TaxTMI 
TaxTMI 
2002 (3) TMI 215
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....r papers. Therefore, they straightaway proceeded to inventorise the stock of the three concerns which the assessees dispute. According to the Assessing Officer there was huge discrepancy in the stock as per the books of account and as inventorised by the searching party. 3. For block assessments, ITAT being the first appellate authority, the assessees preferred appeals, being aggrieved by the assessment orders. before the ITAT. The appeals were fixed for hearing a number of times and the parties were heard. During the course of hearing of these appeals, the learned AR of the assessee submitted that the search was conducted in the premises of the above-mentioned assessees from 2-11-1995 to 4-11-1995 and the searching party took inventory of the stock found of materials and finished products. The basis of inventories of the stock found was made on the basis of estimations and on certain hypothetical calculations. No physical inventory or quantification of the stock has been done. The learned AR submitted that the assessee purchased raw materials like scrap, rejects etc. from Rourkela Steel Plant on actual weighment basis, but the authorities have not physically weighed either the ....
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....sical weighment only on the ground that the said statement of Shri Mathuram Agrawal was an afterthought as the search was continuing and the search was concluded only on 4-11-1995 after the deposition was taken. The learned AR of the assessee also stated that the stock available in the premises of the concerns are as per the books of account and stock book. In this connection he stated that "steel" comes under the Central Excise control and the Central Excise staff regularly visits the premises for checking the stock and put their signature on the stock register after verification. Therefore, the rejection of the stock as per the stock book without specific defects noticed in the account is not in order. The rejection of the said stock registers which have been regularly inspected by the Central Excise authorities is purely on surmises and conjectures and the adoption of high estimation is incorrect. As regards the submissions of authorised officer during the course of hearing of the appeals, calculations which have been done on rough sheets, is not also correct and unscientific. It is also stated that physical inventory taken by the searching party in the course of search is not c....
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....s is not at all reliable and can never even to the nearer to accurate weight. 5. The learned DR, on the other hand, relied on the assessment orders in respect of the assessees mentioned above and submitted that the search in the premises of the assessees started on 2-11-1995. During the course of search, the searching party found discrepancy in the stock of materials as well as finished products. It is also submitted that the searching party did not find any valuable assets. Therefore, there is no seizure of assets or cash. The three concerns had only the stock both of raw materials and finished products. Therefore, the searching party straightaway took up the preparation of inventories of the goods when they did not find anything worth seizing. The learned DR also submitted that the estimation and quantification of the inventory is not an 'eye estimate' as stated by the learned AR of the assessee but on scientific basis which is nearer to the accurate. According to the DR detailed inventory was prepared which is Annexure-3 of Panchnama drawn by the conclusion of search. A copy of the said inventory has also been filed before as and the learned DR took us through the inventory a....
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....e-2 of his order that in the course of the search substantial discrepancy was noted in the stocks of raw materials as well as finished products. From the order it appears that the above statement has been made only after the searching party valued the same according to their own method which the assessee styled as 'eye estimation'. In this connection we may also observe that the accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The authorities have to prove satisfactorily that the account books are unreliable, incorrect or incomplete before it can reject the accounts which may be done by showing that important purchases were omitted therefrom or proper particulars or vouchers are not forthcoming for the accounts do not include entries relating to particular class of business. The rejection of the accounts should not be done light-heartedly as has been held by Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala. Similarly, in the case of Tolaram Daga v. CIT(59 ITR 632) the Assam High Court held same view. The basic principle is the same in law....
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....bsp; Stock as per Discreppancy books (MT) physical, inventory (MT) ----------------------------------------------------------------------------- 1. M.S. Slabs 307.880 326.396 + 18.516 2. Pencil Ingots 211.785 477.570 + 26....
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....old on actual weight. In this connection the letter dated 26-8-1998 of Regional Development Commissioner for Iron & Steel which is in Paper Book Vol. 2 at page-38 may be seen. Here also he has certified that the correct and accurate method for quantification of the type of material dealt with by the assessee is actual weighment. In this regard Paper Book Vol. II pages 5 to 9 is worth noting and examined wherein the Revenue authorities have inventorised and arrived at weight of slab and slab cutting without actual weighment. The assessee purchased raw materials from RSP out of defective and rejected sizes and each piece weighs 15 to 30MT on physical weighment which are weighed on RSP weighbridge. These are put to further gas-cut into various rerollable sizes according to rolling requirements by weight. Since the materials are defective and rejects, they cannot be uniform in thickness, length and breadth. While gas cutting these slabs into re-rollable sizes the same are not uniform (as they are cut-outs of uneven slabs) as mentioned by the searching party in serial Nos. 1 to 24 whereas the size of each piece in various lengths has been taken as uniform in most cases at 4" X 3" and, i....
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....herefore, the assessment of the authorities that they are identical in all respect is not at all correct and which has resulted in glaring variations as already stated above. Similar is the case with regard to samples like M.S. Rod (Round) and M.S. Flat etc. which were produced during the course of hearing before us. 10. Similarly there is discrepancy of weight of 171.305MT M.S. sections (Angles) because of wrong method adopted by the authorities. They should be physically weighed those articles. The assessee-company manufactures M.S. Angles of various sizes, thickness in various lengths. Inventory of these products by sectional weight can be determined only after having regard to the total running meters in each of the sizes. The total weight by applying sectional weight on total running meters of various sizes will be nearer to actual physical weighing. 11. Similarly there is discrepancy of 79.975 MT in case of M.S. Flats because of wrong method adopted by the revenue authorities. Here also the assessee-company manufactures M.S. Flats of the various sizes and thickness and various lengths. The inventory of these products by sectional weight can be determined only after havi....
