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TMI Blog2019 (7) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... /- on a/c of estimation of scrap and of Rs. 91963/- on a/c of valuation of finished goods. 2. Because ld. CIT(A) further failed in appreciating that no defect in stock records/book of accounts was found by him beside the accounts are not rejected by AO and stock records were under the control/inspection of excise authorities which are also accepted by Vat authorities with declared closing stock and order is perverse. 3. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of manufacturing of sugar mill machinery and its parts. The manufacturing process of these machinery items and parts involves cutting of MS sheet, angle, channel etc., and welding/fabrication/assembling of various items as per specification and design of the customers, which takes approximately one to six months to manufacture certain items. It filed its return of income on 30th September, 2009 declaring an income of Rs. 15,67,050/-. During the course of assessment proceedings, the Assessing Officer observed from the purchase and sale register that the closing stock was undervalued by the assessee. He noted that the last sale was done by the assessee on 25th March, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the Assessing Officer by observing as under:- "4.3. The reasons recorded by AO, submission of the appellant and the facts on record are considered. The appellant attempted to give various explanation regarding purchases made on or after the sale for the relevant accounting year is closed. However, the theory of purchases made after 25.03.2009 is not substantiated by any documentary evidence. The explanation regarding control of Central Excise Authorities and maintenance of RG - 1 is not adequate to negate the fact that there is unaccounted purchase and undervaluation of stock. The Ld. AO verified all the books of accounts including the RG-1 and came to the conclusion that the purchases made on or after 25.03.2009 should have been reflected in the closing stock. The appellant also failed to explain the accounting entries to show how the purchase made during the year are reflected in the books of accounts which are again included in the purchases made on or after 25.03.2009. Regarding valuation of finished goods, the onus is on the appellant to produce necessary documentary evidence regarding cost of the product which was not discharged. Undervaluation of closing stock as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock was always accepted since inception and the current year GP is higher than the preceding years. He submitted that net profit of this year i.e., 2009-10 is 2.43% as against 0.84% for assessment year 2008-09, 1.27% for assessment year 2007-08, 1.84% for assessment year 2006-07 and 1.94% for assessment year 2005-06. Further, the current year closing stock should be the opening stock of the subsequent year and the closing stock of the current year has been accepted as the opening stock of subsequent year as declared. Further, although the case for assessment year 2012-13 was under scrutiny, however, no addition has been made on account of undervaluation of closing stock. He further submitted that the assessee had no advantage by showing lesser closing stock in current year as in the subsequent years the assessee has declared more profits. 8. So far as addition of Rs. 91,965/- on account of undervaluation of finished goods and Rs. 4,97,322/- on account of under valuation of scrap is concerned, the ld. counsel for the assessee drew the attention of the Bench to the order of the Tribunal in the case of M/s Mahashakti Machines Pvt. Ltd., sister concern of the assessee, vide ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of closing stock of raw material, finished goods and scrap is uncalled for. 10. The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer and CIT(A). She submitted that acceptance of purchase and sale and closing stock by the VAT authorities is not sufficient for accepting the valuation of closing stock for income-tax authorities. She submitted that the assessee is not maintaining any cost records and no documents were produced before the Assessing Officer or CIT(A) to their satisfaction to substantiate the valuation. Therefore, either the order of the CIT(A) be upheld or the mater may be restored to the file of the CIT(A) or Assessing Officer as the case may be. 11. We have considered the rival arguments made by both the sides and perused the orders of the lower authorities and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer made an addition of Rs. 69,01,453/- to the total income of the assessee on account of undervaluation of closing stock on the ground that the assessee has not accounted for the purchases made after the last date of sale of 25th Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed u/s 143(3) and the books of account were never rejected, therefore, we are of the considered opinion that the impugned addition should not have been made on account of valuation of closing stock. We further find merit in the argument of the ld. counsel that when the profit of the subsequent year is higher than the profit of the current year, there was no point on the part of the assessee to suppress its valuation of closing stock which would have become opening stock of the subsequent year. 11.2 The Hon'ble Gujarat High Court in the case of CIT vs. Shakti Industries (supra) has held that where the books of accounts were not rejected, addition of amounts shown in the audited accounts is not sustainable. The Hon'ble Madras High Court in the case of CIT vs. Smt. Sakuntala Devi Khetan (supra) has held that unless and until the competent authority under Sales Tax Act differs or varies with closing stock of assessee, return accepted by said authority is binding on income-tax authorities and the Assessing Officer, in such a case, has no power to scrutinize return submitted by the assessee. The relevant observation of the Hon'ble High Court at para 7 and 8 of the order rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by the Assessing Officer and sustained by the CIT(A) by observing as under:- "7. We have carefully considered the rival submissions in the light of the material placed before us. We find substance in the submission of learned AR that there was no material to come to a finding that any excess scrap was generated during the year under consideration. It was only an inference drawn by the Assessing Officer on the basis of scrap generation figures of subsequent years. In our opinion, that could give rise to a suspicion, but in the absence of any material to show that any excess scrap was generated during the year under consideration, it cannot be said that any addition was called for particularly in the facts of the case when it is the case of the assessee that it has been maintaining stock register with respect to manufacturing and also for generation of scrap. It is observed that the trading result of the assessee have been accepted by the Assessing Officer and no addition whatsoever has been made on that account, in the absence of any material to suggest that any excess scrap either was generated during the year under consideration or any excess scrap was sold by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any specific mistake or defect pointed out by the Assessing Officer or CIT(A), the addition is uncalled for. 19. The ld. DR, on the other hand, heavily relied on the Assessing Officer and the CIT(A). 20. We have considered the rival arguments made by both the sides and perused the material available on record. We find the Assessing Officer disallowed an amount of Rs. 2,29,551/- out of various expenses on ad hoc basis on the ground that some of the vouchers are improper and some of the expenses are unvouched. We find the ld.CIT(A) sustained the addition the reasons for which have already been reproduced in the preceding paras. It is an admitted fact that the accounts of the assessee are audited and no defects are pointed out either by the auditors or the Revenue. We find the Assessing Officer disallowed the amount on estimate basis on the ground that the vouchers are improper or unvouched. When the vouchers are either not available or improper, the expenses cannot be allowed. It is the settled proposition of law that for allowing any expenditure the onus is always on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer regarding the al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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