COMMISSIONER OF INCOME TAX Vs. CHEMMEENS

JUDGEMENT

(1.) THESE are connected cases. Income-tax Reference No. 100 of 1986 and Income-tax Reference No. 116 of 1989 go together. They relate to the assessment year 1976-77, the accounting year ending December 31, 1973. Income-tax Reference No. 97 of 1989 relates to the assessment year 1978-79, the accounting year ending December 31, 1977. It is at the instance of the Revenue that certain questions of law are referred in all these three cases for the decision of this court by the Income-tax Appellate Tribunal. The common assessee is the respondent in all these cases. All the relevant papers to be looked into for the purpose of deciding these references are contained in the paper book filed in Income-tax Reference No. 100 of 1986. In Income-tax Reference No. 100 of 1986, one question has been referred for the decision of this court by the Income-tax Appellate Tribunal for the assessment year 1976-77. For the same year, as directed by this court, on motion by the Revenue, in O. P. No. 1151 of 1987, the Income-tax Appellate Tribunal has referred two additional questions for the decision of this court and they form the subject-matter of Income-tax Reference No. 116 of 1989. (Relevant papers are in the paper book relating to Income-tax Reference No. 100 of 1986). In Income-tax Reference No. 97 of 1989, only one question has been referred by the Income-tax Appellate Tribunal for the decision of this court, at the instance of the Revenue.

(2.) THE questions referred to in Income-tax Reference No. 100 of 1986 and Income-tax Reference No. 116 of 1989, on the one hand (for the assessment year 1976-77), and the sole question referred to in Income-tax Reference No. 97 of 1989 (for the assessment year 1978-79) are as follows :

(3.) THE more important controversy raised in this batch of cases is covered by the two questions referred to this court in Income-tax Reference No. 116 of 1989 and the sole question in Income-tax Reference No. 97 of 1989. A common aspect arises for consideration therein. THE assessee-firm had obtained various loans from the bank while carrying on its business. THE assessee had filed financial statements before the Income-tax Officer detailing or specifying the value of the closing stock. For example, for the assessment year 1976-77, the assessee had admitted the value of the closing-stock in the statement filed before the Income-tax Officer at Rs. 3,22,062. On enquiry, the Income-tax Officer found that the assessee had declared to the bank the value of the stock as on December 19, 1975, at Rs. 37,74,953 and the closing stock as on December 31, 1975, at Rs. 19,88,145. Admittedly, there was great disparity or variance in the figure furnishing the closing stock to the Department and to the bank. From the very beginning, the assessee pleaded before the Income-tax Officer that, in order to obtain higher loan facilities from the bank, it was in the habit of inflating its stock both in terms of quantity and value. THE assessee's specific plea was that the figures given to the bank did not represent the actual closing stock. THE Income-tax Officer declined to accept the above plea. According to him, the assessee had declared the value of stock as on December 19, 1975, at Rs. 37,74,953, in a statement furnished to the bank. He worked out the closing stock as on December 31, 1975, by taking the stock declared to the bank as on December 19, 1975, at Rs. 37,74,953 and by adding to the same the purchases from December 19, 1975, to December 31, 1975, and after deducting exports during the period and the difference in opening stock as on January 1, 1975, of Rs. 20,10,658. In this process, he arrived at the figure of Rs. 15,87,720 and fixed the said figure as the closing stock of the assessee as on December 31, 1975. THE assessee's closing stock shown to the Department was only Rs. 3,22,062. So, the Income-tax Officer added the difference between Rs. 15,87,720 and Rs. 3,22,062, i.e., Rs. 12,65,658 as the closing stock of the assessee, for the assessment year 1976-77. In appeal, the Commissioner of Income-tax (Appeals) held that there were two types of inflations in stock. One was inflation in the quantity of stock declared to the bank and the other was the inflation in the value as per unit of the stock declared. He held that no addition could be made for the second, i.e., inflation in the value as per unit of the stock declared. Regarding the first type of inflation, the Commissioner of Income-tax (Appeals), after examining the employee of the assessee-firm who was personally present, and the other relevant papers, held that the stock declared to the bank were not true and cannot be acted upon. THE Commissioner of Income-tax (Appeals) categorically held that the inflated figures were shown to the bank only for the purpose of obtaining loans. On the above hypothesis, the first appellate authority--Commissioner of Income-tax (Appeals)--held that there is no justification for making an addition to the income, based on the declaration given to the bank, since the stock declared to the bank was not true and cannot be acted upon. THE matter was taken in appeal by the Revenue on the above aspect and by the assessee on certain other aspects and that is how Income-tax Appeal No. 231/(Coch) of 1982 (filed by the Revenue) and Income-tax Appeal No. 138/(Coch) of 1982 (filed by the assessee)--both for the assessment year 1976-77--were heard together and disposed of by a common order dated April 19, 1985, by the Income-tax Appellate Tribunal. THE Income-tax Appellate Tribunal, after noticing the rival pleas put forward by the Revenue as well as the assessee and after noticing the reasoning and finding of the Commissioner of Income-tax (Appeals), upheld the conclusion of the Commissioner of Income-tax (Appeals) on a different reasoning. THE Appellate Tribunal did not consider as to whether the plea of the assessee that it was in the habit of inflating its stock, both in terms of quantity and value in the statements furnished to the bank and such inflation was so made in order to obtain higher loan facilities, was true and correct. Instead of adjudicating that plea, which was put forward by the assessee from the beginning and substantially accepted by the Commissioner of Income-tax (Appeals), the Appellate Tribunal, on an entirely different reasoning, upheld the conclusion arrived at by the Commissioner of Income-tax (Appeals). According to the Appellate Tribunal, notwithstanding such discrepancies in the statements furnished to the bank and to the Department by the same assessee for the assessment years 1975-76, 1977-78, 1979-80 and 1980-81, the Department had acted and conducted itself in accord with the plea of the assessee and having done so, the Revenue should have adopted the same procedure for all the assessment years and should not single out certain assessment years only. In other words, in evaluating the plea of the assessee that, in order to obtain higher loan facilities from the bank, it was in the habit of inflating the stock and so no sanctity can be given to the stock statement as on December 31, 1975, and in view of the non-demur to the said plea by the Revenue for the year immediately preceding the relevant assessment year and also for subsequent years, the Revenue should have adopted the same procedure for all the assessment years and should not single out certain assessment years only. Briefly stated, the Appellate Tribunal has opined that, in the case of the same assessee, when identical questions come up for consideration for different assessment years, the Revenue should not be permitted or allowed to adopt inconsistent stands. It is on this reasoning that the Tribunal upheld the conclusion of the Commissioner of Income-tax (Appeals) without adjudicating as to whether the plea of the assessee that it furnished an inflated statement to obtain higher credit from the bank was true and tenable in law.