NARMADA TRANSMISSION PRIVATE LIMITED,BHOPAL V. ASSISTANT COMMISSIONER, BHOPAL

ITA 579/IND/2025

AI Insights

The case involves Narmada Transmission Pvt. Ltd., which appealed against the order of the Commissioner of Income-Tax (Appeals) - NFAC, Delhi, which itself arose from an assessment order by the Assistant Commissioner of Income-Tax, Bhopal. The primary contention was the alleged understatement of stock in the balance sheet compared to the stock declared to the bank for availing a cash credit limit. The Assessing Officer (AO) had added Rs. 49,90,000 to the assessee's income, treating it as undisclosed income. The Tribunal examined whether this addition was justified, considering the nature of the figures reported to the bank and the audited accounts.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840531 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-07-2025
• Other Referred Cases: M/s Swadeshi Cotton mills Vs CIT, Commissioner of Income-tax Vs. Khan And Sirohi Steel rolling Mills, Commissioner of Income-tax Vs. Riddhi Steel and Tubes (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FORASSESSEEFIRSTLYSUBMITTEDTHATTHEASSESSEEISA; FORREVENUEDEFENDEDTHEORDERSOFLOWER; SHRIASHISHPORWAL
• Assessee Lawyers: VINOD JOSHI
• Keywords: Corroborative evidences
• Section: 148; 143(3)

Judgement Text

"Page 1 of 18 आयकरअपीलीयअिधकरण, इंदौरɊायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI B.M. BIYANI, ACCOUNTANT MEMBER AND SHRI PARESH M. JOSHI, JUDICIAL MEMBER ITA No.579/Ind/2025 Assessment Year:2008-09 Narmada Transmission Pvt. Ltd. 6/1 Govindpura, Industrial Estate, Bhopal बनाम/ Vs. ACIT 2(1) Bhopal (Assessee/Appellant) (Revenue/Respondent) PAN: AABCN0638B Assessee by Shri Vinod Joshi, AR Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 28.01.2026 Date of Pronouncement 27/02/2026 आदेश/ O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by order of first appeal dated 13.06.2025 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 31.03.2014 passed by learned ACIT-2(1), Bhopal [“AO”] u/s 143(3) r.w.s. 147 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2008-09, the assessee has filed this appeal on following ground: “1. That the Learned Commissioner of Income Tax (Appeals) was wrong in holding that the assessee had suppressed an income of Rs. 49,90,000/- by understating the stock in the Balance Sheet as compared to the stock declared to the Bank for availing Cash Credit Limit; when in fact it was Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 2 of 18 proved beyond doubt by producing documentary evidence in support. The Learned Assessing Officer has not pointed out any defect / discrepancy in the evidence produced by the Appellant Assessee nor put forth any document or other evidence on the basis of which he believed that there has been an under-statement of Stocks. This being so the addition made to the returned income deserved to be deleted.” 2. The background facts leading to present appeal are as under: (i) The assessee is a private limited company. For AY 2008-09, the assessee filed return declaring a total income of Rs. Nil which was assessed u/s 143(3) at a total income of Rs. 12,72,540/-. (ii) Subsequently, the AO conducted proceedings of re-assessment u/s 147 through a notice dated 28.03.2013 u/s 148 followed by notices u/s 143(2)/142(1). During such re-assessment proceedings, the AO raised a query to assessee that the closing stock disclosed in assessee’s books as on 31.03.2008 was Rs. 3,22,08,975/- only as against the stock of Rs. 371.49 lakh disclosed to the bank, therefore why the difference between the stock recorded in books and stock disclosed to bank should not be treated as undisclosed income? The assessee filed reply but the AO passed summary order in following words and made addition of Rs. 49,90,000/-: “7. In response the above, the submission of the assessee is found not acceptable. The Apex Court in the case of M/s Swadeshi Cotton mills Vs CIT has held that the difference if any between the stock disclosed to the bank and stock valued in the books of accounts should be treated as income from undisclosed source and added to the income of the assessee. Therefore, the contention of the assessee is not acceptable as per provisions of the Income Tax Act, 1961. Further, the assessee has not furnished any supporting evidences. Therefore, the amount of Rs. 49,90,000/- (371.49 lakh Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 3 of 18 - 322.09 lakh) is treated