Case Law Details

Case Name : Pr. CIT Vs  Gladder Ceramics Ltd. (Gujarat High Court)
Appeal Number : Tax Appeal No. 1032 of 2017
Date of Judgement/Order : 16/01/2018
Related Assessment Year : 2010-11
Courts : All High Courts (5049) Gujarat High Court (463)

Pr. CIT Vs  Gladder Ceramics Ltd. (Gujarat High Court)

Tribunal has compared the stock statement for the year under consideration as per the books of accounts and as submitted to the bank and has found that there was no difference in the stock so far as the quantity is concerned. It was the case of the assessee that it is common practice to give inflated valuation to the bank to avail cash credit facilities which are invariably given on the hypothecation of the stock. It was also the case of the assessee that the price as shown in the books of account was in terms of the cost price and in the statement submitted to the bank was at the market price and hence, there was a difference. Both the Commissioner (Appeals) and the Tribunal have concurrently found that there is nothing on record to show that the bank officials have physically verified stock as on 31.3.2010 and were of the view that on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of accounts and the statement furnished to the banking authorities. More so, when the stock statement given to the bank reflects inflated value of the stock otherwise there being no difference in the quantity. In view of the fact that both, the Commissioner (Appeals) as well as the Tribunal have recorded a concurrent finding of fact that there was no difference in the quantity of stock as reflected in the books of account and in the statement submitted to the bank, it is not possible to state that the conclusion arrived at by the Tribunal suffers from any legal infirmity.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

1. The appellant-revenue in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act) has challenged the order dated 23.1.2017 made by the Income Tax Appellate Tribunal, Ahmedabad Bench “A” (hereinafter referred to as “the Tribunal”) in ITA No.386/Ahd/2014, by proposing the following two questions stated to be substantial questions of law:

“[A] Whether the Appellate Tribunal erred in law on facts in deleting the addition of Rs.1,19,23,142/- under section 69B of the Act?

[B] Whether the Appellate Tribunal erred in law on facts in deleting the addition of Rs.97,56,376/-?”

2. The assessment year is 2010-11. The assessee company is engaged in the business of manufacturing and trading of tiles. The assessee filed return of income on 30.9.2010 declaring total income of Rs.14,68,702/-. The case was taken up for scrutiny. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee was enjoying cash credit facility from Dena Bank against hypothecation of stock. Upon verifying the stock statement submitted to the bank, the Assessing Officer noticed that the assessee had shown excess stock to the bank. The Assessing Officer called upon the assessee to explain the difference. According to the assessee, the stock shown in the books of accounts was at cost price, whereas the same had been shown in the statement submitted to the bank at market value to avail higher drawing power and cash credit facilities. The Assessing Officer was not convinced by such explanation and held that the stock declared to the bank was the actual stock and that the assessee had suppressed its closing stock by Rs.1,19,23,142/- and added the same to the income of the assessee. The assessee carried the matter in appeal before the Commissioner (Appeals), who found that there was no difference so far as the quantitative details are concerned and deleted the addition. The revenue carried the matter in appeal before the Tribunal, but did not succeed.

3. While scrutinizing the return of income, the Assessing Officer also found that the assessee had received loans from Akik Tiles Pvt. Ltd. amounting to Rs.70,85,670/- and Rs.80,469/- from Marbolite Granito India Ltd. The Assessing Officer was of the belief that the assessee company had substantial interest in these two companies and therefore, the provisions of section 2(22)(e) of the Act would apply. The assessee objected to the proposed addition stating that the provisions of section 2(22)(e) of the Act do not apply to the facts of the case. The Assessing Officer held otherwise and made an addition of Rs.97,56,379/- as deemed dividend under section 2(22)(e) of the Act. The assessee carried the matter in appeal before the Commissioner (Appeals), who held in favour of the assessee. Revenue went in appeal before the Tribunal, but did not succeed.

4. M.R. Bhatt, Senior Advocate, learned counsel for the appellant assailed the impugned order by reiterating the grounds set out in the memorandum of appeal and in the assessment order.

Insofar as the issue raised vide proposed question “A” is concerned, a perusal of the impugned order reveals that the Tribunal has compared the stock statement for the year under consideration as per the books of accounts and as submitted to the bank and has found that there was no difference in the stock so far as the quantity is concerned. It was the case of the assessee that it is common practice to give inflated valuation to the bank to avail cash credit facilities which are invariably given on the hypothecation of the stock. It was also the case of the assessee that the price as shown in the books of account was in terms of the cost price and in the statement submitted to the bank was at the market price and hence, there was a difference. Both the Commissioner (Appeals) and the Tribunal have concurrently found that there is nothing on record to show that the bank officials have physically verified stock as on 31.3.2010 and were of the view that on account of inflated statements furnished to the banking authorities for the purpose of availing of larger credit facilities, no addition can be made if there appears to be a difference between the stock shown in the books of accounts and the statement furnished to the banking authorities. More so, when the stock statement given to the bank reflects inflated value of the stock otherwise there being no difference in the quantity. In view of the fact that both, the Commissioner (Appeals) as well as the Tribunal have recorded a concurrent finding of fact that there was no difference in the quantity of stock as reflected in the books of account and in the statement submitted to the bank, it is not possible to state that the conclusion arrived at by the Tribunal suffers from any legal infirmity.

6. As regards proposed question “B”, section 2(22)(e) of the Act says that “dividend” includes any payment by a company by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than ten percent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. In the present case, the assessee has not made any payment by way of advance or loan to a shareholder, but on the contrary, has received a loan from Akik Tiles Pvt. Ltd. and Marbolite Granito India Ltd. Therefore, if at all the provisions of section 2(22)(e) of the Act were applicable, it would be applicable to the companies who have made such payments, provided the assessee had the requisite share holding. In the present case, the assessee is a recipient of such amounts and hence, the Tribunal was wholly justified in holding that there was no question of invoking section 2(22)(e) of the Act.

7. In the light of the above discussion, it cannot be said that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law warranting interference. The appeal, therefore, fails and is, accordingly, summarily dismissed.

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