE AO. AFTER CONSIDERING ALL THE ABOVE SUBMISSIONS, THE LD. CIT( A) WAS OF THE VIEW THAT ITA NO.1234/BANG/2010 PAGE 6 OF 15 THE ASSESSEE HAS NOT GIVEN ANY AFFIDAVIT TO THE EFF ECT THAT THE STATEMENT OF CLOSING STOCK GIVEN TO THE BANK WAS NOT TRUE. THIS IS BECAUSE GIVING ANY SUCH AFFIDAVIT WOULD EXPOSE HIM TO ACTION BY THE BA NK. THEREAFTER, THE LD. CIT(A) DISTINGUISHED ALL THE CASE LAWS RELIED UPON BY THE ASSESSEE WHICH WERE TO THE EFFECT THAT THE ADDITION CANNOT BE MADE ON THE BASIS OF STOCK STATEMENT GIVEN TO THE BANK. ACCORDING TO THE LD. CIT(A), THE ASSESSEES BOOKS OF ACCOUNT WERE NOT TRUE AND RELIABLE AND THE REFORE THE VERACITY OF THE CLAIM MADE IN THE BOOKS OF ACCOUNTS CANNOT BE B ELIEVED. HE HELD THAT IN THE DECISIONS CITED BY THE LD. COUNSEL FOR THE A SSESSEE, BOOKS OF ACCOUNT WERE NOT FOUND TO BE INCORRECT AND THEREFORE THE AD DITION MADE ON THE BASIS OF STOCK STATEMENT GIVEN TO THE BANK WAS DELETED. THE LD. CIT(A) ALSO RELIED ON THE DECISION OF THE PUNE BENCH OF THE ITA T IN THE CASE OF MAK TEXTTCHEM PRODUCTS 83 ITD 96 (PUNE) , WHEREIN THE PUNE BENCH EXPRESSED THE OPINION THAT THE BURDEN OF PROVING TH AT STOCK STATEMENT GIVEN TO THE BANK WAS FALSE WAS HEAVY ON THE ASSESSEE. F OLLOWING THE SAID JUDICIAL PRONOUNCEMENT, THE LD. CIT(A) WAS OF THE V IEW THAT THE ASSESSEE HAD NOT ESTABLISHED THAT THE CLOSING STOCK SHOWN IN THE BOOKS WAS CORRECT AND THAT THE ONE GIVEN TO THE BANK WAS NOT CORRECT. 9. WITH REGARD TO THE RECASTED BOOKS OF ACCOUNTS FI LED BY THE ASSESSEE, THE LD. CIT(APPEALS) WAS OF THE VIEW THAT THE RECAS TED BALANCE SHEET COULD NOT BE BELIEVED. THEREAFTER, THE LD. CIT(A) HELD A S FOLLOWS:- 17. THE APPELLANTS ALTERNATIVE ARGUMENT IS THAT IF THE CLOSING STOCK SHOWN TO THE BANK AS ON 31.3.2004 IS TREATED AS GENUINE, THEN THE CLOSING STOCK SHOWN TO THE SAME BANK AS ON 31.3.2003 SHOULD ALSO BE TREATED AS GENUINE AND ACTUAL. IT MA Y BE MENTIONED HERE THAT THE APPELLANT HAD SHOWN THE CLOSING STOCK AT RS. 43,65,075 AS ON 31.3.2003 TO THE BANK. IN SUCH CIRC UMSTANCES, AS ITA NO.1234/BANG/2010 PAGE 7 OF 15 PER THE APPELLANT, THERE WILL BE NO NET ADDITION BE CAUSE THE DEBIT ON ACCOUNT OF EXCESS OPENING STOCK SHOWN TO THE BAN K WILL BE HIGHER THAN THE CREDIT ON ACCOUNT OF THE EXCESS CLO SING STOCK. IN OTHER WORDS, AS PER THE APPELLANT IF THERE IS ANY U NEXPLAINED INVESTMENT IN CLOSING STOCK, THE SAME ACTUALLY PERT AINS TO THE PREVIOUS FINANCIAL YEAR RELEVANT TO THE ASST. YEAR 2003-04. 18. I HAVE CONSIDERED THIS ARGUMENT OF THE APPELLA NT. IN THE AUDITED ACCOUNT THE ASSESSEE HAD SHOWN NIL CLOSING AND OPENING STOCK. IT IS ALSO A FACT AS MENTIONED IN THE ASSESS MENT ORDER, THAT THE APPELLANT HAD SHOWN TO THE BANK A CLOSING STOCK OF RS. 43,65,075 AS ON 31.3.2003. THE CLOSING STOCK AS ON 31.3.2003 WOULD BE THE OPENING STOCK AS ON 1.4.2003. THE UNEX PLAINED INVESTMENT IN THE CLOSING STOCK THUS PERTAINS TO TH E PREVIOUS YEAR 2002-03 AND THE ASSESSMENT YEAR 2003-04. I