TMI Blog2019 (7) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We also find merit in the argument of the ld. counsel that considering the size of business of the assessee it is not possible to receive 20% of the material in five days as against 80% of material in the whole year. In view of the above discussion, we are of the considered opinion that the ld.CIT(A) is not justified in sustaining the addition of ₹ 69,01,453/- on account of undervaluation of closing stock. Following the same reasoning, the addition of ₹ 91,963/- on account of finished stock is also deleted. Addition on account of valuation of scrap - we find identical issue had come up before the Tribunal in the case of sister concern of the assessee, namely, M/s Mahashakti Machines Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed enquiries by him on the claim and recorded wrong findings in stating that claim is not substantiated and purchases are unaccounted etc. b) without appreciating the facts on record addition of ₹ 4,97,322/- on a/c of estimation of scrap and of ₹ 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and valued the same @ ₹ 30 per Kg and made addition of ₹ 4,97,322/-. Thus, the Assessing Officer made addition of ₹ 74,90,738/- to the total income of the assessee on account of valuation of closing stock of raw material, finished goods and scrap. 5. In appeal, the ld.CIT(A) upheld the 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 ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the invoices etc., however, he has not appreciated the facts properly. Further, if the version of the Assessing Officer and CIT(A) are accepted, then, 20% of the material were purchased in the last five days as against 80% material purchased in the whole of the year is neither practicable nor possible. Referring to paper book 186, he submitted that trading results/closing 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible if the books of account are not rejected and when the GP is higher. He also relied on the following decisions for the above proposition:- (i) CIT vs. Pashupati Nath Agro Food Products, ITA No.165/2010, order dated 04.05.2017 (All); and (ii) CIT vs. Shakti Ind. (2013) 36 Taxmann.com 16 (Guj). 9. He accordingly submitted that the order of the CIT(A) in sustaining the addition made by the Assessing Officer on account of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 2.43% for the impugned assessment year is higher than the rate of net profit declared in the immediately preceding four years. Further, the ld. counsel for the assessee during the course of hearing had demonstrated before us that the goods were received through challans earlier whereas the invoices were raised later and were entered in the books of account. Since the Assessing Officer in the instant case has not made any adjustment to the opening stock of the subsequent year and for assessment year 2012-13, no addition has been made in the order passed 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys as against 80% of material in the whole year. In view of the above discussion, we are of the considered opinion that the ld.CIT(A) is not justified in sustaining the addition of ₹ 69,01,453/- on account of undervaluation of closing stock. Following the same reasoning, the addition of ₹ 91,963/- on account of finished stock is also deleted. 12.1 So far as the addition of ₹ 4,97,322/- on account of valuation of scrap is concerned, we find identical issue had come up before the Tribunal in the case of sister concern of the assessee, namely, M/s Mahashakti Machines Pvt. Ltd. (supra), wherein the Tribunal deleted the addition 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his, the submission of the appellant does not have any merit. To disallow such expenditure of personal in nature, the AO need not go to the rejection of books of accounts which requires higher degree of infirmities in maintaining accounts. At the same time, the nature of expenses disallowed by AO cannot be claimed to have incurred wholly for the purpose of business. In view of this, the estimation of the AO is found to be justifiable hence confirmed. The ground of appeal is dismissed. 17. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 18. The ld. counsel for the assessee submitted that full details were given before the Assessing Officer along with bills, vouchers etc. Not a single defect was pointed out by him. Therefore, in 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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