Tribunal rejects appeal, disallows Rs. 1,19,648 addition, citing lack of bank verification and inaccurate stock statements.

The Tribunal upheld the CIT(A)'s decision, dismissing the appeal and ruling against the addition of Rs. 1,19,648. The Tribunal found no justification for the addition, considering the nature of hypothecation and the lack of physical verification by banks, affirming that the stock statements could not be taken as accurate representations of actual stock.

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Issues:
Alleged discrepancy in the value of closing stock deleted by CIT(A) - Whether the stock statements submitted to banks were reliable evidence - Whether the addition made by AO under section 69 of the Act was justified.

Analysis:
The appeal raised by the Revenue challenged the deletion of an addition of Rs. 1,19,648 representing an alleged discrepancy in the value of closing stock by the CIT(A). The assessee, engaged in the medicine business, had obtained overdraft facilities from two banks against hypothecated stock. The AO noted a difference between the stock declared in the books and the stock statements submitted to the banks, leading to an alleged undervaluation of stock. The AO made the addition under section 69 of the Act, considering the onus on the assessee to prove the stock statements were not on actual basis.

The CIT(A) deleted the addition, emphasizing that stock statements submitted to banks were not absolute evidence of actual stock position, especially when the stock was hypothecated and not physically verified by the banks. The CIT(A) highlighted irregular submission of stock statements and the lack of physical verification by the banks. The CIT(A) also noted the fair and reasonable GP rate in the accounts and the absence of evidence proving the declared closing stock was incorrect. The CIT(A) concluded that the addition was unwarranted under section 69 of the Act.

During the appeal, the Departmental Representative argued based on a judgment from Gauhati High Court, emphasizing the excess stock pledged with banks compared to the available stock. The assessee's counsel contended that since the stock was hypothecated, not pledged, and not physically verified by banks, the stock statements were mere formalities. The counsel also argued against the intention of undervaluing stock, pointing out the impact on subsequent years' profits.

The Tribunal observed the distinction between pledging and hypothecation of goods, highlighting the practice of reporting inflated stock figures for bank security. The Tribunal agreed with the CIT(A)'s findings, emphasizing the estimate basis of stock statements for hypothecation. The Tribunal rejected the Departmental Representative's reliance on the Gauhati High Court judgment, noting the difference in the nature of goods dealings.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal and ruling against the addition of Rs. 1,19,648. The Tribunal found no justification for the addition, considering the nature of hypothecation and the lack of physical verification by banks, affirming that the stock statements could not be taken as accurate representations of actual stock.

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