1. ' K. NARAYANA KURUP, J.---This I.T.R. Arises out of the reference made by the Income-tax Appellate Tribunal, Cochin Bench, in R.A. No,8 (Coch) of 1981 arising out of I.T.A. No,8 (Coch) of 1981 for the assessm ent year 1977-78 to this Court on the following facts.
2. ' The assessee is carrying on business in textiles under the name and style "Textile Centre" at Ernakulam. For the assessm ent year 1977-78, the assessee filed a return declaring an income of Rs,85,200, closing stock credited to trading account valued at Rs,10,36,384.75 and the gross profit disclosed was at Rs,5,67,261 which comes to 5.85 per cent. But on the basis of certain papers seized in the course of search under section 132(1) of the Income-tax Act, as per the stock inventories seized, the closing stock as on December 31, 1976, comes to Rs,12,17,727. The Income-tax Officer, alleging that there is an understatement of the closing stock to the extent of Rs,1,81,341 sent a draft assessm ent proposing to add this amount as to undisclosed income of the assessee. To the draft assessm ent, the assessee filed objections before the Income-tax Officer as well as the Inspecting Assistant Commissioner stating that the stock inventory prepared by the assessee as on December 30, 1976, and seized by the Department was prepared in a hurry on a single day on which date, there were sales. The said inventory contained a lot of mistakes and duplications and there was excess reflected and subsequently on January 31, 1977, the assessee had taken correct inventory of the stock as on December 31, 1976, was arrived at deducting the value of sales effected during the month of January at Rs,10,36,384.75. It was also stated that in the seized inventory damaged goods were also noted, but the same was not taken into consideration for preparing the profit and loss account. The value of damaged goods, according to the assessee, comes to Rs,25,000 on a very moderate estimate. The Inspecting Assistant Commissioner rejected the explanation of the assessee regarding the mistakes such as duplication in the entries but allowed a sum of Rs,10,000 towards the value of damaged goods. The. Income-tax Officer, as per Annexure A order accordingly added a sum of Rs, 1,71,531 being the amount of understatement in closing stock, Aggrieved by Annexure A order of the Income-tax Officer, the assessee filed an appeal before the Commissioner of income-tax (Appeals) reiterating his objection on the above 'lines The Commissioner of Income-tax (Appeals) as per Annexure B order rejected all the objections of the assessee and confirmed Annexure A order of the Income-tax Officer. Aggrieved by Annexure "B" order of the Commissioner of Income-tax (Appeals), the assessee went in appeal to the Income- tax Appellate Tribunal who by Annexure C order rejected the appeal on all counts, sustaining the addition made by the Income-tax and also rejecting the contention of the assessee regarding the levy of interest under section 139(8) and section 215 of the Income-tax Act holding that they have already upheld the addition and in that light the assessee would not be entitled to the reduction or cancellation of the interest. The petitioner then moved this Court on O.P. No,960 of 1982-R and in accordance with the judgment of this Court in the aforesaid writ petition, the Tribunal was directed to draw up the statement of the case to this Court. In compliance with the direction, the Tribunal drew up the statement of the case and referred the following questions to this Court for its opinion: "(1) Was the Appellate Tribunal justified in law in treating the sum of Rs,1,71,341 the alleged understatement in closing stock--as the income of the assessee totally ignoring the statement filed before it demonstrating the excess in stock and also by rejecting the plea of duplication of entries without assigning any proper and valid reason? Is not the said finding and conclusion perverse and rest on mere conjectures and surmises?
(2) Was the Appellate Tribunal justified in law in not considering the legality of the levy of interest under section 139(8) and section 215 of the Income-tax Act? Is the levy of interest on the above counts valid and justified in law?"
3. ' Heard counsel on both sides.
4. ' As regards the first question, namely, the understatement in closing stock, we are unable to persuade ourselves to accept the contention raised by the assessee in this reference. According to the assessee, the addition of the sum of Rs,1,71,531 by the Revenue being the amount of understatement in closing stock cannot be sustained in the light of the explanation furnished by him to the effect that the stock inventory prepared by him was done in a hurry on a single day when there were sales and the said inventory contained a lot of mistakes and duplications. The assessee had a further case that goods worth Rs,25,000 were damaged, but only a sum of Rs,10,000 was allowed on this account which is arbitrary. All these contentions were carefully considered by the authorities below in a three tier proceedings, namely, the Income-tax Officer, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, and found against the assessee. It is the definite case of the Revenue that the contentions of the assessee that there were duplicate entries in the closing stock entries are totally untenable. The claim of the assessee that there was duplication in the closing stock inventory in respect of several items remains unsubstantiated. As a matter of fact, it is found by the authorities below that the stock was taken very carefully and meticulously measuring each bale and each piece separately thereby obviating any possibility of duplication. The finding entered by the statutory authorities on this point is essentially a finding of fact bereft of any question of law and the said finding is neither perverse nor based on mere conjectures or surmises. Accordingly, we uphold the said finding on the question of duplication in the closing stock inventory. The first question is, therefore, answered in the affirmative, in favour of the Revenue and against the assessee.
5. ' As regards the second question regarding the legality of the levy of interest under section 139(8) and section 215 of the Income-tax Act, learned counsel for the Revenue in fairness conceded that the matter is squarely covered by the decision of the Supreme Court in Central Provinces and Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 wherein it has been held that inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. In the above view of the matter, the second question has to be answered in the negative, in favour of the assessee and against the Revenue.
6. ' The reference is answered as above.
7. ' A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.