AGREE WI TH THE APPELLANT THAT THE CLOSING STOCK SHOWN TO THE BANK AS ON 31.3.2003 SHOULD BE TAXED IN THE ASST. YEAR 2003-04 . IT IS NOT KNOWN WHETHER THE AO HAS TAKEN ANY ACTION TO TAX TH E UNEXPLAINED INVESTMENT IN THE CLOSING STOCK IN THE ASST. YEAR 2003-04. IF NOT DONE EARLIER, THE SAME CAN BE DONE NOW AS PER THE ACT. 19. HOWEVER, EVEN CONSIDERING THAT THE APPELLANT S HOULD BE ALLOWED SET OFF OF THE UNACCOUNTED OPENING STOCK AS ON 1.4.2003, I FIND THAT THE ADDITION CAN NOT BE DELETED TOTALLY IN THE CURRENT ASSESSMENT YEAR. THE DETAILS OF THE STOCK STATEMENT GIVEN TO THE BANK AS ON 31.3.2003 AND AS ON 31.3.2004 ARE AVAILA BLE AS PER ANNEXURE A-1 AND A-2 OF THE ASSESSMENT ORDER. THE D ETAILS ARE AS UNDER- COMMODITY VALUE FOR THE YEAR ENDING 31.3.2003 VALUE FOR THE YEAR ENDING 31.3.2004 AP 18,90,075 12,50,000 AC NIL 9,60,000 RC 24,75,000 6,75,000 RC EPC-80 NIL 6,89,910 THUS, IT CAN BE SEEN FROM THE COMPARISON OF THE CLO SING STOCK AS ON 31.3.2003 AND 31.3.2004 THAT THE SAME STOCK HAD NOT BEEN CARRIED FORWARD. THE CLOSING STOCK OF AC IS SHOWN T O BE NIL AS ON 31.3.2003 WHEREAS THE SAME IS SHOWN TO BE 800 BAGS WORTH RS. 9,60,000 ON 31.03.2004. SIMILARLY, 22620 KGS OF RC( BU) STOCK WORTH RS. 6,89,910 IS SHOWN ONLY ON 31.3.2004. THE SAME WAS NIL AS ON 31.3.2003. THIS STOCK CAN SAFELY BE PRESU MED TO BE OUT ITA NO.1234/BANG/2010 PAGE 8 OF 15 OF THE PURCHASES MADE DURING THE PREVIOUS YEAR. THE APPELLANT HAS ARGUED THAT THESE PURCHASES WOULD BE OUT OF THE UNACCOUNTED CLOSING STOCK SHOWN AS ON 31.3.2003. EVEN IF THIS A RGUMENT IS ACCEPTED HYPOTHETICALLY, IT HAS TO BE ADMITTED THAT THE UNACCOUNTED CLOSING STOCK AS ON 31.3.2003 ITSELF WA S OUT OF UNACCOUNTED PURCHASES OF THAT YEAR. THE CLOSING STO CK GIVEN TO CANARA BANK HAS NOT BEEN ACCOUNTED FOR IN ANY OF TH E ASST. YEARS. THE UNACCOUNTED PURCHASES MADE IN THE ASST. YEAR 20 03-04 WHICH ULTIMATELY GOT REFLECTED IN THE CLOSING STOCK AS ON 31.3.2003 WOULD BE TAXABLE IN THE APPELLANTS HANDS AS UNEXPL AINED EXPENDITURE/INVESTMENT U/S 69(3) OF THE ACT. THIS T YPE OF UNEXPLAINED EXPENDITURE CANNOT BE ALLOWED AS A DEDU CTION AS PER THE EXPLANATION TO SECTION 60C. THEREFORE, EVEN IF WE ASSUME THAT THE UNACCOUNTED CLOSING STOCK AMOUNTING TO RS. 16,4 9,910 ADDED DURING THE CURRENT ASST. YEAR WAS OUT OF THE UNEXPL AINED PURCHASES AND CLOSING STOCK OF THE EARLIER YEAR, THE SAME CAN NOT BE ALLOWED AS AN EXPENDITURE. 20. ON THE FACTS OF THE CASE ALSO, I FIND THAT THE APPELLANTS CLAIM OF SET OFF FOR THE UNACCOUNTED OPENING STOCK AS ON 31.3.2003 IS TOTALLY UNWARRANTED. THE CASH DEPOSITS IN OD ACCOUNT HAVE BEEN EXPLAINED BY THE APPELLANT TO BE OUT OF THE SALE PROCEEDS OF EARLIER UNACCOUNTED STOCK. NO SEPARATE ADDITION HAS BEEN MADE TO THE APPELLANTS INCOME ACCEPTING THIS. ONCE THE UNACCOUNTED OPENING STOCK WAS SOLD AND THE SALE PRO CEEDS WERE DEPOSITED IN THE OD ACCOUNT, THERE IS NO QUESTION O F ALLOWING A FURTHER SET OFF AGAINST THE