Decided on May 13,1994



N. K. AGRAWAL, J. M. : - (1.) THESE are appeals by the Revenue relating to the asst. yrs. 1986-87 and 1987-88. The assessee has filed cross-objection for the asst. yr. 1987-88.
(2.) We shall first take up the Revenues appeal relating to asst. yr. 1986-87. Grounds Nos. 1 and 2 relate to the deletion of addition of Rs. 50,000 made in the trading account invoking the proviso to s. 145(1) of the IT Act. The Assessing Officer (AO) noticed during assessment proceedings the assessee had shown the value of the stock at Rs. 30,42,881 in the stock statement filed before the bank. The number of M. S. sheets had been shown at 10720. However, during assessment proceedings, it was noticed that the assessee had shown in its record 1444 sheets, 4215 flats and 8466 plates. The assessee was required to explain as to how 10720 M. S. sheets had been shown in the stock statement filed before the bank. The assessees explanation was that M. S. sheets, flats and plates could be described under any of the three categories and it was for that reason that the figure 10720 had been shown in the bank statement declaring it as relating to M. S. sheets only. It was only a variation in the description of the stock which was reflected in the stock statement and there was nothing objectionable to reject the stock position shown in the books of account. The AO further noticed that the value of the parts manufactured by the assessee had been shown at Rs. 3,57,462 but it was difficult to ascertain the correctness of this valuation. Similarly, the value of raw-material had been shown at Rs. 3,22,077 but in the absence of the weight of the materials, its valuation also could not be verified. The closing stock had thus not been properly valued. It was further noticed that the assessee had shown excessive wastage and scrap. No stock register had been maintained nor the manufacturing details were available. Since the scrap should not be available exceeding 10% the result shown by the assessee was held to be totally unreliable. Therefore, the books of account were rejected. The AO thereafter proceeded to make an addition of Rs. 50,000 in the trading account. The assessee went in appeal with the plea that sales had been shown in this year at Rs. 41,34,305 and the GP had been disclosed at Rs. 15,33,057. The ad hoc addition of Rs. 50,000 was said to be based on simple estimate and without any basis. The assessee had wide items spread over 8 categories in the stock. Whatever stock had been declared in the stock statement before the bank, that was based on a rough classification. Sheets, flats and plates had been collectively described as sheets in the stock statement. The total value of the sheets had been shown in that statement at Rs. 1,02,294 whereas in the return stock had been declared at Rs. 1,11,199. It was, therefore, contended that higher valuation had been shown in the books and it provided no ground to hold that the assessee had suppressed the stock. The value of pipes and steel tubes had been shown in the stock statement at Rs. 8,942 whereas in the valuation of stock shown in the return, these items had been valued at Rs. 83,336. Since the GP rate in this year was very high as compared to the earlier years, the book results were said to be reliable. It was contended that regular books of account had been maintained and there was no reason to reject the books of account unless certain defects were noticed. Reliance was placed before the CIT(A) on a decision of the Punjab High Court in the case of Pandit Bros. vs. CIT (1954) 26 ITR 159 (Punj) for the proposition that the method of accounting was the same as in earlier years and simply because the stock register had not been maintained the book results could not be rejected. Reliance has also been placed on a decision of the Kerala High Court in the case of M. Durai Raj vs. CIT (1972) 83 ITR 484 (Ker) in support of the plea that where the books of account had been regularly maintained, the trading results could not be rejected unless it was established that there was any suppressed turnover. In the case of International Forest Co. vs. CIT (1975) 101 ITR 721 (J&K), the Jammu & Kashmir High Court had an occasion to examine a case wherein it was held that mere low yield shown by the assessee in the accounting year in question as compared to previous years was not to be treated as a valid ground for rejecting the book results. The Gujarat High Court in the case of Balapur Vibhag Jungle Kamdar Mandali Ltd. vs. CIT (1982) 135 ITR 91 (Guj) observed that where the same method of accounting had been followed for a number of years and had been accepted by the Revenue, that method could not be rejected without valid reason in a particular year. The learned counsel for the assessee has, on the strength of these decisions, submitted that no ad hoc addition could be made unless specific defect was found in the books of account. The learned first appellate authority accepted the plea and deleted the addition.
(3.) THE learned Departmental Representative has submitted that various defects had been found by the ITO and, therefore, the book results were rightly rejected. THE assessee did not maintain any stock register giving details of different items nor manufacturing details had been furnished. THEre was no evidence on record to show that different items, namely, sheets, plates and flats were items of similar nature. It is, therefore, contended that the addition had been rightly made in the trading account.;

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