IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. I.T.R. No. 1 of 2008 Decided on: 24.11.2009 Ashish Agencies Lower Bazar, Shimla ..…Applicant Versus Commissioner of Income Tax, Shimla ..…Respondent Coram The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr. Justice V.K. Ahuja, J. Whether approved for reporting?1No For the applicant : Mr. Vishal Mohan, Advocate. For the respondent : Mr. Vinay Kuthiala, Advocate. Per Deepak Gupta, J. This reference has been made seeking the opinion of this Court on the following question of law:- “Whether in the facts and circumstances of the case, ITAT was justified in law in restoring the addition of Rs. 1,20,800/- made on assessment simply because of difference in stock statement submitted to bank and as per books of account/stock register, this being a case of mere hypothecation, particularly because no such discrepancy was found as a fat or as a result of any physical checking? Briefly stated the facts of the case are that the Assessing Officer while making assessment under Section 145(2) 1 Whether the reporters of Local Papers may be allowed to see the judgment? Yes 2 of the Income Tax Act, 1961 for the assessing year 1991 found discrepancy of Rs. 1,20,799.50 paise between the stocks of the firm as reflected in the books of the accounts and those reflected in the statements of the accounts given to the banker of the assessee. In the statement of stocks furnished to the bank, the value of the stocks was higher by Rs. 1,20,799.50 paise as compared to the value of stocks shown in the books of the accounts. The Assessing Officer added this amount of Rs. 1,20,799.50 paise to the income of the assessee for the year in question. The matter went up to the Income-Tax Appellate Tribunal which decided the case against the assessee. The present reference has been made to this Court to decide the aforesaid question. The argument made on behalf of the assessee is that as a matter of course while obtaining loan from the bank the goods some times are shown at higher value whereas actually the value of the stocks is less. This plea cannot be accepted. The Madras High Court in 95 ITR 1974 page 375 decided an identical plea and held as follows:- The learned counsel for the assessee, however, submits that the Tribunal should have taken judicial notice of the practice followed by the business houses of declaring larger stocks to the banks purely for the purpose of getting higher loans or overdrafts facilities. We are not convinced that any such practice is shown to exist or that it has been recognized in the commercial circles or by courts. Even assuming that such a practice exists the Tribunal is not expected to take judicial notice of such sub-standard morality on the part of the assessee so as to enable them to go back on their own sworn statements given to the banks as to the stocks held and hypothecated by them to the banks. In a case like this where the assessee is confronted with his own sworn statements which show a different state of affairs then the one shown in his own books of account, heavy burden lies on the assessee to prove that the 3 books of account alone give the correct picture, and the sworn statements given to the banks were motivated. As already stated, in this case the assessee’s books of account have not been accepted by the Income-tax Officer for various reasons. The Appellate Assistant Commissioner also holds that the rejection of the books of account is quite justifiable on the facts and circumstances of this case. The fact that the Appellate Assistant Commissioner did not accept the addition made by the Income-tax Officer on the basis of the gross profit, but proceeded to make the additions for each defect will not lead to the fact that the assessee’s books of account were acceptable as regards the stock position. Having regard to the assessee’s own statements given to the banks which show a larger stock of cotton in respect of C.O. 4 and Cambodia than had been actually shown in the account books, it cannot be said that the rejection of the stock account of the assessee is not warranted, so long as the assessee’s explanation that the stocks were purposely inflected for the purpose of getting higher overdraft facilities from the banks had not been accepted.” The Gauhati High Court approved the law as laid down by the Madras High Court in 204 ITR 1993. The decision of the Gauhati High Court has been affirmed by the Hon’ble Apex Court because the Special Leave Petition filed against the judgment of the Gauhati High Court was dismissed. However, the judgment is not reported. In any event, we are in agreement with the law laid down by the Madras High Court. We, therefore, answer the reference by deciding the question against the assessee. The Registrar General shall send a copy of this order to the Income-Tax Appellate Tribunal. (Deepak Gupta),Judge. (V.K. Ahuja), Judge. November 24, 2009 (vs) 4