TMI Blog1994 (6) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ck in the said revised return: Quantity Rate Value in tonnes per tonne Rs. Lumpy Ore 58,310 12-50 7,28,750 Blue Dust 11,23,192 10-00 1,12,31,920 -------------------- 1,19,60,670 -------------------- 4. A search and seizure operation was conducted by the Department in the premises of the assessee-company during the period from 20-12-1980 and 22-12-1980. During the said operations, an unsigned paper, purported to be showing the valuation of closing stock as on 30-9-1976 was found in the file of the Accountant dealing with the matter relating to determination of the closing stock, along with other papers. It may be mentioned in this connection that the previous year of the assessee for this year also ended on 30-9-1976 and hence, the closing stock as referred to above means the stock as on that date. 4.1 In the above-mentioned paper, found during the search and seized by the Department, the position of the stock as on 30-9-1976 was shown as below: Vagus Plot: Quantity in Rate Value tonnes per tonne (in rupees) V.M.S. Lumpy 58,300 16-00 9,32,800 V.M.S. Chips 4,33,374 6-00 26,00,244 V.M.S. Blue dust 11,03,606 13-00 1,43,46,878 Mechanical Plot: V.M.S. Lumpy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has firstly been contended by Shri Damania that the seized paper was merely an unsigned paper and does not have any practical significance. It has been argued that this particular paper might have been prepared by the person dealing with the valuation of stock for various purposes like submission of stock statement before the bank or as a working paper for final valuation of the stock, etc. It has furthermore been contended that this paper is not signed by any body nor does it show the date of preparation of the paper. It is thus argued that this paper does not have any evidentiary value at all in reopening the assessment and/or in deciding the issue. 6.1 Shri Puniha, on the other hand, argued that this paper was found duly placed in the file containing different papers relating to valuation of the stock and that although the paper might not be dated, yet, it clearly shows the stock position of the company as on 30-9-1976. It is, thus, contended by Shri Puniha that the paper cannot be ignored and must be taken into consideration for arriving at decisions relating to reopening as well as revaluation of the stock. 7. Shri Damania, first of all, brought to our notice the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, the ITO could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) of the IT Act, 1922, will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous. 8. The main thrust of Shri Damania's arguments was that the assessee had truly and fully disclosed all the particulars relating to its closing stock at the stage of the original assessment. It has been argued that so far as chips are concerned, the value of the said chips was nil (as would be found during the course of discussions relating to the merits of the case), and the Lumpy Ores at Mechanical Plot were not to be included within the closing stock of the assessee inasmuch as such ores must have been sold away before the last date of the relevant previous year, but missed to be taken into consideration by the person preparing the stock statement on account of non-reaching of the relevant information relating to sale. He also argued that the physical quantum of the closing stock as disclosed in the revised return was on the basis of the figures of opening balance, the production and purchase and also sales effected during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a paper not only from the business premises of the assessee but also from the very file in which the papers relating to preparation of stock statement were maintained. Therefore, at least the primary significance of this particular paper found during the search cannot be brushed aside, although whether whatever written therein can be accepted in toto or not is a different question. This particular paper showed not only higher rates of valuation in respect of the two items disclosed by the assessee in its stock statement, but also included two further items, viz., chips and lumpy ore at Mechanical Plot which had not been shown in the stock statement of the assessee at all. Even if it be contended that the Lumpy Ore at Mechanical Plot did not form a part of the closing stock inasmuch such Ore had already been sold away, the finding of a paper purporting to be the list of closing stock as on the relevant date showing this particular item would naturally give rise to the reasonable belief in the mind of the Assessing Officer that on account of omission on the part of the assessee to disclose the existence of this item, income chargeable to tax has escaped assessment. So far as the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee had valued these two items at the rates of Rs. 12.50 per ton and Rs. 10 per ton respectively in the computation of its closing stock and the said valuation was also accepted by the Assessing Officer in the assessment. In the impugned re-assessment however, the valuations have been adopted by the Assessing Officer at the respective rates of Rs. 16 per ton and Rs. 13 per ton as per the seized document, as discussed above. The argument of the assessee in support of the valuation adopted in the original assessment is that the assessee has been valuing these two items at standard cost over a number of years, that inasmuch as the assessee has been following the LIFO method of accounting, which is actually the case in respect of Mineral Ores required to be dumped in heaps, the stock of the assessee remaining at the bottom is always required to be valued at the old rate over the years and also that the method of accounting and estimating the stock as valued by the assessee is in accordance with the principles laid down by the Institute of Chartered Accountants of India with regard to valuation of inventories and has also been approved by the Expert Advisory Committee of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding place in the seized document, must be considered to be correct. 