TMI Blog2011 (3) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... tock was not given. e) No proper justification was given by the assessee in respect of declaring the value of stock to the bank at `1052.86 lakhs against stock of `978.14 lakhs declared in the balance sheet as on31.03.2003. 2. In the assessment order, it is mentioned that the assessee is engaged in the business of manufacturing and selling sports items. The return was filed on 31.10.2003 declaring total income of ₹ 1,93,59,560/-. In the course of scrutiny of the case, it was found that the stock declared to the bank in connection with availing of credit facilities was higher than the stock declared in the accounts. The difference is on 31.03.2003 were found to be as under:- As per Bank As per books Difference Finished Goods 3,16,30,000 2,92,56,430 23,73,570 Work in Progress (or semi finished) 89,45,000 85,81,305 3,63,695 Raw materials 6,31,29,000 5,89,28,040 42,00,000 Packi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the total income was only of the aforesaid amount. For the sake of ready reference, the findings of the Assessing Officer are reproduced below:- From the above discussion it may be seen the assessee has neither provided the required details nor basis of valuation given the books of accounts suffer from the following serious defects:- i) Cost of production that could have been made basis for valuation of stock, which has not been given. In the manufacturing account the assessee company has also debited an amount of ₹ 4,28,15,658/- before working out the gross profit of ₹ 6,98,43,504/- for wages EPF contribution. PF contribution, bonus exgratia, factory power, machinery hire etc. Apart from conscription of imported cane for ₹ 92,40,795/- mainly used in production of cricket bats, huge quantity of leather cloth. Proportionate cost was required to be added in the valuation of closing stock of finished goods. ii) Mathematical basis of valuation of items of work in progress has not given although according to the Co. had stock register for each item of raw material taken to production received after production. iii) The working given for v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the learned CIT(A). It was inter-alia submitted that the regular books of account were maintained. These have been mentioned in paragraph 3 of the impugned order. It was further submitted that the stock was declared to the bank on an estimate basis. In the books, the assessee has been valuing the stock on the following basis:- i) Finished goods as per sale invoices of the month of April following the previous year; ii) Raw materials and packing materials as per purchase bills; iii) Semi-finished goods by adding estimated expenditure to the cost of the goods. 3.1 It was further submitted that very method has been employed in this year and the stock as per ledger has been quantified and valued thereafter as above. It was also submitted that the Assessing Officer has not pointed out towards any discrepancy in the books of account. Therefore, no addition should have been made by rejecting the books on account of difference between estimated stock furnished to the bank and actual stock as per books valued on the basis of method regularly implied by the assessee. The learned CIT(A) considered the facts of the case and submissions made before him. He came to the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the bank vis-a-vis the inventory from the books. She also referred to the findings of Assessing Officer that on the facts and in the circumstances of the case, the books of account need to be rejected and the gross profit computed at 26% of the turn over. Further, she referred to the findings of the learned CIT(A), in which the discrepancy in the stock as aforesaid was not discussed at all. Therefore, it was argued that either the order of the Assessing Officer may be restored or the matter may be referred to the learned CIT(A) for reconsideration of the matter. 4.1 In reply, the learned counsel for the assessee furnished the details of gross profit ratio for various years from assessment years 1994-95 to 2008-09 and the acceptance or otherwise thereof in assessment proceedings or appeals. It was his case that the stock statement has to be furnished to the bank soon after the close of the year on 31st March. This statement is furnished on an estimated basis as the books are not ready for preparing final statement by that time. Subsequently, the stock is valued on an exact basis following the regular method of accounting. Therefore, there is bound to be some difference betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). 2002-03 2364.34 509.45 21.55 Returned income accepted in assessment order u/s 143(3). 2003-04 2893.72 698.43 24.14 Additions in trading account deleted by CIT(A). Department is in appeal before ITAT. 2004-05 3130.67 732.60 23.40 Nominal addition of ₹ 1.83 lacs in trading account deleted by CIT(A). 2005-06 3326.53 813.71 24.46 Returned income accepted in assessment order u/s 143(3). 2005-07 3265.69 676.05 20.70 Returned income accepted in assessment order u/s 143(3). 2007-08 5130.43 1086.88 21.18 Returned income accepted in assessment order u/s 143(3). 2008-09 4417.25 953.61 21.59 Returned income a ..... 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