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TMI Blog1995 (1) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned and it has done nothing to make good the above shortfall. What the assessee claims now almost tantamounts to saying that the assessee is not even aware of the movement of stores issued, when issued, to whom issues, and whether there has been any connivance on the part of stores personnel, whether the watch and ward has connived with the stores department to misappropriate the stores, whether the same has been sold outside, clandestinely or misappropriated, etc., and yet has done nothing about it right from 1977 till 1986 almost as if such loss would hardly matter to it. This is almost unbelievable, especially considering the huge claim of loss now being made." He held that physical verification of stores conducted by the assessee cannot be considered to be reasonable. Since the consumption of stores is directly taken to the profit and loss account, what remained in the stores which were subsequently lost as shortage will only constitute capital loss. For these reasons he disallowed the claim. 2. The learned CIT (Appeals) noticed that the shortage had occurred as follows : Central stores Rs. 38,68,695 Lab. stores Rs. 1,41,123 Raw materials Rs. 5,83,257 ------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inutes No. 45/1986-87. 21. List of items included under general stores. 22. Copy of C A G Report for the year ended 31-3-1986. In addition, it had filed the Auditor's Report forming part of Annual report from 31st annual report to 39th annual report. We have perused the documents produced before us. In the order of the Tribunal in ITA No. 3/Coch/85 for the assessment year 1980-81, it was observed as follows : " If the shortages were not detected and determined at the end of each accounting year there is the possibility of the assessee having returned the excess profits in the earlier years by showing the stocks of raw materials at the book figures. Further the method of determining the shortages at periodical intervals on actual verification of stock once in three or four years has been accepted by the department by accepting the loss of shortages of Rs. 5,05,348 during the year ended 31-12-1977 relevant to the assessment year 1978-79. So it is not now open to the department to challenge that method and say that the loss of stock was raw materials must have been the accumulated losses of earlier years. In the facts and circumstances of the case, we hold that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in dispute that up to the assessment year 1980-81, the shortage in stores and raw materials stood allowed, even if the same was ascertained at periodical physical verification with an interval of three to four years. From the notes to the accounts forming part of the balance-sheet, the following facts emerged : ------------------------------------------------------------------------------------------------------------------------------------------------- Year Asst. year Item Remarks ended No. ------------------------------------------------------------------------------------------------------------------------------------------------- 31-12-1980 1981-82 13 Physical verification of stores and materials were conducted by the Company and shortages, excesses, obsolete items, etc., were reported quantitatively. Adjustments in the accounts were not carried out pending valuation of the items. 31-03-1983 1983-84 11 Physical verification of Stores Materials was conducted by the company during the year 1980 and shortages, excesses, obsolete items, etc., were reported quantitatively. Adjustments in the accounts were not carried out pending valuation of these items. While valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... want of physical verification then and there." They have also given certain suggestions to improve the control over stock and have summarised the shortages and excesses found in as many as 10 items of stores and quantified its value as follows : Shortage Rs. 1,22,72,670.03 Less : Excess Rs. 88,62,851.82 ------------------------- Net shortage on General stores Rs. 34,09,818.21 Net shortage on Raw Materials Rs. 5,83,256.84 ------------------------- Rs. 39,93,075.05 ------------------------- From the notes to Annual accounts infra, it will be evident that it is not as if the company was unaware of shortages and excesses in its stock of raw materials and stores and such shortages or excesses have been ascertained since 1980 on an actual basis though its value was not quantified in each of the preceding years. Thus there is force in the contention of the learned departmental representative that this is not a case where the physical inventory was carried out, after a lapse of four years. This is a case where physical inventory was carried out to locate the shortages and excesses of each year but then its value was not ascertained. This is what is referred to 'accumula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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