Suraj Bhan Oil Private Limited … v. Deputy Commissioner Of Income Tax,Circle 2(1), Aaykar Bhawan, City Centre, Gwalior

1 ITA No.121/2021 THE HIGH COURT OF MADHYA PRADESH BENCH AT GWALIOR (DIVISION BENCH) Income Tax Appeal No.121/2021 Suraj Bhan Oil Private Limited ….. AppellantThrough, Sanjay Bansal,Mob – 942512602095, Jiwaji Ganj, Versus Deputy Commissioner of Income Tax,Circle 2(1), Aaykar Bhawan, City Centre, Gwalior ….. Respondent -------------------------------------------------------------------------------- CORAMHon. Mr. Justice Rohit AryaHon. Mr. Justice Satish Kumar Sharma ------------------------------------------------------------------------------- Presence Shri Yashovardhan Singh, Advocate for the appellant. -------------------------------------------------------------------------------- J U D G M E N T (DELIVERED ON THIS 18[th]DAY OF FEBRUARY, 2022) This appeal, under section 260A of the Income Tax Act,1961 (for short “the Act”), at the instance of assessee, is directedagainst the order dated 5/4/2021 (Annexure P/6) of the IncomeTax Appellate Tribunal, Agra Bench, Agra. 2.The assessee-Company filed return of income forassessment year 2005-2006 on 29/10/2005 declaring total incomeof Rs.1,68,917/-. The assessment was completed under section143(3) of the Act on 31/12/2007 at total income of Rs. 2 ITA No.121/2021 2,80,56,498/-. The return was processed under section 143(1) ofthe Act on 21/1/2006. The case was selected for scrutiny.Therefore, notice under section 143(2) of the Act dated16/10/2006 was issued and served upon the assessee in time. 3.The assessee-Company, during the period relevant toassessment year 2005-2006, was engaged in manufacturing andtrading of edible oils and grains. It declared its total turnover ofRs.30,64,07,764/- as against turnover of Rs.16,56,31,644/-. TheNP (Net Profit) for year under consideration was declared atRs.6,18,151/- as against NP of Rs.13,92,831/- declared in thepreceding year. The stock statement received from State Bank ofIndia, Commercial Branch, Gwalior on 14/12/2007 was alsoexamined. The Assessing Officer found difference in closing stockof raw material, stock-in-process and finished goods, as well as, inthe quantity of stock. Therefore, notice under section 142(1) ofthe Act dated 27/12/2007 was issued to the assessee-Company.The asseessee-Company was called upon to explain and givejustification for difference in closing stock position. The assessee-Company was required to reconcile the position of closing stockwith reference to the books of accounts, purchase and salevouchers, expense vouchers, bills and all bank statements. It wasalso required to furnish details of purchase and sale pertaining to28-03-2005, 29-03-2005, 30-03-2005 and 31-03-2005. Though the 3 ITA No.121/2021 3 ITA No.121/2021 assessee-Company's representative appeared in the Office ofAssessing Officer with documents such as cash book, ledger, bills,purchase file, sales bill book, yet without stock register. Theassessee was called upon to reocncile the opening stock, closingstock with reference to the quantity, but they were not able toexplain and reconcile the quantity of stock shown in the auditreport and the quantity shown in stock statement furnished to theState Bank of India. The assessee also failed to give details ofpurchase and sale for the last days i.e. 28-03-2005 to 31-03-2005.As such, the same remained un-verified. Likewise, the assesseealso failed to produce Mandi tax receipts etc. in respect ofpurchase made, if any. Consequently, the Assessing Officer foundthe value of stock shown in stock statement submitted to StateBank of India reflecting raw material, stock-in-process andfinished goods (opening and closing stock item-wise, quantity-wise, rate-wise and value-wise) far in excess to the value of stockshown in the audit report and the difference was to the tune ofRs.2,71,47,665/-. The assessee-Company, despite opportunityafforded, could not either reconcile the difference or explain thereasons therefor. Consequently, the Assessing Officer found thatthe aforesaid difference amount, since was not shown in the booksof accounts of the assessee-Company maintained for the yearunder consideration, therefore, the same was un-explained 4 ITA No.121/2021 investment in stock from un-disclosed sources. As a result, thesame was added to the total income of the assessee-Companyunder section 69B of the Act. 4.On appeal before the Commissioner under section 250 ofthe Act (for brevity “CIT(A)”), though the appellate Authorityvide its order dated 14/5/2009 (Annexure P/2) held that theassessee had not been able to reconcile the difference in twostatements by and large, yet reduced the addition, as discussed ininternal pages 16 and 17 of the order (Annexure P/2). 