Madhya Pradesh High Court
Suraj Bhan Oil Pvt. Ltd. Thr. ... vs The State Of Madhya Pradesh on 18 February, 2022
Author: Rohit Arya
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 ..... Appellant
Through, Sanjay Bansal,
Mob - 9425126020
95, Jiwaji Ganj, Morena
[email protected]
Versus
Deputy Commissioner of Income Tax,
Circle 2(1), Aaykar Bhawan,
City Centre, Gwalior ..... Respondent
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CORAM
Hon. Mr. Justice Rohit Arya
Hon. Mr. Justice Satish Kumar Sharma
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Presence
Shri Yashovardhan Singh, Advocate for the appellant.
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JUDGMENT
(DELIVERED ON THIS 18th 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 directed
against the order dated 5/4/2021 (Annexure P/6) of the Income
Tax Appellate Tribunal, Agra Bench, Agra.
2. The assessee-Company filed return of income for
assessment year 2005-2006 on 29/10/2005 declaring total income
of Rs.1,68,917/-. The assessment was completed under section
143(3) of the Act on 31/12/2007 at total income of Rs.
2,80,56,498/-. The return was processed under section 143(1) of
the Act on 21/1/2006. The case was selected for scrutiny.
Therefore, notice under section 143(2) of the Act dated
16/10/2006 was issued and served upon the assessee in time.
3. The assessee-Company, during the period relevant to
assessment year 2005-2006, was engaged in manufacturing and
trading of edible oils and grains. It declared its total turnover of
Rs.30,64,07,764/- as against turnover of Rs.16,56,31,644/-. The
NP (Net Profit) for year under consideration was declared at
Rs.6,18,151/- as against NP of Rs.13,92,831/- declared in the
preceding year. The stock statement received from State Bank of
India, Commercial Branch, Gwalior on 14/12/2007 was also
examined. The Assessing Officer found difference in closing stock
of raw material, stock-in-process and finished goods, as well as, in
the quantity of stock. Therefore, notice under section 142(1) of
the Act dated 27/12/2007 was issued to the assessee-Company.
The asseessee-Company was called upon to explain and give
justification for difference in closing stock position. The assessee-
Company was required to reconcile the position of closing stock
with reference to the books of accounts, purchase and sale
vouchers, expense vouchers, bills and all bank statements. It was
also required to furnish details of purchase and sale pertaining to
28-03-2005, 29-03-2005, 30-03-2005 and 31-03-2005. Though the
assessee-Company's representative appeared in the Office of
Assessing Officer with documents such as cash book, ledger, bills,
purchase file, sales bill book, yet without stock register. The
assessee was called upon to reocncile the opening stock, closing
stock with reference to the quantity, but they were not able to
explain and reconcile the quantity of stock shown in the audit
report and the quantity shown in stock statement furnished to the
State Bank of India. The assessee also failed to give details of
purchase and sale for the last days i.e. 28-03-2005 to 31-03-2005.
As such, the same remained un-verified. Likewise, the assessee
also failed to produce Mandi tax receipts etc. in respect of
purchase made, if any. Consequently, the Assessing Officer found
the value of stock shown in stock statement submitted to State
Bank of India reflecting raw material, stock-in-process and
finished goods (opening and closing stock item-wise, quantity-
wise, rate-wise and value-wise) far in excess to the value of stock
shown in the audit report and the difference was to the tune of
Rs.2,71,47,665/-. The assessee-Company, despite opportunity
afforded, could not either reconcile the difference or explain the
reasons therefor. Consequently, the Assessing Officer found that
the aforesaid difference amount, since was not shown in the books
of accounts of the assessee-Company maintained for the year
under consideration, therefore, the same was un-explained
investment in stock from un-disclosed sources. As a result, the
same was added to the total income of the assessee-Company
under section 69B of the Act.
4. On appeal before the Commissioner under section 250 of
the Act (for brevity "CIT(A)"), though the appellate Authority
vide its order dated 14/5/2009 (Annexure P/2) held that the
assessee had not been able to reconcile the difference in two
statements by and large, yet reduced the addition, as discussed in
internal pages 16 and 17 of the order (Annexure P/2).
