Allahabad H.C : Whether the Tribunal was legally correct in confirming the order of the CIT (A) deleting the addition of Rs. 1,68,410 despite the fact that the appeal of the assessee was earlier dismissed by the Tribunal ?

Counsel Appeared

Bharatji Agarwal, for the Revenue : Vikram Gulati, for the Assessee

OM PRAKASH, J.:

This is an application under s. 256(2) of the IT Act, 1961, by the CIT for asking the Tribunal to state the case on the following questions : Whether the Tribunal was legally correct in confirming the order of the CIT (A) deleting the addition of Rs. 1,68,410 despite the fact that the appeal of the assessee was earlier dismissed by the Tribunal ? Whether the Tribunal was justified in relying on the bank letter filed by the assessee before the Tribunal and ignoring the letter of the bank dated February 7, 1982, certifying the physical verification of stock worth Rs. 3,80,446 as on February 28, 1979 ? Whether on the facts and circumstances of the case, the Tribunal was justified in confirming the order of the CIT (Appeals) deleting the addition of Rs. 1,68,401 ? Whether the findings of the Tribunal are not contrary to its own findings recorded in the assessee’s appeal before the Tribunal in their earlier decision ? Whether the Tribunal was justified in observing that there was no material on the basis of which one could rebut the submission of the assessee that the head office did not have the knowledge of the sale of the goods and was thus wrong to place the onus of proof or to ask the Department to produce material in rebuttal ?”

The brief facts are that the assessee availed of overdraft facility from the State Bank of India, Bulandshahr, where the head office of the assessee engaged in the business of manufacture and sale of stainless steel utensils and water handpumps is situated. To avail of the overdraft facility, the assessee hypothecated certain stocks of raw materials as well as its products with the bank on February 28, 1979. The ITO called upon the assessee to produce the certificate of the bank showing the stock position hypothecated as on February 28, 1979. The ITO found a discrepancy in the stock hypothecated with the bank on February 28, 1979, and the stock shown in the books of account. Whereas the certificate of the bank showed that the assessee hypothecated 180 kgs. stainless steel sheets, 2,301 kgs. stainless steel utensils and other items, for example, moulding, bent, leather ring, etc. worth Rs. 17,650, the account books showed nil stock of stainless steel sheets and of moulding leather, etc., and the books showed stock of stainless steel utensils only at 455 kgs. both in the head office and at branch office situated in Delhi. The ITO, therefore, drew the inference that the assessee kept the stock outside the books and assessed the income of the assessee from undisclosed sources at Rs. 1,68,410. This addition was deleted in appeal by the CIT (A) as well as by the Tribunal.

The assessee submitted an explanation to the ITO that the head office had transferred stock worth Rs. 3,80,446 to the branch office which was sold by the branch office till the date of the hypothecation, but the statement of account was not sent by the branch office to the head office and, therefore, the latter remained under the impression that the stock transferred to the branch office remained intact and, therefore, the head office hypothecated the same to the State Bank of India. Such stock was of stainless steel utensils. The assessee explained that the accounts in the head office are posted only when the accounts position is known from the branch office and as the latter was slow to communicate the accounts position of sale and stock to the head office, the mistake took place in the head office in hypothecating the same stock to the bank which was already sold in February, 1979, by the branch office. Regarding stainless steel sheets, the explanation was that the entire raw material of 180 kgs. sheets was damaged and, therefore, it was shown as nil in the books. But, as the overdraft facility was to be availed of, the same was hypothecated with the bank. Regarding the stock of moulding, bent, leather, ring, etc., the assessee explained that as it is a manufacturing concern, such stock was used in the manufacturing but was still erroneously hypothecated with the bank.

It was also submitted that the stock was merely hypothecated with the bank which means that the goods remained in the possession and control of the assessee and that they were not physically verified at the time of the hypothecation. To support this contention, the assessee submitted a letter from the bank manager which has been reproduced by the Tribunal in its order. The bank manager corroborated in his letter that the stock was merely hypothecated but it remained in the control of the assessee and that system was based on the credibility of the borrower. The letter does not support the contention of the Revenue that a physical verification of the stock was made by the bank, and, therefore, there is no scope for the assessee to furnish any explanation for the stock.

The findings recorded by the Tribunal on the foregoing facts are findings of fact and no question of law arises therefrom. The CIT (A) and the Tribunal both accepted the explanation of the assessee and the question whether the explanation furnished by the assessee was acceptable or not, is not a question of law but merely of fact.

For the above reasons, the application is rejected.

[Citation : 172 ITR 173]