Ita/278/2002 Of The Commissioner Of Income Tax,Calicut v. M/S.kalpaka Bazar,Town Hall Road,Calicut

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 26TH MARCH 2008 / 6TH CHAITHRA 1930 ITA.No. 278 of 2002() --------------------- ITA.756/COCH/1990 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ------------------------------------- THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: RESPONDENT: ------------------------ M/S. KALPAKA BAZAR, TOWN HALL ROAD,CALICUT. BY ADV. SRI.C.KOCHUNNY NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26/03/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR &T.R. RAMACHANDRAN NAIR, JJ. -------------------------------------------- I.T.A. No. 278 OF 2002 -------------------------------------------- Dated this the 26th day of March, 2008 JUDGMENT C.N. Ramachandran Nair,J. Heard counsel appearing for the revenue and counsel appearingfor the assessee. This appeal arises from the order of the Tribunal forthe assessment year 1986-87. Respondent-assessee was engaged intextile business. During search conducted on 17.9.1985 that is duringthe previous year relevant for the assessment year 1986-87, thedepartment noticed stock in excess of accounted quantity. As againstthe accounted stock of the value of about Rs. 30 lakhs the departmentvalued the physical stock noticed on inspection at Rs. 83 lakhs.Consequently assessment was made making addition. On appeal, CIT(Appeals), reduced the addition of closing stock at the end of theprevious year relevant for the assessment year 1985-86 at Rs. 10 lakhs.The Tribunal dismissed the departmental appeal for the year 1985-86.Cross-objection filed by the assessee was also turned down. The appeal filed by the assessee as well as department against the Tribunal'sorder for 1985-86 were dismissed by us. However, in this case theDepartment has filed appeal on the ground that Tribunal was notjustified in deleting the proportionate addition of income attributable tothe sale of unaccounted stock noticed on inspection during the previousyear relevant for the assessment year 1986-87. We find that theaddition sustained by the CIT (Appeals) and confirmed by the Tribunalfor the year 1985-86 at Rs. 10 lakhs is on the closing stock for thatyear. If that be so, the unaccounted stock would have been sold in thesucceeding years. If the assessee does not account profit attributable tosale of excess stock, then obviously addition is called for for the nextassessment year, that is, 1986-87. We do not find any justification forthe CIT (Appeals) or the Tribunal to cancel the addition for theassessment year 1986-87 in full after sustaining addition of Rs. 10lakhs of closing stock for the year 1985-86. The excess closing stocknoticed on inspection only represents investment estimated in the formof purchases and what is to be added is the estimated investment madeover the accounted figure as unexplained expenditure in the form of purchases. Since the assessee has not accounted the sale during theprevious year relevant for the assessment year 1986-87, there is nojustification for acceptance of accounts which is done in the order ofthe CIT (Appeals) and confirmed by the Tribunal. We therefore setaside the order of the Tribunal for the year 1986-87 and remand thematter to the assessing officer to consider whether assessee has offeredincome on excess opening stock noticed after inspection and if not tomake addition attributable to profit on sale of sustained excess closingstock of the previous year carried to this year as opening stock. Theassessing officer is directed to hear the assessee and revise theassessment. Appeal is disposed of as above. (C.N.RAMACHANDRAN NAIR)Judge. (T.R.RAMACHANDRAN NAIR) Judge. kk