H.N. Seth, J.
1. This is a reference under Section 66(2) of the Indian Income-tax Act, 1922, in pursuance of an Older made by this court on 6th August, 1964. The Tribunal was required to submit a statement of case in respect of the following question :
' Whether it was legal for the Tribunal to work out unaccounted-for stocks pledged with the bank as on 8th April, 1957, with the assessee's stocks as obtaining on 8th April, 1957 '
2. The assessee in this case is Messrs. Gopi Nath Hari Kishan and the assessment year in question is the year 1958-59. The income-tax authorities have proceeded on the basis that the relevant accounting year is from 19th April, 1956, to 7th April, 1957. The assessee carried on business of rice milling, oil crushing and purchase and sale of grain at its head office at Achalda and branch office at Bharthana. In order to carry on the milling operation it maintained stocks of paddy and rice at both the places, which were pledged with the State Bank of India for securing overdraft facilities. The Income-tax Officer noticed that on the date on which the assessee closed its books, they showed that there was 50 mds. of paddy and 2,865 mds. of rice at the head office, and 1,011 mds. paddy and 2,156 mds. at the branch office. Since the assessee had pledged its stock of paddy and rice with the State Bank of India it was required to produce a certificate from the bank showing the stock position of the paddy and rice pledged with the bank on various dates. From the bank certificate it appeared that stock pledged with the bank on 7th April, 1957, as well as on 8th April,1957, was 431 mds. of paddy, 175 mds. of rice at the head office and 3,560 mds. of paddy and 250 mds. of rice at the branch office. The Income-tax Officer, therefore, came to the conclusion that the stock of paddy as shown in the assessee's account books was short by 381 mds. at the head office and 2,549 mds. at the branch office. He required the assessce to explain this discrepancy. The assessee tried to explain the discrepancy on the ground that it had an open account for over-draft facility, wherein the goods pledged were not locked in the godown but remained in the factory compound and the assessee carried on husking operation in respect of these goods and, therefore, there was a difference between the figures of stock as shown by the bank and those as shown by the assessee in its account books. After considering the manner in which the bank maintained the 'open account' for over-draft facilities, the Income-tax Officer came to the conclusion that the discrepancy could not be explained on the basis of explanation given by the assessee. In view of the discrepancy mentioned above, the Income-tax Officer concluded that the assessee had suppressed the truth. He observed that the stock outside the books of the assessee was more than double and this proved that a major portion of the assessee's trade was done outside its books. Unaccounted for stock of paddy at the head office and branch office was found to be 2,931 mds. and it was held that the assessee had traded in respect of this stock outside its books. Calculating the value of such goods at an average rate of Rs. 11 per maund, the concealed income of the assessee was worked out as Rs. 32,230. The Income-tax Officer added this amount and brought it to tax as additional profits made by the assessee.
3. The assessee then went up in appeal before the Appellate Assistant Commissioner who upheld the order made by the Income-tax Officer. In second appeal before the Income-tax Appellate Tribunal, it was urged that the assessee's accounts for the relevant accounting year were in fact closed on 7th April, 1957, but the stock books on the basis of which the extent of additional profits had been determined was, for some reason, closed on 8th April, 1957. In order to determine the extent of business done by the assessee outside its books, the Income-tax Officer and the Appellate Assistant Commissioner took into consideration the discrepancy between the assessee's stock book and the bank statement as it stood on April 8, 1957. Instead, they should have considered the discrepancy as on April 7, 1957. According to the assessee, if the additional profits were to be calculated on the basis of the discrepancy discovered between its stock books and the bank statement as on 7th April, 1957, the extent of such profits would have been reduced by about Rs. 15,000. The Income-tax Appellate Tribunal repelled the contention raised on behalf of the assessee and observed as follows :
' There is not much force in the contention that we should consider the stocks pledged with the bank with the stocks in the assessee's books on 7th April, 1957. According to the bank's certificate stock pledged remained unchanged even on April 8, 1957. The assessee incorporated in the accounts the closing stock as on 8th April, 1957 (though according to the counsel the closing date should have been April 7, 1957). Since the book version of the closing stock as on April 8, 1957, has formed the basis in the assessee's own profit and loss account, and the stock with the bank as on April 8, 1957, were the same as on April 7, 1957, we are unable to accept the stocks as on April 7, 1957. There is no reason why we should not accept the book version of accounts as having been made out up to April 8, 1957.'
