TMI Blog1993 (5) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... a Commission to ascertain the stock position and stalled the independent stocktaking and valuation by the department. The High Court appointed two Advocates as Commissioners. They took the inventory and found the value of the stock as on 17-9-1985 at Rs. 1,15,38,803. They also noted that the stock found at the business premises included defective and damaged stock of the value of Rs. 23,49,210 (on the basis of tag price) and the value of such defective and damaged stock as per the assessee was at Rs. 7,80,224. 2. Subsequent to the search, the assessee was required to get its accounts audited. It was complied with. In the trading account furnished along with the return, the assessee valued the closing stock at Rs. 38 lakhs. According to the assessee an inventory of the closing stock as on 31-3-1985 had been prepared and the consolidated closing stock inventory with the summation of closing stock as on 31-3-1985 and was kept inside a cover which was one of the items seized by the department. But the department denied the allegation. According to the Assessing Officer, the stock as detailed in 335 sheets of paper with a total value of Rs. 86,52,322 represented the assessee's closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f defect in the maintenance of stock register. Hence, the appellant gets a relief of Rs. 30,73,814 on this account. " Penalty proceedings started under section 271(1)(c) of the Act in the course of the assessment proceedings on the ground that the assessee suppressed its stock as on 31-3-1985 and thereby concealed its income. The Assessing Officer did not take into account the addition of Rs. 10 lakhs sustained by the CIT (Appeals) but quantified the concealed income at Rs. 7,84,522, which is worked out as under: " Total stock as on 17-9-1985 as per the Commission's report Rs. 1,15,33,803 Less: GP of 11. 8% (as accepted Rs. 13,61,579 by the department) ------------------------------ Rs. 1,01,77,224 Add: Sales till 17-9-1985 Rs. 10456630 Less: GP at 11.8% Rs. 1233832 Rs. 92,22,748 ------------------------------ Rs. 1,93,99,972 Less: Purchases till 17-9-1985 Rs. 1,48,15,450 ------------------------------ Stock as on 31-3-1985 Rs. 45,84,522 Less: Stock as on 31-3-1985 admitted by the Rs. 38,00,000 assessee Excess stock as agreed to by the assessee [See para 5 of 271(1)(c) Rs. 7,84,522 order] According to the assessee the unaccounted stock as per the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83-84 also the total value of the closing stock had been shown at Rs. 27,40,960 and after deducting the value of 'dead stock', cut piece and damaged Rs. 23,843 the balance has been shown as closing stock in the balance-sheet. Hence, she found that the assessee is not entitled to get any deduction for the damaged and defective stocks. She further held that as the assessee had not produced any solid material or even a solitary evidence to show that it possessed dead stock/damaged stock worth Rs. 25 lakhs at the time of physical inspection conducted by the department. According to the Dy. CIT (Assessment), the assessee tendered false statement of affairs with the Department which the assessee knew and believed to be false with a definite motive to reduce its tax burden. The mens rea in this case is well established since the assessee was caught red-handed with the possession of excess stock of Rs. 7.84 lakhs which the Department could quantify to the satisfaction of the assessee since the entire proceedings of the stocktaking was carried out before an Honourable Commission appointed by the Court. The assessee accumulated stock outside the books of account and the same had been establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner (Appeals) went through the report of the Commission, appointed by the High Court and extracted certain portion of the Commission report in respect of dead and damaged goods on 17-9-1985 both in the wholesale and retail sections. The CIT (Appeals) found that as per the stock statement as on 17-9-1985 the value of the damaged goods on the basis of the tag price was as such of Rs. 23,49,210 and the estimated value of such damaged goods has been shown by the assessee at Rs. 7,80,224. Hence, he concluded that in the light of the findings of the Commission the claim of the assessee that if due allowance was given for the bad and damaged goods the closing stock shown at Rs. 38 lakhs would be correct. He also found that in the appeal for 1986-87 the CIT (Appeals) deleted Rs. 4,80,000 holding that the damaged stock should have been sold in the assessment year 1986-87. He sustained an addition of Rs. 10 lakhs on a lump sum basis for the assessment year 1985-86 on account of non-availability of stock register of the assessee as on 31-3-1985 and it was sustained on an estimate basis only but was not based on any actual findings of unaccounted stock as on 31-3-1985. He fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks in the inventory has been brought out clearly in the Commission's report. Normally the proper approach should have been to quantify the excess inventory at the time of stocktaking and consider the same for assessment in the previous year in which such inventory was taken for purpose of addition under section 69 of the Act. Strangely in this case the revenue went backwards to ascertain the inventory as on 31-3-1985 in relation to the assessment year 1985-86. Such an exercise is not permissible in law in the light of the provisions of section 69 of the Act under which the unexplained investment, if any, should be assessed in the financial year in which such investment was found. Therefore, even the estimate of Rs. 10 lakhs as done by the CIT (Appeals) in the quantum appeal is not on firm footing and to levy penalty on the basis of such estimate would be wholly unjustified besides being on very feeble ground. Even assuming that such a course is permissible the Commission has found the existence of damaged and defective or dead stocks on the date of the inventory. The assessee's explanation that such damaged, defective or dead stock was already in existence as on 31-3-1985 and they ..... X X X X Extracts X X X X X X X X Extracts X X X X
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