Stock valuation by sampling rejected where physical weighment was required and regular accounts were not shown unreliable.

Stock valuation made during search on a sampling or approximate basis was held insufficient for an income addition where the stock could be accurately determined only by physical weighment. The assessee's regular books of account and stock registers were stated to be maintained, and no specific defect in those records was established. The referred opinion therefore rejected valuation by sampling as unreliable for disputed stock, especially when the accounts were not shown to be unreliable. The addition based on stock difference was not sustainable, and the issue was answered in favour of the assessee.

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Issues: Whether stock valuation made during search on a sampling or estimation basis, instead of physical weighment, could be sustained for making an addition to income.

Analysis: The stock found during search was not physically weighed in full and was valued partly on sampling and approximation. The assessee maintained regular books of account and stock registers, which were stated to be checked by Central Excise authorities, and no specific defects in those records were established. In the referred opinion, it was held that physical weighment is the correct method for valuing such stock and that a sampling method, even if convenient, cannot be treated as a reliable basis for an addition where the valuation is disputed and the accounts are not shown to be unreliable.

Conclusion: The addition based on stock difference was not sustainable and the assessee succeeded on the point referred.

Final Conclusion: The referred issue was answered in favour of the assessee, and the stock valuation made on sampling was rejected as a basis for addition.

Ratio Decidendi: Where stock can be accurately determined only by physical weighment, an addition cannot be sustained merely on the basis of sampling or approximate estimation unless the regular accounts are shown to be unreliable.

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