CIT Vs. SATYA NARAIN MAHESHWARI

JUDGEMENT

(1.) INSTANT appeal has been filed by the Revenue under section 260A of the Income Tax Act against the order dt. 19 -3 -2010 passed by the Tribunal, Jaipur Bench upholding deletion regarding additions made under section 69B of the Income Tax Act.

(2.) THE return of income was filed by the assessee on 18 -10 -2006. The case was selected for scrutiny as per clause 2(r) of the norms prescribed in the Action Plan for financial year 2006 -07 for non' corporate assessee. However, under section 143(3) in the course of assessment proceedings, assessing officer obtained the stock assessment for the period ending 31 -3 -2006 submitted by the assessee to the Punjab National Bank, Bundi and after comparison with the stock as reflected in the balance sheet as on 31 -3 -2006 noticed difference between the closing stock shown in the balance sheet and the stock submitted to the bank and being not satisfied with the explanation submitted by the assessee regarding closing stock price and observed that stock of rice shown in the stock statement given to the bank was taken as stock with the assessee as on 31 -3 -2006 as against shown by the assessee in the balance sheet and consequently difference of the two was held to be not recorded in the books of account by the assessee and investment therein has been made out of his undisclosed income and accordingly difference of the two was added in the total income of the assessee under section 69B of the Income Tax Act, 1961.

(3.) IT was challenged by the assessee in appeal before the Commissioner (Appeals) and claimed that he is maintaining records to justify its stock and the assessing officer accepted all the books of accounts and has not found any defect in the books and as there was no mistake in taking the stock which was reflected as on 31 -3 -2006. His further explanation was that the assessee has taken credit facility in the form of working capital limit from the bank and the periodical stock statement was submitted to the bank as required and this being hypothecation limit and based on the stock available with the bank, the bank is allowing the credit facility after having certain margin and the stock statement given to the bank mentioning the quantity of paddy and rice Basmati and this stock statement was prepared before booking the sale for the rice lying with the other parties (called or sale) and this being a system of nature of trade of sending goods to some parties (agents). The goods are in their go down and which they sale periodically and the assessee gets advances from them and when they get sale details (sale Patti), the sale is booked and the stock is accordingly reduced and apart from practice being followed it was claimed that during the financial year, quantity of rice stock was lying with M/s. Rajendra Kumar Mohan Lal and Co., Pune as on 31 -3 -2006 in the stock statement which was given to the bank, therefore, that stock included the stock lying with that party but before audit and after 31st March when the assessee received the sale Patti from that party and the amount which was shown as stock was booked in the sale and the stock was reduced accordingly and the practice followed by the assessee was supported and approved by certain High Courts of which reference has been made by the Commissioner (Appeals) and taking note thereof, the Commissioner (Appeals) in its detailed judgment observed that the process of writing accounts and preparing balance sheet and P and L a/c therefrom is an elaborate and rigorous process and such books of accounts are liable to inspection by sales -tax and VAT systems and there are different levels of scrutiny to ensure correctness and completeness of the books of accounts. As against this, the process of stock taking for the purpose of hypothecation of stock with the bank is a relatively loose process and the bank very broadly aims at mitigating its risk by ensuring that sufficient securities are available, including stock -in -trade and without any evidence to the contrary, the balance sheet and P and L a/c have to be relied upon rather than the statement of stock submitted to the bank for hypothecation purpose and there was nothing on record and no finding was brought on record which could establish the existence of excess physical stock of rice which could corroborate the statement of stock given to the bank and after recording its full satisfaction accepted the explanation furnished by the assessee and held that the addition made by the assessing officer treating it as unexplained and undisclosed investment in stocks under section 69B of the Income Tax Act deserves deletion and against which the Revenue came before the Tribunal and the grievance raised by the Revenue was that the Commissioner (Appeals) has erred in deleting the addition made by the assessing officer on account of unexplained/undisclosed stock under section 69B of the Act.