5. The Revenue preferred an appeal before the Income Tax
Appellate Tribunal. The Tribunal in paragraph 5 of its order dated
31/5/2011 has discussed the issue in detail. The Tribunal observed
that CIT(A) deleted the addition ignoring the fact that unreadable
stock 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 to
reconcile the stock from 28-03-2005 to 31-03-2005 by calculating
the details of the products purchases and sales. The order of
CIT(A) was found to be erroneous as deletion had been made on
the premise that addition was based on difference in stock position
submitted to the Bank vis-a-vis the books of accounts in different
dates without verifying the stock position in the books of accounts
and other documents indicating quantity of raw material, stock-in-
process and finished goods, whereas the burden was on the
assessee to reconcile the unreadable stock position as on
28.03.2005 sent to the Bank with the stock position shown in the
balance sheet as on 31.03.2005. That was not done. Hence, the
Tribunal, in the fitness of things, set aside the order of CIT(A)
remanding the case to the Assessing Officer to again afford an
opportunity to the assessee to explain the difference as aforesaid
and, 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 format
explained the difference of raw material, stock-in-process and
finished goods as per bank statement as on 28.03.2005 and as per
audit report. The same reads thus:-
ISSUES FOR ADDITION
The difference of raw material, stocking process and finished goods
between as per bank statement as on 28.03.2005
As per bank As per audit Difference
statement report
Raw material Rs.2,36,15,575/- Rs.69,44,134/- Rs.1,66,71,441/-
Quantity 14,226.25 Qntls 4340 Qntls 9,886.25 Qntls
Stock in process Rs.4,55,000/- Rs.21,15,400/- (-)Rs.16,60,400/-
Quantity 250.00 Qntls
Finished goods Rs.1,72,93,339/- Rs.51,56,715/- Rs.1,21,36,624/-
Quantity 12,318.00 Qntls 12318.28 Qntls
Difference Rs.2,71,47,665/-
The difference of stock amounting Rs.2,71,47,665/- should be added
u/s 69B of the Income Tax Act. Because the stock detail in the bank
as on 28.03.2005 was submitted by the assessee only. It appeared the
stock valued in the audit report is erroneous and not genuine because
assessee could not produce the details of purchase, processing and
sale between 28.03.2005 to 31.03.2005. Without any documentary
evidence the submission produced by the assessee can not be
considered. Assessee was provided full opportunity to produce the
documentary evidences regarding difference of excessive stock but
he failed to follow the same. So stock as on 28.03.2005 is considered
genuine and excessive stock of Rs.2,71,47,665/- is considered as
income of the assessee."
Thus, despite opportunity afforded to the assessee, he could
not produce the details of purchase, processing and sale between
28.03.2005 to 31.03.2005. Therefore, in absence of documentary
evidence in that behalf, the stock details given to the Bank as on
28.03.2005 were found to be actual, in contrast to the stock valued
in 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 again
been added to the income of assessee under section 69B of the
Act.
7. On appeal, the Commissioner in paragraph 5.1.1 of his order
dated 22/2/2017 (Annexure P/5) has deleted the addition by
referring to a chart indicating stock position as on 28.3.2005
(wrongly typed as 28.03.2008) submitted to the Bank with the
stock position as per stock register on 28.03.2005.
8. On appeal before the Income Tax Appellate Tribunal by the
Revenue, the Tribunal discussed the issue in paragraph 10 of its
judgment dated 5/4/2021 (Annexure P/6). The Tribunal has
critically dealt with the issue and opined that the assessee-
Company failed to produce the evidence explaining sale and
purchase of stock during the period 28.03.2005 to 31.03.2005
before the Assessing Officer. That apart, the CIT(A) was found to
have maintained blissful silence on the aforesaid issue and
avoided to verify purchase and sale transfer and corresponding
effect on balance sheet and profit and loss account. Thereafter, in
paragraphs 11 and 12, the Tribunal has also critically examined the
difference in raw material quantity shown to the Bank in the form
of statement of stocks and the one shown in the balance sheet
which was found to be Rs.1,66,71,441/- (9,886.25 Qntls), likewise
the difference in stock-in-process quantity was found to be (-) Rs.