EXCESS STOCK SHOWN TO T HE BANK AS ON 31.3.2004. HERE I MAY ALSO POINT OUT THAT THE AO HA D RECAST THE P&L ACCOUNT OF THE APPELLANT TAKING INTO ACCOUNT TH E CLOSING STOCK SHOWN TO THE BANK AS ON 31.3.2003 AND 31.3.20 04. THE AO PRESUMED THAT THE EXCESS OPENING STOCK AVAILABLE AS ON 1.4.2003 GOT SOLD DURING THE YEAR AND THE TURNOVER SHOWN BY THE APPELLANT IN THE AUDITED ACCOUNTS INCLUDE SUCH SALES. ACCORDI NGLY, THE AO HAS REWORKED OUT THE GROSS PROFIT IN THE APPELLANT S CASE. THE APPELLANT HAS NOT CHALLENGED THIS RE-WORKING. THE A PPELLANT HAS SIMPLY ASKED THAT THE ADDITION MADE OF RS.35,74,910 /- BE DELETED. BUT THIS ADDITION IS IMPLIEDLY BASED ON THE RE-WORK ED OUT GP OF THE APPELLANT. THE AO HAS ALLOWED CREDIT OF RS.7,90 ,164/- TO THE APPELLANT ON ACCOUNT OF EXCESS GP SHOWN IN THE AUDI TED ACCOUNTS. THE APPELLANT HAS NOT CHALLENGED THIS CREDIT. THIS SHOWS THAT THE APPELLANT AGREED WITH THE AO WHEN HE REWORKED OUT T HE GP. AS A COROLLARY, THE ADDITION OF RS.35,74,910/- SHOULD AL SO BE ACCEPTABLE TO THE APPELLANT. THE APPELLANT HAD NOT MAINTAINED ANY QUANTITY DETAILS OF THE STOCK. THIS IS CLEARLY WRIT TEN IN THE 3CB FORM FILED WITH THE RETURN OF INCOME. IN SUCH A SCE NARIO, THE ITA NO.1234/BANG/2010 PAGE 9 OF 15 QUANTITY DETAILS FURNISHED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS ARE NOT ACCEPTED. 21. THE APPELLANT HAS ALSO CLAIMED CREDIT FOR THE UNACCOUNTED LIABILITY IN THE FORM OF OUTSTANDING BALANCE IN THE OD ACCOUNT WITH THE CANARA BANK. THE ISSUES IS ACTUALLY NOT RE LEVANT BECAUSE THE OUTSTANDING IN THIS ACCOUNT WAS RS. 25,73,678 A S ON 31.3.2003 AND RS.25,20,239 AS ON 31.3.2004. THE APPELLANT HAS NOT PRODUCED ANY PROOF THAT THERE WERE ANY NEW BORROWIN GS DURING THE RELEVANT PREVIOUS YEAR. 10. AGGRIEVED BY THE ORDER OF LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 11. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE A SSESSEE WAS IDENTICAL TO THE SUBMISSIONS AS WERE MADE BEFORE TH E CIT(A). THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LAW WITH REGARD TO MAKING ADDITION ON THE BASIS OF STOCK STATEMENT GIV EN TO THE BANK TO THE ASSESSEE IN CONNECTION WITH CREDIT FACILITIES AVAIL ED MAY BE SUMMED UP AS FOLLOWS. THE STOCK STATEMENT GIVEN TO THE BANK IS NOT CONCLUSIVE AND THE BURDEN IS ON THE ASSESSEE TO SHOW THAT STOCK STATEM ENT GIVEN TO THE BANK WAS NOT CORRECT AND THAT THE STOCK POSITION AS REFL ECTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS TRUE. THE LEGAL POSITI ON WITH REGARD TO ADMISSION VIZ., ADMISSIONS ARE NOT CONCLUSIVE AND T HAT IT IS OPEN TO THE PERSON WHO MADE AN ADMISSION TO SHOW THAT IT WAS NO T TRUE OR THAT IT WAS MADE UNDER A MISTAKE. ON THE ABOVE ASPECT, WE ARE I N AGREEMENT WITH THE FINDINGS OF THE CIT(A) THAT THE CLOSING STOCK DECLA RED TO THE BANK BY THE ASSESSEE CANNOT BE DISREGARDED AS NOT TRUE. WE ARE ALSO IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE F AILED TO SHOW FACTS OR ITA NO.1234/BANG/2010 PAGE 10 OF 15 CIRCUMSTANCES WHICH WOULD GO TO SHOW THAT THE CLOSI NG STOCK DECLARED TO THE BANK BY THE ASSESSEE WAS FALSE. THEREFORE WE P ROCEED TO EXAMINE THE ALTERNATIVE CLAIM MADE BY THE ASSESSEE BEFORE C IT(A). 