Commissioner Of Income Tax Chennai v. M/S.apcom Computers (P) Ltd. Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17.10.2006 Coram : THE HONOURABLE MR.JUSTICE R. BALASUBRAMANIAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.4 of 2004 Commissioner of Income TaxChennai. ..Appellant VsM/s.Apcom Computers (P) Ltd.Chennai ..Respondent Appeal under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras,'C' Bench, dated 9.5.2003 in I.T.A. No.2693/Mds/94 for theassessment year 1991-92. against the order of the Commissionerof Income Tax Appeals III Madras dated 04.10.1994 and made inAppeal No. 70/93-94 for the Assessment year 1991-92 against theorder of the Deputy Commissioner of Income tax Special RAnge IIIMadras 34 dated 24.12.1993 and made in G1/PA NO. 47-066-CY-3778for the Assessment year 1991-1992 For Appellant : Mr.J.Naresh Kumar The present appeal is filed under Section 260A of theIncome Tax Act, 1961 by the revenue, in I.T.A. No.2693/Mds/94against the order passed by the Income Tax Appellate Tribunal,Madras, 'C' Bench for the assessment year 1991-92. When thematter came up for hearing on 19.1.2004, this court admitted thecase formulating the following substantial questions of law. https://hcservices.ecourts.gov.in/hcservices/ "(1) Whether in the facts and circumstancesof the case, the Tribunal was right indeleting the addition made to the closingstock, in respect of the difference betweenvalue of the stock reported to the bank andthe income tax return? (2) Whether in the facts and circumstancesof the case, the Tribunal was right inholding that the value of stock as reportedby the assessee to its bank cannot be addedto the value of the closing stock? (3) Whether in the facts and circumstancesof the case, the Tribunal was right inholding that the assessee can adopt onestock value for the bank purpose and other for the income tax purpose." 2.The brief facts leading to the above questions of laware as under: The assessee is a Private Limited Company. The assesseederives income from manufacture of tape back up units forpersonal computers and computers. The relevant assessment year1991-92 and the corresponding accounting year ended on31.3.1991. The assessee filed Return of income on 19.12.1991disclosing a total income of Rs.11,62,170/-. Later Return wasprocessed under Section 143(1)(a) of the Income-tax Act(hereinafter referred to as the "Act") determining the totalincome at Rs.16,29,408/-. Subsequently, notice under Section143(2) of the Act, was issued. The Assessing Officer completedthe assessment under Section 143(3) and determined the totalincome at Rs.16,46,620/-. While completing the assessment, theAssessing Officer made an addition to the closing stock atRs.6,16,950/- being the difference in value of the stockdisclosed to the bank and disclosed in the accounts for thepurpose of Income-tax Assessment. Aggrieved by the order, theassessee filed an appeal before the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax (Appeals) allowed theappeal and set aside the order of the Assessing Officer.Aggrieved by that order, the Revenue filed an appeal to theIncome Tax Appellate Tribunal (hereinafter referred to as the"Tribunal"). The Tribunal dismissed the appeal filed by theRevenue and confirmed the order of the C.I.T.(A). 3.Learned Standing Counsel appearing for the Revenue,submitted that the assessee had, in order to obtain higher loanfacilities, inflated its stock figure in the statement given tothe bank and hence the statement should be accepted. Hence theAssessing Officer is right in adding the difference between the two figures to the total income of the assessee. 3.Learned Standing Counsel appearing for the Revenue,submitted that the assessee had, in order to obtain higher loanfacilities, inflated its stock figure in the statement given tothe bank and hence the statement should be accepted. Hence theAssessing Officer is right in adding the difference between the two figures to the total income of the assessee. 4.Learned counsel appearing for the assessee submittedthat for the purpose of bank loan, stock statement was given onestimate basis. The assessee maintained day to day accounts onproduction and the declared closing stock for assessmentpurpose, was based on actual physical verification. Hence, theestimated value of the stock given to the bank cannot be takenas the correct value of stock. 5.Heard the counsel. Any addition on account ofdifference in stock can be made only on adequate materials, butnot arbitrarily. Admittedly, there was a difference between thevalue of closing stock declared to the bank and to the Income-tax authorities. There is no dispute that the assessee wasmaintaining books of account on day to day production. Theassessee, in the present case, has taken the actual physicalstock for the purpose of declaring closing stock to the Income-tax authorities. Further the purchases and sales were supportedby vouchers and the Assessing Officer had not pointed out anysuppression of sales or purchases. There was a finding by theauthorities below that the statement given to the bank was onestimate basis without any actual physical verification and thesame was not supported by books of account. We find there isevidence to show that stock declared to the Income-taxDepartment was supported by books of account. No detailedinventory was also available in the statement made to the bank.Except a mere value declared for overdraft purposes to the bank,there were no detailed items of stocks in support of thedeclared value. It was also pointed out that there was nophysical verification of stock, either by the assessee or thebank at the time of furnishing the stock statement. TheTribunal as well as C.I.T.(A) given a concurrent finding thatthe assessee declared closing stock for assessment purpose whichis based on actual physical verification. There is enoughmaterials available on record and the conclusion reached by theTribunal is based on valid materials and evidence. In view ofthe same, there is no basis to treat the difference in value asthe assessee's under-valuation of stock or undisclosed income.The Tribunal also rightly followed the principles enunciated bythis Court judgment reported in 236 ITR 340 in the case of CITVs. SRI PADMAVATHY COTTON MILLS LTD. 6.In view of the foregoing reasons, we are of the viewthat there is no error or legal infirmity in the order of theTribunal so as to warrant interference. Hence, we answer thequestions of law in favour of the assessee and against theRevenue and the tax case is dismissed. No costs. Tr/km Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To1. THE INCOME TAX APPELLATETRIBUNALC BENCHCHENNAI 2. THE COMMISSIONER OFINCOME TAX APPEALS IIIMADRAS - 34 3. THE DEPUTY COMMISSIONEROF INCOME TAX SPECIAL RANGE IIIMADRAS 34 4. THE COMMISSIONER OFINCOME TAX, CHENNAI 5. THE ASSISTANT REGISTRARINCOME TAX APPELLATE TRIBUNALRAJAJI BHAVAN III FLOORBESANT NAGARCHENNAI 90 SR (CO)NM(27.11.2006) Tax Case (Appeal) No.4 of 2004