Gujarat High Court
Principal Commissioner Of Income Tax … vs Poggen Amp Nagarsheth Powertronics … on 8 July, 2026
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/23/2025 ORDER DATED: 08/07/2026
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 23 of 2025
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PRINCIPAL COMMISSIONER OF INCOME TAX (PCIT) 3
Versus
POGGEN AMP NAGARSHETH POWERTRONICS PVT. LTD.
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Appearance:
AADITYA D BHATT(8580) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 08/07/2026
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel Mr. Aaditya Bhatt
appearing for the appellant – Revenue.
2. By this Tax Appeal under Section 260A of the Income Tax Act,
1961 (For Short “the Act”), the appellant – Revenue has proposed
the following substantial questions of law arising out of the order
dated 13.06.2024 passed by the Income Tax Appellate Tribunal, “B”
Bench, Ahmedabad (For short “the Tribunal”) in ITA
No.237/Ahd/2018 for Assessment Year 2013-14 :
“(i) Whether on the facts and circumstances of the case and in
law, the Hon’ble ITAT has erred in confirming the decision of
learned CIT (Appeal) who had deleted the disallowance of
Rs.13,23,88,046/- made by the Assessing Officer on account of
under valuation of closing stock under Section 69B of the Income
Tax Act?
(ii) Whether on the facts and circumstances of the case and in
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law, the Hon’ble ITAT has erred in confirming the decision of
learned CIT (Appeals) who has deleted the disallowance of
Rs.60,98,247/- made by the Assessing Officer on account of
section 40A(2b) of the Income Tax Act on account of unpaid
purchase price by following its own decision for Assessment Year
2012-13 which was also not acceptable to Revenue?
(iii) Whether on the facts and circumstances of the case and in
law, the Hon’ble ITAT has erred in confirming the decision of
learned CIT (Appeals) who has deleted the disallowance of
Rs.24,47,380/- made by the Assessing Officer on account of
insurance expenses under Section 37(1) of the Income Tax Act by
following its own decision for Assessment Year 2012-13 which
was also not acceptable by Revenue?”
3. Brief facts of the case are that the respondent – assessee is
engaged in the business of manufacturing, trading, buying, selling,
dealing, exporting, importing, acting as an agent and distributor,
whole selling and retailing of electrical stamping, transformers and
their accessories, rotors, laminations and ferrous and silicon
steel/coils/strips, including H.R./C.R. Steel for the Assessment Year
2013-14. The assessee filed its original return of income on
30.11.2013 for the year under consideration declaring total loss of
Rs.3,91,59,525/-. The Assessing Officer completed the assessment
making additions of Rs.15,10,05,722/- on the issue of under valuation
of closing stock, disallowance under Section 14A of the Act,
disallowance in respect of ESI, disallowance on account of interest
and unpaid purchase price and disallowance towards insurance
expenses.
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3.1. Being aggrieved the assessee preferred an appeal before the
Commissioner of Income Tax (Appeals). The CIT (Appeals) allowed
the appeal filed by the assessee and therefore, the Revenue preferred
an appeal before the Tribunal.
3.2. With regard to the question no. (i) for deletion of additions
made by the Assessing Officer on account of under valuation of
closing stock, the CIT (Appeals) and the Tribunal have arrived at a
concurrent finding that no additions can be made on the basis of the
stock statements submitted by the assessee to the Bank to avail the
financial assistance. The Tribunal upheld the order passed by the CIT
(Appeals) by observing as under :-
“6. We have heard the arguments of both parties and perused the
material on record. The key-points for consideration are:
a. The assessee has consistently followed the same method of
valuation of closing stock year after year, which has been
accepted by the Department.
b. The stock statement given to the bank is prepared on an
estimated and ad-hoc basis for availing higher credit facilities.
This practice is well recognized and has been acknowledged
in various judicial pronouncements.
c. The stock has not been physically verified by the bank and
is hypothecated, not pledged. This indicates that the stock
statement does not necessarily reflect the actual stock held by
the assessee.
d. The CIT(A) rightly relied on several decisions of the Gujarat
High Court which held that the stock statement provided to
banks is primarily for obtaining higher borrowing limits and
does not depict the true position of closing stock as per the
books of accounts. Notable decisions include:
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i. CIT vs. Riddhi Steel & Tube Pvt. Ltd. – 40 taxmann.com
177 (Guj).
ii. CIT vs. Arrow Exim Pvt. Ltd. – 230 CTR 293 (Guj).
iii. CIT vs. Patel Proteins Pvt. Ltd. – 393 ITR 274 (Guj).
iv. CIT vs. Nangalia Impex – 54 taxmann.com 225 (Guj).
v. CIT vs. Vrundavan Floor Mills – 72 taxmann.com 250
(Guj).