as income of the assessee and is hereby added to the total income of the assessee for the year under consideration.” (iii) Aggrieved, the assessee carried matter in first-appeal before CIT(A) but did not get any success. (iv) Now, the assessee has come in next appeal before us. 3. Before us, Ld. AR for assessee firstly submitted that the assessee is a company who accounts have been audited under the provisions of Companies Act, 1956 as well as Income-tax Act, 1961. That, the closing stock of assessee was valued and recorded in audited books at the correct figure of Rs. 322.09 lacs. However, the AO has relied upon a Statement of “Selected Operational Data as on 31.03.08” submitted by assessee to bank on 10.04.2008, copy of such Statement is placed at pages 19-24 of Paper- Book and Ld. AR invited our attention to same. In the Statement so filed, the assessee gave estimated/raw figure of closing stock as on 31.03.2008 at Rs. 371.49 lacs. Therefore, the AO just computed the differential of two figures i.e. the difference of figure of closing stock reported by assessee in aforesaid Statement to bank and the figure of closing stock recorded in assessee’s Balance-Sheet at Rs. 49,90,000/- [Rs. 371.49 lacs (-) Rs. 322.09 lacs] and treated the same as income of assessee. But the impugned Statement submitted by assessee to bank, contained raw/estimated data only which is very clear from following undisputable facts: Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 4 of 18 (i) The Statement was filed to bank on 10.04.2008 within 10 days after close of the year ended 31.03.2008 just to meet the requirement of bank. Finalisation of accounts and accurate working of figures within such short period was impracticable. (ii) The assessee has given not only estimated/raw figure of Closing stock but also estimated/raw figures of Sales, Sundry debtors and Sundry creditors also in the very same Statement. There are differences in all figures reported in the Statement vis-à-vis the final figures recorded in audited Balance-Sheet of assessee. To show this fact, Ld. AR referred various pages of Paper-Book as under: Paper- Book Pages Item Amount reported in statement (in lacs) Amount recorded in audited accounts (in lacs) 21, 30 Closing stock 371.49 322.09 20, 31, 38 Sales for the year 451.02 843.25 20, 30 Book debts (i.e. sundry debtors) 5.05 321.60 20, 30, 37 Sundry creditors 1.50 90.28 Therefore, there are variations in all data supplied by assessee to bank. Ld. AR also narrated two-fold reasons of these variations, namely (i) the assessee supplied estimated/raw data to bank within just 10 days after close of the financial year, and (ii) the business of assessee is such that it is executing work-contracts of Govt. at sites and there remained work done/completed at the year-end on Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 5 of 18 31.03.2008 for which the bills were approved by Govt. authorities after year-end. The revenue from those bills had to be recognized in current financial year 2007-08 at the time of finalization of accounts since the assessee follows mercantile method of accounting. This is clearly visible from the fact that the Sales and Book debts recorded in Balance-Sheet are much higher than the corresponding figures of Sales and Book debts reported in the Statement submitted to bank. The assessee also furnished a detailed reply dated 28.03.2014 to AO explaining this modus operandi of assessee’s business and accounting, copy of assessee’s letter is available Pages 88-90 of Paper-Book. Hence, after submission of Statement to bank, there were changes in all figures of Sales, Sundry Debtors, Sundry Creditors and not only of Closing stock. (iii) In so far as the particular item of Closing stock picked by Ld. AO is concerned, it is a fact that the assessee is engaged in the business of execution of contracts at multiple locations which are far from assessee’s place. Further, the assessee’ stock does not have 100% accurately countable or measurable commodities, there is always an estimation involved. A bare look of the Statement submitted to bank shows that the assessee has given quantities in round figures of 3 tons, 40 tons, 1 ton, etc. Furthermore, there is a component of work- in-process also. Therefore, the figure of Closing stock given in the Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 6 of 18 Statement furnished to bank was an estimated/raw figure only; that was neither 100% accurate nor