Pranab Kumar Dawn, Bankura V. ITO, Ward - 3, Bankura, Bankura

ITA 668/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5592 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2010
• Court: TRIBUNAL
• Department Lawyers: R K PAUL
• Assessee Lawyers: D K SEN

Judgement Text

, SMC , , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH : KOLKATA () BEFORE . . . . . . . . , , , , , ) [BEFORE HONBLE SRI D. K. TYAGI, JM) ! ! ! ! / I.T.A NO. 668 /KOL/2010 '#$ '#$ '#$ '#$ %&' %&' %&' %&'/ // / ASSESSMENT YEAR : 2007-08 PRANAB KUMAR DAWN -VS- INCOME-TAX OFFICER, WD-3 , BANKURA (PA NO.ACZPD 9620 L) ()* / APPELLANT ) (+)*/ RESPONDENT ) FOR THE APPELLANT : SRI D. K. SEN FOR THE RESPONDENT SRI R. K. PAUL , / ORDER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF THE LD. CIT(A), DURGAPUR DATED 26.02.2010 FOR ASSESSMENT YE AR 2007-08 ON THE FOLLOWING GROUNDS : 1. FOR THAT THE ORDER OF ASSESSMENT IS BAD IN FACT AND IN LAW. 2. FOR THAT THE LD. CIT(A), DURGAPUR IN CONSIDERATI ON OF THE FACTS AND CIRCUMSTANCES OF THE MATTER, ERRED IN CONFIRMING 80% OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ALLEGED DISCREPANCY IN VALUE OF STOCK ST ATEMENT FURNISHED TO THE BANK AND THE VALUE OF STOCK ACTUALLY REFLECTED IN THE BOOKS OF A CCOUNT. 3 . FOR THAT THE LD. CIT(A) IN CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE ERRED IN CONFIRMING 50% ADDITION MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF TRAVELLING EXPENSES. 2. GROUND NO. 1 IS GENERAL IN NATURE AND GROUND NO. 3 WAS NOT PRESSED AT THE TIME OF HEARING BEFORE US. HENCE, BOTH THE GROUNDS ARE DISMISSED. 3. GROUND NO. 2 IS WITH REGARD TO CONFIRMATION OF A DDITION OF RS.1,58,308/- ON ACCOUNT OF DISCREPANCY IN STOCK STATEMENT FURNISHED TO THE BANK AND ACTUAL STOCK DISCLOSED IN THE BOOKS. BRIEFLY STATED FACTS OF TH E CASE AS OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE THAT THE ASSESE E IS IN THE RETAIL BUSINESS OF SELLING OF ELECTRICAL AND ELECTRONIC GOOD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSED AN D OVERDRAFT FACILITY WITH BANK OF 2 INDIA, BISHNUPUR BRANCH AND THAT IT HAD BEEN SUBMIT TING MONTHLY STOCK STATEMENTS TO THE BANK FOR OBTAINING THE OVERDRAFT LIMIT. THE ASSESS ING OFFICER OBTAINED COPIES OF THESE STOCK STATEMENTS FROM THE BANK AND FOUND THAT QUANT ITY OF SOME GOODS WERE SHOWN AT A HIGHER FIGURE THAN THE STOCK STATEMENT FURNISHED A LONG WITH RETURN OF INCOME AS ON 31.3.2007. THE ASSESSING OFFICER HAS GIVEN A TABLE LISTING THE ITEM WISE DISCREPANCIES AND THE TOTAL DISCREPANCY IS VALUED AT RS.1,58,308/ -. THE ASSESEE IN SPITE OF SPECIFIC REQUISITIONS DID NOT PRODUCE THE STOCK REGISTER OR THE PURCHASE BILLS. NO SATISFACTORY EXPLANATION WAS GIVEN REGARDING THE DISCREPANCY AND THE ASSESSING OFFICER HELD THAT THE INVESTMENT IN EXCESS STOCK VALUE AT RS.1,58,308/- W AS FROM UNDISCLOSED SOURCE OF INCOME AND ADDED BACK THE SAME. IN