Commissioner Of Income Tax,Chennai v. Shaik Usman Ali

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.01.2016 CORAM: THE HONOURABLE MR.JUSTICE M.JAICHANDRENANDTHE HONOURABLE MRS.JUSTICE S.VIMALA Commissioner of Income Tax,Chennai.... Appellant/Appellant vs. Shaik Usman Ali,No.19, Vannier Street,Chennai – 600 001.... Respondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, as against the order of the Income Tax AppellateTribunal,Madras'B'Bench,dated27.11.2013,inI.T.A.No.372/Mds/2013 against the order passed by theCommissioner of Income Tax(Appeal) IX, on 27.11.12 made in ITANo.185/11-12, for the Assessment Year 2002-03, which was filedagainst the order of the Assistant Commissioner of Income Tax,Business Circle, IX, Chennai, dated 29.12.11 made in PAN/GIR.No.ABQPS2245 G For Appellant :Mr.M.SwaminathanAsst. by Mr.K.Suresh KumarFor Respondent :Mr.T.N.SeetharamanJ U D G M E N T The Assessee is the proprietor of M/s.Shah Sanitary Stores,Chennai. For the impugned Assessment Year (2002-2003), theAssessing Officer completed the 'scrutinity' assessment, byorder dated 30.12.2009. During the course of scrutinity, theAssessing Officer found that the declared stock before the Bank(for availing cash credit facility) was Rs.7,23,98,153/- andthat it did not match with the stock enlisted in the booksmaintained by the Assessee. There was a difference to theextent of Rs.4,81,53,843/-. This resulted in making of theaddition of stock in assessee's income. https://hcservices.ecourts.gov.in/hcservices/ 2. Aggrieved over the same, the Assessee preferred an appealbefore the Commissioner of Income Tax (Appeals), and the appealwas allowed on 18.03.2010. Challenging the same, the Revenuepreferred an appeal and the co-ordinate bench of the Tribunalremanded the issue back to the Assessing Officer. The AssessingOfficer could not find any evidence to come to the conclusionthat the actual stock of the Assessee was more than the bookvalue, but, relied upon the fact that the assessee himself haddeclared stock of Rs.7,23,98,153/- and held that the differencehas to be added in the assessee's total income. 3. The Assessee once again filed an appeal before theCommissioner of Income Tax(Appeals) and the CIT(A) allowed theappeal and ordered deletion of the above addition. Aggrievedover the same, the Revenue filed an appeal before the Income TaxAppellate Tribunal. The Tribunal held that once the declarationof stock by the assessee to the Sales Tax Authorities has beenaccepted as such and the same also tallied with the book value,it is binding on the Income Tax authorities also and therefore,the CIT(A) is right in deleting the addition made. 4. Challenging the same, the Revenue is on appeal beforethis Court. This Appeal has been admitted, on the followingsubstantial questions of law: (i) Whether under the facts and circumstances of the case,the Tribunal was right in upholding the order of theCommissioner of Income Tax (Appeals) directing the AssessingOfficer to delete the addition made towards difference inclosing stock? (ii) Whether under the facts and circumstances of the case,the Tribunal was correct in holding that the stock valuationaccepted by the Sales Tax Authority is binding on the income taxauthorities? 5. It is the case of the revenue that the stock statementfurnished by the assessee to the Bank, at the time of availingloan facility, must be accepted as correct and that the assesseecannot be permitted to go back on the stock statement as itwould amount to recognizing bad morality on the part of theassessee. (i) Whether under the facts and circumstances of the case,the Tribunal was right in upholding the order of theCommissioner of Income Tax (Appeals) directing the AssessingOfficer to delete the addition made towards difference inclosing stock? (ii) Whether under the facts and circumstances of the case,the Tribunal was correct in holding that the stock valuationaccepted by the Sales Tax Authority is binding on the income taxauthorities? 5. It is the case of the revenue that the stock statementfurnished by the assessee to the Bank, at the time of availingloan facility, must be accepted as correct and that the assesseecannot be permitted to go back on the stock statement as itwould amount to recognizing bad morality on the part of theassessee. 5.1. This issue has been answered in the decision of theHon'ble Apex Court in the case of T.A.Qureshi vs. CIT (287 ITR547), wherein, it has been held that cases are to be decided bythe Court on legal principles and not on one's own moral views.The Tribunal has also relied upon a decision reported in 26 ITR159 (Pandit Bros. vs. CIT), wherein, it was held that, the factthat profit appeared too low or that no stock register wasHon'ble Apex Court in the case of T.A.Qureshi vs. CIT (287 ITR547), wherein, it has been held that cases are to be decided bythe Court on legal principles and not on one's own moral views.The Tribunal has also relied upon a decision reported in 26 ITR159 (Pandit Bros. vs. CIT), wherein, it was held that, the factthat profit appeared too low or that no stock register was https://hcservices.ecourts.gov.in/hcservices/ maintained would not be sufficient material to reject the booksof account; these would only be material for provoking furtherenquiry; the Income Tax Officer must discover other materialsand evidence to come to such conclusion. 