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....on of the stocks which, according to us, is not even second best method if one looks at the discrepancy in the stocks as per books and the stocks as estimated by the authorities. In this connection we may observe that the motto of the Revenue is to collect actual tax and not more or less, but in the instant case by applying the so-called second best method and not the best method, they have raised so much of taxes and burdened the assessee which is against the motto of the Revenue. It is also not disputed that the assessee maintains regular books of account including stock registers which are regularly checked by the Central Excise authorities and the Assessing Officer has not pointed out any deficiency or defects in those books of account. The assessee's accounts were also duly audited. It is also not disputed that Sri Mathuram Agrawal has offered all assistance for physical weighment of the stocks but the authorities have not accepted the same without specifying any reasons therefor. The physical weighment as offered by Sri Agrawal would have lasted for 4-5 days and is practicable, but the searching authorities have short-circuited the entire procedure of valuation. But, accordin....
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....about 3000 Mts iron scraps of small to very large sizes the best and proper method is the exact weighment using weigh bridges, cranes and high tonnage dumpers. This could not be weighed due to time constraints and the apprehension of disruption of normal factorly work even closure for a long time. It is evident from the argument and papers filed in course of the hearing that the Department had adopted the next best method available to them during search which was wholly not scientific but the best possible approximation. As the Works Manager and other senior factory workers were present at the factory premises there was hardly any necessity of summoning any technical expert for doing such exercises. It is not out of place to mention here that the Income-tax authorities were getting all types of assistance from the above-mentioned officials of the factory to arrive at the best possible approximation. It has further been observed from the rough calculation sheets presented at the time of hearing that some of the items were actually weighed and others were estimated with the assistance of the assessee's representative at the factory premises. What the Income-tax officials have done ma....
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.... scientific method on approximation?" THIRD MEMBER ORDER R.P. Garg, Vice-President -- On a difference of opinion between the two Members the matter was referred by the Hon'ble President, Income Tax Appellate Tribunal for my opinion as Third Member on the following point of difference: "Whether on the facts and the circumstances of the case, the view of the Accountant Member is correct in holding that the authorities are not justified in straightaway estimating the value of stock without physically weighing them during operation under section 132 of the I.T. Act particularly when the assessee maintains regular books of account which are checked by the Central Excise authorities time to time, or the view of the Judicial Member is correct in holding that in the absence of maintenance of day to day record while issuing the inputs (raw materials) on the basis of actual weighment then how there could be any reason for the assessee to agitate the stock estimated by the Department not on actual weighment but by adopting near scientific method on approximation?" 2. The three assessees-two limited companies and one partnership firm, are dealing in iron and steel. in a search acti....
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....se of unaccounted sale, the Assessing Officer added a sum of Rs.30,880 to the income of the assessee M/s Utkal Alloys (P.) Ltd., Rs.60,63,350 in the income of the assessee M/s Utkal Steels Ltd. and Rs.19,37,229 in the income of the assessee M/s S.L. Agarwal & Co. 4. In appeal, the two Members differed in their opinion about the method of valuation -- stated that the authorities have assumed and surmised certain things while preparing inventory; that the materials were neither identified, classified nor physically weighed; that the inventory was taken on eye estimation; that most of the raw material and finished goods in the case of the assessee were of uneven size because the raw material purchased were scrap and rejects; that these were further put to gas cut into various re-rollable sizes which would also be not in uniform size; that the searching party took the size of each piece at 4" X 3" at Sl. Nos. 1 to 24, whereas at Sl. Nos. 25 to 93 all sizes are different; that various dimensions as recorded, were not uniform throughout; that in case of defective and rejects, all the dimensions -- length, width and thickness not being uniform they cannot be weighed by density that as ....
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....t of the weighment. It may represent a discrepancy as observed by the A.M. at various places and as discussed in various paragraphs of his order or it may be a difference over or below what is recorded by the assessee. In view of stamping by the Steel Authority/RSP for the size and weight, there might not be much difference in valuation if it goes by weight inscribed therein but it has been taken as a sample in a cubic feet storage where scraps of different sizes were stored. That the difference is bound to be there, because sample always does not represent actual. It may be less or it may be more. Difference may be large if there is a large scale difference in various scraps and rejects and small or nil if the items are of lesser difference of size and weight. Both the Accountant Member and Judicial Member agree on the point that the correct method of valuation is physical weighment and the assumption by sampling does not result in actual valuation in the opinion of the Accountant Member and is the next best method as per the Judicial Member can. therefore, be in such a situation any addition be made in assessment? I find a decision of Orissa High Court in the case of Haribhagat A....
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....evenue had estimated the stock to that extent. In my opinion, that cannot be a statement of admission of existence of stock to that extent by the assessee. 8. A point was made out that the assessee himself has accepted he method correct and offered the valuation by estimate when confronted with the fact that the actual weight will take long time and factory shed would be under lock and key of the department until then. This is what was stated in the statement of Sri Nathmal Agrawal recorded on 4-11-1996 at 3 P.M.:-- "I was asked to arrange carriers and trucks which were not available in the night and weighments could not be done. it was said to me that physical weighment will take long time and hence stock will be taken on estimation basis and estimation were started. I did not agree to calculation of weight by high estimation. I was told to seize the factory then I said you may verify the weighment as per your choice." That, in my opinion, does not amount to acceptance of the method as correct one but leaving the choice to the department. Be that as it may, it does not carry the matter any further because if the method of weighment is wrong it is wrong or if right it is r....