conclusive. (iv) That the AO has passed a summary order without giving his independent observations on the submission of assessee. The AO has simply quoted the decision of Swadeshi Cotton. That decision itself was rendered in a situation where the goods/stock was “pledged” to the bank whereas in present case, there was no pledge of stock by assessee. Hence, the Ld. AO’s reliance on Swadeshi Cotton is mis- placed. Ld. To demonstrate this very clearly, Ld. AR relied upon Commissioner of Income-tax Vs. Khan And Sirohi Steel rolling Mills (2006) 200 CTR (All) 595 which has dealt the case of Swadeshi Cotton in following words: “5. The ITO asked the assessee to get certificate from the bank regarding the loan outstanding as well as the security furnished. The assessee filed a letter dt. 15th 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. 19th Feb., 1979. The assessee also produced copy of the stock statement which was given to the bank on 19th Feb., 1979. It has been found by the CIT(A) that the goods hypothecated to the State Bank of India were the properties of the assessee which were purchased by them against the full payment. The goods were valued according to the market rate and were fully insured. The Tribunal observed that wrong declaration of the stock to the bank could not warrant any addition. 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 point out any defect in the trading account of the assessee and the books of account maintained by it which has also been accepted by the Central Excise Department as well as by the Sales-tax Department and could not be disbelieved. The Tribunal has placed reliance on the following cases : 1. India Motor Parts & Accessories (P) Ltd. v. CIT . 2. CIT v. Ram Krishna Mills (Coimbatore) Ltd. (1974) 93 ITR 49 (Mad). 3. Coimbatore Spinning & Weaving Company Ltd. v. CIT Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 7 of 18 4. Gaindamal Handa & Sons v. CIT (1980) 18 CTR (P&H) 210 5. Swadeshi Cotton Company Ltd. v. CIT. 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 (supra), the goods pledged with the bank were higher than the book stock. The ITO, therefore, rejected the book results 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 inflated the value and quantity of the stocks in the bank declaration to obtain a number of drafts from the bank. This explanation was accepted by the Tribunal. The matter came up before this Court and it was held that Tribunal's decision was correct. 7. The Tribunal has also found that there was actually no verification of the stock made by any bank official. The learned standing counsel could not point out any contrary decision to show that a practice to inflate 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 been accepted by the Tribunal, we do not find any error in the order of the Tribunal.” (v) Ld. AR placed reliance on Commissioner of Income-tax Vs. Riddhi Steel and Tubes (P) Ltd. (2013) 40 taxmann.com 177 (Gujrat). 4. Secondly, Ld. AR submitted that the AO has adopted valuation of closing stock as on 31.03.2008 at Rs. 371.49 lacs and thereby made impugned addition of Rs. 49.90 lacs in current financial year 2007-08’s income. But, however, the AO has not given corresponding effect in the opening stock as on 01.04.2008 of next financial year 2008-09. He submitted that if the closing stock of current year is revised/increased, the corresponding effect on opening stock of next year shall be necessarily given and the revenue/DR cannot dispute this proposition. Having said so, Ld. AR pointed out that the assessee-company has declared net profit of Rs. 22,72,467/- and Rs. 71,08,993/- in current year and next year respectively Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 8 of 18 and also paid tax @ 30% + Surcharge in both years. Therefore, the exercise of increasing closing stock of current year and giving corresponding effect on opening stock of next year, shall be revenue neutral since it would not yield additional tax to department. Ld. AR filed a Written-Synopsis in support of is stand; the same is scanned and re-produced below: Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 9 of 18 Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 10 of 18 Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 11 of 18 Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 12 of 18 5. Per contra, Ld. DR for revenue defended the orders of lower- authorities by making following contentions: (i) It is submitted that