APPEAL, THE LD. CIT(A) CONFIRMED 80% OF THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED BY THE SAID ORDER, NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFOR E THE LOWER AUTHORITIES FURTHER SUBMITTED THAT THE ASSESSING OFFICER ADDED RS.1,58, 308/- ON ACCOUNT OF DISCREPANCY IN STOCK STATEMENT FURNISHED TO THE BANK AND ACTUAL ST OCK DISCLOSED IN THE BOOKS. HE ALSO CONTENDED THAT NO RATE WAS FURNISHED IN THE STOCK S TATEMENT SUBMITTED ALONG WITH THE RETURN OF INCOME AND THAT THE ASSESSING OFFICER HAD ADOPTED HIS OWN RATES TO ARRIVE AT SUCH A FIGURE. HE ALSO CONTENDED THAT NO DEFECT WAS POINTED OUT BY THE ASSESSING OFFICER. IN SUCH CIRCUMSTANCES, NO ADDITION CAN BE MADE IF THE CREDIT FACILITIES WERE EXTENDED BY THE BANK TO THE ASSESSEE AGAINST HYPOTH ECATION OF STOCK AND THE VALUATION OF THE STOCK DECLARED TO BE BANK WAS HIGHER THAN ACTU AL STOCK AVAILABLE IN THE BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT THE STOCK WAS N OT VERIFIED BY THE BANK OFFICIALS WHILE GIVING CREDIT FACILITIES TO THE ASSESSEE. IN SUPPOR T OF THIS SUBMISSION HE PLACED RELIANCE ON THE FOLLOWING CASE LAWS : A) ACIT VS. JYOTI WOOLLEN MILLS (2009) 125 TTJ 810 (DEL) AND B) CIT VS. KHAN & SIROHI STEEL ROLLING MILLS (2006) 152 TAXMAN 224 (ALL). C) CIT VS- ARROW EXIM (P) LTD. (2010) 230 CTR 293 (GUJ) 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 3 5. AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSING THE MATERIAL AVAILABLE ON RECORD AND ALSO THE CASE LAWS RELIED ON BY THE A SSESSEES COUNSEL, I FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE CREDIT F ACILITY WAS EXTENDED BY THE BANK TO THE ASSESEE AGAINST HYPOTHECATION OF STOCK AND THE VALU ATION OF THE STOCK DECLARED TO THE BANK WAS HIGHER THAN THE ACTUAL STOCK AVAILABLE IN THE BOOKS OF ACCOUNT AND THIS INFLATION OF THE STOCK IN QUANTITY AND IN VALUATION WAS DONE BY THE ASSESSEE TO OBTAIN HIGHER CREDIT LIMIT FROM THE BANK. IT IS ALSO NOT IN DISPUTE THAT NO VERIFICATION OF STOCK WAS DONE BY THE BANK BEFORE GRANTING CREDIT FACILIT Y TO THE ASSESSEE. ON THESE UNDISPUTED FACTS, THE RATIO AS LAID DOWN BY HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KHAN & SIROHI STEEL ROLLING MILLS (SUPRA) I S SQUARELY APPLIED WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER : 5. THE ITO ASKED THE ASSESSEE TO GET CERTIFICATE F ROM THE BANK REGARDING THE LOAN OUTSTANDING AS WELL AS THE SECURITY FURNISHED. THE ASSESSEE FILED A LETTER DT. 15 TH DEC., 1982, TO THE STATE BANK OF INDIA. A PERUSAL OF THE SAID LETTER SHOWS THAT THE BANK HAS TAKEN THE VALUE OF THE STOCKS AS REPRESENTED BY THE ASSESSEE THROUGH THE STOCK STATEMENT DT. 19 TH FEB., 1979. THE ASSESSEE ALSO PRODUCED COPY OF T HE STOCK STATEMENT WHICH WAS GIVEN TO THE BANK ON 19 TH FEB., 1979. IT HAS BEEN FOUND BY THE CIT(A) THAT THE GOODS HYPOTHECATED TO THE STATE BANK OF INDIA WERE THE PR OPERTIES OF THE