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2016 (11) TMI 1357 - ITAT VISAKHAPATNAMAdditions towards alleged short valuation of closing stock - Held that:- On verification of the details furnished by the assessee, we find that while analyzing the closing stock details, the A.O. has taken raw materials issued for production and goods manufactured for the particular month without considering brought forward stock available at shop floor, which is the reason for arriving at a shortage/excess production loss on monthly basis. Therefore, we are of the opinion that when the books of accounts maintained by the assessee are accepted without any discrepancies, the A.O. was not correct in tinkering with the method of closing stock adopted by the assessee to determine the value of closing stock of raw materials. Hence, we are of the view that the A.O. was completely erred in adopting average price method to determine the closing stock as against the consistent method of accounting followed by the assessee i.e. cost price method to determine the closing stock. Hence, we direct the A.O. to delete additions made towards short valuation of closing stock. Additions towards alleged excess production loss - A.O. made additions towards excess production loss by stating that the assessee has claimed excessive production loss when compared to previous financial year - Held that:- Though the A.O. analysed raw materials consumption according to his own method, the method followed by the A.O. is inconsistent with the accepted principles of calculation of production loss, therefore, in our considered view, the A.O. has completely erred in coming to the conclusion that the stock registers maintained by the assessee are not showing true and correct pictures, when the assessee has clearly demonstrated with necessary evidence that the stock figures declared in the financial statements are tallied with the stock registers maintained in accordance with the Central Excise rules. The A.O. after analyzing raw materials, failed to arrive at a correct figure of production loss instead, proceeded with estimation of production loss based on certain articles published in some magazine which is not a binding nature, ignoring the stock registers furnished by the assessee which are approved by another authority of the revenue department and also certified by a certified accountant under the provisions of Income Tax Act, 1961. Therefore, we are of the view that the production loss estimated by the A.O. is not correct and accordingly, we direct the A.O. to delete additions made towards production loss. Addition towards alleged low gross profit - Held that:- We are of the opinion that the A.O. was incorrect in estimating gross profit by taking in to account average of last 3 years gross profit declared by the assessee, without pointing out any specific error or defect in the financial books of accounts or stock registers maintained by the assessee. The assessee, on the other hand clearly demonstrated with evidences that the quantitative details furnished by the assessee are consistent with the stock registers maintained in accordance with the Central Excise rules. Therefore, we are of the considered view that the A.O. was erred in estimating the gross profit. Hence, we direct the A.O. to delete additions made towards alleged low gross profit.
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