the assessee has given Certifications in the aforesaid Statement filed to bank. In those Certifications, the assessee has declared that the information supplied was true and correct. Therefore, it cannot be said that the Statement given by assessee does not include an accurate or correct figure of closing stock. (ii) Reliance is placed on the decisions cited by Ld. CIT(A) in impugned order. Further reliance is placed on following decisions: (a) Suraj Bhan Oil (P) Ltd. Vs. DCIT (2022) 138 taxmann.com 19 (Madhya Pradesh) (b) Coimbatore Spinning & Weaving Co. Ltd. Vs. CIT (1974) 95 ITR 375 (Mad) (c) B.T. Steels Ltd. Vs. CIT (2011) 196 Taxman 363 (Punjab & Haryana) (d) Dhansiram Agarwalla Vs. CIT (1993) 201 ITR 192 (Gauhati) 6. In so far as the issue raised by Ld. AR for giving corresponding effect on opening stock of next year and thereby it becoming a revenue-neutral exercise, Ld. DR left this issue to the wisdom of bench. Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 13 of 18 7. In re-joinder, Ld. AR submitted that the case laws cited by Ld. CIT(A) and those quoted by Ld. DR are applicable to the situations where goods/stock was “pledged” to bank which is not the case of present assessee. Furthermore, every decision has its own facts. Therefore, those decisions do not apply. In present case of assessee, all financial figures submitted to bank, namely Sales, Sundry debtors, Sundry creditors and Closing stock are at variance from the audited accounts and the assessee has given a sufficient explanation to demonstrate that all data/figures furnished to bank were estimated/raw only and such explanation of assessee is very much credible and must be accepted. 8. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. We have also considered the judicial decisions cited by both sides. The sole issue for our adjudication is whether the difference between the closing stock of Rs. 371.49 lakh reported by assessee to bank and the closing stock of Rs. 322.09 lakh recorded in audited books can be treated as undisclosed income of assessee in the facts of assessee’s case. We present below our analysis and adjudication: (i) It is an undisputed fact that the assessee furnished a Statement titled “Selected Operational Data as on 31.03.2008” to its banker on 10.04.2008, i.e., within 10 days of the close of financial year. The said Statement contained figures of closing stock, sales, sundry debtors Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 14 of 18 and sundry creditors. It is also not disputed that all these figures materially differ from the figures finally recorded in audited books of account. Thus, the discrepancy is not confined merely to closing stock; rather, the entire data furnished to bank was provisional in nature and subsequently replaced by audited figures at the time of finalisation of accounts. This factual position has not been rebutted by Revenue with any contrary material. (ii) We further find merit in the explanation of assessee that its business consists of execution of Government contracts at multiple sites and includes work-in-process and items not susceptible to precise measurement. The Statement furnished to bank itself reflects rounded quantities, indicating estimation. It is therefore plausible that the stock figure furnished immediately after year-end was only a rough estimate for banking purpose. The AO has not pointed out any defect in books of account, stock records or method of valuation adopted by assessee in audited accounts nor he has rejected the books of account. In absence of any adverse finding against audited accounts, the closing stock recorded therein cannot be disregarded merely on the basis of a Statement furnished to bank which contained estimated/raw data. (iii) The AO has relied upon the decision in Swadeshi Cotton (supra). However, that decision pertained to a case of “pledged” stock where Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 15 of 18 higher stock was actually available as security with bank. In present case of assessee, there is no finding of pledge of stock or physical verification by bank; rather the position is of hypothecation based solely on assessee’s declaration. The Hon’ble Gujrat High Court has accepted in Riddhi Steel and Tubes (supra) that the stock statements furnished to banks may contain estimated or inflated figures for credit purposes and cannot, by themselves, justify addition unless books are shown to be unreliable. This decision