Inflated stock statements furnished to banks for higher credit are valid evidence for income tax additions.

The appellant, a partnership concern manufacturing Soya Nuggets, availed a cash credit facility from the State Bank of India by hypothecating stock (raw materials and finished goods) and mortgaging immovable property.

On 25.09.2000, the appellant submitted a stock statement to the bank showing significantly higher quantities and values (Soya DOC: 60,000 kg/Rs. 10.20 lakh) compared to its internal books of account (Soya DOC: 20,666 kg/Rs. 3.51 lakh).

The Assessing Officer (AO) noted this discrepancy and made an addition of ₹7,77,218 to the appellant's income for failing to furnish true particulars.

The Commissioner of Income Tax (Appeals) reduced the addition to ₹7,00,000.

The Income Tax Appellate Tribunal (ITAT) dismissed the further appeal.

The appellant moved the High Court, contending the inflated figures were a "routine" business practice to obtain higher credit.

1. Whether any notional addition to the returned income can be sustained in law when the Assessing Officer has neither rejected the books of accounts nor held that the stocks shown to the bank were actually available or correctly valued?

2. Whether the order of the Tribunal is sustainable in law or is perverse based on a lack of evidence?

The Court scrutinized the application of Section 143 of the Income Tax Act regarding the assessment of taxable income based on discrepancies in stock declarations.

It distinguished the current case from the precedent in *Ashok Kumar v. Income Tax Officer* (2006) 201 CTR (J&K) 178, which held that rough estimates without quantity details in bank statements might not justify additions.

The Court relied on the principles established in *Suraj Bhan Oil (P) Ltd. v. Deputy Commissioner of Income Tax* (2022) and *Coimbatore Spinning & Weaving Co. Ltd. v. Commissioner of Income Tax* (1974), which dictate that declaring inflated stock to banks for financial advantage constitutes "commercial immorality" and is not a recognized fiscal practice.

The Court rejected the appellant's reliance on *Ashok Kumar*, noting that in this instance, the appellant had provided specific quantities and values in the bank statement, accompanied by a signed certification that the figures represented the "true and accurate stock position" in conformity with permanent records.

The Court found a massive, unexplained discrepancy (approx. 39,500 kg of Soya DOC) between the bank statement and the books of account.

It reasoned that since the appellant explicitly affirmed the accuracy of the bank statement to secure credit, the Assessing Authority was justified in treating that admission as evidence of suppressed income.

The Court characterized the practice of inflating stocks to mislead banks as a violation of fiscal discipline that cannot be countenanced under law to evade tax liability.

It held that the addition to the taxable income was justified as the appellant failed to provide a satisfactory explanation for the discrepancy beyond the admission of inflating figures for credit.

The Court found no perversity or jurisdictional error in the orders of the ITAT or the lower authorities.

The appeal was dismissed, confirming the modified addition of ₹7,00,000 to the appellant's income.