AO Can’t Make Additions Based on Inflated Stock in the Stock Statement Submitted to the Bank: HC

Case Details: SRI Chitta Ranjan Bera v. ITO - [2023] 150 taxmann.com 277 (Calcutta)

Judiciary and Counsel Details

• • T. S. Sivagnanam & Hiranmay Bhattacharyya, JJ.
  • Ananda Sen, Adv. for the Appellant.
  • Smarajit Roychowdhury, Adv. for the Respondent.

Facts of the Case

During the relevant assessment year, the Assessing Officer (AO) noticed the difference in the stock valuation as per books of account and the statement furnished to the bank for approval of cash credit limit. In response, the assessee explained that the stock was declared to the bank purely on an estimate basis. The bank relied upon the stock statement, granted cash credit facility and never physically verified whether physical stock tallies with the stock statement.

Unsatisfied with the response, AO made additions to the assessee’s income based on the stock report submitted to the bank.

On appeal, the CIT(A) confirmed the additions and the Tribunal upheld the same. Aggrieved by the order, the assessee filed the instant appeal before the Calcutta High Court.

High Court Held

The High Court held that the assessee’s income is to be assessed by the AO based on the material which was required to be considered for the purpose of assessment and ordinarily not based on the statement that the assessee gave to a third party unless there is material to corroborate that statement of the assessee given to a third party, even if it be a bank.

Mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had undisclosed income is on the AO. That burden cannot be discharged by merely referring to the statement given by the assessee to a third party in connection with the transaction, which was not directly related to the assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income.

Thus, it is the burden upon the AO to show that the assessee had undisclosed income, and merely by referring to a bank statement, the assessment could not have been completed. Consequently, the assessee’s appeal was allowed.

List of Cases Reviewed

• • M. A. No. 173 (Kol.) of 2008, dated 11-9-2009 set aside.
  • CIT v. N. Swami [2002] 125 Taxman 233 (Mad.) (para 6)
  • CIT v. Acrow India Ltd. [2008] 298 ITR 447 (Bom.) (para 6) followed.

List of Cases Referred to

• • CIT v. N. Swami [2002] 125 Taxman 233 (Mad.) (para 5)
  • CIT v. Acrow India Ltd. [2008] 298 ITR 447 (Bom.) (para 5).