16,60,400/- and difference in finished goods quantity was found to
be Rs.1,21,36,624/-. Therefore, the assessee was bound to explain
the 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 the
submission that the order of Assessing Officer dated 31.03.2013
(Annexure P/4) and that of Income Tax Appellate Tribunal dated
5/4/2021 (Annexure P/6) are wrong, inter alia contending that the
CIT (Appeal) had thoroughly examined the difference of stock of
raw material, stock-in-process and finished goods referring to the
books of accounts, balance sheet and audit report and, therefore,
proposed a question as to whether the Tribunal was justified in
setting aside the order of CIT(Appeal) and allowing the addition
made by Assessing Officer as undisclosed income of
Rs.2,71,47,665/- to the income of assessee under section 69B of
the Act. In support of his contentions, learned counsel has placed
reliance on decision of the High Court of Gujarat in Tax Appeal
No. 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 Assessing
Officer, CIT (Appeal) and Income Tax Appellate Tribunal. As a
matter of fact, the entire controversy revolves around the question
as to whether the assessee has been able to provide explanation for
difference of stock between the stock submitted to the bank as on
28/3/2005 and the stock indicated in the audit report for the period
ending 31/03/2005 relating to raw material, stock-in-process and
finished goods. No evidence has been produced by the assessee of
sale and purchase of raw material and finished goods during the
period 28.03.2005 to 31.03.2005 as found by the Assessing
Officer in the previous assessment order, as well as, set aside
assessment order, as affirmed by the Tribunal. Hence, the entire
gamut of matter is in the realm of facts and does not give rise to
substantial question of law. Even otherwise, as has been held in
catena of decisions by different High Courts, the practice followed
by Industrialists declaring larger than actual quantity of stock to
the Bank for the purpose of getting higher loans or over-draft
facility, in fact, is not recognized as conforming to the fiscal
discipline by Courts, Authorities and Tribunals. Such a tendency
tantamount to commercial immorality for obtaining unjustified
gains in the form of higher credit facility or loans etc. by showing
incorrect statement of stock position to the Bank. In any case, the
burden lies upon the assessee to reconcile the difference of stock
position presented to the bank with the stock position mentioned
in the books of accounts/audit report (Dhansi Ram Aga Vs. CIT
(201 ITR 192, Gauhati High Court, Ramanlal Kacharulal
Tejmal 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 excess
stock, in absence of explanation by the assessee, the conclusion is
inescapable that the excess stock, if any, was from undisclosed
sources. Further, once the assessee's explanation, if any, has not
been accepted, the resultant position is that there was excess stock
un-disclosed in the books of accounts and non disclosure was only
with a view to suppress the income.
Consequently, this Court up-helds the order of Assessing
Officer dated 31/3/2013 (Annexure P/4) and that of the Income
Tax Appellate Tribunal dated 5/4/2021 (Annexure P/6) taking the
view that the excess stock represented the income of the assessee
from undisclosed sources. The judgment cited by learned counsel
for the appellant, in fact, is distinguishable on facts. In that case,
there was no variation or difference in quantity of stocks of raw
material etc. shown in the books of accounts and that sent to the
Bank, but there was difference in valuation and for the reasons
stated in the order of the Tribunal, the Apex Court did not choose
to interfere in the said order in its discretionary jurisdiction under
Article 136 of the Constitution of India. Hence, the said judgment
is of no assistance to the appellant.
The appeal fails and is, accordingly, dismissed.
(ROHIT ARYA) (SATISH KUMAR SHARMA)
JUDGE JUDGE
(and)
ANAND
SHRIVASTAVA
2022.02.21
10:29:47
+05'30'
