TaxTMI 
TaxTMI 
1999 (5) TMI 50
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....tioned as follows: Inwards (kg) Outwards (kg) Stock (kg) 31st May, 1987 - - 9,344.000 30th June, 1987 39,804.650 34,625.250 5,179.400 Net stock as on 30th June, 1987 14,523.400 The AO found that these sales, purchase and stock were not reflected in the regular books of accounts maintained by the assessee. The AO issued summons under s. 131 of the IT Act to Shri Madanlal M. Hundia on 25th Oct., 1989, partner of the assessee-firm and examined him on oath regarding the discrepancy with regard to the sales, purchase and stock. The extracts from the examination of the partner are reproduced at pp. 3 to 6 of the assessment order. The assessment order indicates that the assessee filed revised return on 20th Oct, 1989, disclosing additional income of Rs. 5,69,403. This figure has been arrived at on the basis of the following details: Rs. (1) The value of total sales now found recorded in some pages of the rough note-book amounting to 6,10,459 (2) Stock as found 14,523 kg. in the note book and valued at 2,75,944 (3) Amount of loose papers Nos. 30 & 44 33,000 9,19,403 Less : Already disclosed in the hands of the firms M/s Arihant Metal 1,20,000 M/s Arihant Rolling....
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....d two parties whereas in the case of last mentioned party the addition was deleted. The relevant portion of the CIT(A)'s order reads as under: "3. I have considered the facts and have gone through the loose papers on which the addition has been made. From the notings made and also by the total and by the nature of items, it is clear that these are scrap items and cannot be taken as the value of finished goods. The assessee has bifurcated that there are two qualities of poor scrap and S.S. Patta which is of better quality. Regarding the rate, I find that in the earlier year, the assessee had made proper entries for this year also, some sales are made at the rate of Rs. 16 per kg. by the assessee itself. In view of the earlier records and the absence of any specific proof of the rate, the value of unaccounted sales of 34,625.250 kg. should be taken at the rate of Rs. 19 per kg. instead of Rs. 30 taken by the ITO Regarding the value of S.S. Patta which is of a better quality, the rate adopted by the ITO at Rs. 22 appears to be reasonable and upheld. 4. I have considered the facts and I do not agree with Shri Shah that the sales made are the same which are recorded in pages 1 & 2. ....
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....said concerns and that the appellant had nothing to do therewith. (d) In not appreciating the fact that the amount of Rs. 2,30,000 represents income of Arihant Rolling Mills and Mahavir Metals and ought not to have been included while determining the total income of the appellant. The appellant, therefore, prays that this Hon'ble Tribunal may be pleased to delete the entire addition of Rs. 2,64,531 retained by the CIT(A). 7. The learned counsel for the assessee reiterated the submissions made before the AO and the CIT(A). He pointed out that the details mentioned in Akar Note Book contained sales of scrap of different qualities, some of the items were of superior quality, but most of the scrap was of poor quality. The AO has taken the rate of Rs. 30 per kg. which is for finished goods. This cannot be relied on in respect of scrap which is of poor quality. According to the assessee's books of accounts scrap is sold @ Rs. 11, Rs. 14, 15 per kg. specific instances of such sales were brought to the notice of the CIT(A) who has discussed such items in para 2 of his order. The learned counsel further pointed out that in the case of closing stock which consists of scrap of poor qual....
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....ther hand, the assessee pleaded that the sales shown in the seized materials are of scrap of low quality which would not fetch the same price as for good quality material. According to the assessee such sale of scrap should be valued @ 15 per kg. and the closing stock should be taken @ Rs. 19 per kg. The CIT(A) reduced the rate to be applied in the case of sale of scrap from Rs. 30 to Rs. 19 per kg. and in respect of closing stock he upheld the rate of Rs. 22 per kg. as computed by the AO. We have reproduced already the reasoning given by the CIT(A) in para 5 above. The CIT(A) has noted that in the earlier year the assessee had made proper entries where the rate of Rs. 16 per kg. is shown. The assessee had quoted instances of sales below Rs. 16 also but the CIT(A) jumped to an estimate @ Rs. 19 per kg. without quoting any specific instance. Since no specific reasoning is given for this estimation and considering the arguments of the assessee in this behalf, we are of the view that the unaccounted sale of scrap should be estimated at Rs. 16 per kg. as against Rs. 15 admitted by the assessee and Rs. 19 fixed by the CIT(A). As regards the closing stock also the rate adopted by the CIT....
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....alisable value. One of the arguments raised before us, on behalf of the assessee was that scrap when sold is accounted for on cash basis as and when sold and the closing stock of scrap as such is not accounted for in the regular books of account. It is true, the assessee may do so for reasons best known to itself, but in the context of the IT Act when the profit of the business has to be computed on the basis of certain accounting principles consistently followed it is clear that closing stock valuation cannot be kept outside the regular books of account. The guiding principle will be cost of market price which is lower and cl. 29.4 of AS-2 gives proper guidelines in this regard. 13. Coming to cl. (c) of ground No. 2 in respect of alleged unaccounted sales to M/s Hundia Metals, Santi Circles and Uma Industries the assessee's plea is that it has already been reflected in the unaccounted sales considered for addition as mentioned earlier. However, this point has been properly dealt with by the CIT(A) in para 4 of his order which we have already reproduced in para 5 above. The CIT(A)'s finding is based on security of the relevant year's papers and the account books of the various pa....
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.... income when the computation is made on a different basis. Accordingly we modify the direction of the CIT(A) in para 10 of his order. Our decision in this para covers ground No. 5 in which the assessee has challenged the direction of the CIT(A) in para 10 of the impugned order. 15. While doing the assessment the AO has disallowed 1/5th of the telephone expenses debited in the P&L a/c as attributable to the personal use of the partners. The total expenses relating to telephone comes to Rs. 38,041. The CIT(A) has upheld the disallowance stating that the personal use of telephone cannot be ruled out by the partners or the family members. Before us it is pleaded that the phones having been installed at business premises and not at residential premises the entire expenses should be allowed. In the absence of any specific detail of the calls made, we hold that the disallowance attributable to personal use by partners or their family members may be restricted to 10 per cent instead of 20 per cent done by the AO and the CIT(A). 16. One more specific ground remains to be considered in this appeal. This ground is numbered as 2 in the appeal before us and reads as under: "2. In law and ....