Stock discrepancy and ad hoc expense disallowance fail where books are regular and no evidence of personal use exists.

Where regular books of account and day-to-day stock records are not found defective, a bank stock statement inflated for credit facilities cannot by itself justify an addition for alleged stock difference; the physical stock was accepted as in parity with the books and the estimated variance was deleted. Likewise, an ad hoc disallowance of expenses for possible personal use cannot stand without specific evidence or identifiable instances of such use; the conjectural disallowance was deleted. The assessee therefore obtained relief on both disputed additions, and the assessment additions were set aside.

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Issues: (i) Whether the addition made on account of difference between the stock statement furnished to the bank and the stock physically found during survey was sustainable. (ii) Whether the ad hoc disallowance of expenses for alleged possible personal use was sustainable.

Issue (i): Whether the addition made on account of difference between the stock statement furnished to the bank and the stock physically found during survey was sustainable.

Analysis: The assessee maintained regular books of account and day-to-day stock records, and no discrepancy was found in those records. The stock statement given to the bank was held to be inflated for credit facilities and could not be treated as sacrosanct. The stock position was required to be examined with reference to the books of account, not the bank statement. On that basis, the physical stock found during survey was found to be in parity with the stock as per books, and the residual difference was only an estimated variation.

Conclusion: The addition on account of stock difference was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the ad hoc disallowance of expenses for alleged possible personal use was sustainable.

Analysis: No specific instance of personal use of the expenditure was identified by the Assessing Officer. The disallowance was made only on conjecture and without supporting material. In the absence of evidence showing personal use, the estimated disallowance could not be sustained.

Conclusion: The ad hoc disallowance of expenses was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appellate relief was granted to the assessee on both disputed additions, and the assessment additions were deleted.

Ratio Decidendi: Where regular books of account and stock records are not found defective, a stock statement given to a bank cannot by itself justify an addition for unexplained stock; similarly, ad hoc disallowance of expenses cannot be sustained without specific evidence of personal use.

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