M/S B.t. Steels Ltd v. Commissioner Of Income Tax

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.186 of 2004 Date of decision: 6.10.2010 M/s B.T. Steels Ltd. Vs. Commissioner of Income Tax. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. S.S. Narula, Advocate for the appellant.for the appellant. Mr. Denesh Goyal, Standing Counselfor the revenue. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the assesseeunder Section 260-A of the Income Tax Act, 1961 (for short, “theAct”) against the order dated 30.1.2004 of the Income TaxAppellate Tribunal, Chandigarh in I.T.A. No.16/Chandi/1999 forthe assessment year 1995-96 proposing to raise followingsubstantial questions of law:- “a)Whether the variation between the stockshypothecated with the Bank and the stockshown in the books of accounts empowers theAssessing Officer to invoke the provisions ofSection 69 of the Income Tax Act, 1961 andhypothecated with the Bank and the stockshown in the books of accounts empowers theAssessing Officer to invoke the provisions ofSection 69 of the Income Tax Act, 1961 and make additions of difference in stock asappeared in the books of accounts towardsunexplained investment in the stocks? b) Whether the Assessing Authority was right inequating the hypothecation of stock with that ofpledging of stock when the two situations arenot identical and have separate meaning andthus erred in invoking the provisions of section69 of the Income Tax Act, 1961? c) Whether the order passed by the AssessingOfficer as restored by the learned AppellateTribunal is without jurisdiction and the stockstatement furnished to the Bank in the case ofhypothecation of stock falls within the meaningof investment or expenditure? d)Whether the impugned action of the AssessingAuthority of the learned Appellate Tribunal arenot without jurisdiction and non application ofmind?” 2. The Assessing Officer made additions to the declared income of the assessee on the basis of stock available with it butnot reflected in the books of account. Stock statement ofhypothecated goods furnished to the bank was also at variancewith the stock entered in the books of account. On appeal, theCIT(A) deleted the additions by observing that without verificationfrom the bank, the stock statement furnished to the bank couldnot have been relied upon. On further appeal, the Tribunal set aside the order of CIT(A) and restored that of the AssessingOfficer. The observations made by the Tribunal are as under:- d)Whether the impugned action of the AssessingAuthority of the learned Appellate Tribunal arenot without jurisdiction and non application ofmind?” 2. The Assessing Officer made additions to the declared income of the assessee on the basis of stock available with it butnot reflected in the books of account. Stock statement ofhypothecated goods furnished to the bank was also at variancewith the stock entered in the books of account. On appeal, theCIT(A) deleted the additions by observing that without verificationfrom the bank, the stock statement furnished to the bank couldnot have been relied upon. On further appeal, the Tribunal set aside the order of CIT(A) and restored that of the AssessingOfficer. The observations made by the Tribunal are as under:- “13.The matter has been dealt with by the A.O. inreason No.(i) in the third para at page 4 of theassessment order. It has been mentioned therein,and the ld. CIT(A) does take note thereof, that thebank furnished the photo copies of the proforma forsupervision/follow-up and monitoring of advances inrespect of the visit report to the assessee in respect ofstocks as on 31.12.1994. The bank stated that therecords of the visits to the units of the assessee-company on other dates/occasions during the year1994-95, were not available with them. In theproforma report as on 31.12.1994, it was confirmed bythe Regional Officer of the bank that the assesseewas having stock with it as per the statement given tothe bank. The position of non-availability of records ofthe bank’s visits to the units of the assessee-companyon dates other than 31.12.1994, was reflected in theAO’s report submitted to the ld. CIT(A). The ld. CIT(A) took this fact into consideration in arriving at theconclusion that no adverse inference could be drawnagainst the assessee. However, this does not appearto be a correct conclusion, since the fact giving rise tothis conclusion was taken in isolation from otherclosely related facts, such as that as per the proformareport as on 31.12.1994, the Regional Officer of thebank confirmed the assessee to be having stocks asper the statements given to the bank. Also the signedstatement given to the bank contained the self-samefact so far as regards the quantity of stock