Commissioner Of Income Tax,Chennai v. Shri Shaik Usman Ali

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HON'BLE MR.JUSTICE R. MAHADEVANAND THE HON'BLE MR.JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.Nos.103 and 104 of 2014and MP.No.1 of 2014 Commissioner of Income Tax,Chennai ...Appellant in both T.C.As/Appellant Versus Shri Shaik Usman Ali,Prop M/s Shah Sanitary STores,No.B (Old No.19) Vannier Street,Chennai - 600 001. ...Respondent in both T.C.As/Respondent Appeals preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, “A” Bench, dated 08.09.2011 in I.TA.Nos.1149 &1150/Mds/2011 against the order of the Commissioner of IncomeTax (Appeals)-IX, Chennai–34 dated 02.03.2011 and made inITA.No.68 & 67/2010-11 for the Assessment year 2005-2006 and2008-2009 against the order of the Assistant Commissioner ofIncome Tax, Business Circle IX, Chennai dated 31.12.2010 and27.12.2010 and made in PAN/GIR.No. for the Assessmentyear 2005-2006 and 2008-2009. In both T.C.As For Appellants : Mr.M.Swaminathan, Senior Standing Counsel and for Mrs.V.Pushpa, Junior Standing Counsel For Respondents: Mr.R.Kumar for Mr.T.R.Kumaravel COMMON JUDGMENT (Judgment of the Court was delivered by R.MAHADEVAN, J.) These tax case appeals have been filed by the appellant /Revenue, challenging the order dated 08.09.2011 passed by theIncome Tax Appellate Tribunal, Bench 'A', Chennai, inI.TA.Nos.1149 & 1150/Mds/2011, relating to the assessment years2005-06 and 2008-09. 2.By order dated 21.04.2014, this court admitted the presentappeals on the following substantial question of law: “Whether on the facts and in the circumstances ofthe case, the Tribunal is right in holding that theburden of proving excess stock is on the revenue whenthe assessee himself has admitted the availability ofexcess stock and thereby deleting the addition ofinvestment in unexplained stock." 3.The brief facts of the case are that the assessee is adealer in sanitary wares. For the sake of higher loan limit,they were in the habit of furnishing inflated stock. On09.01.2001, a search under section 132 of the Income-tax Act,1961 was conducted in the business premises of the assessee andphysical inventory of stock was taken. During the course ofwhich, no unaccounted excess stock was found. However, theassessing officer added the difference between the real declaredbook stock and inflated stock furnished to the bank and alsoreopened the earlier and subsequent assessments. Ultimately, theassessing officer completed the assessment by making additionsas unexplained investment in stock. Challenging the same, theassessing officer preferred appeals before the CIT(A), who byorder dated 02.03.2011, allowed the appeals. Aggrieved by thesame, the Revenue preferred appeals before the Tribunal, whichdismissed the same, following the earlier order in respect ofthe assessee's own case in ITA No.2013/Mds/2005 for theassessment year 2001-02, relating to addition on the differencebetween stock as per books and stock furnished to the bank.Therefore, the present appeals by the Revenue. 4.The learned counsel for the appellant/Revenue fairlysubmitted that the issue involved herein is covered against theRevenue in view of the judgment dated 25.02.2015 passed by thiscourt in T.C.A.No.1526 of 2007 in respect of the assessee's owncase (ITA No.2013/Mds/2005 for the assessment year 2001-02). Therelevant passage of the said judgment can profitably beextracted below: "8.The primary reason for the Department to file the present appeal stems from the earlier order of the Tribunal in respect of the assessee's owncase for the earlier year, wherein the Tribunal hadremanded the case back to the Assessing Officer.However, in the present case, the appeal has beenallowed and, therefore, no uniformity has beenmaintained. 4.The learned counsel for the appellant/Revenue fairlysubmitted that the issue involved herein is covered against theRevenue in view of the judgment dated 25.02.2015 passed by thiscourt in T.C.A.No.1526 of 2007 in respect of the assessee's owncase (ITA No.2013/Mds/2005 for the assessment year 2001-02). Therelevant passage of the said judgment can profitably beextracted below: "8.The primary reason for the Department to file the present appeal stems from the earlier order of the Tribunal in respect of the assessee's owncase for the earlier year, wherein the Tribunal hadremanded the case back to the Assessing Officer.However, in the present case, the appeal has beenallowed and, therefore, no uniformity has beenmaintained. 