IN HIGH COURT OF JUDICATURE AT MADRAS DATE : 25.02.2015 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MR. JUSTICE R.KARUPPIAH T.C.A. NO. 1526 OF 2007 Commissioner of Income Tax Chennai. .. Appellant - Vs - S.K.Usman Ali .. Respondent Appeal filed under Section 260-A of Income Tax Act against order dated 27.7.07 passed by Income Tax Appellate Tribunal, Madras 'C' Bench, Chennai, made in ITA No.2013/Mds/2005. For Appellant : Mr. M.Swaminathan For Respondents : Mr. T.N.Seetharaman JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by order of Tribunal in dismissing appeal filed by it, appellant/Revenue is before this Court by filing present appeal. This Court, vide order dated 19.12.2007, admitted appeal on following substantial question of law :- In facts and circumstances of case, whether 2 Tribunal was right in law in deleting addition on basis that stock report furnished by assessee though morally bad cannot be reason for making addition, particularly when in assessee's own case in respect of earlier year on similar set of facts, matter has been remitted back to authorities concerned? 2. This case relates to difference in value of closing stock reckoned on basis of value determined by bank and value disclosed by books of account as furnished to commercial taxes department. Based on difference in value as provided to bank and as reckoned from books of accounts furnished to commercial taxes department, Assessing Officer came to conclusion as follows :- Further, physical inventory of stock present was taken. stock as per assessee's books was worked out as :- Position as per Books Opening stock as on 01.04.2000 as per : 2,44,90,732.40 P&L Account Purchase as on 09.01.01 as per : 3,02,58,082.09 Purchase Register : 5,47,48,814.49 Sales as per Register 3,66,76,291.28 58,68,206.60 3,08,08,084.68 3,08,08,084.68 2,39,40,729.81 Closing stock as on 09.01.2001 - 2,39,40,730.00 However, physical inventory was found to be only 3 Rs.1,17,53,991/=. In order to consider discrepancies found during survey operations, notice under Section 148 dated 18/04/2001 was served on assessee on 21.04.2001. Notices u/s 143 (2) was issued on 03.11.2004 and duly served on assessee, in response to which Shri Mhd.Khalilullah, CA was present from time to time and case was heard. After verification of details called for and as per materials available on record and gathered during survey operations, assessment is completed as under. 1. Suppression of closing stock : During course of assessment, Asst. General Manager of Bank of India, Shri R.S.Naik from where assessee has procured credit facilities, was summoned and was asked to produce copies of assessee's stock statement as given to bank. perusal of same showed that assessee had furnished detailed stock statement as on 31.03.2001 to bankers i.e., Bank of India of Rs.6,10,29,770/=. However, assessee has shown closing stock in return of income as on 31.03.2001 of only Rs.2,55,10,315/=. In respect of discrepancy in stock shown in return, assessee was requested to offer explanation. In response to this, assessee stated through various submissions and petitions that stock as shown in return is correct one and he has been giving inflated figures of stock to bank for availing higher credit facilities from bank. 3. On the basis of above findings, Assessing Officer held as under :- 4 In assessee's case, assessee has not maintained proper stock book and even stock found during physical inventorisation during survey does not match with assessee's book stock. Hence, case laws quoted by assessee do not hold good in his case. Hence assessee has suppressed stock worth Rs.3,55,18,955/-. same is added back to his income as unaccounted investment. Further, assessee has under reported gross profit on same at 18.5% and hence Rs.65,71,006/- is added back to assessee's income on this count. 4. Aggrieved by said order of assessment, assessee moved before CIT (Appeals), who held in favour of assessee following decision in Commissioner of Income Tax Vs Anandha Metal Corporation (2005 (273) ITR 262). relevant portion of order of CIT (Appeals), for better clarity, is extracted hereunder :- During course of hearing, learned AR submitted that on identical facts my predecessor in office had deleted similar addition vide his order (supra) and since AO has not pointed out any fresh facts, I should also follow aforesaid decision of my predecessor. He reiterated arguments which he had put during course of hearing of appeal for assessment year 2000-01, which apart from narrating judicial pronouncements also gave justification by saying that GP rate for assessment year 2001-02 is 18% as against GP rate for immediately preceding year at 16.42%. In written submissions dated 14.6.2005, running in 5 5 pages, he also relied on recent Madras High Court decision in case of CIT Vs Ananda Metal Corporation (273 ITR 262). In said decision, High Court had stated that once Sales Tax authorities had accepted figure of sales, purchases and stock, Income Tax authorities do not have any justification to tinker with stock declared before sales tax authorities and accepted by them. learned AR also filed copy of Sales Tax assessment for year under consideration in which book results of applicant have been accepted. 