Stock valuation by sampling alone cannot justify an addition when regular records are intact and physical weighment was required.

Stock valuation made during search by sampling and estimation, without physical weighment, was held unreliable where the assessee maintained regular books of account and stock records and no defects were shown in those records. The Tribunal found that, for iron and steel stock, actual weighment was the proper method and that an inventory based on approximation could not justify rejection of the books or an estimated stock difference. The resulting addition was therefore not sustainable, and the stock disclosed in the regular books was accepted.

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Issues: Whether the stock valuation made during the search by sampling and estimation, without physical weighment, could be sustained and the resulting addition on account of alleged stock difference could be upheld.

Analysis: The assessee maintained regular books of account and stock records, which were stated to have been checked periodically by the Central Excise authorities. The majority view held that, in the absence of defects in those records, the Revenue was not justified in rejecting them and adopting an estimated stock valuation. It was found that the search inventory was prepared by approximation and sampling rather than actual weighment, although actual weighment was the proper method for iron and steel stock of the kind involved. The Third Member agreed with the Accountant Member and relied on the jurisdictional High Court's view that a sampling method cannot be the basis for imposing tax where physical verification is the appropriate standard and no dependable actual weighment was undertaken.

Conclusion: The addition based on the stock difference was not sustainable and the stock disclosed in the regular books was to be accepted.

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