support the case of assessee. (iv) The decisions relied upon by Ld. DR are distinguishable on facts and do not advance the case of Revenue: (a) Suraj Bhan Oil (P) Ltd. Vs. DCIT (2022) 138 taxmann.com 19 (Madhya Pradesh) – In this case, the difference in stock was as high as Rs 2.71 crore. Further, the AO found difference in the quantity of stock reported to bank and books of account and sought explanation from assessee to reconcile such quantity- difference but the assessee was unable to explain same. Thus, it was a case of deliberate inflation by assessee. The Hon’ble court also considered a practice of declaring higher stock to the bank as ‘commercial immorality’. (b) Coimbatore Spinning & Weaving Co. Ltd. Vs. CIT (1974) 95 ITR 375 (Mad) – In this case, the assessee accepted that the Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 16 of 18 figure submitted to bank was “inflated” in order to get higher overdraft facility. The Hon’ble Court considered this as a “sub- standard morality” of assessee. (c) B.T. Steels Ltd. Vs. CIT (2011) 196 Taxman 363 (Punjab & Haryana) – In this case, the bank officials made a physical verification of stock and confirmed the existence of higher stock declared in the statement. (d) Dhansiram Agarwalla Vs. CIT (1993) 201 ITR 192 (Gauhati) – This case basically deals with validity of re-opening u/s 147 on the basis of higher stock declared in bank statement and does not deal merit of the issue. Further, this case deals a situation of stock “pledged” by assessee to bank. However, in present case of assessee, none of these features exist. The variations are not confined to closing stock alone but extend to all financial figures furnished in the same Statement, showing that the entire data supplied to bank was provisional. The assessee’s stock includes work-in-process and items not capable of exact measurement and the quantities reported to bank are themselves rounded estimates. The AO has neither alleged nor established existence of higher physical quantity of stock with assessee, nor is there any finding of pledge or physical verification by bank. The difference in stock is Rs. 49.90 lacs as compared to the actual stock of Rs. 322.09 lacs which is Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 17 of 18 comparatively modest and reasonably attributable to estimation. It is also not the Revenue’s case that assessee consciously declared higher stock to bank; hence the elements of “commercial immorality” or “sub- standard morality” noted in certain precedents are absent. Accordingly, the case laws relied upon by Revenue are clearly distinguishable. 9. Therefore, the AO was not justified in adopting the stock figure reported to bank in preference to the audited books and in making addition of Rs. 49,90,000/-. The addition is devoid of factual and legal basis and is therefore directed to be deleted. 10. We also find sufficient merit in the second contention raised by Ld. AR that if the valuation of closing stock as on 31.03.2008 at Rs. 371.49 lacs and the consequential addition of Rs. 49.90 lacs in the income of current financial year 2007-08 as made by AO is accepted, the AO would necessarily be required to give corresponding effect in the opening stock as on 01.04.2008 of the immediately next financial year 2008-09, which would then reduce the taxable income of the next year by the same amount of Rs. 49.90 lacs. The Ld. AR has pointed out that the assessee-company has declared positive taxable income in both the current year and the next year and paid tax @ 30% plus surcharge in both years. When this is so, the entire exercise of increasing the closing stock of the current year would become revenue-neutral as it would not yield any additional tax to the Printed from counselvise.com Narmada Transmission Pvt. Ltd. ITA No. 579/Ind/2025 – AY 2008-09 Page 18 of 18 Department. Such an exercise deserves to be avoided in view of various judicial decisions relied upon by Ld. AR in the written synopsis reproduced above. Viewed from this angle also, the addition of Rs. 49.90 lacs made by AO in the income of the year under consideration does not deserve to be sustained. 11. Resultantly, this appeal is allowed. Order pronounced in open court on 27/02/2026 Sd/- Sd/- (PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 27/02/2026 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order E COPYsTHE Senior Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore Printed from counselvise.com "