TMI Blog1998 (3) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... to the banks. In comparing the stock statements given to the banks with the book stock as at the end of the year, the AO noticed that the stock that should have been there as at the end of the year with reference to the stock statement given to the banks would be Rs. 3,16,353 as against the stock declared in the books at Rs. 1,96,705. Therefore, there was alleged undervaluation of stock to the tune of Rs. 1,19,648. It was submitted before the AO that the stock statements were given to the banks on estimate basis so as to avail better loan facilities and since this stock was hypothecated and not pledged, there was no physical verification by the banks. The bank allowed the loans on the basis of good reputation and creditworthiness of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther enquiry with the bank it would have been brought on record as to whether the bank was physically verifying the stock or merely accepting the stock statement at its face value as a matter of routine formality. The GP rate in the account of medicine and provision was fair and reasonable as compared to the gross profit rates obtained in the past and subsequent years, If the value of the closing stock would increase as indicated by the ITO, the GP rate in medicines account would go up 30 per cent which is not a practicable proposition inasmuch as the selling price of the medicine is fixed by the Government and such abnormal margin of profit is not allowed in medicines sale. The ITO has not brought anything on record to prove that the clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank manager had reminded the need for submission of stock statement. The learned counsel, therefore, submitted that the submission of stock statements was a mere formality. He further submitted that there was no intention to show undervaluation of stock because higher closing stock would have been the opening stock of the next year and since the assessee had higher income in the next assessment year, the impugned opening stock would have reduced the profit of that year. In support of his contentions he relied upon the following judgments: 1. Uganda Industries vs. CIT (1986) 158 ITR 567 (Guj); 2. CIT vs. Ramakrishna Mills (Coimbatore) Ltd. (1974) 93 ITR 49 (Mad); 3. Circular No. 293/14/78/IT(Inv), dt. 29th Aug., 1980 of CBDT; 4. R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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