The judgment relied upon by the Ld.DR deals with different
facts. In the case of Suraj Bhan (Supra), the assessee could
not explain the difference in the stock valuation. Also, no
evidence was produced by the assessee of sale and purchase
of raw material and finished goods.
e. The difference between the book stock and the stock
statement was duly reconciled, and the AO did not find any
defects in the books of accounts.
f. The addition for under-valuation of closing stock was made
only for AY 2013-14, while in previous years no such additions
were made despite similar differences. The principle of
consistency demands that such an addition should not be
made in isolation for one year.
g. Auditor of the company has not given any adverse
comments on such discrepancies.”
3.3. The Tribunal has also followed and applied the decision of this
Court in case of Commissioner of Income Tax v. Riddhi Steel
and Tubes Pvt. Ltd., reported in 40 Taxmann.com 177 (Guj.)
wherein this Court has held as under :-
“9.1 Again, the Court cannot be oblivious of the fact that the
assessee had been subjected to statutory audit under the
Companies Act, 1956 and also tax audit under the Income-tax
Act. No errors were found at any stage in the report submitted
by these auditors and for the past eight years, the assessee had
been following continuously/consistently the method of
accounting, as provided under section 145 of the Act, valuing thePage 4 of 7
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closing stock and inventory, as provided under section 145A of
the Act. The assessee was also subjected to Excise and VAT and
the books of account were found genuine and no discrepancies
were found even by the Excise Audit report for the period
January 2009 to December 2009 which was carried out by the
Excise Revenue Audit Team, wherein the Excise Department,
after a detailed scrutiny of the books of account, stock register,
excise records, accepted the books of account and other records
maintained by the assessee to be true, correct; except finding
few discrepancies in so far as inventory is concerned.
9.2 It is a settled law, as rightly held by the Tribunal, that only on
account of inflated statements furnished to the banking
authorities for the purpose of availing of larger credit facilities,
no addition can be made if there appears to be a difference
between the stock shown in the books of account and the
statement furnished to the banking authorities. If, for the
purpose of fulfilling the margin requirements of the bank purely
on inflated estimate basis, when the stock statement had
reflected inflated value of the stock, in wake of otherwise
satisfactory explanation, both – for the purpose of value as well
as quantity, we find no reason to interfere with the order of the
Tribunal.”.
4. The Tribunal thereafter applied the aforesaid decision to
uphold the deletion of the additions made by the Assessing Officer by
observing that the stock statement furnished to the Bank cannot be
the sole basis for determining the closing stock value for tax purpose
unless supported by any independent verified evidence. The
Assessing Officer has failed to justify such additions supported by
any independent verified evidence. Therefore, both the CIT (Appeals)
and the Tribunal cannot be said to have committed any error in
deleting the additions made by the Assessing Officer on account of
under valuation of closing stock more particularly, when there is no
change in the method of valuation of the closing stock by the
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NEUTRAL CITATION
C/TAXAP/23/2025 ORDER DATED: 08/07/2026
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assessee. We are, therefore, of the opinion that no question of law
arises on this ground of under valuation of closing stock.
5. With regard to the question nos. (ii) and (iii) are concerned, the
Tribunal has followed its earlier years orders for Assessment Year
2012-13. The learned Senior Standing Counsel Mr. Bhatt appearing
for the appellant could not submit any material or any distinguishing
feature as to why the CIT (Appeals) and the Tribunal have
committed error in following their decision for earlier years in the
case of assessee. Therefore, in applying the principle of consistency,
the additions made on account of interest paid by the assessee to
Posco India Pure Processing Center Pvt. Ltd. on account of unpaid
purchase price of raw material at the rate of 6% per annum cannot
be said to be hit by provision of Section 40A(2)(b) of the Act when
there was nothing on record to show that such interest was paid to a
related party or the same is unreasonable when the assessee was
paying interest at the rate of 15% per annum or more to the Bank for
availing the financial assistance.
6. Similarly with regard to insurance expense of Rs.24,66,506/- in
relation to Keyman Insurance Policy, the beneficiary of such policy
was the assessee company and not the individual Directors and
therefore, the CIT (Appeals) and the Tribunal after having arrived at
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NEUTRAL CITATION
C/TAXAP/23/2025 ORDER DATED: 08/07/2026
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concurrent findings of fact have followed the earlier years decision
for deleting such additions of Keyman Insurance Policy.
7. In view of the above facts and concurrent findings arrived at by
both the CIT (Appeals) and the Tribunal, we are of the opinion that
no question of law much less any substantial question of law arise
from the impugned order of the Tribunal.
8. The Tax Appeal is accordingly, dismissed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
phalguni
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