In a significant ruling the Orissa High Court, dismissed an appeal filed by the Income Tax Department and observed that excess stocks should represent income from undisclosed sources.
The Counsel for the appellant/revenue submitted that the substantial questions of law arise for admission of the appeal against order passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench. It was submitted that 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.
The Counsel contended that 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.
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.
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.
In Malabar Industrial Co. Ltd. v. CIT, the Supreme Court observed that “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.” A Division Bench of Justices Arindam Sinha and SK Mishra observed that “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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