ASSESSEE WHICH WERE PURCHASED BY THEM AGAINST THE FULL PAYMENT. THE GO ODS WERE VALUED ACCORDING TO THE MARKET RATE AND WERE FULLY INSURED. THE TRIBUNAL O BSERVED THAT WRONG DECLARATION OF THE STOCK TO THE BANK COULD NOT WARRANT ANY ADDITIO N. IT OBSERVED THAT THE STATEMENT SUBMITTED BY THE ASSESSEE WAS NOT VERIFIED BY THE BANK OFFICIALS. THE STOCKS WERE ONLY HYPOTHECATED AND NOT PLEDGED. THE ITO COULD NOT PO INT OUT ANY DEFECT IN THE TRADING ACCOUNT OF THE ASSESSEE AND THE BOOKS OF ACCOUNT MA INTAINED BY IT WHICH HAS ALSO BEEN ACCEPTED BY THE CENTRAL EXCISE DEPARTMENT AS WELL A S BY THE SALES-TAX DEPARTMENT AND COULD NOT BE DISBELIEVED. THE TRIBUNAL HAS PLACED R ELIANCE ON THE FOLLOWING CASES : 1. INDIA MOTOR PARTS & ACCESSORIES (P) LTD. VS. CIT (1966) 60 ITR 531 (MAD). 2. CIT VS. RAM KRISHNA MILLS (COIMBATORE) LTD. (197 4) 93 ITR 49 (MAD). 3. COIMBATORE SPINNING & WEAVING COMPANY LTD. VS. C IT (1974) 95 ITR 375 (MAD) 4. GAINDAMAL HANDA & SONS VS. CIT (1980)18 CTR (P&H ) 210 5. SWADESHI COTTON COMPANY LTD. VS. CIT (1980) 15 C TR (ALL) 334; (1980) 125 ITR 33 (AL)). 6. THE ABOVE CASES LAY DOWN THAT IT IS A PRACTICE TO INFLATE STOCKS WITH A VIEW TO OBTAIN HIGHER OVERDRAFT FACILITIES FROM THE BANKS. IN THE CASE OF SWADESHI COTTON COMPANY LTD. (SUPRA), THE GOODS PLEDGED WITH THE BA NK WERE HIGHER THAN THE BOOK STOCK. THE ITO, THEREFORE, REJECTED THE BOOK RESULT S AND ESTIMATED GP OF 10 PER CENT ON SALES AND CONSEQUENTLY MADE ADDITION IN THE INCOME. THE EXPLANATION GIVEN BY THE ASSESSEE WAS THAT IT I NFLATED THE VALUE AND QUANTITY OF THE STOCKS IN THE BANK DECLARATION TO OBTAIN A NUMBER OF DRAFTS FROM THE BANK. THIS 4 EXPLANATION WAS ACCEPTED BY THE TRIBUNAL. THE MATT ER CAM UP BEFORE THIS COURT AND IT WAS HELD THAT TRIBUNALS DECISION WAS CORRECT. 7. THE TRIBUNAL HAS ALSO FOUND THAT THERE WAS ACTUA LLY NO VERIFICATION OF THE STOCK MADE BY ANY BANK OFFICIAL. THE LEARNED STANDING COU NSEL COULD NOT POINT OUT ANY CONTRARY DECISION TO SHOW THAT A PRACTICE TO INFLAT E STOCKS HYPOTHECATED WITH THE BANK WITH A VIEW TO AVAIL HIGHER OVERDRAFT FACILITIES, IS NOT PREVALENT IN BUSINESS COMMUNITY. 8. IN VIEW OF THE FACT THAT THE EXPLANATION HAS BEE N ACCEPTED BY THE TRIBUNAL, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE SAME, I DELETE THE ADDIT ION SO MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A). THIS GROU ND OF APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30.9.10 SD/- . . , (D. K. TYAGI) ( - - - -) )) ) DATED :30TH SEPTEMBER, 2010 JUDICIAL MEMBER %./ '#01 '2% JD.(SR.P.S.) , 3 +''4 54&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT SRI PRANAB KUMAR DAWN, AT GARDARJA, PO BISHNUPUR, DIST. BANKURA 2 +)* / RESPONDENT , ITO, WARD-3, BANKURA 3 . ',# / THE CIT, DURGAPUR 4 . ',# ( )/ THE CIT(A), DURGAPUR 5 . %=' +'# / DR, KOLKATA BENCHES, KOLKATA 4 +'/ TRUE COPY , ,#>/ BY ORDER , ? 1 / DEPUTY REGISTRAR .