with theassessee. It has been nowhere denied that the bankofficers/officials visited the assessee in respect of the stock with it as on 31.12.1994. The very concept ofhypothecation of goods and visits require periodiccheck up by the bank. The fact that the bankadmitted not having the records of visits to theassessee on other dates during the assessment year,could not undermine the value of the report of the visitconducted on 31.12.1994. In fact, this report supportsthe statement of the assessee, to which statement isattached a presumption of truth so far as regards thecontents thereof. The bank authorities found that thestock shown in the stock statement was actually lyingwith the assessee. It was on these facts that the AOconcluded that the assessee had a stock ofconsumable stores valuing Rs.30,72,570/- as on24.8.1994. The ld. CIT(A) has erringly ignored thisattendant position. In view of these glaring facts, anadverse inference does call for to be drawn againstthe assessee and the assessment order cannot begiven a summary go-by in this regard. 14. The other reason recorded by the ld. CIT(A) forarriving at the conclusion that he did is that the AOcould not justify the rejection of the arguments of theassessee that had the stock statement beenconfronted to the Director Shri Bhupinder Singh, hewould have admitted a huge inflation in the value ofconsumable stores as shown to the bank. Thestatement of Shri Bhupinder Singh, director of theassessee-company who looked after the dealings ofthe assessee with the banks, was recorded u/s 131 ofthe Act, on 19.1.1998. The assessment order, atpage 6 thereof, states that vide office letter dated22.12.1997, the assessee was again afforded anopportunity to explain the difference in stock and to state as to why an addition of Rs.28,83,620/- be notmade to its total income, representing theunaccounted investment in the stock as on 24.8.1994;that however, the assessee did not file any reply tothis letter till date (29.1.1998 i.e. the date of passingthe assessment order); and that, therefore, it waspresumed that the assessee had nothing to say asregards the unaccounted investment in stocks as on24.8.1994, more than what had been stated by it videits letter dated 4.11.1997. 15. This factual position remains unrebutted,meaning thereby, that the argument raised by theassessee does not hold water. Otherwise also, thestatement in question was made by a director of theassessee company and that too, a director lookingspecifically after the dealings of the assessee with thebanks. So far as regards the stock statement given tothe bank, that statement, as discussed above, initself, is a signed statement, the contents whereof areduly verified by the deponent. The contents of thatstatement carry a presumption of truth. Rebuttablethough, such presumption may be, it is not the casethat such presumption stands rebutted. The stockstatement, therefore, binds the assessee. Even ifsuch statement were before Shri Bhupinder Singhwitness and Shri Bhupinder Singh, as the assesseetries to make out, “……..would have admitted a hugeinflation in the value of consumable stores as shownto the bank…….” it would have served no purpose.Obviously, therefore, there was no reason for the AOto reject the argument raised by the assessee. Theld. CIT(A) has observed that the AO could not bringon record anything to defend his case. To our mind, in view of the above discussion, there was nothing tobe brought on record by the AO. The facts are selfspeaking. 16. Still further, though the ld. CIT(A) has observedthat there being numerous decisions and the lawbeing settled that the statements given to the bank forhypothecation of stocks are not good evidence unlessit can be proved that stock was actually inspected, nosuch decision forms part of the impugned order.Moreover, it is not a case where the stock was notinspected. The stock being hypothecated with thebank, the bank has to inspect the stock and this wasthe procedure explained by the bank authorities whenenquiries in this regard were made by the AO. Also,as discussed above, the report of the visit of the bankofficials at the units of the assessee company on31.12.1994 amply demonstrates the stock havingbeen actually inspected. 16A. Moreover, the difference in the value ofconsumable stores as shown to the bank atRs.30,72,570/- and as shown in the books atRs.1,88,950/-, is Rs.28,83,620/-, which comes toseven times. It is not the case of the assessee thatthe difference was only on account of value and noton account of quantity. No reconciliation of the samehas been brought on record at any stage. In fact, theld. Counsel for the asessee conceded that this was amanipulation done by the assessee for the purpose ofclaiming higher loans. These material facts havewrongly been over looked by the ld. CIT(A).” We have heard learned counsel for the parties. 