Stock statement evidence and unexplained stock: opening stock credit allowed, but the balance remained taxable.

A stock statement furnished to a bank can be used as relevant evidence in tax proceedings, but it is not conclusive and may be rebutted by a satisfactory explanation. On the facts, the assessee failed to disprove the bank statement or to show that the recorded stock was unreliable, so the statement could not be ignored. The Tribunal also considered that the proper provision for unexplained stock was section 69A, not section 69C, and accepted credit for the opening stock shown to the bank. Only the unexplained balance of the closing stock was sustained for addition, while the overdraft explanation was rejected for want of fresh borrowings.

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Issues: (i) Whether the stock statement furnished to the bank could, by itself, justify addition of the entire closing stock as undisclosed income. (ii) Whether, on the facts, the assessee was entitled to set off the opening stock shown to the bank against the closing stock and whether only the unexplained balance could be brought to tax.

Issue (i): Whether the stock statement furnished to the bank could, by itself, justify addition of the entire closing stock as undisclosed income.

Analysis: The stock statement given to the bank was treated as an admission, but an admission is not conclusive and can be displaced by satisfactory explanation. The assessee failed to establish, on facts, that the stock statement was false or unreliable, and the books as produced did not satisfactorily rebut the bank statement. In these circumstances, the bank stock statement remained a relevant evidentiary basis for tax examination.

Conclusion: The bank stock statement could not be ignored in its entirety, and the assessee did not succeed in disproving it.

Issue (ii): Whether, on the facts, the assessee was entitled to set off the opening stock shown to the bank against the closing stock and whether only the unexplained balance could be brought to tax.

Analysis: The Tribunal held that the addition was not correctly made under section 69C and that section 69A was the appropriate provision, since the dispute concerned unexplained stock in possession of the assessee. It accepted that the stock shown as on 31.03.2003 had to be given credit to the extent it formed the opening stock for the year, but the balance of the closing stock shown on 31.03.2004 remained unexplained. The plea based on the overdraft account was rejected because no fresh borrowings were shown during the year to explain the unexplained balance.

Conclusion: Relief was granted to the extent of the opening stock credit, and only the unexplained balance of stock was sustained for addition.

Final Conclusion: The addition was reduced by allowing partial set-off of the opening stock, and the appeal succeeded only to that limited extent.

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