Principal Commissioner of Income Tax 1, Bhubaneswar vs Dimple Murarka

Arindam Sinha, J

Mr. Satapathy, learned advocate, Senior Standing Counsel appears on behalf of appellant/revenue. He submits, there was direction for issuance of notice made by coordinate Bench. The notices have been served but assessee goes unrepresented.

He submits, substantial questions of law arise for admission of the appeal against order dated 25th September, 2022 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench. He submits, though the Tribunal upheld the order of revision made by the Principal Commissioner of Income Tax (PCIT), but interfered with the directions inasmuch as it said that the direction in respect of stock differences found from the record does not require further verification.

He submits, the PCIT had on record, inflated stock statement submitted by the assessee to the bank. Therefore, the difference is to be treated as unaccounted sales. In those facts, interfering with the decision gives rise to substantial questions of law.

He submits, the Tribunal erroneously relied on judgment of the Supreme Court in Malabar Industrial Co. Ltd. v. CIT reported in (2000) 243 ITR 83 (SC), paragraph-11 (Manupatra print). The paragraph is reproduced below.

“11. In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified.

(emphasis supplied)

He relies on view taken by a Division Bench in the High Court of Madras by Coimbatore Spinning & Weaving Co. Ltd. v. CIT reported in (1974) 95 ITR 375 (Mad), paragraph-15 (Manupatra print). The paragraph is reproduced below.

“15. As pointed out already, once the assessee's explanation has not been accepted by the Tribunal, the resultant position is that there were excess stocks undisclosed in the books of account, and that the non-disclosure was only with a view to suppress the income. Once the Tribunal finds that there were excess stocks after rejecting the explanation of the assessee, the conclusion is inescapable that the excess stocks should have come from undisclosed sources. As already pointed out, the finding of the Tribunal that there were excess stocks cannot be interfered with by this court, as it is exclusively a matter for the Tribunal to accept or reject the assessee's explanation on the facts and circumstances of this case, We are, therefore, of the view that the Tribunal is justified in taking the view that the excess stocks should represent the income of the assessee from undisclosed sources.

(emphasis supplied)

He submits, substantial questions of law be framed for admission of the appeal.

Perused impugned order of the Tribunal. It appears therefrom that the Assessing Officer (AO) completed assessment on basis of audit report and copy of ledger, bank statements etc. but the assessee did not produce books of accounts inspite of show cause notice issued to that effect. In the circumstances, the AO completed the assessment and disallowed difference of stock found during course of survey under section 133-A. The PCIT observed that the assessment was erroneous and prejudicial to interest of revenue. Assessee filed appeal before the Tribunal against the order dated 12th March, 2015 passed under section 263.

By impugned order the Tribunal partly allowed the appeal inasmuch as it said that direction of the PCIT in respect of stock difference found from the record is not required to be further verified. Revenue being aggrieved is before us for admission of the appeal on, according to it, substantial questions of law arising on the modification made by the Tribunal in partly allowed in the appeal.

The facts are, the assessment had been made on basis of audit report and copy of ledger bank statements etc., in absence of books of accounts. There was discrepancy found by the AO in taking into account difference of stock found during course of survey. It must be remembered that a survey is finding on physical verification, by survey. Hence, the difference was taken and added back as income of the assessee.

The Tribunal held that the order under section 263 was a good one except the direction for verification of the stock by reason of the PCIT having discovered there was on record inflated stock statement, submitted by assessee to the bank and therefore further verification of stock was necessary. The Tribunal relied on Malabar (supra) for its view that the AO had correctly taken into account the position of stock of the assessee.

In Malabar (supra), it will appear from above quoted paragraph, the Supreme Court noted that the AO had accepted the entry in the statement of account filed by appellant in absence of any supporting material and without making any inquiry. On those facts the conclusion, the Supreme Court said, the order of the ITO was erroneous, is irresistible.

Moving on to Coimbatore Spinning & Weaving Co. Ltd. it is seen that the Division Bench in the Madras High Court took view earlier in point of time, consistent with view taken by the Supreme Court in Malabar (supra). It said, once the Tribunal finds that there were excess stocks after rejecting the explanation of the assessee, the conclusion is inescapable that the excess stocks should have come from undisclosed sources. It is evident that the Tribunal, in that case, found existence of stock as unexplained. Here, the Tribunal noted that the PCIT had only come upon an inflated stock statement and there was no inquiry or verification in respect thereof.

We do not find any substantial question of law arises in the appeal for admission. It is dismissed.

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