4. With this observation the Tribunal dismissed the appeal filed by the assessee without deciding whether the assessee was right in contending that if the stock position as on 7th April, 1957, was taken into consideration, and the discrepancy worked out on its basis, the value of the discrepant paddy should be reduced by a sum of Rs. 15,000. The assessee then moved an application under Section 66(1) of the Act, which was rejected by the Tribunal. At his instance the High Court made an order requiring the Tribunal to submit a statement of case in respect of the question which has already been mentioned in the earlier part of this judgment.
5. The fact that there is discrepancy between the stock position of paddy as shown in the assessee's stock registers and the account of pledged goods maintained with the State Bank of India as on 7th April, 1957, and 8th April, 1957, has not been contested by the assessee. Propriety of determination of suppressed profits on the basis of the discrepancy as contained in the assessee's stock register and the account of stock as maintained by the State Bank, by applying the rate of Rs. 11 per maund, has also not been disputed. The only dispute that has been raised by the assessee and has been referred to us for opinion is whether the income-tax authorities were right in computing the discrepancy on the basis of stock position as shown in the assessee's register on 8th April, 1957, or whether it should have been worked out on the basis of stock position shown by the assessee in its register on 7th April, 1957.
6. Learned counsel for the revenue contends that the observations made by the Income-tax Appellate Tribunal, which have already been quoted, show that, in the opinion of the Tribunal, the relevant accounting year ended on 8th April, 1957, and not on 7th April, 1957, and, therefore, there could be no objection if the departmental authorities took the stock position as stated in the assessee's own books as on 8th April, 1957, while determining the extent of business conducted outside the books. In our opinion this contention of the learned counsel for the revenue cannot beaccepted. In its appellate order, dated I4th November, 1961, the Tribunalmade the following observation :
' The Appellate Assistant Commissioner has referred to the closing date as being April 7, 1957. The learned counsel stated that the previous year covered the period April 19, 1956, to April 7, 1957. As to whether this period will constitute the previous year for the assessment year 1958-59 is not in issue before us.'
7. This observation, made by the Tribunal, clearly shows that before the Appellate Tribunal the correctness of the finding recorded by the Appellate Assistant Commissioner, that the relevant previous year was the one ending on 7th April, 1957, was not questioned on behalf of the revenue. The Tribunal proceeded to decide the case on the footing that the relevant accounting year ended on 7th April, 1957. The reason given by the Tribunal for holding that the closing stock on 8th April, 1957, should be taken into consideration was that the assessee itself had made up the stock book for the relevant year up to 8th April, 1957. The reason given by the Tribunal cannot be interpreted to mean that the Tribunal was of opinion that the relevant accounting year ended on 8th April, 1957, and not on 7th April, 1957.
8. Even though the assessee might have tabulated the stock position in respect of the relevant accounting year up to 8th April, 1957, the income-tax authorities were required to work out the suppressed income of the assessee in respect of its business conducted in the relevant accounting year, namely, the period between 19th of April, 1956, and 7th of April, 1957. The assessee might have entered into certain transactions, even though outside its books, on 8th of April, 1957, but the income derived on those transactions will be liable to be included in assessee's income for the assessment year 1959-60 and not in the assessment year 1958-59. In the circumstances, if the Income-tax Officer wanted to work out suppressed profits on the basis of the discrepancy between the stock position as shown in the assessee's own books and the bank statement, he should have taken into consideration such discrepancy as on 7th April, 1957, and not on April 8, 1957. In this case there is no dispute that there is no difference between the stock position of the pledged goods as per bank's account as on April 7, 1957, and 8th of April, 1957. The only difference is about the stock as per the assessee's own books as on 7th and 8th April. 1957. In our opinion, in order to calculate the extent of suppressed income of the assessee on the basis of the discrepancy between the assessee's stock books and the account of pledged goods maintained by the State Bank of India, the income-tax authorities should have taken the stock position as disclosed by the arssessee's books as on 7th April, 1957, and not as on 8th April, 1957. The fact that the assessee itself had tabulated this stock position as on 8th April, 1957, iswholly immaterial for determining the suppressed profits for the relevant accounting period.
9. In the circumstances, we answer the question referred to us in the negative and in favour of the assessee.
10. The Commissioner of Income-tax shall pay the costs of this reference to the assessee which we fix at Rs. 200. Counsel's fee is also assessed accordingly.