Value of stock submitted with bank in excess of what is reported in books to be held as unexplained investment: HC

Case Details: Suraj Bhan Oil (P.) Ltd. v. DCIT - [2022] 138 taxmann.com 19 (Madhya Pradesh)

Judiciary and Counsel Details

• • Rohit Arya & Satish Kumar Sharma, JJ.
  • Yashovardhan Singh, Advocate for the Appellant.

Facts of the Case

Assessee-company was engaged in manufacturing and trading edible oils and grains. The Assessing Officer (AO) examined the stock statement received assessee’s bank. He found the difference in closing stock of raw material, stock-in-process, and finished goods, as well as, in the quantity of stock.

Thus, a notice under section 142(1) was issued and called upon the assessee to explain & give justification for the difference in closing stock position. The assessee was asked to reconcile the position of closing stock with reference to the books of account, purchase and sale vouchers, expense vouchers, bills, and all bank statements.

The assessee failed to do so and thus AO treated the excess value of stock shown in statements submitted to the Bank as an unexplained investment in stock. On appeal, the CIT(A) reduced the addition made by AO. However, the Tribunal set aside the order of CIT(A). Aggrieved-assessee filed the instant appeal before the High Court.

High Court Held

The High Court held that the entire controversy revolves around the question of whether the assessee had been able to explain the difference of stock between the stock submitted to the bank and the stock indicated in the audit report.

There was no dispute that no evidence had been produced by the assessee of the sale and purchase of raw material and finished goods during the relevant period. Hence, the entire gamut of the matter was in the realm of facts and does not give rise to substantial question of law.

Even otherwise, as has been held in a catena of decisions by different High Courts, the practice followed by Industrialists declaring larger than the actual quantity of stock to the Bank to get higher loans or overdraft facility is not recognized as conforming to the fiscal discipline by Courts, Authorities and Tribunals.

Such a tendency is tantamount to commercial immorality for obtaining unjustified gains in the form of higher credit facilities or loans etc. by showing an incorrect statement of stock position to the Bank.

Accordingly, once the AO found that there was excess stock, in absence of explanation by the assessee, the conclusion is inescapable that the excess stock was from undisclosed sources.

List of Cases Reviewed

• • CIT v. Veerdip Rollers (P.) Ltd. [2010] 323 ITR 341 (Guj.) (para 10) distinguished.

List of Cases Referred to

• • CIT v. Veerdip Rollers (P.) Ltd. [2010] 323 ITR 341 (Guj.) (para 9)
  • Dhansiram Agarwalla v. CIT [1993] 201 ITR 192 (Gau.) (para 10)
  • Ramanlal Kacharulal Tejmal v. CIT [1983] 12 Taxman 130/[1984] 146 ITR 368 (Bom.) (para 10)
  • Pooranlal Rajkumar v. CIT [IT Reference No. 117 of 1980, dated 22-8-1989] (para 10)
  • CIT v. South India Rubber Products [1987] 34 Taxman 60/166 ITR 687 (Ker.) (para 10)
  • Coimbatore Spg. & Wvg. Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad.) (para 10).