TaxTMI 
TaxTMI 
2009 (9) TMI 83
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....ng to impugned addition of Rs. 17,45,954 are that the assessee is in the business of manufacturing of woollen and shoddy yarn and has taken loan against hypothecation of stock and debtors from SBI, Panipat. During assessment proceedings AO found that assessee has submitted a statement of stock to the bank as on 21st March, 2005 showing the value of the stock at Rs. 35,55,589 whereas stock as per books and balance sheet as on 31st March, 2005 was shown at Rs. 23,38,886 which was submitted with the return of income, therefore, by recalculating the other figures of manufacturing trading account for the period 22nd March, 2005 to 31st March, 2005, AO found that stock has been shown lower by Rs. 17,45,954 and, therefore, made addition of the sam....
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....ount for the period 22nd March, 2005 to 31st March, 2005 and worked out closing stock of Rs. 40,84,840 as on 31st March, 2005 against closing stock of Rs. 23,38,886 and thus made an addition of Rs. 17,45,954 to the income taking income from other sources. Thus summarizing his arguments the learned Authorised Representative for the assessee submitted that- (i) Sales is no basis to arrive at the amount of manufacturing expenses of a particular period. (ii) There is no such law to determine the income or statement in mid of a period, cannot be accrued and is always on estimate basis. (iii) Difference in method of valuation otherwise consistently applied cannot be applied. (iv) Quantitative stock details, and valuation given to the bank was....
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.... : (1999) 240 ITR 355 (SC); (v) Chhatar Extractions (P) Ltd. vs. ITO (2004) 85 TTJ (Asr)(TM) 405; (vi) CIT vs. Sidhu Rice & General Mills (2004) 192 CTR (P&H) 349; (vii) CIT vs. Acrow India Ltd. 7. On considering the submissions of the assessee the CIT(A) deleted the impugned addition mainly on the reasoning that the addition on account of difference in stock given to the bank and as per books may be made when it is clear on the basis of the facts of the case that the quantity of the stock given to the bank was higher than the quantity as per the books and the stock was either pledged or counted and verified by the bank officials but in a case where difference in the quantity of stock does not exist and the stock is neither pledged nor ....
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....overheads have been wrongly allocated by the AO and therefore, the assessee has discharged the burden to prove that the stock given to the IT authorities is as per the books of accounts and gives the correct picture, therefore, this case law is not applicable to facts of the case of the assessee. (ii) Jai Chand Kanji & Co. vs. CIT (1986) 51 CTR (Raj) 272 : (1986) 157 ITR 451 (Raj): In the said case, Hon'ble High Court has held that discrepancy between stocks as pledged with the bank and as recorded in the books of accounts was not satisfactorily explained, the assessee had shown 103 bundles of GC sheets in the books of accounts, whereas, 208 bundles of GC sheets were pledged with the bank. Whereas, in the case of the assessee stock was n....
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....o the bank has the same quantity of the stock as given to the AO, therefore, this case law is not applicable to facts of the case of the assessee. (v) Dhansiram Agarwalla vs. CIT (1993) 111 CTR (Gau) 39 : (1993) 201 ITR 192 (Gau): In the said case, Hon'ble High Court has held that stock as disclosed to the bank is generally inflated to get larger overdraft is untenable because it is merely a statement and assessee did not offer any other explanation as regards discrepancy between value of stock disclosed to bank and as shown in the balance sheet and there was no material to show that bank did not exercise effective control, whereas, the loan was under the category "lock and key loans". Whereas, in the case of the assessee, the stock is o....
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....bmissions made before the CIT(A) again referred to the same case law and mainly contended that no addition could be made on account of the difference in the quantity of the stock hypothecated to the bank and the one reflected in the books of account as is clear from the case law discussed by the CIT(A) and that the CIT(A) rightly deleted the impugned addition. 11. On considering the submissions of both the parties, perusing the records and going through the orders of tax authorities below as well as the case law, we find that in the instant case it is not in dispute that the credit facility was extended by the bank to the assessee against hypothecation of stock and the valuation of the stock declared to the bank was higher than actual stoc....