Unsigned Stock Statement Plea Not Enough to Escape Addition when OD Benefit Undisputed: P&H HC [Read Order]

The Punjab and Haryana High Court has held that a taxpayer cannot escape income tax addition merely by disputing that stock statements furnished to a bank were unsigned, when the taxpayer enjoyed the overdraft (OD) facility.

The court said that the OD facility based on stock statements was undisputed and the bank procedure clearly links such statements with drawing power.

The appeal was filed by M/s Loomba Manufacturing Syndicate, Ludhiana, under Section 260A of the Income Tax Act, 1961. The company challenged the ITAT Chandigarh order dated 09.02.2009.

The issue was based on additions made by the Assessing Officer on the basis of stock statements submitted to the bank for overdraft facilities. This was the second round of litigation.

In an earlier round, the High Court had held in 2004 that stock statements not signed by any partner and not filed by or on behalf of the firm could not be the sole basis of addition.

However, it had remanded the matter with directions to give the assessee an opportunity to prove that the stock statement was not signed by it and to allow cross-examination of the concerned bank manager or his successor.

After the remand, the matter went back through the Tribunal to the Assessing Authority. During fresh proceedings, the bank’s Deputy Manager was examined and cross-examined.

Although the original records had been weeded out due to the age of the account, the bank official explained the standard procedure followed for overdraft facilities against hypothecation of stock.

He stated that stock was kept under the lock and key of the bank’s godown keeper, who prepared stock statements, and such statements were required to be confirmed by the firm through partner signatures.

He further clarified that unsigned statements were not entered in the bank’s record and that these statements directly determined the drawing power available to the borrower.

After this examination, the Assessing Officer again treated the bank stock statements as reliable and sustained the addition. The CIT(A) and ITAT affirmed the view.

Before the High Court, the assessee argued that the addition was unsustainable because the stock statements relied upon were not signed by any partner and thus could not be used against it, especially when earlier directions of the Court required proper verification.

The Revenue, however countered that all authorities had recorded concurrent findings of fact and that the assessee had been granted full opportunity to rebut the stock material and cross-examine the bank official, but failed to dislodge the evidentiary value of the statements.

The High Court noted that while its earlier order had warned that unsigned stock statements alone should not be the sole basis of addition. It had also directed fresh opportunity and cross-examination which was duly provided.

The bank official confirmed the standard safeguards: stock statements were prepared based on actual stock held under bank control, required partner confirmation, and formed the basis for computing drawing power.

The Court also noted that the assessee never disputed that it actually availed overdraft facilities on the strength of those stock statements. Once OD benefit based on stock disclosure was accepted, it was highly improbable that the statements were fabricated or unrelated to the assessee’s business.

Accordingly, the bench of Justices Jagmohan Bansal and Yashvir Singh Rathor Court upheld concurrent findings of the tax authorities and the ITAT that the stock disclosed to the bank could validly be relied for making addition.

The appeal was dismissed.

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