TaxTMI 
TaxTMI 
2009 (3) TMI 379
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....n the case of UAL ? (ii) Whether, on the facts and in the circumstances of the case, the learned Third Member of the Income-tax Appellate Tribunal has erred in law in ignoring the findings of the learned Judicial Member that from the rough calculation sheets presented at the time of hearing, some of the items were actually weighed and others were estimated with the assistance of UAL's representative at the factory premises ?" 2. Bereft of unnecessary details, the facts and circumstances giving rise to the present appeal are that a search under section 132 of the Income-tax Act 1961 (hereinafter referred to as "the IT Act") was made in the factory and office premises of M/s. Utkal Alloys Limited, Rourkela, Sundargarh (hereinafter referred to as "the UAL") on November 2/3, 1995. During the course of search, the search party did not find any incriminating material against the assessee-respondent. However, discrepancy was alleged to have been found in stock of raw materials and finished products during search. The Assessing Officer valued the excess stock at Rs. 30,880 and treated the same as undisclosed income of the assessee-respondent for the assessment year 1996-97. The UAL f....
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.... the appeal filed by the appellant is liable to be dismissed. 5. Since both the questions involved in this appeal are linked with each other, instead of dealing with them independently it would be appropriate to deal with them combinely. 6. At this juncture, it is necessary to quote here some of the relevant portions Of the findings/observations of the learned Accountant Member, learned Judicial Member and the learned Third Member, which are quoted below [2004] 269 ITR (AT) 20, 25) : "Learned Accountant Member observed as follows : We have considered the submissions of the parties, gone through the assessment orders, paper books filed and find that the action of the authorities is not legally tenable and factually not correct. It is a fact that the Assessing Officer has not disputed that the assessee maintains regular books of account including stock book. The Central Excise authorities periodically and regularly check those registers and put their initials in support of having inspected the materials. They have not found any omission or commission as there is no comment by those authorities in those registers. They have also not commented anything adversely regarding m....
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....on judicial principles. If the evidence is produced by the assessee in support of his return it should be accepted unless it is rebutted by other admissible evidence and not by mere hearsay or arbitrarily (George Oommen v. Commr. of Agrl. I. T. [1964] 52 ITR 977 (Ker)). From the assessment order it is clear that the Assessing Officer has not mentioned any reason why the stock books or other books were not acceptable to him. Therefore, the action of the officers in straightaway proceedings to inventorise the stock on estimate basis, that too which is not accurate and correct, is not in order. The above discussion and the case law clearly go to show that the stocks shown by the assessee which has been mentioned in page 2 of the assessment order should be accepted in the absence of any defects in the accounts or omission or commission by the assessee." Learned Judicial Member observed as follows ([2004] 269 ITR (AT) 20, 30) : There is no dispute that for valuation of about 3,000 mts. iron scraps of small to very large sizes the best and proper method is the exact weighment using weighbridges, cranes and high tonnage dumpers. This could not be weighed due to time constraints and ....
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....e 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 the Orissa High Court in the case of Haribhagat Agarwalla v. State of Orissa [1982] 51 STC 355, a case under the Sales Tax Act, stating that no addition can be made on the basis of difference of the stock arrived at by sampling method. It observed as under (headnote) : 'In 1969-70 the assessee, a rice miller, was the purchasing agent of the Food Co....
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....tical sampling. 9. The learned third Member taking into consideration the reasoning given by both members in their orders and applying the principle decided by this court rendered in Haribhagat Agarwalla's case [1982] 51 STC 355 (Orissa), held that no addition can be made on the basis of difference of stocks arrived at by applying sampling method. 10. Admittedly, in the course of search, the search parry did not find any incriminating document or duplicate books of account involving the respondent-assessee in any clandestine business activity like effecting any sale or purchase outside the regular books of account on the basis of which returns were filed. The Department could not find out any omission of important purchase/sale from the assessee's books of account or any entry in the books of account not supported by voucher. The addition has been made on the basis of discrepancy worked out on estimation of the stock. 11. In Vijaya Traders' case [1969] 74 ITR 279 (Mys), the question before the Mysore High Court was whether the Income-tax Appellate Tribunal was right in law in holding that the Income-tax Officer could act on the proviso to section 13 of the Indian Income-ta....