5.2. When the books of account is good enough for provokingfurther enquiry and not liable to be rejected on moral views, isthere any other way by which the authenticity of the books ofaccount can be checked/counter checked, is the issue to bedecided. 5.3. The comparitive analysis and merits of the books ofaccount/stock record, the declaration of stock submitted to theRevenue Authorities/Bank Authorities came to be considered inthe decision reported in Shri Mitesh Dugar vs. Income TaxOfficer and the relevant observation therein reads as under: “Upon a careful consideration of the issue, wefind that the authorities below have not detected anymistake or omission in the books of accounts or stockrecords of the assessee. It is also not the case thatbank authorities have verified the assessee's stock inrelation to the position as at the close of the year.Under such circumstances, as expounded by the Hon'blejurisdictional High Court in the case of CIT vs.N.Swamy 241 ITR 363, the burden was upon Revenue toprove that the stock submitted to the Revenueauthorities was erroneous. This burden could not bedischarged by merely referring to the statement of theassessee to third parties. Under the circumstancesand respectfully following the precedent, we set asidethe orders of authorities below and decide the issuein favour of the assessee.” 5.4. In the said decision, it has been pointed out theauthorities did not find any mistake or omission in the books ofaccount of the assessee. Apart from that, the Bank authoritiesdid not claim that they actually verified the assessee's stock.Therefore, the burden shifited on the revenue to prove that thestock statement submitted to the Sales Tax authorities waserroneous. There was no proof available for revenue to show thatsuch statement to Sales Tax Authorities was wrong. Under suchcircumstances, the assessee contends that the inflated reportingof stock to the Bank should not be accepted, since the inflatedstatement was for the purpose of obtaining more cash creditfacility. 5.4. In the said decision, it has been pointed out theauthorities did not find any mistake or omission in the books ofaccount of the assessee. Apart from that, the Bank authoritiesdid not claim that they actually verified the assessee's stock.Therefore, the burden shifited on the revenue to prove that thestock statement submitted to the Sales Tax authorities waserroneous. There was no proof available for revenue to show thatsuch statement to Sales Tax Authorities was wrong. Under suchcircumstances, the assessee contends that the inflated reportingof stock to the Bank should not be accepted, since the inflatedstatement was for the purpose of obtaining more cash creditfacility. 5.5. Which out of the two authorities, whether the BankAuthorities or the Sales Tax Authorities would have been moreinterested in ascertaining the actual/exact stock maintained bythe assessee. The Bank authorities are interested only to theextent of having the stock as security for the purpose of realizing the loan. On the other hand, the Sales Tax authoritiesare interested more in collecting the tax than in permittingevasion of tax. The Sales Tax Authorities, functioning underthe statute, specially interested/empowered in collecting theexact amount of tax, would have been more professional inassessing the stock than the Bank authorities, who are merelyinterested in the overall value of the asset of the assesseeonly to ensure that there is enough security for the loan. Onthis score also, the stock value as accepted by the Sales Taxauthorities should be given more credence. If one branch of theofficials collecting tax do not accept the valuation by theother branch of the officials collecting tax, then there is nosanctity to the statutory functioning of which there is apresumption attached to the genuiness. Therefore, thecontention that the valuation made by the Sales Tax Authoritieswould not be accepted by the Income Tax Authorities does notstand to reason. 6. It is the case of the Assessee that the closing stockdeclared by the Assessee and accepted by the Commercial TaxDepartment has been rightly accepted by the Income TaxDepartment (the Assessing Officer) and therefore, theconfirmation of the same by the Income Tax Appellate Tribunalhas to be upheld. 7. The learned counsel for the Assessee has brought to thenotice of this Court the decision rendered by this Court inT.C.A.No.1526 of 2007, dated 25.02.2015, relating to the sameassessee (for the Assessment year 2001-2002), whereunder,relying upon the decision reported in 2013 (352) ITR 484 (Mad)(Commissioner of Income Tax vs. Sakuntala Devi, Khetan), it hasbeen held that the Assessing Officer has to adopt the figuresand turn over finally assessed by the Sales Tax Authorities.This decision is binding upon the Revenue. Therefore, thecontention of the Revenue that it has powers to tinker with thestock estimated by the Sales Tax Authorities cannot be accepted.Therefore, the appeal filed by the Revenue fails. 8. In the result, the appeal is dismissed. The order of theIncome Tax Appellate Tribunal passed in ITA No.372/Mds/2013,dated 27.11.2013 stands confirmed. No Costs. Sd/- Assistant Registrar(CS III) Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 'B' Bench, Chennai. 2. The Commissioner of Income Tax (Appeal) IX, 121, Mahatma Gandhi road, Chennai-34 Chennai-34 3. The Assistant Commissioner of Income Tax, Business Circle IX, Chennai. Business Circle IX, Chennai. +1cc to Mr.T.N.Seetharaman, Advocate, S.R.No.2532 +1cc to Mr.M.Swaminathan, Advocate, S.R.No.2533 T.C.A.No.910 of 2014 ctk(CO)srg(15/02/2016)