TMI Blog2010 (1) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence was filed to show that cost or market price of either of these two items was substantially lower than the rate mentioned in the inventory. Therefore, on facts we are not in a position to accept the argument of the ld. counsel. CIT(Appeals) was right in holding that the reduction in the value of the inventory by an amount of Rs. 5,18,289/- was not justified. As no adverse material except non-maintenance of stock book has been pointed out by the lower authorities, which has not been considered sufficient for rejection of books. The discrepancy in stock has already been held to be unaccounted income. Therefore, no reason as to why the trading results for the second period should be rejected Depreciation allowance under section 10(2)(vi) of the Act - argued on behalf of the appellant that the action of the Tribunal in remanding the case is not strictly justified by the language of rule 27 or rule 12 – Held that:- Tribunal has got sufficient power under section 33(4) of the Act to entertain the argument of the department with regard to the application of paragraph 2 of the Taxation Laws Order and remand the case to the Income-tax Officer in the manner it has done. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. 16,16,046/- to the trading account under the head "surrendered stock-under 133A-I. Tax". Therefore, this amount was added to the income. Thereafter, he drew our attention to the order of the ld. CIT(Appeals), in which it is inter alia mentioned that the assessee had reduced the value of excess stock found at the time of survey by an amount of Rs. 5,73,245/-. Such reduction was stated to be on account of two items of raw-materials, -(i) mixed-pipe valued at Rs. 159/-per kg., but described as "S.S. Scrap", valued by the assessee at Rs. 9/-per kg.; and (ii) copper pipe-assorted mixed valued at Rs. 150/- per kg. in the inventory, but taken as "copper scrap" by the assessee. Bills were produced in regard to purchase of "S.S. scrap" and "copper scrap", but the ld. CIT(Appeals) did not accept this position as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cost price. If the AO wanted to reject this method, the burden of proof was on the revenue, as held in the case of CIT v. Acrow India Ltd. [2008] 298 ITR 447 (Bom.). It may be mentioned that the decision was rendered in the context of the fact that the revenue wanted to rely on the statement of stock furnished by the assessee to the bank. Relying on an earlier decision of the Division Bench of the Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769/112 Taxman 511 (Bom.), it was held that the burden does not get discharged by merely referring to the statement of stock given to a third party. Further, reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT v. Realest Builders Services Ltd. [2008] 307 ITR 202/170 Taxman 218, in which it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 certified by the assessee, a position which remained in force till the date of filing of the return. It was further submitted that the assessee was requested to furnish clarification in respect of the valuation of stock in the course of remand proceedings. The explanation was not found to be tenable for the following reasons mentioned by the AO in the report:- "(i) That the assessee was specifically asked to narrate the treatment of closing stock while preparing the final accounts but assessee did not reply as per the contentions raised by him before your goodself and tried to give vague reply as stated in para (d) above. Thus, the contention of the assessee is not acceptable as the G.P rate definitely was high and assessee suppressed the G.P. rate which resulted higher stock physically but lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls 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. The court further held that the estimation of sales and gross profit in such a situation made by the AO, being in the nature of best judgment assessment based on results of earlier years, could not be said to be arbitrary. Therefore, it was argued that the ratio of the case of Dilip Bros. (supra) could not be followed in the jurisdiction of Delhi High Court. The issue of ascertainment of stock and its valuation were questions of fact and, therefore, the other cases relied upon by the ld. counsel were not relevant for deciding the issue at hand. 4. In the rejoinder, the ld. counsel submitted that the revenue is making out a totally new case regarding under-valuation of stock in place of estimation of gross profit. The same was not permitted. However, when his attention was drawn towards the decision of Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee for changing the value drastically in respect of two items. However, the fact is that no credible or reliable evidence was filed to show that cost or market price of either of these two items was substantially lower than the rate mentioned in the inventory. Therefore, on facts we are not in a position to accept the argument of the ld. counsel. Coming to the cases relied upon by the ld. counsel, the decision in the case of Realest Builders Services Ltd. (supra) was that the AO has to find out the system of accounting and demonstrate that the same does not amenable to estimation of correct profit. The AO has not disputed the method of valuation being cost or market price, whichever is lower. It is the assessee who wants to treat assorted pipes purchased by it to be treated as scrap for the purpose of valuation, without adducing any credible evidence about the aforesaid state of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 because excess stock was found on the date of survey. The facts of that case are some what similar to the facts of this case as no adverse material except non-maintenance of stock book has been pointed out by the lower authorities, which has not been considered sufficient for rejection of books. The discrepancy in stock has already been held to be unaccounted income. Therefore, we do not see any reason as to why the trading results for the second period should be rejected. 5.2 The result of the aforesaid discussion is that out of an addition of Rs. 9,98,365/- sustained by the ld. CIT(Appeals), an amount of Rs. 4,80,076/- is deleted from the total income. 5.3 Before concluding, we may also deal with the argument that the revenue is making a totally different case. In the first place, this assertion of the ld. counsel is factually incorrect. The factual position is that in the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-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 any ground not setforth in the memorandum of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule: Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground." Rule 27 states: "The respondent, though he may not have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him." Rule 28 is to the following effect: "Where the Tribunal is of opinion that the case should be remanded, it may remand it to the Appellate Assistant Commissioner or the Income-tax Officer, with such directions as the Tribunal may think fit." In the present case, the subject-matter of the appeal before the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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