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I.T.C.No.29 of 1988 - 1 -


I.T.C.No.29 of 1988

Date of decision: 12.12.2005

M/s Gupta Spinners, Ludhiana



Mr.S.C.Nagpal Advocate


The Commissioner of Income-tax, Patiala



Mr.D.S.Patwalia, Advocate

Hon'ble Mr.Justice D.K.Jain, Chief Justice Hon'ble Mr. Justice Hemant Gupta

1. Whether Reporters of local papers maybe allowed to see the judgment ?

2. To be referred to the Reporters or not ?

3. Whether the judgment should be reported in the Digest? D.K.Jain, C.J. (Oral)

By this petition, under Section 256(2) of the Income-tax Act, 1961 (for short, `the Act'), the assessee seeks a direction to the Income-tax Appellate Tribunal, Chandigarh Bench (for short, `the Tribunal') to state the case and refer the following questions, which, according to the assessee, I.T.C.No.29 of 1988 - 2 -

arise from the order of the Tribunal, dated 30.4.1986, in I.T.A.No.269 of

1984. The case pertains to the assessment year 1978-79. 2- Although, in its application under Section 256(1) of the Act, the assessee had proposed as many as eight questions, but at the time of hearing of the application before the Tribunal, it confined its application to only following three questions. We shall, therefore, examine whether these three questions are questions of law, fit for reference to this Court: "(1) Whether on the facts and circumstances, the Tribunal having held that no action under Section 69 and 69B of the Income-tax Act, 1961 could be taken, was justified in law to add Rs.1,67,166/- on account of sales of woollen worsted yarn and acrylic yarn without accounting for the purchase price of the same ?

(2) Whether on the facts and circumstances of the case, the sale price of 3372 kgs. of woollen worsted yarn and 345 kgs. of acrylic could be brought to tax without regard to the purchase price of the corresponding quality and quantity of yarn ?

(3) Whether the findings of the Tribunal regarding the non-existence of first four parties is not vitiated it having been arrived at by taking into consideration irrelevant material which had not been confronted to the assessee?"

I.T.C.No.29 of 1988 - 3 -

3- In order to appreciate the controversy involved, a brief reference to the facts would be necessary. These are as follows: During the course of assessment proceedings for the relevant assessment year, scrutiny of the books of account of the assessee revealed that the assessee had made sales of worsted woollen yarn and acrylic yarn, on certain dates, when no stock was available with it. In other words, there was negative stock with the assessee when sales were effected. The Income- tax Officer worked out the position of such negative sales upto 18.3.1978 in respect of the worsted woollen yarn and up to 23.3.1978 in respect of the acrylic yarn. No stock of woollen yarn was available with the assessee as on 18.3.1978. Similarly, on 23.3.1978, the stock of acrylic yarn was nil.

Having found so, the Income-tax Officer proceeded to verify the position of purchases and sales of worsted woollen yarn and acrylic yarn from 19.3.1978 to 31.3.1978 and 24.3.1978 to 31.3.1978 respectively, being the last date of the accounting period. In so far as the worsted woollen yarn was concerned, he found that during the said period, total purchases and receipts of worsted woollen yarn were of 6922 kgs; sales/ returns were 1920 kgs, leaving a balance of 4802 kgs. with the assessee as on 31.3.1978. However, the assessee had shown the closing stock of worsted woollen yarn as on I.T.C.No.29 of 1988 - 4 -

31.3.1978, at 290 kgs. only. He, therefore, held that there was understatement of stock in the closing stock to the extent of 4512 kgs. of worsted woollen yarn. Similarly, in respect of acrylic yarn, on the basis of a similar calculation, he found that 743 kgs. of acrylic yarn should have been available with the assessee, as on 31.3.1978, but only 498 kgs. were shown to be available. In the acrylic yarn account also, understatement of 245 kgs.