9.Though the above plea has been made by theDepartment, this Court is not inclined to entertainthis appeal on the question of law raised at thispoint of time in view of the subsequent decision ofthis Court, which is also on the same issue,rendered in the case of Commissioner of Income Tax –Vs – Smt. Sakuntala Devi Khetan (2013 (352) ITR 484(Mad)), wherein it has been clearly held that theAssessing Officer has to adopt the figures andturnover finally assessed by the sales taxauthorities. Similar issue was also considered inthe case of CIT – Vs - Anandha Metal Corporation(2005 273 ITR 262 (Mad)), and held in favour of theassessee, which decision has been followed by theTribunal in assessee's own case for the earlieryear, wherein the matter was remanded back. In viewof the consistent view of this Court as could befound from the above decisions, this Court is of theconsidered view that the contention of theDepartment has to fail. Accordingly, the substantialquestion of law is answered in favour of theassessee and against the Revenue. 10.In the result, the appeal fails and thesame is dismissed. However, in the circumstances ofthe case, there shall be no order as to costs." 5.The learned counsel for the appellant / Revenue furthersubmitted that the aforesaid judgment was followed by this courtin TCA No.910 of 2014 in respect of the assessee's own caserelating to the assessment year 2002-03 and by judgment dated18.01.2016, the appeal was dismissed against the Revenue and infavour of the assessee. The relevant paragraphs of the saidjudgment are quoted below for ready reference: “5. It is the case of the revenue that the stockstatement furnished by the assessee to the Bank, at thetime of availing loan facility, must be accepted ascorrect and that the assessee cannot be permitted to goback on the stock statement as it would amount torecognizing bad morality on the part of the assessee. 5.1. This issue has been answered in the decisionof the Hon'ble Apex Court in the case of T.A.Qureshivs. CIT (287 ITR 547), wherein, it has been held that https://hcservices.ecourts.gov.in/hcservices/ cases are to be decided by the Court on legalprinciples and not on one's own moral views. TheTribunal has also relied upon a decision reported in 26ITR 159 (Pandit Bros. vs. CIT), wherein, it was heldthat the fact that profit appeared too low or that nostock register was maintained would not be sufficientmaterial to reject the books of account; these wouldonly be material for provoking further enquiry; theIncome Tax Officer must discover other materials andevidence to come to such conclusion. 5.2. When the books of account is good enough forprovoking further enquiry and not liable to be rejectedon moral views, is there any other way by which theauthenticity of the books of account can bechecked/counter checked, is the issue to be decided. 5.3. The comparitive analysis and merits of thebooks of account/stock record, the declaration of stocksubmitted to the Revenue Authorities/Bank Authoritiescame to be considered in the decision reported in ShriMitesh Dugar vs. Income Tax Officer and the relevantobservation therein reads as under: 5.2. When the books of account is good enough forprovoking further enquiry and not liable to be rejectedon moral views, is there any other way by which theauthenticity of the books of account can bechecked/counter checked, is the issue to be decided. 5.3. The comparitive analysis and merits of thebooks of account/stock record, the declaration of stocksubmitted to the Revenue Authorities/Bank Authoritiescame to be considered in the decision reported in ShriMitesh Dugar vs. Income Tax Officer and the relevantobservation therein reads as under: “Upon a careful consideration of the issue,we find that the authorities below have notdetected any mistake or omission in the books ofaccounts or stock records of the assessee. It isalso not the case that bank authorities haveverified the assessee's stock in relation to theposition as at the close of the year. Under suchcircumstances, as expounded by the Hon'blejurisdictional High Court in the case of CIT vs.N.Swamy 241 ITR 363, the burden was upon Revenueto prove that the stock submitted to the Revenueauthorities was erroneous. This burden could notbe discharged by merely referring to thestatement of the assessee to third parties.Under the circumstances and respectfullyfollowing the precedent, we set aside the ordersof 6 authorities below and decide the issue infavour of the assessee.” 