13. BEFORE WE EXAMINE THE ALTERNATIVE CLAIM OF THE ASSESSEE, WE FEEL THAT IT WOULD BE APPROPRIATE TO NARROW DOWN THE PRO VISION OF LAW THAT WOULD BE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR VIEW THE PROVISIONS OF SEC.69-C OF THE ACT WOULD NOT BE APPL ICABLE BECAUSE THE ADDITION OF RS.35,74,910/- HAS BEEN MADE BY THE AO AS EXCESS OF ASSETS OVER LIABILITIES IN THE BALANCE SHEET. THE AO HAS NOT SPELT OUT ANY PROVISION OF LAW UNDER WHICH THE ADDITION WAS MADE. THE CIT( A) HAS PROCEEDED TO APPLY THE PROVISIONS OF SEC.69C OF THE ACT. THE PR OVISIONS OF SEC.69C OF THE ACT READ AS FOLLOWS: 69C. UNEXPLAINED EXPENDITURE, ETC. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFF ERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE, MA Y BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YE AR. PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED I N ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPEN DITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT B E ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. THE ADDITION IN THE PRESENT CASE WAS MADE FOR THE R EASON THAT THE ASSESSEE WAS IN POSSESSION OF STOCK OF RS.35,74,910 /- WHICH OUGHT TO BE SHOWN AS CURRENT ASSETS IN BALANCE SHEET AND THE SO URCE OF FUNDS OUT OF WHICH SUCH CLOSING STOCK WAS ACQUIRED BY THE ASSESS EE WAS NOT EXPLAINED SATISFACTORILY. THE PRESUMPTION OF THE REVENUE IS THAT THE CLOSING STOCK IS IN POSSESSION OF THE ASSESSEE AS ON THE LAST DATE OF T HE PREVIOUS YEAR AND ITA NO.1234/BANG/2010 PAGE 11 OF 15 THAT THE SAME HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE APPROPRIATE SECTION THAT WOULD APPLY IN OUR VIEW IS SEC.69A OF THE ACT, WHICH IS AS FOLLOWS: 69A. UNEXPLAINED MONEY, ETC.--WHERE IN ANY FINANCI AL YEAR THE ASSESSEE IS FOUND TO BE THE OWNER OF ANY MONEY, BUL LION, JEWELLERY OR OTHER VALUABLE ARTICLE AND SUCH MONEY, BULLION, JEWELLERY OR VALUABLE ARTICLE IS NOT RECORDED IN THE BOOKS OF AC COUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND TH E ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE O F ACQUISITION OF THE MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ART ICLE, OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION O F THE ASSESSING OFFICER, SATISFACTORY, THE MONEY AND THE VALUE OF T HE BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE MAY BE DEEMED T O BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. THE SCOPE OF THE PROVISIONS OF SEC.69C AND 69A OF T HE ACT ARE DIFFERENT AND THEREFORE THE APPROPRIATE PROVISION THAT WOULD APPLY TO THE PRESENT CASE OF THE ASSESSEE ASSUMES IMPORTANCE. 