Whether if excess stock found in assessee's premises is later claimed to be of sister concern which has also paid tax on same, assessee can still be penalised with tax liability on same - NO: Supreme Court

THE issue before the Bench is - Whether if excess stock found in the assessee's premises is later claimed as sister concern's stock which has also paid tax on the same, the assessee can still be penalised with tax liability on the same. NO is the answer.

Facts of the case

Assessee firm is engaged in the business of manufacture of PVC pipes. Revenue conducted Survey operations on its factory premises and physically verified the stock of the value of 16,92,420/-. Statement of both the partners were recorded under section 131 of the Act. In the said statement, it was admitted that the stock as per books was around Rs. 3 lakhs and the excess stock of Rs. 13,92,000/- was, accordingly, admitted. On this basis, the addition was made and the assessment order was passed for the assessment years 1992-1993 and 1993-1994.

Before the Commissioner (Appeals), the assessee sought to explain this difference by alleging that up to 23.09.1993, sales of 32809 Kg. of finished products was made by one of the sister concerns of the assessee, namely, M/s Ashish Agro Plast Private Limited, and the same was wrongly shown to be that of the assessee. On this plea taken by the assessee, in support of which some documents / materials were also filed, the Commissioner (Appeals) asked for remand report from the assessing authority. Before the assessing authority, the representatives of assessee were asked to produce the books of accounts of M/s Ashish Agro Plast Private Limited for the assessment years 1993-1994 and 1994-1995. It was found that the sales of the finished product of 32809 Kg. as shown in the sales register of the sister concern tallied with the impounded stock register. It was also found that the sales proceeds was received by the sister concern, namely M/s Ashish Agro Plast Private Limited through its bank account in Bank of Baroda, Dudheshwar Road Branch, Ahmedabad. The cheques received against those sales were cleared even prior to the date of survey. Notwithstanding the aforesaid finding which vindicated the stand of the assessee to the aforesaid extent, it was further found that the sale of 33682 Kg. of finished goods was nothing but unaccounted sales out of which 32809 Kg. sales was made to the aforesaid sister concern of the assessee. Taking into consideration this aspect, the Commissioner upheld the order of the assessing authority justifying the additions made on account of unaccounted production, sales and closing stock of finished products.

This order was upheld by the Income Tax Appellate Tribunal as well as the High Court. In fact, the High Court dismissed the appeal of the assessee preferred under Section 260A of the Act on the ground that no substantial question of law arose.

On appeal, the Apex Court held that,

++ normally, going by the aforesaid facts noted, the High Court may be correct in its observation that no substantial question of law arose. However, the counsel for the assessee had brought to our notice a different aspect which was raised at the time of admission of the present special leave petition filed by the assessee. He drew our attention to orders dated 27.02.2004 which reads as under: -

"Leave granted limited to the question as to whether in respect of sales of 32,809 kg., which are shown in the stock register of M/s. Ashish Agro Plast Private Limited, there has been double taxation."

++ it is clear from the above that leave was granted limited to the question as to whether the addition made on account of aforesaid sale would amount to double taxation. To put it differently, the submission of the counsel for the assessee is that on the aforesaid sales, which are found in the accounts of M/s Ashish Plastic Industries, the receipts are shown as income on which tax has been paid by M/s Ashish Agro Plast Private Limited. During the hearing of this appeal, the counsel submitted that he can bring satisfactory evidence in support of this plea. We are of the view that the order of the authorities below should be sustained but if the assessee is able to prove that tax on the income generated from the sale of the aforesaid 32809 Kg. of material has been paid by M/s Ashish Agro Plast Private Limited, benefit thereof should be extended to the assessee;

++ for this purpose, therefore, we remand the case back to the assessing authority, who shall give an opportunity to the assessee to demonstrate as to whether the sister concern has already paid the tax on the aforesaid income from the aforesaid sales and if that is shown, to the extent tax is paid, benefit shall be accorded to the assessee.