New Punjabi Samrat, Kolkata V. ITO, Ward-49(2), Kolkata, Kolkata

ITA 2228/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1523 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 22-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BISWAS
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Competent authority
• Section: 133(6); 131; 68; 2

Judgement Text

1 ITA NO.2228/KOL/2016 NEW PUNJABI SAMRAT, AY 2008-09 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA () BEFORE .., /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] / I.T.A NO. 2228/KOL/2016 ! ' / ASSESSMENT YEAR: 2008-09 NEW PUNJABI SAMRAT (PAN: AAEFN2187P) VS. INCOME-TAX OFFICER, WD-49(2), KOLKATA ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING 22.06.2017 DATE OF PRONOUNCEMENT 06.09.2017 FOR THE APPELLANT/ SHRI MIRAJ D. SHAH, ADVOCATE FOR THE RESPONDENT/ SHRI M. K. BISWAS, JCIT / ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-15, KOLKATA DATED 25.08.2016 FOR AY 2008-09. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS AGAINST TH E ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE AO TAKING NOTE OF THE EXCESS STOCK OF RS.40,48,238/- AS PER THE STATEMENT FILED TO THE BANK. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DECLARED CLOSING STOCK OF RS. 49,40,090/-. THE AO FURTHER OBSERVED THAT THE ASSESSEE MAINTAINED A CASH CREDIT ACCOUNT WITH M/S. UCO BANK, KANKURGACHI BRANCH, KOLKATA AGAINST HYPOTHECATION OF STOCK. THE AO ISS UED NOTICE U/S. 133(6) OF THE ACT TO THE BANK AND OBTAINED THE STOCK STATEMENT FURNISHED BY THE ASSESSEE. THE AO FOUND THAT THE STOCK STATEMENT SHOWN THE FIGURE OF RS.88,89,328/- AGAINST THE BOOK FIGURE OF RS.49,40,090/-. ON A QUERY FROM THE AO AS TO THE D IFFERENCE IN THE VALUE OF CLOSING STOCK AS ON 31.03.2008, THE ASSESSEE SUBMITTED THAT THE STOC K STATEMENT SUBMITTED TO THE BANK WAS INFLATED TO AVAIL HIGHER CREDIT FACILITY FROM THE B ANK AND SINCE THE STOCK STATEMENT WAS SUBMITTED TO THE BANK WITH A VIEW TO AVAIL HIGHER A MOUNT OF LOAN, THE STOCK VALUE SO STATED 2 ITA NO.2228/KOL/2016 NEW PUNJABI SAMRAT, AY 2008-09 WERE INFLATED AND THUS NOT REAL. IT WAS NOT POINTE D OUT TO THE AO THAT THE STOCK WAS NEVER PHYSICALLY VERIFIED FROM THE BANK AND ALSO SUBMITTE D A CERTIFICATE DATED 24.11.2010 ISSUED BY THE UCO BANK, KANKURGACHI BRANCH WHICH HAS BEEN REPRODUCED BY THE AO AT PAGE 2 OF HIS ORDER WHEREIN THE UCO BANK CONFIRMED FROM THEIR RECORD THAT THERE IS NO STOCK INSPECTION REPORT WITH THEM ON 31.03.2008 . ON THE STRENGTH OF THE AFORESAID CERTIFICATE ISSUED BY THE UCO BANK, THE ASSESSEE CLAIMED THAT T HERE WAS NO PHYSICAL STOCK TAKEN BY THE BANK AND, THEREFORE, IT CANNOT BE SACROSANCT. IN O RDER TO VERIFY THE CERTIFICATE ISSUED BY THE BANK AUTHORITY, THE BRANCH MANAGER, UCO BANK, KANKU RGACHI BRANCH WAS SUMMONED U/S. 131 OF THE ACT. THE AO RECORDS IN HIS ORDER THAT S HE APPEARED AND STATED THAT AS PER BANKING RULE BEFORE GRANTING ANY LOAN AGAINST HYPOTHECATION OF STOCK, BANKING AUTHORITY MUST PHYSICALLY VERIFY THE STOCK AND UNTIL AND UNLESS IT RECONCILES WITH THE RECORD OF THE PARTY AS WELL AS GOODS LYING IN GODOWN, THE LIMIT GETS AFFEC TED. THE AO AFTER QUESTIONING THE BANK MANAGER WAS OF THE OPINION THAT IN THE PRESENT CASE STOCK WAS PHYSICALLY VERIFIED. THE AO ALSO NOTED THAT SHE EXPRESSED HER INABILITY TO PROD UCE THE STOCK INSPECTION REPORT AS IT WAS NOT READILY AVAILABLE AT THAT TIME. THEREAFTER, THE AO MADE THE ADDITION OF THE STOCK DIFFERENCE OF RS.40,48,238/- TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO CONFIRM THE SAME. AGGRIEVED, THE ASSESSEE IS BEFORE US. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE IS MAINTAINING A C ASH CREDIT ACCOUNT WITH M/S. UCO BANK, KANKURGACHI BRANCH, KOLKATA AGAINST HYPOTHECATION O F STOCK. IN ITS BOOK, THE ASSESSEE HAD SHOWN CLOSING STOCK OF RS.49,40,090/-. THE AO ISSU ED NOTICE U/S. 133(6) OF THE ACT AND OBTAINED STOCK STATEMENT FURNISHED BY THE ASSESSEE WHICH SHOWED A FIGURE OF RS.88,89,328/- AGAINST THE BOOK FIGURE OF RS.49,40,090/-. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DIFFERENCE AMOUNTING TO RS.40,48,238/- REPRESEN TED THE UNDISCLOSED STOCK WHICH HAS BEEN PURCHASED BY THE ASSESSEE FROM HIS UNDISCLOSED INCOME AND ADDED BACK THE SAME WITH THE TOTAL INCOME. THE ASSESSEE EXPLAINED THAT THE STOCK STATEMENT SUBMITTED TO THE BANK WAS INFLATED TO AVAIL HIGHER CREDIT FACILITY FROM THE B ANK AND SINCE THE STOCK STATEMENT WAS SUBMITTED TO THE BANK WITH A VIEW TO GET HIGHER CRE DIT FACILITY THE STOCK VALUE SO INFLATED CANNOT BE TREATED AS REAL. THE ASSESSEE POINTED OU T THAT THE STOCK WAS NEVER PHYSICALLY 3 ITA NO.2228/KOL/2016 NEW PUNJABI SAMRAT, AY 2008-09 VERIFIED BY THE BANK AND TO BUTTRESS THIS FACT THE ASSESSEE FILED A CERTIFICATE DATED 24.11.2010 ISSUED BY THE UCO BANK, KANKURGACHI BRANCH WHICH ST ATED AS UNDER: THIS IS TO CERTIFY THAT NEW PUNJABI SAMRAT OF 17/ 13, DAKSHINDARI ROAD, KOLKATA-48 ENJOYING CC LIMIT AGAINST HYPOTHECATION OF STOCK. BUT WE CO NFIRM FROM OUR RECORD THAT IT APPEARS TO, THERE HAVE NO STOCK INSPECTION REPORT WITH US ON 31 .03.2008. IN ORDER TO VERIFY THE SAID CERTIFICATE, THE AO ISS UED NOTICE U/S. 131 OF THE ACT TO THE MANAGER OF THE UCO BANK, KANKURGACHI BRANCH WHOSE S TATEMENT WAS RECORDED BY THE AO WHICH HAS BEEN PLACED FROM PAGE 6 OF THE PAPER BOOK . THE RELEVANT QUESTION NOS. 3 TO 6 AND ANSWER THEREOF ARE GIVEN BELOW: Q3. AS PER RECORDS YOU HAVE GRANTED C.G. LOAN TOO M/S. NEW PUNJAB SAMRAT DURING F. Y. 2007-08 AGAINST STOCK HYPOTHECATION. PLEASE STATE THE PROCE DURE OF GRANTING CC LOAN AGAINST STOCK HYPOTHECATION. ANS. AFTER SATISFY OF THE COMPETENT AUTHORITY THE P APERS SUBMITTED BY THE PARTY, A LIMIT SANCTIONED BY THE AUTHORITY AGAINST THE SECURITY I. E. HYPOTHECAT ION OF STOCK. UNTIL AND UNLESS THE COMPETENT AUTHORITY NOT SATISFIED ABOUT THE PAPERS LIKE FINAN CIAL STATEMENT, THE LIMIT WOULD NOT BE GRANTED TO THE PARTY. Q.4. IN CASE OF STOCK OF GOODS, WHAT IS THE PROCEDU RE OF GRANTING CC LOAN? ANS. STOCK SHOULD BE VERIFIED WITH THE RECORD OF TH E PARTY. UNTIL AND UNLESS RECONCILE WITH THE RECORD OF THE PARTY AS WELL AS GOODS LYING IN THE GODOWN, THE LIMIT MAY BE AFFECTED. Q.5. IT IS CLEAR FROM YOUR STATEMENT THAT STOCK MUS T BE VERIFIED BY THE BANKING AUTHORITY PHYSICALLY AND AFTER BEING SATISFIED, IT GRANTS LOAN AS PER PA RTY'S REQUIREMENT AS WELL AS TURNOVER OF THE BUSINESS. IF SO, IN THE CASE OF NEW PUNJABI SAMRAT, STOCK MUST BE VERIFIED BY THE BANKING