5.4.In the said decision, it has been pointed outthe authorities did not find any mistake or omissionin the books of account of the assessee. Apart fromthat, the Bank authorities did not claim that theyactually verified the assessee's stock. Therefore, theburden shifted on the revenue to prove that the stockstatement submitted to the Sales Tax authorities was erroneous. There was no proof available for revenue toshow that such statement to Sales Tax Authorities waswrong. Under such circumstances, the assessee contendsthat the inflated reporting of stock to the Bankshould not be accepted, since the inflated statementwas for the purpose of obtaining more cash creditfacility. 5.5. Which out of the two authorities, whetherthe Bank Authorities or the Sales Tax Authoritieswould have been more interested in ascertaining theactual/exact stock maintained by the assessee. TheBank authorities are interested only to the extent ofhaving the stock as security for the purpose ofrealizing the loan. On the other hand, the Sales Taxauthorities are interested more in 7 collecting thetax than in permitting evasion of tax. The Sales TaxAuthorities, functioning under the statute, speciallyinterested / empowered in collecting the exact amountof tax, would have been more professional in assessingthe stock than the Bank authorities, who are merelyinterested in the overall value of the asset of theassessee only to ensure that there is enough securityfor the loan. On this score also, the stock value asaccepted by the Sales Tax authorities should be givenmore credence. If one branch of the officialscollecting tax do not accept the valuation by theother branch of the officials collecting tax, thenthere is no sanctity to the statutory functioning ofwhich there is a presumption attached to thegenuiness. Therefore, the contention that thevaluation made by the Sales Tax Authorities would notbe accepted by the Income Tax Authorities does notstand to reason. 6.It is the case of the Assessee that the closingstock declared by the Assessee and accepted by theCommercial Tax Department has been rightly accepted bythe Income Tax Department (the Assessing Officer) andtherefore, the confirmation of the same by the IncomeTax Appellate Tribunal has to be upheld. 6.It is the case of the Assessee that the closingstock declared by the Assessee and accepted by theCommercial Tax Department has been rightly accepted bythe Income Tax Department (the Assessing Officer) andtherefore, the confirmation of the same by the IncomeTax Appellate Tribunal has to be upheld. 7.The learned counsel for the Assessee hasbrought to the notice of this Court the decisionrendered by this Court in T.C.A.No.1526 of 2007, dated25.02.2015, relating to the same assessee (for theAssessment year 2001-2002), whereunder, relying uponthe decision reported in 2013 (352) ITR 484 (Mad)(Commissioner of Income Tax vs. Sakuntala Devi,Khetan), it has been held that the Assessing Officer has to adopt the figures and turn over finallyassessed by the Sales Tax Authorities. This decisionis binding upon the Revenue. Therefore, the contentionof the Revenue that it has powers to tinker with thestock estimated by the Sales Tax Authorities cannot beaccepted. Therefore, the appeal filed by the Revenuefails.” 6.In the light of the aforesaid judgments, which aresquarely applicable to the facts of the present case, thesubstantial question of law raised herein is answered againstthe Revenue and in favour of the assessee. Accordingly, the taxcase appeals stand dismissed. No costs. Consequently, connectedmiscellaneous petition is closed. Sd/- Assistant Registrar(CS VII) //True Copy// gba/kas Sub Assistant Registrar To 1. The Commissioner of Income Tax, Chennai2. The Income Tax Appellate Tribunal, Chennai, “A” Bench. 3. The Assistant Commissioner of Income Tax Circle IX, Chennai – 6. 4. The Commissioner of Income Tax (Appeals)-IX, Chennai – 34. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.9482 SSD(CO)RGA(10/03/2022) T.C.A.Nos.103 &104 of 2014