11.2 We hereby take due note of the fact that although the seized document may be considered to be a valuable evidence for giving the Assessing Officer a reasonable belief to reopen the proceeding, at the same time, it cannot be considered as sufficient evidence to come to a conclusion that whatever is written in the said seized document must be taken as gospel truth regarding valuation of closing stock of the assessee. Even the Department has also not relied on the said document fully inasmuch whereas the seized document shows the quantity of Blue Dust at Vagus Plot to be 11,03,606 tonnes only, the Assessing Officer has chosen to stick to the old higher figure of 11,23,192 tonnes as disclosed by the assessee at the original assessment stage and as accepted in the original assessment. It is, therefore, required for us, first of all, to examine whether the figures as mentioned in the seized document stand to proper reason and in that way may be acceptable even in the reassessment. The normal procedure for maintenance of stock in the business of export of Iron Ore should be to dump new items over the old ones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reassessment stage under section 147. Had there been any escapement of income, the Assessing Officer would have certainly been at liberty at the reassessment stage, to revalue the stock. But, as has been discussed earlier, whether there was any escapement of income by adoption of old figures of rate of these two types at the original assessment stage itself, is not very clear and hence disturbing the valuation already adopted in the original assessment, at the reassessment stage, does not seem to be permissible in the present case. The Supreme Court has held in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 that where reassessment is made under section 147 in respect of income which had escaped tax, the ITO's jurisdiction is confined only to such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment. In the instant case, there are no sufficient evidences to show that any escapement of income actually occurred in the original assessment with regard to the matter of valuation of Lumpy Ores and Blue Dust at the Vagus Plot. The revaluation as done by the Assessing Officer in the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U.P. Nayak, Senior Manager, Vasco-da-gama branch of Canara Bank. The IAC held in brief that although these Chips were not totally worthless or valueless, but that there was no regular long-term market for this type of Ore in the then international situation. He discussed in the aforesaid order that a certain percentage of this type of Lumpy Ore known as Chips was required to be added to the blast furnace to get optimum result. However, the percentage of Lumpy Ore had fallen from 42% in 1972 to 7% or 8% in 1978. He also discussed that in the days of rising fuel costs, Lumpy Ores of Goan origin were not being preferred by the buyers at Japan. He also took into consideration the opinion of Shri Agarwal of M.M.T.C. that it was very difficult to assign any specific value of these types of lumps as a market for the Chips was absolutely uncertain. Finally, the IAC came to the conclusion that inasmuch as there was no regular steady assured market in respect of Chips, the assessee, keeping with the principle of accountancy described as Doctrine of Conservatism, was not obliged to take value in respect of these Chips in its closing stock. Lastly, the IAC held that adoption of nil value in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to our notice to the fact that in assessment year 1975-76 also, the assessee itself had taken into consideration VMS Lumpy Ore at Mechanical Plot to the extent of 5,997 tonnes and had included the value thereof in the final stock valuation. Shri Damania, on the other hand, has argued that might have been the case on the basis of the facts existing at the relevant time. He however contends that so far as the present year is concerned, there was no stock of Lumpy Ores at the Mechanical Plot and that the entire stock of Lumpy Ore at the Mechanical Plot (from where direct shipment is made) had already been sold away in the last month of the relevant accounting year, viz., September 1976. In support of this contention, he has produced the figures to show that 14,446 L.Ts of Lumpy Ore at the Mechanical Plot were shipped on 8-9-1976 to M/s. C. Itoh Co. Ltd., of Japan and furthermore that two shipments of 15,900 and 20,147 L.Ts respectively were made on behalf of an inland party, viz., M/s. Shantilal Khushaldas on 13-9-1976 and 25-9-1976 respectively. These figures lead to the aggregate of 36,048 L.Ts of Lumpy Ores which, more or less correspond with the amount of 36,988 tonnes show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 on account of revaluation of closing stock as done in the reassessment order. 15. In another ground, the assessee contends that the CIT(A) erred in sustaining the disallowance of Rs. 94,065 out of Rs. 1,33,565 in respect of the payment to M/s. Agencia Caestano Figueredo. Shri Damania was fair enough to point out that similar disallowance was upheld by the ITAT, Bangalore Bench, in its order dated 23-3-1985 in ITA No. 667 (Bang.)/1983 with regard to the assessee's appeal for assessment year 1979-80. Following the said line, therefore, we uphold the disallowance for the present year also. 16. In the last effective ground, the assessee contends that the CIT(A) erred in not giving appropriate relief in respect of disallowance made by the Assessing Officer under the item "maintenance of building". From a perusal of the assessment order, it is found that certain items, of works carried out at the residential premises of the various directors to the total extent of Rs. 30,430 were disallowed on the ground that the expenses had been incurred on personal account of the directors and did not relate to the business of the assessee-company. Furthermore, another amount of Rs. 29,637 repre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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