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TMI Blog1990 (4) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the trading amount prepared there was no bifurcation of the cost of oil and cake. Hence a revised return was filed in which the cost of oil was segregated from the total manufacturing cost on the basis of the price of oil purchased from others, leaving thus the balance of the total cost as the cost of cake manufactured. On that basis, the value of the stock of oil and cake was arrived at. It was further explained by the assessee's letter dt. 28th Jan., 1989 that the omission to include the consignment stocks was accidental and once this discrepancy was noticed, additional amounts were offered to take care of the initial omissions in the valuation of stock. The learned ITO examined the accounts of the assessee and noticed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing cost as per its accounts, the cost of oil arrived at in the above manner was deducted and the balance of the total manufacturing cost was taken to represent the cost of cake produced. From this the cost of cake per kg. Was arrived at Rs. 2,27 and the closing stock of cake was valued at that rate. The ITO, without any material to discard such a scientific method of valuation of stock, chose to look upon the advances received from the consignees as representing the true value of the closing stock. The advances are merely advances to be adjusted against the consignment sales and the expenses incurred thereon and if any balance of advance is left over, the assessee is personally liable to refund the advance and in no case can it be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances represented the cost of the consignments. In the preceding two years, assessment was made under s. 143(1), but that does not preclude the ITO from examining the question afresh for arriving at proper valuation of closing stock in the year under consideration. 6. Having regard to rival submissions and the materials on record, we set aside the order of the learned CIT(A). The assessee is engaged in the manufacture of oil by crushing oil-seeds. Oil and cake are the products that emerge from the crushing operations. While oil is a major product, cake is a by-product. Common costs are incurred in the manufacture of the major and the minor products and no separate cost accounts are maintained by the assessee. Therefore, the cost of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of some of the consignees as contained in the paper book, we notice that the advances are made not on any basis, but on an ad hoc basis. For example, in the case of Vijaya Brothers, Bombay, there was a consignment of 315 bags of cake on 18th July, 1987, for and the advance received thereon was Rs. 69,340. On 25th July, 1987 and the advance received thereon was Rs. 69,340. On 25th July, 1987, for another consignment of 315 bags, the advance received was Rs. 60,650. Again on 4th Aug., 1987, for a still further consignment of 315 bags, the advance received was Rs. 70,910 and for a similar consignment on 7th Aug., 1987, the advance received was Rs. 72,700. From the above, it will be evident that for the consignment of 315 bags, the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnor or the consignee would be liable to the other to return the amount. Hence, the valuation of the stock of goods on the basis of the advances received is manifestly erroneous. 8. In this view of the matter, we uphold the method in principle followed by the assessee in valuing its stocks of cake at Rs. 2,47 and oil at Rs. 21.20 per kg. as given on page 49 of the paper book. However, as the figures require verification, we restore the issue to the ITO for the limited purpose of verifying the figures of total manufacturing cost and the cost of oil purchased during the year and such other computations as are found at page 49 of the paper book which is enclosed as annexure to this order. 9. In the result, the appeal is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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