TDS disallowance, depreciation claims, and unexplained stock additions turn on evidence, verification, and books support.

Disallowance under section 40(a)(ia) could not rest on a presumptive reverse calculation from excess TDS provision without identifying any specific expenditure on which tax was not deducted or deposited, so the matter was remanded for verification. Differential depreciation was held allowable because the claim was properly quantified in the tax audit report, and the appellate authority could consider it despite the restriction on fresh claims before the Assessing Officer, subject to verification. Addition under section 69B for stock difference was deleted because the bank stock statement was shown to be inflated for credit purposes, the books were not defective, and no reliable evidence established undisclosed stock investment.

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Issues: (i) Whether disallowance under section 40(a)(ia) could be sustained merely on the basis of a reverse working from an excess provision for TDS payable without identifying any expenditure on which tax was not deducted or paid; (ii) Whether the assessee was entitled to differential depreciation claimed in the return though the correct amount was reflected in the tax audit report; (iii) Whether the addition under section 69B on account of difference between stock declared to the bank and stock recorded in the books was sustainable.

Issue (i): Whether disallowance under section 40(a)(ia) could be sustained merely on the basis of a reverse working from an excess provision for TDS payable without identifying any expenditure on which tax was not deducted or paid.

Analysis: The disallowance was made only on a presumptive calculation arising from excess provision for TDS payable. No specific instance of expenditure was brought on record to show that tax had not been deducted or, after deduction, not deposited. Where the assessee establishes compliance with Chapter XVII-B, a disallowance cannot rest on presumption alone. As the factual verification was incomplete, the matter required examination of the details filed by the assessee.

Conclusion: The issue was remanded to the Assessing Officer for verification, and disallowance was not sustained at this stage.

Issue (ii): Whether the assessee was entitled to differential depreciation claimed in the return though the correct amount was reflected in the tax audit report.

Analysis: The claimed difference was a matter of quantification and not a barred fresh claim in the sense urged by the Revenue. The restriction in Goetze applies to the Assessing Officer and does not curtail the appellate authority from considering a legitimate claim supported by the record. Since the depreciation amount stood correctly quantified in the tax audit report, the claim merited allowance after verification.

Conclusion: The assessee's claim for differential depreciation was allowed, subject to verification by the Assessing Officer.

Issue (iii): Whether the addition under section 69B on account of difference between stock declared to the bank and stock recorded in the books was sustainable.

Analysis: The addition was founded on the assumption that the bank stock statement reflected actual stock. The stock shown to the bank was found to be inflated on estimate to secure higher credit facilities, the stock was hypothecated and not pledged, no reliable physical verification as on the relevant date was shown, the books were not found defective, and the stock records were supported by audit and excise materials. The assessee also satisfactorily explained a major part of the difference by subsequent receipt and accounting of goods. On these facts, the statement furnished to the bank could not by itself establish undisclosed investment in stock.

Conclusion: The addition under section 69B was deleted.

Final Conclusion: The assessee succeeded on the substantial issues concerning depreciation and stock addition, while the disallowance under section 40(a)(ia) was sent back for verification. Interest was consequential and the penalty ground was premature.

Ratio Decidendi: A stock declaration made to a bank for credit purposes, if shown to be estimated and inflated for borrowing purposes and unsupported by defects in books or evidence of undisclosed purchases, cannot by itself justify an addition for unexplained stock; likewise, an appellate authority may entertain a legitimate depreciation claim even if the Assessing Officer could not under Goetze.

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