- (1.) WE have heard Sri Shambhu Chopra for the Revenue. Sri R.S. Garg appears for the Assessee.
(2.) IN this Income Tax Reference, under Section 256 (2) of the Income -tax Act, 1961, the Court directed the Income Tax Appellate Tribunal, to draw up statement of the case, and to refer the following question of law, for its consideration. "Whether on the facts and in the circumstances of the case the Hon'ble Tribunal was right in law in recalling its order dated 6.11.1990, which had become final u/s 254 (2) of the Act in exercise of its inherent power and in restoring the appeal of its file? " The Income -tax Appellate Tribunal has drawn up the statement of case, and forwarded the reference application on 30.04.1997.
(3.) THE facts leading to this reference are as follows: - "The assessee, by status a private limited company was engaged in the manufacture and sale of black and galvanized steel tubes. For the year under consideration, it had filed its return declaring a loss of Rs.2,67,520/ -. The relevant assessment was completed by the Income -tax Office, Central Circle IV, Kanpur (A.O.) vide order u/s 143 (3) read with Section 144 B of I.T. Act, 1961 dated 25.9.1994 on a total income of Rs.10,92,020/ -. The major addition made by the A.O. was of Rs.10,78,886/ - on account of difference in respect of three items of stock in the stock statements submitted to the Hindustan Commercial Bank with whom such stocks had been hypothecated for obtaining the overdraft facility and the stocks as per the book of account. The A.O. took the 'peak' of each items as the base for making the addition. The entire addition was deleted by the Commissioner of Income -Tax (C.I.T.) (Appeals), Kanpur vide order dated 14.03.1985. On appeal by the Department, The Tribunal vide is order dated 30.10.1985, in I.T.A. No. 919 (Alld) of 1985, set aside the order of the C.I.T. (Appeals) on this issue, with specific directions. Vide his order dated 22.12.1986, passed in pursuance of the directions of the Tribunal, the C.I.T. (Appeals) found the entire addition of Rs.10,78.886/ - to be unsustainable and hence the same was deleted. In appeal by the department, the Tribunal in its order dated 6.11.1990, rendered in I.T.A. No. 447 (Alldd) of 1987 observed that in the circumstances of the case it was the responsibility of the assessee to explain each and every ounce of the discrepancy but it had failed to discharge this onus. The tribunal held that the conclusion of C.I.T. (Appeals) that the addition was not merited could not be sustained by it. It was concluded that this was a fit case where provisions of Sec. 69 B of the Act could be applied for sustaining the addition arising out of the discrepancy of stocks. It was further held that the binding decision of the Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd reported in 125 ITR 33 squarely covered the facts of the present case. Following this decision, the Department's appeal was allowed and the order of the A.O. restored. On a Miscellaneous Application moved by the assessee in relation to the Tribunal's order dated 6.11.1990, the Tribunal observed that the assessee's case was that of hypothecation of stocks whereas a plain reading of the Allahabad High Court judgment in the case of Swadeshi Cotton Mills Co. Ltd (125 ITR 33), which was held to be binding on the Tribunal while deciding this case, showed that it was that of pledge and even in that situation the Hon'ble High Court had held that it can at the worst lead to rejection of accounts and estimation of profits and not that the entire irregularity itself could be converted into money value and added to the income of the assessee. Therefore, with a view to ensuring that the principle laid down by the jurisdictional High Court in the case of Swadeshi Cotton Mills (supra) was followed in this case also both in letter and spirit, the Tribunal, vide its order dated 30.07.1993 in M.A. No. 67 (Alld) of 1991 recalled its order dated 6.11.1990 for the limited purpose of finding out as to what was the quantum of addition called for on account of excess stocks declared to the Bank." ;