- (1.) This is an appeal by the department against the order of the Commissioner (Appeals) dated 25-11-1994. The only ground raised in this appeal reads as under : "On the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in deleting, without any reasonable basis, the addition of Rs. 5,38,860 made by the assessing officer on account of undervaluation of the closing stock and suppressed sales of marble blocks."
(2.) The assessing officer discussed this issue at page No. 2 of the assessment order dated 31-12-1998. During the assessment proceedings the assessing officer noticed that the assessee did not maintain day-to-day mines production account and the stock register for raw material and finished goods was also not maintained, therefore, in the absence of the stock register the genuineness and correctness of the trading results could not be verified. The assessing officer worked out the average price of the marble blocks and while doing so had taken the purchase of blocks as shown by the assessee. He also had taken the mining expenses for excavation of the marble blocks from the mine of the assessee. He also included freight and other expenses and had worked out the average purchase price of Rs. 7,100 per block. Thereafter the assessing officer found that the assessee had shown closing stock of marble block at lesser price than the average purchase price per block. He also mentioned that the assessee had sold marble blocks at a rate lesser than the average purchase price. He, therefore, rejected the books of accounts by invoking the provisions of section 145(1) and recasted the trading account by taking the sale of marble blocks @ Rs. 7, 100 per block and also after taking the closing stock of marble blocks @ Rs. 7,100 and had worked out the profit at Rs. 6,78,140.
(3.) The assessee carried the matter to the Commissioner (Appeals) and submitted that the assessing officer was not justified in making the addition on account of sale of blocks and also on account of valuation of closing stock of marble blocks. It was stated that the assessing officer was not justified in enhancing the sale of blocks by an amount of Rs. 40,800 because he did not bring on record any evidence that the assessee had sold marble blocks numbering 18 @ Rs. 7,100 per block. It was stated that the assessee had sold only 18 blocks during the entire accounting year and such blocks were sold out of its own production. Such blocks were sold on the basis of bills and thus the sale of blocks was duly supported by the bills. It was stated that the assessing officer had not established that the assessee sold the blocks for more consideration than recorded in the bills since the blocks were sold to the registered dealer and such sale was verifiable. The assessee furnished evidence in respect of such sales to the assessing officer and the assessing officer had not made any enquiry from the parties to whom such blocks were sold. It was explained that 18 blocks were sold for consideration of Rs. 87,000, therefore, the assessing officer was not justified in considering the sale value at Rs. 1,27,800 and enhancing the sale by Rs. 40,800. It was further stated that the assessing officer was not justified in working out the cost of blocks on average basis at Rs. 7,100 per block because while doing so the assessing officer had not taken the opening value of 122 blocks and also had not taken into account that the assessee besides purchasing marble blocks from outside parties had also produced marble blocks in its own mines and the cost of mining of block from own mine was comparatively less than the average purchase price of blocks purchased from other parties. It was also stated that the mined blocks from the assessee's own mine were of cheaper variety in comparison to the blocks purchased from other parties. It was claimed that the average cost to the assessee per block of marble mining from its own mine was at Rs. 3,302 and the average selling price of such marble blocks was at Rs. 4,833 (Rs. 87,800/18). As regards to the marble blocks purchased from outside parties, it was stated that those blocks were converted into slabs and the assessing officer has not questioned the closing stock of such marble slabs. It was explained that practically entire stock of marble blocks purchased from other parties was converted into slabs. Thus, there was no justification on the part of the assessing officer to assume that the assessee had sold marble blocks at a rate lesser than the cost price. Accordingly, it was submitted that the addition had been made by the assessing officer only on the basis of assumption and presumption. It was further submitted that the assessee was having opening stock of marble blocks numbering 122 and such blocks could not be sold as those were lying underneath the other blocks which were purchased by the assessee and brought from its own mine. It was further argued that the assessee had 158 marble blocks at the end of the accounting year which were obtained from own mine and therefore, their valuation was done by the assessee on the basis of cost of production. Accordingly, it was stated that there was no basis for the assessing officer to work out the closing stock by taking the value of each block at Rs. 7,800. It was further submitted that the assessing officer arbitrarily worked out the average cost price even by taking into account the expenditure which was normally incurred when the blocks were sent for sawing and for sale. In other words the assessing officer had taken the expenditure into consideration which were related to cost of conversion of blocks into slabs. It was further stated that out of the total 856 blocks, assessee had sold only 18 blocks and 680 blocks were converted into slabs and the assessing officer has not questioned the sale consideration of such slabs and also the stock of such slabs. Therefore, the assessing officer had arbitrarily worked out the closing stock of marble blocks numbering 158 whereas the assessee had shown their correct value on the basis of opening stock and cost of production. It was also stated that the assessing officer never required the assessee to give details of marble blocks which were sold and, which were converted into slabs and which remained towards the end of the accounting year. However, the assessing officer wrongly assumed that the marble blocks which were purchased by assessee at a higher rate remained in the closing stock whereas the fact was otherwise as the assessee had closing stock of marble blocks out of its own production which had been accepted by the assessing officer in the subsequent assessment years, i.e., 1997-98 as opening stock and if the working of the assessing officer in respect of marble blocks was to be accepted it would mean that the income of the subsequent assessment year, i.e., 1997-98 would be reduced by an amount of Rs. 4,98,060.;