5.The Revenue preferred an appeal before the Income TaxAppellate Tribunal. The Tribunal in paragraph 5 of its order dated31/5/2011 has discussed the issue in detail. The Tribunal observedthat CIT(A) deleted the addition ignoring the fact that unreadablestock position was submitted to the bankers as on 28-03-2005,whereas the balance sheet carries the stock position as on 31-03-2005. The onus, therefore, lied upon the assessee-Company toreconcile the stock from 28-03-2005 to 31-03-2005 by calculatingthe details of the products purchases and sales. The order ofCIT(A) was found to be erroneous as deletion had been made onthe premise that addition was based on difference in stock positionsubmitted to the Bank vis-a-vis the books of accounts in differentdates without verifying the stock position in the books of accountsand other documents indicating quantity of raw material, stock-in- 5 ITA No.121/2021 process and finished goods, whereas the burden was on theassessee to reconcile the unreadable stock position as on28.03.2005 sent to the Bank with the stock position shown in thebalance sheet as on 31.03.2005. That was not done. Hence, theTribunal, in the fitness of things, set aside the order of CIT(A)remanding the case to the Assessing Officer to again afford anopportunity to the assessee to explain the difference as aforesaidand, thereafter, re-adjudicate the issue in accordance with law. 6.The set aside assessment was framed on 31.03.2013(Annexure P/4). The Assessing Officer in a tabular formatexplained the difference of raw material, stock-in-process andfinished goods as per bank statement as on 28.03.2005 and as peraudit report. The same reads thus:- ISSUES FOR ADDITION The difference of raw material, stocking process and finished goodsbetween as per bank statement as on 28.03.2005 6.The set aside assessment was framed on 31.03.2013(Annexure P/4). The Assessing Officer in a tabular formatexplained the difference of raw material, stock-in-process andfinished goods as per bank statement as on 28.03.2005 and as peraudit report. The same reads thus:- ISSUES FOR ADDITION The difference of raw material, stocking process and finished goodsbetween as per bank statement as on 28.03.2005 The difference of stock amounting Rs.2,71,47,665/- should be addedu/s 69B of the Income Tax Act. Because the stock detail in the bankas on 28.03.2005 was submitted by the assessee only. It appeared thestock valued in the audit report is erroneous and not genuine becauseassessee could not produce the details of purchase, processing andsale between 28.03.2005 to 31.03.2005. Without any documentary 6 evidence the submission produced by the assessee can not beconsidered. Assessee was provided full opportunity to produce thedocumentary evidences regarding difference of excessive stock buthe failed to follow the same. So stock as on 28.03.2005 is consideredgenuine and excessive stock of Rs.2,71,47,665/- is considered asincome of the assessee.” Thus, despite opportunity afforded to the assessee, he couldnot produce the details of purchase, processing and sale between28.03.2005 to 31.03.2005. Therefore, in absence of documentaryevidence in that behalf, the stock details given to the Bank as on28.03.2005 were found to be actual, in contrast to the stock valuedin the audit report for the period ending 31.03.2005 and, therefore,the difference between the two i.e. Rs.2,71,47,665/- has againbeen added to the income of assessee under section 69B of theAct. 7.On appeal, the Commissioner in paragraph 5.1.1 of his orderdated 22/2/2017 (Annexure P/5) has deleted the addition byreferring to a chart indicating stock position as on 28.3.2005(wrongly typed as 28.03.2008) submitted to the Bank with thestock position as per stock register on 28.03.2005. 8.On appeal before the Income Tax Appellate Tribunal by theRevenue, the Tribunal discussed the issue in paragraph 10 of itsjudgment dated 5/4/2021 (Annexure P/6). The Tribunal hascritically dealt with the issue and opined that the assessee-Company failed to produce the evidence explaining sale andpurchase of stock during the period 28.03.2005 to 31.03.2005 7 ITA No.121/2021 before the Assessing Officer. That apart, the CIT(A) was found tohave maintained blissful silence on the aforesaid issue andavoided to verify purchase and sale transfer and correspondingeffect on balance sheet and profit and loss account. Thereafter, inparagraphs 11 and 12, the Tribunal has also critically examined thedifference in raw material quantity shown to the Bank in the formof statement of stocks and the one shown in the balance sheetwhich was found to be Rs.1,66,71,441/- (9,886.25 Qntls), likewisethe difference in stock-in-process quantity was found to be (-) Rs.16,60,400/- and difference in finished goods quantity was found tobe Rs.1,21,36,624/-. Therefore, the assessee was bound to explainthe aforesaid difference either before the AO or before CIT(Appeal) or before the Tribunal. The same was not done.Consequently, the order of CIT(Appeal) was set aside. 