AUTHORITY. PLEASE EXPLAIN YOUR COMMENT, IF YES. ANS. YES. Q.6. ON PERUSAL OF RECORDS, YOU HAVE ISSUED A CERTI FICATE TO THE EFFECT THAT NO STOCK INSPECTION REPOR T IS AVAILABLE WITH YOU AS ON 31.03.08. PLEASE TELL B E WHETHER THE STOCK MENTIONED ABOVE HAD BEEN INSPECTED OR NOT KEEPING IN MIND OF YOUR ANSWER TO Q. NO. 3 AND Q.4. ANS. AS PER GUIDELINES STOCK MUST BE VERIFIED, BUT IT APPEARS FROM OUR RECORD THAT THE INSPECTION REPORT ON THAT PARTICULAR DATE NOT FOUND. ' 4. FROM A PERUSAL OF THE ABOVE QUESTION AND ANSWER, WE NOTE THAT THE MANAGER HAS GIVEN A GENERAL STATEMENT AS TO THE BANKING RULE RE GARDING VERIFICATION OF STOCK BEFORE GRANTING CASH CREDIT LIMIT. NOWHERE FROM THE RECOR D WE COULD FIND THAT THE ASSESSEES STOCK WAS PHYSICALLY VERIFIED BY THE BANK, WHEREAS FROM T HE STATEMENT OF THE BANK MANAGER IT IS CLEAR THAT THE INSPECTION REPORT ON THE PARTICULAR DATE WAS CARRIED OUT AT THE ASSESSEE COULD NOT BE TRACED AND, THEREFORE, IT CANNOT BE INFERRED THAT THE BANK HAS PHYSICALLY VERIFIED THE STOCK. THE HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS. APCOM COMPUTERS (P) LTD. (2007) 158 TAXMAN 363 (MAD) HELD THAT WHERE INFLATE D STOCK STATEMENT GIVEN TO BANK FOR OBTAINING HIGHER LOAN FACILITIES WAS ON AN ESTIMATE BASIS WITHOUT ANY ACTUAL PHYSICAL 4 ITA NO.2228/KOL/2016 NEW PUNJABI SAMRAT, AY 2008-09 VERIFICATION AND STOCK DISCLOSED FOR ASSESSMENT PUR POSE WAS BASED ON ACTUAL PHYSICAL VERIFICATION, DIFFERENCE IN VALUE OF STOCK COULD NO T BE TREATED AS ASSESSEES UNDER-VALUATION OF STOCK OR UN-DISCLOSED STOCK. WE NOTE THAT SINCE THE STOCKS ARE HYPOTHECATED AND NOT PLEDGED TO THE BANK AND SO NEITHER THE STOCK WERE I N THE CUSTODY OF THE BANK NOR THE BANK THEMSELVES HAVE MADE ANY ATTEMPT TO VERIFY THE STOC K BY PHYSICAL VERIFICATION OR OTHERWISE, THE CERTIFICATE ISSUED BY THE BANK DATED 27.11.2010 CONFIRMED THE FACT THAT THERE WAS NO STOCK INSPECTION REPORT OF THE ASSESSEE AS ON 31.03 .2008 AND IN THE ABSENCE OF THE SAME, IT CANNOT BE FOUND THAT THERE WAS ACTUAL PHYSICAL VERI FICATION OF THE STOCK. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE ON ACCOUNT OF I NFLATED STATEMENT FURNISHED TO THE BANK FOR THE PURPOSE OF HIGHER CREDIT FACILITIES, NO ADD ITION CAN BE MADE U/S. 68 OF THE ACT WHEN THERE APPEARS TO BE DIFFERENCE BETWEEN STOCK SHOWN IN THE BOOKS OF ACCOUNT AND THE STATEMENT FURNISHED TO THE BANK. IF FOR THE PURPOS E OF FULFILLING THE MARGIN REQUIRED TO THE BANK PURELY ON INFLATED ESTIMATE BASIS, WHEN THE ST OCK STATEMENT HAD REFLECTED INFLATED VALUE OF THE STOCK AND IN THE ABSENCE OF ANY PHYSICAL VER IFICATION OF THE STOCK BY THE BANK, NO ADDITION CAN BE MADE. THEREFORE, WE ALLOW THE APPE AL OF THE ASSESSEE AND DIRECT DELETION OF THE ADDITION MADE ON THIS COUNT. APPEAL OF ASSESSEE IS ALLOWED. 5. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 06.09.2017 SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :6 TH SEPTEMBER, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT NEW PUNJABI SAMRAT, C/O D. J. SHAH & CO. KALYAN BHAVAN, 2, ELGIN ROAD, KOLKATA-700 020. 2 RESPONDENT ITO, WARD-49(2), KOLKATA. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCH ES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECY.,