14. THE FIRST ALTERNATIVE CLAIM OF THE ASSESSEE BEF ORE THE CIT(A) WAS THAT IF THE CLOSING STOCK SHOWN TO THE BANK AS ON 3 1.3.2004 IS TREATED AS GENUINE, THEN THE CLOSING STOCK SHOWN TO THE SAME B ANK AS ON 31.3.2003 SHOULD ALSO BE TREATED AS GENUINE AND ACTUAL. THE A SSESSEE HAD SHOWN THE CLOSING STOCK AT RS. 43,65,075 AS ON 31.3.2003 TO THE BANK AND THE CLOSING STOCK SHOWN TO THE BANK AS ON 31.3.2004 WAS RS.35,74,910/-. IN SUCH CIRCUMSTANCES, AS PER THE ASSESSEE, THERE WILL BE NO NET ADDITION BECAUSE THE DEBIT ON ACCOUNT OF EXCESS OPENING STOC K SHOWN TO THE BANK WILL BE HIGHER THAN THE CREDIT ON ACCOUNT OF THE EX CESS CLOSING STOCK. IN OTHER WORDS, AS PER THE ASSESSEE IF THERE IS ANY UN EXPLAINED INVESTMENT IN CLOSING STOCK, THE SAME ACTUALLY PERTAINS TO THE PR EVIOUS FINANCIAL YEAR RELEVANT TO THE ASST. YEAR 2003-04. ON THIS CLAIM OF THE ASSESSEE, THE ITA NO.1234/BANG/2010 PAGE 12 OF 15 CIT(A), AGREED WITH THE ASSESSEE IN PARA-17 AND 18 OF HIS ORDER. IN PARA- 19 OF HIS ORDER, THE CIT(A) DID NOT GIVE SUCH CREDI T FOR THE REASON THAT CLOSING STOCK OF THE VALUE OF RS.16,49,910/- OUT OF THE CLOSING STOCK OF RS.35,74,910 DECLARED TO THE BANK WAS PURCHASES MAD E DURING THE PREVIOUS YEAR AND CANNOT BE ACCEPTED AS FROM AND OU T OF THE OPENING STOCK AS ON 1.4.2003. AS A COROLLARY TO THE ABOVE CONCLU SION OF THE CIT(A), HE OUGHT TO HAVE DELETED ADDITION TO THAT EXTENT OF RS .19,25,000/-. IN PARA-20 OF HIS ORDER THE CIT(A) HAS NOT GIVEN SET OFF AS AB OVE FOR THE REASON THAT THE ASSESSEE HAD EXPLAINED THE SOURCE OF DEPOSIT IN THE OD ACCOUNT AS FROM AND OUT OF THE SALE PROCEEDS OF UNRECORDED STO CK. THERE IS NO BASIS FOR THIS FINDING OF CIT(A) AS THE FACTS ON THE BASI S OF WHICH SUCH CONCLUSION WAS DRAWN BY CIT(A) IS NOT BORNE OUT OF THE ORDER O F THE AO. FACTUALLY NO SUCH SET OFF WAS GIVEN IN AY 04-05. THE SECOND REA SON FOR THE CIT(A) FOR DENYING SET OFF WAS THAT THE EXCESS OF OPENING STOC K OVER CLOSING STOCK WAS TREATED BY THE AO AS REFLECTED IN THE SALES FIGURE AND THEREFORE THE G.P. WAS REWORKED BY THE AO WHICH RESULTED IN THE G.P. D ECLARED BY THE ASSESSEE BEING REDUCED BY RS.7,90,164/- AND THAT TH E ASSESSEE AGREED TO SUCH REDUCTION OF G.P. EVEN THIS BASIS GIVEN BY CIT (A) CANNOT BE ACCEPTED. THE CLOSING STOCK AS ON 31.3.2004 TO THE EXTENT OF RS.19,25,000 IS TREATED AS THE SAME STOCK COMPRISED IN THE OPENI NG STOCK AS ON 31.3.2003. THEREFORE THE SAME CANNOT BE SAID TO BE REFLECTED IN THE SALES. THE REMAINING CLOSING STOCK OF RS.16,49,910 IS TREA TED AS PURCHASES MADE DURING THE PREVIOUS YEAR AND THE SAME IS BEING CONS IDERED FOR ADDITION U/S.69A OF THE ACT. THIS STOCK OF THE VALUE OF RS. 16,49,910/- IS ALSO LYING IN CLOSING STOCK AND CANNOT BE IGNORED. THEREFORE THE RECASTING OF THE TRADING ITA NO.1234/BANG/2010 PAGE 13 OF 15 ACCOUNT DONE BY THE AO CANNOT BE DISTURBED. THE CL OSING STOCK AS ON 31.3.2004 HAS TO BE ASCERTAINED AS THAT WILL BE THE OPENING STOCK AS ON 1.4.2004 RELEVANT FOR AY 05-06. THE COMPUTATION OF TOTAL INCOME HAS TO BE MADE IN ACCORDANCE