9.Now, the assessee is in appeal before this Court with thesubmission that the order of Assessing Officer dated 31.03.2013(Annexure P/4) and that of Income Tax Appellate Tribunal dated5/4/2021 (Annexure P/6) are wrong, inter alia contending that theCIT (Appeal) had thoroughly examined the difference of stock ofraw material, stock-in-process and finished goods referring to thebooks of accounts, balance sheet and audit report and, therefore,proposed a question as to whether the Tribunal was justified insetting aside the order of CIT(Appeal) and allowing the addition 8 ITA No.121/2021 9.Now, the assessee is in appeal before this Court with thesubmission that the order of Assessing Officer dated 31.03.2013(Annexure P/4) and that of Income Tax Appellate Tribunal dated5/4/2021 (Annexure P/6) are wrong, inter alia contending that theCIT (Appeal) had thoroughly examined the difference of stock ofraw material, stock-in-process and finished goods referring to thebooks of accounts, balance sheet and audit report and, therefore,proposed a question as to whether the Tribunal was justified insetting aside the order of CIT(Appeal) and allowing the addition 8 ITA No.121/2021 made by Assessing Officer as undisclosed income ofRs.2,71,47,665/- to the income of assessee under section 69B ofthe Act. In support of his contentions, learned counsel has placedreliance on decision of the High Court of Gujarat in Tax AppealNo. 83/2007 (Commissioner of Income Tax, Rajkot-I Vs.Veerdip Rollers P. Ltd.) affirmed by the Apex Court. 10.This Court has carefully perused the order of AssessingOfficer, CIT (Appeal) and Income Tax Appellate Tribunal. As amatter of fact, the entire controversy revolves around the questionas to whether the assessee has been able to provide explanation fordifference of stock between the stock submitted to the bank as on28/3/2005 and the stock indicated in the audit report for the periodending 31/03/2005 relating to raw material, stock-in-process andfinished goods. No evidence has been produced by the assessee ofsale and purchase of raw material and finished goods during theperiod 28.03.2005 to 31.03.2005 as found by the AssessingOfficer in the previous assessment order, as well as, set asideassessment order, as affirmed by the Tribunal. Hence, the entiregamut of matter is in the realm of facts and does not give rise tosubstantial question of law. Even otherwise, as has been held incatena of decisions by different High Courts, the practice followedby Industrialists declaring larger than actual quantity of stock tothe Bank for the purpose of getting higher loans or over-draft 9 ITA No.121/2021 facility, in fact, is not recognized as conforming to the fiscaldiscipline by Courts, Authorities and Tribunals. Such a tendencytantamount to commercial immorality for obtaining unjustifiedgains in the form of higher credit facility or loans etc. by showingincorrect statement of stock position to the Bank. In any case, theburden lies upon the assessee to reconcile the difference of stockposition presented to the bank with the stock position mentionedin the books of accounts/audit report (Dhansi Ram Aga Vs. CIT(201 ITR 192, Gauhati High Court, Ramanlal KacharulalTejmal Vs. CIT (146 ITR 368 (Bom), Pooranlal Raj Kumar Vs.CIT (107 CTR Cal. 27), CIT Vs. A. Yunuskunju (189 ITR 672,Kerala), CIT Vs. South India Rubber Products (166 ITR 687(Kerala) and Coimbatore Spng. & Wvg. Co. Ltd. Vs. CIT(1974)95 ITR 375, referred to). Once the Assessing Officer finds that there was excessstock, in absence of explanation by the assessee, the conclusion isinescapable that the excess stock, if any, was from undisclosedsources. Further, once the assessee's explanation, if any, has notbeen accepted, the resultant position is that there was excess stockun-disclosed in the books of accounts and non disclosure was onlywith a view to suppress the income. Consequently, this Court up-helds the order of AssessingOfficer dated 31/3/2013 (Annexure P/4) and that of the Income (and) 10 ITA No.121/2021 Once the Assessing Officer finds that there was excessstock, in absence of explanation by the assessee, the conclusion isinescapable that the excess stock, if any, was from undisclosedsources. Further, once the assessee's explanation, if any, has notbeen accepted, the resultant position is that there was excess stockun-disclosed in the books of accounts and non disclosure was onlywith a view to suppress the income. Consequently, this Court up-helds the order of AssessingOfficer dated 31/3/2013 (Annexure P/4) and that of the Income (and) 10 ITA No.121/2021 Tax Appellate Tribunal dated 5/4/2021 (Annexure P/6) taking theview that the excess stock represented the income of the assesseefrom undisclosed sources. The judgment cited by learned counselfor the appellant, in fact, is distinguishable on facts. In that case,there was no variation or difference in quantity of stocks of rawmaterial etc. shown in the books of accounts and that sent to theBank, but there was difference in valuation and for the reasonsstated in the order of the Tribunal, the Apex Court did not chooseto interfere in the said order in its discretionary jurisdiction underArticle 136 of the Constitution of India. Hence, the said judgmentis of no assistance to the appellant. The appeal fails and is, accordingly, dismissed. (ROHIT ARYA) (SATISH KUMAR SHARMA) JUDGE JUDGE