Provisional bank stock statements cannot by themselves support undisclosed income additions when audited books remain defect-free and revenue neutrality applies.

A provisional stock statement furnished to a bank cannot, by itself, justify treating the difference from audited closing stock as undisclosed income where the books are not rejected, no defect is found in stock records or valuation, and the figures are only estimated in a business involving work-in-process and multiple sites. The addition is also unsustainable where any enhancement of closing stock would ordinarily flow into the next year's opening stock and the exercise is revenue neutral. The stock difference addition was therefore deleted in favour of the assessee.

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Issues: (i) Whether the difference between the stock figure disclosed to the bank and the closing stock recorded in the audited books could be treated as undisclosed income. (ii) Whether, even otherwise, the addition could be sustained without corresponding effect being given to the opening stock of the next year, when the exercise was revenue neutral.

Issue (i): Whether the difference between the stock figure disclosed to the bank and the closing stock recorded in the audited books could be treated as undisclosed income.

Analysis: The Statement furnished to the bank shortly after year-end contained provisional figures not only for closing stock but also for sales, sundry debtors, and sundry creditors, all of which differed materially from the audited accounts. The business involved execution of Government contracts at multiple sites and included work-in-process and items not susceptible to precise measurement, making estimation plausible. No defect was pointed out in the books of account, no adverse finding was recorded against the stock records or valuation method, and the books were not rejected. The addition based solely on the bank statement was therefore not justified, especially where the relied-upon precedent concerned pledged stock and the present case involved only a provisional banking declaration.

Conclusion: The difference in stock could not be treated as undisclosed income, and the addition was unsustainable in favour of the assessee.

Issue (ii): Whether, even otherwise, the addition could be sustained without corresponding effect being given to the opening stock of the next year, when the exercise was revenue neutral.

Analysis: If the closing stock of the year were enhanced, the same amount would ordinarily enter the opening stock of the next year. Since positive taxable income had been declared in both years and tax had been paid in both years, the adjustment would not yield any real tax advantage to the Revenue and would remain revenue neutral. An addition that merely shifts the figure from one year to the next, without any net revenue impact, was considered unnecessary to sustain.

Conclusion: The addition was also not sustainable on the ground of revenue neutrality, in favour of the assessee.

Final Conclusion: The assessment addition made on account of the alleged stock difference was deleted and the appeal succeeded.

Ratio Decidendi: A stock statement furnished to a bank, when shown to be provisional or estimated and unsupported by any defect in the audited books, cannot by itself justify an addition as undisclosed income; where the corresponding opening stock effect makes the exercise revenue neutral, the addition is further unsustainable.

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