2001 (8) TMI 294 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 95,300 on account of alleged unaccounted sale of old Bardana/gunny bags.

Analysis:

Issue 1: Addition of Rs. 95,300
The appeal was filed against the order of CIT(A) regarding the addition of Rs. 95,300 due to the alleged unaccounted sale of old Bardana/gunny bags. The Assessing Officer (AO) had pointed out defects in the Bardana account, leading to the conclusion that the assessee either sold Bardana out of books or undervalued the stock. The AO's specific findings indicated dissatisfaction with the correctness of the books of account. The Tribunal held that the AO was justified in making the trading addition without rejecting the books of account and invoking section 145 of the Income Tax Act. Citing case laws, the Tribunal emphasized the AO's duty to act under section 145 when dissatisfied with the account's correctness. The Tribunal rejected the contention that section 145(2) was not applicable, as specific defects were identified by the AO, justifying the addition.

Issue 2: Surplus Quantity Calculation
Regarding the surplus Bardanas/gunny bags, the AO's calculation method was challenged by the assessee. The AO presumed that two bags could manufacture 3 Kattas, but the assessee argued that only one Katta could be obtained from one bag based on the sizes of bags and Kattas. The Tribunal revised the working to determine the surplus quantity of Bardanas, considering the standard sizes and practicality presented by the assessee. The revised calculation led to a different surplus quantity, correcting the AO's initial assessment.

Issue 3: Consumption of Surplus Bags
The assessee claimed that the surplus bags were consumed for various purposes, such as damage in transit, Dal preparation, and factory use. The Tribunal found the AO's consumption estimate to be on the lower side, considering the applications presented by the assessee and the quantity handled during the year. The Tribunal attributed a higher consumption rate, concluding that a balance quantity of Bardanas should have remained in the closing stock.

Issue 4: Valuation of Closing Stock
The valuation of the closing stock of Bardanas was disputed, as the AO applied a rate of Rs. 5 per Bardana, which was considered excessive. The Tribunal noted that the Bardanas were sold at lower rates during the year, leading to a revised valuation of Rs. 3.50 per Bardana for the closing stock. Consequently, the addition on this count was sustained to a lesser extent, aligning with the revised valuation.

In conclusion, the appeal was partly allowed, addressing the issues related to the addition, surplus quantity calculation, consumption of surplus bags, and valuation of the closing stock of Bardanas.