was found. Thus, the Income-tax Officer was of the opinion that the assessee had sold this much stock outside the books of account. He, accordingly, proposed an addition, on account of suppressed sales, to the extent of Rs.2,00,784/- in worsted woollen yarn account and Rs.18,375/- in the acrylic yarn account. The Income-tax Officer also examined the question from a different angle, namely, the availability of the stock as on 31.3.1978, taking into consideration the purchases and sales made from 18.3.1978 to 31.3.1978 for worsted wollen yarn and from 23.3.1978 to 31.3.1978 for acrylic yarn, i.e., for the periods after the last dates for sales made against the negative stocks. In this situation, the Income-tax Officer found that the assessee had understated the closing stock of worsted woollen yarn for this period by 4512 kgs. and that of the acrylic yarn at 345 kgs. The Income-tax Officer observed that this was neither reflected in the closing stock nor in I.T.C.No.29 of 1988 - 5 -

the sales account for the subsequent years. He, therefore, inferred that stocks to this extent were sold outside the books of account, though the purchases thereof were debited in the books of account. He, accordingly, proposed to make addition on account of suppressed sales of the closing stocks, as determined in the latter situation.

4- The assessee, when confronted with the said discrepancies, stated that it had borrowed the excess stocks from some parties and the same were returned to them during the relevant previous year itself and therefore, it did not find mention in the books of account. The Income-tax Officer examined the stand of the assessee, in respect of each of the parties, and came to the conclusion that there was no substance in it. After seeking instructions from the Inspecting Assistant Commissioner, under Section 144-B of the Act, the Income-tax Officer made addition of Rs.1,50,188/- in worsted woollen yarn account and addition of Rs.16,975/- in acrylic yarn account to the declared profits.

6- Being aggrieved, the assessee took the matter in appeal before the Commissioner of Income-tax (Appeals). The Commissioner accepted the plea of the assessee that certain stocks were borrowed from various parties on temporary basis to meet the exigencies of the situation I.T.C.No.29 of 1988 - 6 -

and the same were, later on, returned and therefore, these were not reflected in the books of account. He, accordingly, deleted the addition.

7- Not being satisfied with the decision of the Commissioner, the Revenue took the matter in further appeal to the Tribunal. By the impugned order, the Tribunal has come to the conclusion that provisions of Sections 69 and 69B of the Act are not attracted on the facts of the case.

Nonetheless, on the question whether the goods had been temporarily borrowed by the assessee from various parties, the Tribunal has found that the assessee has failed to even identify four of the parties; their addresses were not available; these were not produced before the Income-tax Officer and further enquiries made by the Inspector revealed that no such parties were available at the addresses given. Thus, the Tribunal has come to the conclusion that the assessee has failed to prove that the stocks had been temporarily borrowed. Finally, the Tribunal has held that there is no evidence of the stock having been reflected either in the books of account for the accounting period, relevant to the assessment year under reference or in the subsequent year and therefore, the necessary inference is that such stocks have been sold by the assessee and the sale proceeds have not been I.T.C.No.29 of 1988 - 7 -

recorded in the books of account. Accordingly, the Tribunal has sustained the additions made by the Assessing Officer.

8- Assessee's application under Section 256(1) of the Act, having been dismissed by the Tribunal, the present petition has been filed.

9- We have heard Mr. S.C.Nagpal, learned counsel appearing on behalf of the assessee and Mr. D.S.Patwalia, learned counsel appearing on behalf of the Revenue.

10- We are of the view that none of the proposed questions can be characterized as a question of law. Insofar as the second question is concerned, we are in agreement with the Tribunal that the same does not arise at all from Tribunal's order. Insofar as the first question is concerned, the issue with regard to the applicability of Sections 69 and 69B of the Act, having been decided in its favour, the assessee cannot make out a grievance on that score. The issue with regard to the purchase price of the corresponding quality and quantity of the yarn has not been considered by the Tribunal and therefore, the latter part of the question also does not arise from the impugned order. As regards the third question, as noted above, the Tribunal has recorded a clear finding that the assesee has failed to establish the identity of these four parties, inasmuch as, neither their addresses were I.T.C.No.29 of 1988 - 8 -

available nor these were produced by the assessee before the Income-tax Officer. The finding recorded by the Tribunal in this behalf is a pure finding of fact, giving rise to no question of law.

11- For the foregoing reasons, we have no hesitation in holding that none of the three questions, proposed by the assessee, are questions of law, fit for reference to this Court.

12- Accordingly, the petition is dismissed with no order as to costs.

( D. K. Jain )

Chief Justice

( Hemant Gupta)





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