TaxTMI 
TaxTMI 
2010 (1) TMI 935
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....ning the addition of Rs. 9,98,364/- by preparing two trading accounts for the same financial year. It is further mentioned that he erred in sustaining the aforesaid addition without considering the explanation of the assessee. It is also mentioned that he erred in sustaining the addition of Rs. 5,72,345/-, being the reduction in the value of stock surrendered at the time of survey. 2. Before us, the ld. counsel referred to the assessment order, in which it is mentioned that a survey was conducted at the business premises of the assessee. In the course of survey, inventory of stock was prepared, which was duly authenticated by the assessee. The trading account was also prepared from the books. It was found that there was discrepancy in the value of stock as per books and as per the inventory taken at the time of survey. The assessee was found in possession of excess stock of Rs. 16,16,046/-. Apart from this, excess cash of Rs. 3,90,146/- was also found. These amounts were surrendered for taxation in the statement recorded at the time of survey. However, the assessee, while filing the return of income, neutralized the surrender in respect of stock by debiting a sum of Rs. 16,16,04....
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....ks vis-a-vis the value as per inventory. The profit and loss account has also been credited by an amount of Rs. 3,90,149/- with the narration "additional cash". Thereafter, our attention was drawn towards pages 115 and 116 of the paper book, being trading account and profit and loss account for this year. The trading account shows a debit of Rs. 16,16,046/- under the head "surrendered stock-133A-I.Tax" and the gross profit of Rs. 18,42,077/- The closing stock is shown at Rs. 26,62,825/-. The profit and loss account had been credited by an amount of Rs. 20,06,195/- with the narration "surrendered amount". Our attention was also drawn towards page 8 of the paper book, being the submissions made before the ld. CIT(Appeals). It is stated therein that the finding of the AO was that the assessee did not put forward any evidence to prove that the scrap was used. This finding was erroneous inasmuch as the purchases were supported by the bills for purchase of raw material. Thus, this finding is not tenable on facts. 2.2 Coming to the arguments, it was submitted that the assessee is entitled to value the stock on cost or market price, whichever is lower. The assessee valued the stock on c....
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....d by the assessee in the course of survey or immediately thereafter. The assessee changed this position as well as retracted from the surrender of the excess stock at the time of filing of the return of income, not by any explicit statement but by showing the reduced stock in the trading account. Therefore, the retraction was only by way of implication. The inventory drawn at the time of survey consisted of two items of mixed pipes weighing 3660 kgms. and assorted copper pipes weighing 667 kgms., valued at Rs. 159/- per kg. and Rs. 150/-per kg., at the values of Rs. 5,81,940/- and Rs. 1,00,050/- respectively. In the return of income, these items were valued at Rs. 9/- per kg. on the basis of four bills placed in the paper book from pages 72 to 75. These bills show the purchases of S.S. scrap at about Rs. 9/- per kg. and copper scrap at Rs. 115.25 per kg. The assessee did not maintain stock register and, thus, it was not feasible to find out whether the closing stock consisted of scrap or the mixed pipes. No worthwhile evidence was produced before the lower authorities to show that the stock consisted of the scrap and not the mixed pipes as inventorized on the date of survey, duly c....
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.... end' is prepared and verified by Auditor, whereas, as per Significant Accounting Policies, attached to balance sheet, it is stated as under: "Inventory Inventory has been valued, taken and certified by management. Thus, the two statements, differ widely to their contents and cannot be relied upon and the addition made by my predecessor of Rs. 16,16,046/- be retained and further an addition of Rs. 5,72,345/- is called for which the then AO has not added to taxable income of the assessee, being the amount deducted by the assessee suo motu from the valuation of closing stock as on 31.3.03, which can he seen from the stock list and balance sheet submitted before AO and before your goodself on account of diluting the valuation by Rs. 5,72,345/-." 3.2 Coming to the decision quoted by the ld. counsel, it was submitted that the Hon'ble Delhi High Court in the case of Action Electricals v. Dy. CIT [2002] 258 ITR 188/[2003] 132 Taxman 640, held that the disclosure of Rs. 5.00 lakh by the assessee at the time of search as it unaccounted sales constituted sufficient material for the AO to come to the conclusion that the accounts made by the assessee were not complete and correct. ....
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....described items at serial numbers 2 and 7 (Page 101 of the paper book) as assorted pipes, valued at about Rs. 150/- per kg. or these items were scrap to be valued at about Rs. 9/- per kg. and Rs. 115.25 per kg. respectively. The only evidence produced by the assessee in this behalf is four purchase bills, which could not be co-related to these items in any manner. In other words, the assessee wanted these materials to be taken as scrap simply by saying that scrap was also purchased in this year. It is not the case of the assessee that assorted or mixed pipes were not purchased at all by the assessee and, therefore, such items cannot be there in the stock. As mentioned earlier, the inventory was authenticated by the assessee on the date of survey and the corresponding amount was also offered for taxation. The assessee did not retract from the statement and also did not point out the error in the inventory at any point of time. However, the statement and the inventory were disputed indirectly for the first time while filing the return and that too without making any mention in respect of the variation in value of stock made by him. We are of the view that a very heavy burden lied on ....
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....and closing stock. Thus, the only reason for making the variation is that the gross profit resulted into a negative figure. In the case of Action Electricals (supra), two factors were there, namely, that the stock register was not maintained and unaccounted sales were detected during the course of search. The Hon'ble Court came to the conclusion that these grounds were sufficient for rejecting the books and estimating profit u/s 145(2). In the case of the assessee there is no evidence of suppression of closing stock or sales. It is an admitted fact that the stock register is not maintained. In absence of any evidence, the ratio of the decision of that case is not applicable even if the assessee did not maintain the stock register. The revenue has also not rejected the books for the first period and estimated the gross profit although stock register was not maintained in that period too. In the light of these facts, we are of the view that the decision in the case of Action Electricals is not applicable to the facts of the case. In the case of Dilip & Brothers (supra), it was held that the finding of excess stock only cannot be a ground for rejecting books for post-survey period bec....
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.... aim is to work out the correct liability of the assessee. In this context, the only limitation on the powers of the Tribunal that it cannot enhance the assessment in absence of appeal of the revenue, but it has powers to correct the errors in the orders of lower authorities. In doing so, the Tribunal will be justified in entertaining the argument of the department as will be clear from the discussion on pages 237 and 238 of the decision, which reads as under:- "The word "thereon", of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words "pass such orders as the Tribunal thinks fit" include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act. Consequently, the Tribunal has authority under this section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry. Rule 12 of the Appellate Tribunal Rules, 1946, made under section 5A(8) of the Act provides as follows: "The appellant shall not, except by leave of the Tribunal, urge or be heard in support of....