2013 (11) TMI 1665

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.... and has raised the following grounds: 1. On the facts and circumstances of the case and in law, the ld. CIT(A)-I, Surat has erred in deleting the addition of Rs. 52,50,000/- made on account of unexplained purchases without appreciating the fact that there is a discrepancy between the stock shown in the books of account and stock shown in the statement of the bank. 2. On the facts and circumstance of the case and in law, the Ld. CIT(A)-I, Surat has erred in deleting the addition of Rs. 5,25,000/- made on account of estimation of profit on the suppressed sales without appreciating the fact that the sale was not recorded in the books of account even after the stock has been sold out. Since ground no 1 & 2 are interconnected both are considered together. 4. During the course of assessment proceedings, AO noticed that Assessee has availed working capital assistance against hypothecation of stock from bank. He also noticed that the outstanding amount of loan of bank as on 1.4.2003 as per the books of the assessee was Rs. 1,47,88,912/- but however the stock available with the assessee was not to the extent of the credit facility. From the stock statement as on 30.11.2003 submitt....

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....e stocks was much higher than stock mentioned in the stock statement furnished to Bank which is also summarised in para - 8 of appellant's submission hence addition made by Assessing Officer was not justified. It was also argued that in the stock statement furnished to the Bank, appellant has wrongly stated the quantity of grey fabrics on higher side than processed fabrics which was only an inadvertent mistake. It was argued by the appellant that as it has submitted complete quantitative details of stock maintained by it and its Books of Account are audited by independent Chartered Accountant, addition made by Assessing Officer is uncalled for. On careful consideration of entire details submitted by appellant, it is observed that stock statements submitted by appellant to the Bank for the month June 2003 to November, 2003 show the stock of grey and processed cloth. The Assessing Officer has compared the quantity of grey shown in the month of June 2003 to October 2003 and compared the same with book stock during the relevant period and observed that appellant has shown higher quantity of grey in stock statements submitted to the Bank, which is nothing but unexplained purchase....

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.... discrepancy has been observed by Assessing Officer. Even Assessing Officer has not brought on record any independent evidence which can prove that appellant has purchased grey cloth out of undisclosed sources or Assessee was in fact in possession of higher quantity of stock. Assessing Officer has not brought on record that Bank has physically verified and certified the stock available with Assessee with stock statement submitted by appellant to the Bank hence addition made by AO is purely on partial comparison of grey stock ignoring processed stock available with appellant. In nutshell, appellant has shown higher book stock of grey cloth and processed stock in comparison with stock of such two items submitted to bank hence addition made Assessing Officer is unjustified as he has compared only grey stock and ignoring the processed stock. The Assessing Officer while making impugned disallowance relied upon decision of S. Murugappa Chettiyar vs CIT 174 ITR 245 and 201 ITR 192 in para 4.6 of the order and observed that courts have held that when different stock is submitted to two authorizes, higher of the two is required to be adopted for income tax purpose. In the present case, i....

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....refore it is held that assessing Officer was not justified in making addition for unexplained purchase of Rs. 52,50,000 and consequential addition of Rs. 5,25,000 by estimating profit therefore both the additions made by Assessing Officer are deleted. In the result, both grounds of appeal filed by appellant are allowed. 5. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 6. Before us, the DR pointed to the findings and observations of AO and thus supported the order of AO. The Id.A.R. on the other hand submitted that the Assessee deals in two type of fabrics namely grey cloth and processed cloth. In the stock statement submitted to the bank, due to clerical mistake which was unintentional, the quantity of the stock was interchanged and further the stock stated to the bank was Rs. 66.69 lacs whereas as per the books, the value of stock was Rs. 99.45 lacs and as such the total value of stock stated to the bank was not on higher than the book stock. He also pointed to the month wise stock position as reproduced by CIT(A) in his order and further submitted that the value of stock as per books were on higher side that the stock submitted to the bank. He furthe....