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TMI Blog2014 (2) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... red during the year works out to around 26% - valuation is a subjective exercise and in which case the estimates made of construction would differ from valuer to valuer - the Assessee has not maintained books of account with respect to the cost of construction – thus, the estimate of addition of Rs. 7,00,000/- would meet the ends of justice – the AO is directed to restrict the addition to 7,00,000 – Decided partly in favour of Assessee. - I.T.A. Nos. 1791 & 2055/AHD/2010 - - - Dated:- 21-2-2014 - Shri G. C. Gupta And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri J. P. Jhangid, Sr. D. R. For the Respondent : Shri S. N. Divetia ORDER Per Shri Anil Chaturvedi,A.M. 1. These two appeals, one filed by the Assessee and the other filed by the Revenue, are against the order of CIT(A)-IV, Baroda dated 26.03.2010 for A.Y. 2003-04. 2. The relevant facts as culled out from the material on record are as under:- 3. Assessee is an engaged in the trading and processing of tobacco and bidi patti. Assessee filed its return of income for AY 2003-04 on 29.8.2003 declaring total income of Rs 22,86,807/-. The case was selected for scrutiny and thereafter the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case as well as in law, the Ld. CIT(A) ought not have upheld the above addition. 3.1 The Ld. CIT(A) has grievously erred in law and on facts in upholding the addition of Rs.21,08,892/- in regard to valuation of godown building. 3.2 The Ld. CIT(A) has failed to appreciate that when books of accounts had not been rejected nor any defect was found, the cost incurred on construction of the godown building by your appellant and as recorded in the books of accounts should not be rejected simply on the ground that the same is valued for higher amount by the DVO. 3.3 The Ld. CIT(A) has failed to appreciate that the appellant had fully and properly explained the cost of construction incurred and discrepancies in valuations made by DVO and registered valuer from time to time as regards the valuation of the construction which ought to have been considered by CIT(A). We first take up Revenue's appeal (ITA No. 1791/AHD/2010) 5. In this case survey was conducted at business premises of the Assessee on 13.3.2003 and physical verification of stock was undertaken. During the course of physical verification of stock it was noticed that there was difference in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -a-vis book stock by 38675 kg. As per appellant, this stock was filled up in gunny bags, which were not stitched and was wrongly considered as finished goods by the survey party, though no entry for including the same had been made till then in the stock of finished goods. Also, entry for reducing the same from book stock of semi finished goods had not been made since the gunny bags were not stitched. It is possible that at the time of survey, while inventorising stock lying in various rooms, goods categorized as semi finishes goods in the stock register due to the gunny bags being not yet stitched were considered as finished goods by the survey party, Appellant's contention finds support from the fact that while semi finished goods were found to be short, stock of finished goods was found to be in excess. Assessing Officer's observation that the tobacco patti and goods in process are separate and distinct and cannot get the character of each other is not. tenable since semi finished goods only get converted to tobacco patti. The Assessing Officer considered shortage in stock of semi finished goods to mean sale of semi finished goods outside the books. It is highly improbab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5,000/- (unaccounted stock of tobacco dust), i.e. Rs. 1,62,827/- and the balance is deleted. 6. Aggrieved by the order of CIT(A), both Revenue and Assessee are now in appeal before us. 7. Before us, the Ld. D.R. submitted that in the assessment order the AO has noted that despite various opportunities granted to the Assessee by the AO, the Assessee could not reconcile the book stock with the physical stock. He further submitted that the contention of the Assessee that there was mistake in stock taking is not supported by any evidence. He also submitted that the physical stock taking at the time of survey was done in the presence of the Assessee and had there been any mistake in stock taking, the same should have been pointed out by the Assessee but in the statement recorded at the time of survey, the Assessee had not pointed out any discrepancy in the method of stock taking and therefore the submission of the Assessee was without any tangible basis. He further submitted that in view of the aforesaid facts, CIT(A) had also erred in accepting the contentions of the Assessee which was not supported by any material. He thus supported the order of AO. 8. On the other hand, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, we are of the view that the AO was not justified in making the addition of the entire difference found in the stocks as income of the Assessee. Considering the fact that the gross profit declared by the Assessee for the year under consideration is 22.96% we are of the view that in the present case, ends of justice shall be met if the addition is restricted to Rs 6 lacs (rounded off) made on the basis of gross profit i.e. (Rs 2427523 * 22.96%) instead of Rs 24,27,523/- made by the AO. We thus direct accordingly. 10. In the result the appeal of the Revenue is partly allowed. We now take up Assessee's appeal ( ITA No. 2055/AHD/2010) Ground no. 1 is general and requires no adjudication. Ground no. 2 is with respect to addition made on account of shortage of stock found at the time of survey. 11. This ground of Assessee is interconnected with ground raised by Revenue. Since the ground raised by Revenue is partly allowed, for the reasons stated therein, this ground of Assessee is also partly allowed. 12. Ground no. 3 is with respect to addition made on account of construction of godown. 13. AO noticed that during the year Assessee had constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised officer physically inspected the godown and reference to DVO was subsequently made at the time of assessment. In view of decision of Rajkot Bench in the case of Nalanda Housing Development Ltd., reference to the DVO to ascertain the cost of construction of godown is held to be valid. Further, as held by Calcutta High Court: in the case of Unit Construction Ltd. (2003) 181 CTR (Cal) 82 : 260 ITR 189 (Cal), it is the substance of the Order that the Assessing Officer was not satisfied with the explanation which is-relevant and it is not necessary that books of accounts must be rejected expressly or that it must be recorded in express terms that the books of accounts are not reliable or the explanation is not satisfactory. The value arrived at by the DVO is significantly higher that the cost declared in the books of accounts by the appellant even after taking appellant's objections into account and Registered Valuer's report obtained by the appellant. The Registered Valuer appointed by the appellant also arrived at a value significantly higher than the cost declared by the appellant in the books of accounts. Considering all aspects, the cost of construction is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to DVO. DVO vide his report dated 30.03.2006 valued the godown at Rs. 70,42,600/-. Before CIT(A), A.O. submitted modified valuation dated 30.03.2009 of DVO where the revised valuation was worked out at Rs. 58,78,900/-. CIT(A) has also noted that as per the valuation report dated 8.2.2007 submitted by the Assessee the value of godown was Rs. 50,18,022/- as against the declared cost of construction of Rs. 33,39,569/-. It is also a fact that the expenditure in construction of godown was done by Assessee in the year under appeal and earlier years. The percentage of expense, incurred during the year works out to around 26%. Considering the fact that valuation is a subjective exercise and in which case the estimates made of construction would differ from valuer to valuer. Before us, Assessee has placed reliance on the decision in the case of CIT vs. Chohan Resorts (2012) 253 ITR (P H) 106 and other decisions. We are of the view that in the present case since the Assessee has not maintained books of account with respect to the cost of construction, the ratio of decisions raised by Assessee would not apply. Considering the totality of facts, we are of the view the estimate of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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