TaxTMI 
TaxTMI 
1995 (2) TMI 114
X X X X Extracts X X X X
X X X X Extracts X X X X
....owed that the assessee worked out the production on the basis of 2/3rd of raw material used. This was maintained throughout the year. There was no day-to-day consumption account of the batching oil which increased from Rs. 2,10,667 in the earlier assessment year to Rs. 2,59,859 in the year under consideration. There was increase in dyeing charges, striping charges and wages which led to the fall in gross profit rate by 1%. The explanation rendered by the assessee both before the Assessing Officer as well before the CIT(A) was not found convincing and the addition made by the Assessing Officer came to be sustained. In fact as submitted before the Revenue authorities that the assessee maintained complete books of accounts including cash book, ledger, raw material stock register, yarn stock register, bill book, salary register, packing register and other registers in respect of batching oil, colour, etc. These accounts were maintained in a similar manner as done in the earlier assessment years. The fall in the gross profit rate was explained on account of binding charges being debited to the trading account as against P&L account in the earlier assessment years. Further, the expenses ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of 2/3 : 1/3 shows that the books were not written in the regular course of business. The formula applied was clearly admitted by the assessee in his submissions made before the learned CIT(A). In para 7 of the submissions at page 4, it was clearly mentioned that the wastage was taken by approximation @ about 33%. It is only at the end of the year that the actual wastage is determined which is almost the same as recorded from day-to-day in the production register. In support reliance was placed on the decision of Hon'ble Allahabad High Court in the case of Allahabad Glass Works vs. CIT (1961) 42 ITR 439 (All). Similarly in the case of Bharat Mill Products vs. CIT (1981) 20 CTR (All) 164 : (1981) 128 ITR 682 (All), it was held by their Lordships of Allahabad High Court that in the absence of day-to-day production or manufacturing record, the proviso to s. 145(1) of the Act was rightly applied. Furthermore in the cases of Ganeshi Lal Chhappan Lal vs. CIT (1941) 9 ITR 81 (All) and Seth Gurmukh Singh & Anr. vs. CIT (1944) 12 ITR 393 (Lah), it was held that in case of maintenance of non-genuine records, the provisions of s. 145 are attracted. In fact the provisions of s. 13 of Indian I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee suppressed the production on the basis of percentage of wastage followed on each day or not. The assessee's stand has to be appreciated in the light of difficulty expressed in arriving at day-to-day wastage which could not be measured. This factor has to be seen in the light of the other records maintained by the assessee. It is not disputed that the assessee maintains separate register in respect of batching oil, colour, packing, salary, yarn, etc. It was also admitted that the percentage of wastage in the year under consideration corresponds to the wastage declared and accepted in the earlier assessment years. Furthermore, as in the assessment year under consideration, in the earlier year too, the assessee utilised imported rags in manufacture of yarn. The quantitative accounts maintained by the assessee have not been challenged. The rate of gross profit at 25.8% is more than 24.8% as declared in the asst. yr. 1981-82. It is also a fact that the additions made in similar circumstances stand deleted by the Tribunal in their order dt.26th June, 1986. On the similar facts it was clearly held by the Tribunal, that there was no case for rejection of the trading results of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....king the percentage of wastage which ultimately is arrived at a particular figure accepted by the Department. It was not shown that the wastage was excessive or not in consonance with the one declared in the assessment year as accepted. Thus, on the above facts, we are of the considered view that the addition made at Rs. 60,000 was not justified and, hence, we delete the same. 4. The next ground of appeal pertaining to disallowance of Rs. 1,000 made out of the miscellaneous and travelling expenses relating to asst. yr. 1982-83 is dismissed being not pressed. 5. The next ground of appeal pertains to addition made on account of cost of construction of godown in asst. yrs. 1982-83 and 1983-84. As the facts are slightly different, both the additions would be discussed separately. As regards the addition made in the asst. yr. 1982-83, the facts in brief are that the assessee showed cost of construction of a factory building at Rs. 4,16,456. In support the valuation report from one Shri D.K. Jain, Valuer, estimating the cost at Rs. 4,25,514 was filed. The matter was referred to the Departmental Valuer who estimated a cost of construction at Rs. 5,50,100. The difference of Rs. 1,33,644 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated in village Mangupura which is 10 kms. away from the city, the labour was available at cheap rates and so were the material. In the circumstances, even on merit, the addition was not warranted. As regards asst. yr. 1983-84, it was submitted that the total cost of construction was shown at Rs. 4,04,204 in respect of construction of godowns in Unit Nos. 1 and 2. This was supported by the valuer's report whereby the investment was worked out at Rs. 4,02,500. The matter was still referred to the Valuation Officer,Lucknow, and he arrived at the value of the property at Rs. 5,06,000. This was vide report dt.11th March, 1986. The assessee raised objections against the aforesaid report. The Assessing Officer, however, mentioned that as the case is getting time barred, it was not possible to refer the same to the Valuation Officer. In the aforesaid circumstances, the Assessing Officer should have himself considered the objections raised which were valid. The Assessing Officer should have first rejected the accounts furnished in respect of the details pertaining to cost of construction and then made reference to the Valuation Officer. This could not be made under s. 55A of the Act which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Sri Harsarup Cold Storage & General Mills vs. ITO, the assessee-firm constructed a cold storage, cost of construction of which was supported by the Government approved valuer. The ITO instead obtained the valuation report from Departmental Valuation Officer which showed variation between the cost of construction given by the assessee and the cost of construction estimated by it. The assessee asserted that the rates adopted by the Departmental Valuation Officer were far in excess of the rates adopted by the Government approved valuer and that the books of account maintained by him depicted the true picture. The ITO without going into the credibility of account books relied on the valuation report of the Departmental Valuation Officer and made addition on account of understated and unexplained investment. It was held that on reading ss. 69 and 143(3) together, it is imperative that the ITO has a statutory duty to examine the evidence produced by the assessee in support of his cost of construction namely, the books of account, record a finding about the falsity or unreliability and point out flaws in the evidence, if any. It was only after the evidence is rejected that the ITO wou....