16A. Moreover, the difference in the value ofconsumable stores as shown to the bank atRs.30,72,570/- and as shown in the books atRs.1,88,950/-, is Rs.28,83,620/-, which comes toseven times. It is not the case of the assessee thatthe difference was only on account of value and noton account of quantity. No reconciliation of the samehas been brought on record at any stage. In fact, theld. Counsel for the asessee conceded that this was amanipulation done by the assessee for the purpose ofclaiming higher loans. These material facts havewrongly been over looked by the ld. CIT(A).” We have heard learned counsel for the parties. 4. Learned counsel for the assessee submits that meredifference in the value of stock furnished to the bank and shownin the books of account, was not sufficient to make addition.Reliance has been placed on judgment of Madras High Court inCITv. N. Swamy [2000] 241 ITR 363 and judgment of this Courtdated 12.10.2006 inCITv. M/s Chauhan Papers Pvt. Ltd.I.T.A.No.358 of 2006. 5. We are unable to accept the submissions. 6. Whether difference in the statement of value of stockfurnished to the bank and enteries in the books of account,justifies addition, is a question of fact in each individual case. Theobject of assessment is to tax the real income of the assessee.The Assessing Officer has to determine the same on the basis ofbooks of accounts and other material available. Burden ofshowing taxable income is on the revenue. The said burden canbe discharged by drawing appropriate inference from the materialon record. Reference may be made to judgment of the Hon’bleSupreme Court inKundan Lal Rallaramv. Custodian, EvacueeProperty, BombayAIR 1961 SC 1316. In the present case, theAssessing Officer drew inference from statement furnished by theassessee to the bank and made addition on that basis. TheTribunal has held that the Assessing Officer not only had thebank statement before him but also the verification thereof by theRegional Officer that the stock was actually lying with theassessee. The assessee was given due opportunity to explain the difference, but it could not give any satisfactory explanation.In these circumstances, the CIT(A) was not justified in deletingthe addition. The finding recorded by the Tribunal being a findingof fact does not call for any interference. 7. We may now refer to the judgments relied on behalf ofthe assessee. In N. Swamy, it was observed that statement ofthe assessee to a third party could not be acted upon unlessthere was material to corroborate the same. Burden of showingthat the assessee had undisclosed income was on the revenue,which was not discharged by referring to the statement made tothe third party. 8. The judgment relied upon is distinguishable on facts.There is no doubt about the proposition that burden of provingtaxability of income is on the revenue, as held in ParimisettiSeetharamammav. CIT[1965] 57 ITR 532, referred in the abovejudgment. For discharging the said burden, it is not necessarythat some positive evidence must be led by the revenue. In agiven case, even by drawing inference from the materialavailable, if explanation of the assessee is found to be unreliable,claim of the assessee can be rejected. In such situation, burdenon the revenue can be held to have been discharged. In thepresent case, the assessee had given stock statement to thebank which was at variance with entries in books of accounts. Nodoubt, it was a statement to a third party, but neither the saidstatement was denied by the assessee nor any valid explanation furnished about the discrepancy. On the other hand, theverification from the bank showed that the assessee had excessstock, which justified addition to the income. In these facts, thejudgment relied upon is distinguishable. In M/s Chauhan PapersPvt. Ltd., on facts, it was found by the Tribunal that the statementfurnished to the bank did not justify the addition. Therein, theassessment was made on the basis of gross profit rate and therewas no discrepancy in figure of purchases or sales. This Courtheld that in absence of perversity of findings, no substantialquestion of law arises for consideration. 9. In the present case, the findings recorded by the Tribunal,reproduced above, have not been shown to be perverse and thesaid findings justify the additions made by the Assessing Officer. 10. For above reasons, the questions of law framed bythe assessee have to be answered against it. 11. Accordingly, the appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE October 06, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE