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TMI Blog2015 (5) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... t Appellant Authority had no other option but to reject the action of AO in rejecting the books of accounts. Decided against revenue. Addition on account of generation of scrap - CIT(A) deleted the addition - Held that:- the claim for generation of Scrap as per the Books of Account is significantly lower, not just for items at S. No. 4 and 5 i.e. 'Knife' and 'Pasta/Noodle-SM', as mentioned in Para 8.10 above, but also in case of the item at S. No. 3, i.e. 'Table Fork', for which the Assessee claims that the actual figure of generation of Scrap as per Books was 49.576% and not 54.99% as shown the Assessment Order, as against the Departmental figure of Scrap generation of 51.93%. In such a situation, it is seen that the Departmental figure for Scrap generation would be significantly higher than the Assessee's claim for 3 items and lower for 2 items. In any case, no conclusion can be drawn from the Inspector's Report regarding inflation of claimed Scrap generation as no trend for inflation of Scrap is seen from the Inspector's Report and though there are variations between the Inspector's Report and the claim of the Assessee but no definite conclusion of inflation or suppression ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assesee in the earlier years wherein the assessee has claimed and received back Refund of Excise-duty. iii. The appellant craves leave to amend or alter all or any of the aforesaid grounds of appeal and amend, alter or add any other ground of appeal. 2. The assessee has raised the following cross objections: i. On the facts and circumstances of the case, the learned Commissioner of Income Tax(Appeals) [CIT(A)] has erred, both on facts in law, in confirming addition of ₹ 99,54,630/- and further enhancing addition by ₹ 23,67,470/- in respect of valuation of the closing stock of the finished goods. ii. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in taking gross profits rate at the rate of 4.63% while valuing the cost of the finished goods ignoring the fact by above said addition of ₹ 1,23,22,100/- the gross profit will get increased to ₹ 2,79,56,800/- and consequently the G.P. Rate will be 8.28% not 4.63% applied by the CIT(A). iii. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in not allowing adjustment in the opening stock of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of this Tribunal in the assessee s own case for the preceding assessment year i.e. 2008-09. 6. We have heard the rival parties and perused the material on record. The first ground of appeal relates to the rejection of book results. We observe from the assessment order that it is not the case of the Assessing Officer that the respondent assessee failed to produce the information called for, nor is it the case that the books of account are defective. The Assessing Officer failed to give any specific reason for rejection of book results. It appears that the sole basis for rejection of book results is the assessment order of the immediate preceding year i.e. 2008-09 in which the books of account have been rejected by the Assessing Officer. This Tribunal in the assessee s own case in ITA No. 1454/Del/2012, vide order dated 29.10.2014 passed for the assessment year 2008-09, rejected this ground of appeal raised by the Revenue, which reads as under:- 5. In the Remand Report the contentions of the assessee that the AO was not justified in rejecting the books of accounts was accepted by the A.O. The A.O. also accepted the contention that he has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scrap generation in the case of 5 items on a sample basis cannot be rejected as such, but this sample of 5 items does not give any clear evidence that the Assessee is inflating the claimed Scrap generation. It is seen that out of the 5 items, the Departmental figures for Scrap generation are much lower than the claim of the Assessee for 3 items, but for 2 of the items, i.e. 'Knife' and 'Pasta/Noodle-SM', mentioned at S. No. 4 and 5 of the chart made by the Assessing Officer, it is seen that the Departmental figures for Scrap generation were much higher as compared to the figures shown for the Assessee. If in case of 2 of the 5 items analysed, the Scrap generated as per the Department is much higher than that stated to be claimed by the Assessee, then it cannot at all be said, merely on this basis that the Assessee has inflated the claim of Scrap. If the Assessee was inflating the claim of Scrap, then either the Scrap generated as per the Department would have been lower in all the 5 cases, or in case the Appellant was resorting to such tactics for only some items, then the Departmental figures would have been equal to the Assessee's claims for some items and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s claim for 3 items and lower for 2 items. In any case, no conclusion can be drawn from the Inspector's Report regarding inflation of claimed Scrap generation as no trend for inflation of Scrap is seen from the Inspector's Report and though there are variations between the Inspector's Report and the claim of the Assessee but no definite conclusion of inflation or suppression can be suppression can be drawn when for 3 items a different trend is seen and for the other 2 items a different trend is seen. 8.14 It is further seen that the Appellant in his written Submissions dated 22.01.2013 in Para 19.2 has claimed that the basis on which the percentage as per the Inspector's Report was computed has not be specified, and also that the Inspector's Report was never confronted to the Assessee. If the Inspector's Report was being used against the Assessee, then the Assessee should have been confronted with the Report and the explanation if any offered by the Assessee on the Report should have been discussed, and in case no explanation was offered then that fact should also have been mentioned in the Assessment Order. However, it is seen that the Assessment Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections filed by the respondent assessee relates to the addition on account of closing stock of ₹ 99,54,630/- confirmed and further enhanced by ₹ 23,67,470/- by the learned CIT(A). The Assessing Officer made the addition in respect of closing stock by deducting the G.P. from the sale price, works out to ₹ 226/- per kg. Whereas on appeal, the learned CIT(A) finally held vide paras 9.8, 9.9, 9.10 and 9.11, apart from confirming the addition made further enhancement of ₹ 23,67,470/-, which are reproduced below: 9.8 After examining the entire facts of the case and relevant documents it was found that there was a very heavy undervaluation of the Closing Stock of Finished Goods and though the Ld. Assessing Officer had made an addition towards the undervaluation of Finished Goods but that addition was inadequate to cover the entire undervaluation of the Closing Stock of Finished Goods. It was seen that not only the packing cost which had been claimed by the Appellant at ₹ 19/- was worked out to ₹ 16.74 per kg., but also that the Ld. Assessing Officer had taken the Gross Profit Rate at 14.93% which was allowed as a reduction from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem of Finished Goods included in Closing Stock was not given. In such a situation, a reasonable and logical estimate has to be made for which reverse calculation or any type of calculation can be used provided it is reasonable and logical. Accordingly it is held that the Appellant could not explain why the enhancement in the Valuation of Closing Stock of Finished Goods should not be made. 9.10 There is no dispute regarding the average Sale Price being ₹ 266/- per kg. The Gross Profit rate of 4.63% which was proposed to be used for valuation of the Closing Stock of Finished Goods was taken from the Audited Form No. 3 CD for A.Y. 2009-10, a copy of which was filed by the Appellant in the Paper Book submitted by him alongwith written submissions dated 22.02.13. Further, the packing cost of ₹ 16.74 per kg. was admitted by the Appellant and is obvious from the calculation given in Para 9.6 above, whose details were given by the Appellant himself. In such a situation there is no dispute regarding the figures involved and the calculation of the rate to be adopted for the valuation of the Closing Stock of Finished Goods is as under :- S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whichever is less. 14. It was further argued that the G.P. applied by learned CIT(A) @ 4.63% is not correct, as the same has to be taken considering the sale of scrap also, while valuing the finished goods. As the sale of scrap goes to reduce the cost of production, scrap cannot be taken as sale. Accordingly, the G.P. was worked out. The learned CIT(A) has taken G.P. rate at 4.63% while valuing the cost of the finished goods. The learned CIT(A) ignored the fact that by the addition of AY: 2009-10 ₹ 1,23,22,100/- the gross profit increases to ₹ 2,79,56,800/- and consequently the G.P. rate will be 8.28% not 4.63% applied by him. The assessee has disclosed the G.P. rate at 14.93%. 15. We have heard the rival submissions and perused the material available on record. It is settled principle of law that the closing stock should be valued at lower cost of sale price. As submitted by the respondent assessee, the cost should be arrived at after deletion of addition made in respect of sale of scrap. Accordingly, the cross objections are allowed. 16. In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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