2011 (3) TMI 1595 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made to the total income by the Assessing Officer.
2. Valuation discrepancies in stock declared to the bank versus books.
3. Rejection of books of account and estimation of book profits.
4. Application of provisions u/s 145(3) of the Income-tax Act.
5. Consistency in the method of stock valuation.

Summary:

1. Deletion of Addition Made to Total Income:
The revenue appealed against the deletion of an addition of Rs. 30,77,252/- made by the Assessing Officer. The CIT(A) had deleted this addition, which was based on discrepancies in stock valuation.

2. Valuation Discrepancies in Stock Declared to the Bank versus Books:
The Assessing Officer found that the stock declared to the bank for credit facilities was higher than the stock declared in the books. The discrepancies were noted in finished goods, work in progress, raw materials, and packing material. The assessee explained that the stock declared to the bank was on an estimated basis to satisfy the bank due to an outstanding loan, whereas the stock in the books was valued as per the regular method.

3. Rejection of Books of Account and Estimation of Book Profits:
The Assessing Officer rejected the books of account citing six defects, including improper explanation of cost of production, lack of a mathematical basis for valuation of work in progress, and discrepancies in the valuation of English Cricket bats and packing material. An addition of Rs. 61,54,504/- was made to the book results, which was reduced by half due to deduction u/s 80HHC.

4. Application of Provisions u/s 145(3) of the Income-tax Act:
The Assessing Officer applied the provisions u/s 145(3), stating that the books of account were not satisfactory. The CIT(A) disagreed, noting that the assessee had consistently maintained proper books of account, and the method of stock valuation had been regularly employed and accepted in the past.

5. Consistency in the Method of Stock Valuation:
The CIT(A) found that the assessee had consistently valued finished goods at selling rates, raw materials, and semi-finished goods at cost. The Assessing Officer's objections were deemed without substantial basis, and no serious defects were found in the books of account. The CIT(A) concluded that the method of valuation should be accepted due to its consistency and the lack of any pointed discrepancies.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. The consistent method of stock valuation employed by the assessee was accepted, and no addition was warranted based on the discrepancies noted by the Assessing Officer. The appeal was dismissed, affirming the deletion of the addition made to the total income.