5. Department, aggrieved by above order, pursued matter in appeal to Tribunal. Tribunal, taking note of aforesaid decision in Ananda Metal Corporation case (supra), as also its own order in ITA No.774/Mds/06, held as follows:- 9. We find that facts in present case are identical to one dealt by this Tribunal in I.T.A. No.774/Mds/06 for assessment year 2002-03 in case of Shri Mitesh Dugar Vs Income Tax Officer. In this case (to which both of us were party) following was concluded :- Upon careful consideration of issue, we find that authorities below have not detected any mistake or omission in books of accounts or stock records of assessee. It is also not case that bank authorities have verified assessee's stock in relation to position at close of year. Under such circumstances, as expounded by Hon'ble jurisdictional High Court in case of CIT Vs N.Swamy 241 ITR 363, burden was upon Revenue to prove that 6 stock submitted to Revenue authorities was erroneous. This burden could not be discharged by merely referring to statement of assessee to third parties. Under circumstances and respectfully following precedent, we set aside orders of authorities below and decide issue in favour of assessee. 10. Considering present case on prism of aforesaid, in our opinion, there was no cogent material before Assessing Officer to conclude that stock statement submitted to bank was sacrosanct and actual representative of assessee's stock. In this view of matter, we delete addition on account of suppression of stock. Since addition on account of suppression of stock has been deleted, question of addition of gross profit thereon does not arise. In background of aforesaid discussion and precedents, we decide both issues raised in favour of assessee and against Revenue. Aggrieved over said order of Tribunal, present appeal has been filed by Department. 6. When case was taken up, upon hearing counsel for parties, with consent of counsel on either side, question of law is reframed in following manner :- Whether sales figures and turnover assessed by sales tax authority could be relevant for determining turnover of assessee and not otherwise? 7 7. Heard learned standing counsel appearing for appellant/Revenue and learned counsel appearing for respondent on reframed question of law and also perused materials placed on record. 8. primary reason for Department to file present appeal stems from earlier order of Tribunal in respect of assessee's own case for earlier year, wherein Tribunal had remanded case back to Assessing Officer. However, in present case, appeal has been allowed and, therefore, no uniformity has been maintained. 9. Though above plea has been made by Department, this Court is not inclined to entertain this appeal on question of law raised at this point of time in view of subsequent decision of this Court, which is also on same issue, rendered in case of Commissioner of Income Tax Vs Smt. Sakuntala Devi Khetan (2013 (352) ITR 484 (Mad)), wherein it has been clearly held that Assessing Officer has to adopt figures and turnover finally assessed by sales tax authorities. Similar issue was also considered in case of CIT Vs - Anandha Metal Corporation (2005 273 ITR 262 (Mad)), and held in favour of 8 assessee, which decision has been followed by Tribunal in assessee's own case for earlier year, wherein matter was remanded back. In view of consistent view of this Court as could be found from above decisions, this Court is of considered view that contention of Department has to fail. Accordingly, substantial question of law is answered in favour of assessee and against Revenue. 10. In result, appeal fails and same is dismissed. However, in circumstances of case, there shall be no order as to costs. (R.S.J.) (R.K.J.) 25.02.2015 Index : Yes/No Internet : Yes/No GLN To 1. Commissioner of Income Tax Chennai. 2. Income Tax Appellate Tribunal Madras 'C' Bench, Chennai. 9 R.SUDHAKAR, J. AND R.KARUPPIAH, J. GLN T.C.A. NO. 1526 OF 2007 25.02.2015 Commissioner of Income-tax, Chennai v. S. K. Usman Ali