WITH LAW AND THE FACT THAT THE A SSESSEE HAS AVAILED OF A BENEFIT AVAILABLE TO HIM IN LAW CANNOT BE THE REA SON TO DISALLOW A LEGITIMATE CLAIM OF ASSESSEE FOR SET OFF. 15. IN OUR VIEW, THE PROPER WAY TO WORK OUT THE QUA NTUM OF ADDITION THAT OUGHT TO BE MADE IN THE GIVEN FACTS AND CIRCUMSTANC ES OF THE CASE WOULD BE TO CONSIDER CLOSING STOCK AS ON 31.3.2004 OF RS. 19,25,000/- AS EXPLAINED FROM AND OUT OF THE OPENING STOCK ON 31.3 .2003. THE REMAINING SUM OF RS.16,49,910 STANDS UNEXPLAINED AND AN ADDIT ION U/S.69A OF THE SAID SUM WOULD BE JUST AND PROPER. 16. ANOTHER SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT IN AY 05-06 AS PER THE STOCK STATEMENT GIVEN T O THE BANK THE CLOSING STOCK WAS RS.51,70,000 AS ON 31.3.2005 AND IN THAT YEAR ALSO AN ADDITION ON ACCOUNT OF UNEXPLAINED STOCK VIZ., THE DIFFERENC E BETWEEN THE OPENING STOCK AS ON 31.3.2004 AND 31.3.2005 WAS MADE. A FU RTHER ADDITION OF RS.30,27,389 BEING THE DIFFERENCE BETWEEN THE VALUE OF STOCK AS ON 31.3.2005 AS INDICATED IN THE STOCK STATEMENT FILED BY THE ASSESSEE WITH THE BANK AND BALANCE OF AMOUNT DUE TO THE SAID BANK AS ON THAT DATE WAS ALSO MADE. THIS WAS DELETED BY THE CIT(A) BECAUSE ADDITION ON ACCOUNT OF CLOSING STOCK HAS ALREADY BEEN CONFIRMED AND THEREF ORE SUSTAINING THE ADDITION OF RS.30,27,389/- WOULD AMOUNT TO MAKING D OUBLE ADDITION. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE BASIS OF TH E SAID FINDING OF CIT(A) HAS ARGUED BEFORE US THAT THE IMPUGNED ADDITION IN THIS APPEAL SHOULD ALSO ITA NO.1234/BANG/2010 PAGE 14 OF 15 BE DELETED. WE ARE UNABLE TO AGREE WITH THE SUBMIS SIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. AS WE HAVE ALREADY OBSER VED, AS FAR AS THIS ASSESSMENT YEAR IS CONCERNED THE ONLY ADDITION IS W ITH REGARD TO THE SOURCE OF FUNDS FOR THE CLOSING STOCK OF RS.35,74,9 10. THE ASSESSEE NEVER PLEADED THAT THE FUNDS OBTAINED FROM THE OD ACCOUNT WAS THE SOURCE. IN ANY EVENT THAT IS NOT THE BASIS ON WHICH THE ADDITI ON IS BEING PARTLY DELETED. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE CANNOT BE ACCEPTED. 17. THE NEXT SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THE OUTSTANDING AMOUNT OF RS. 25,73,678/- IN T HE OD ACCOUNT WITH CANARA BANK SHOULD BE CONSIDERED AS SOURCE FOR THE UNEXPLAINED CLOSING STOCK AS ON 31.3.2004. ON THIS PLEA WE FIND THAT T HE OUTSTANDING BALANCE TO CANARA BANK IN OD ACCOUNT AS ON 31.3.2003 AND 31.3. 2004 WAS RS.25,73,678. THUS THERE WAS NO FRESH BORROWINGS D URING THE PREVIOUS YEAR WHICH CAN POSSIBLY EXPLAIN THE SOURCE FOR UNEX PLAINED PURCHASES OF RS.16,49,910/- WHICH IS BEING SUSTAINED BY US IN TH IS ORDER. THIS ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCORDIN GLY REJECTED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2012. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 31 ST AUGUST , 2012. DS/- ITA NO.1234/BANG/2010 PAGE 15 OF 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.