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TMI Blog2016 (2) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... luctuating in the rates during the year. It is only a manner how to deal with the value of closing stock in the assessment. The learned Departmental Representative nowhere highlighted any ground which requires to be interfere with the findings of the learned CIT(A) under appeal. Therefore, finding no plausible and convincing reasons to interfere with the order passed by learned CIT(A). We are of the view that learned CIT(A) has passed the order on the specific issue judiciously and correctly which does not need to interfere at this stage accordingly this issue is decide in favour of the assessee and against the revenue. Addition made by estimating the Gross Profit @ 20% on sales per meter of finished cloth - Held that:- The assessee has shown the Gross Profit @ 5.93%. The Assessing Officer worked out the Gross Profit from the average per meter rate @ 24.33% for finished goods and @ 8.7% for grey. On seeing the book result and closing stock assessed, the Assessing Officer arrived at this conclusion that the book result is not correct therefore estimated Gross Profit rate should be @ 20% by considering rate of similar industry “The Ruby Mills Ltd.’ wherein Gross Profit has been sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal was filed before learned CIT(A) and learned CIT(A) has accepted the appeal of the assessee and deleted the said additions. Aggrieved by the said order of learned CIT(A) in question, the Revenue has filed the present appeal. 3. The revenue has raised the following three issues however, the other issues are general in nature therefore, the same are not liable to describe and discussed. i) The Learned CIT (A) has erred on facts and in law in deleting the addition of ₹ 90,60,853/- on account of valuation of closing stock, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. ii) The Learned CIT(A) has erred on facts and in law in deleting the addition of ₹ 90,60,853/- on account of valuation of closing stock, without appreciating the fact that the valuation of stock shown by the assessee is even less than the purchase cost as clearly brought out by the Assessing Officer in his Assessment Order. iii) The Learned CIT (A) has erred on facts and in law in deleting the addition made by estimating the gross profit @ 20% on sales per meter of finished cloth, without properly appreciating the factual and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67,494 87,40,473 129.5 PURCHASES 33,31,994 38,44,54,355 115.38267 CONSUMPTION 24,01,076 SALES 0 CLOSING STOCK 998412 121174321 121.36705 SHORTAGE 1.68% 1 How justified? Give industry comparison from published data 2 It gives production of only 2.25 mts of grey per kgs of yarn (5399530/2401076) 3 How justified? Give industry comparison from published data 4 It gives yarn cost of ₹ 51.3 per mts of grey (115.38./2.25) Tax Audit report mentions kgs should be metres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SALES 4206085 287749158 68.412587 CLOSING STOCK 102504 5306398 51.767716 SHORTAGE 0.46% 10 How justified? Give industry comparison from published data. The CS rate is just equal to yam cost and less than grey purchase cost Mts produced Charges debited Avg Processing charge 4328400 54724388 12.643099 Undervaluation (53.89+12.64-51.76)* 102504 = 1513984 GP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0402345 Int. financial Charges 12830095 Selling Promotion expenses 1940119 25172559 Profit before Depreciation 71163097 Less: Depreciation 707895 Net profit 70455202 The addition on account of under valuation of closing stock of ₹ 90,60,853/- (4839840.8 + 2707029.6 + 1513984) is included in the GP addition made above and further strengthens estimation of GP. Therefore it is not been separately added in the computation of income. In view of the above said calculations the Assessing Officer accounted the under valuation of closing stock of ₹ 90,60,853/-. Subsequently, the matter travelled before the learned CIT(A) who deleted the said additions by following FIFO Method (First In First Out). However, the finding of the learned CIT(A) is hereby reproduced below:- I have carefully considered the facts of the case. The appellant was engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of this average rate of ₹ 53.89 of purchases during the year of grey cloth, the A.O. has workout the value of closing stock of grey at ₹ 48,39,840/-. However, the appellant has explained that the purchase of grey from the market during the year had already been consumed in manufacturing of finished cloth and what was remained in the closing stock was grey manufactured by the appellant from yarn and not the readymade purchased from the market. In the manufacturing of grey, the cost of weaving of yarn and other manufacturing cost have also been included. The appellant's cost of manufactured grey cloth was less than the cost of which the finished grey cloth was purchased from the market. The A.O. has adopted average rate of ₹ 53.09 per meter of grey whereas the appellant's cost of manufacturing of grey was only at the average rate of ₹ 48.03. This difference has resulted in incorrect valuation of closing stock of grey cloth of the appellant by the A.O. In the above working the A.O. has concluded that how the sale of ₹ 52.57 was less than purchase stock rate of ₹ 53.89 and opening stock rate of ₹ 55.50. However, as explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have conclusively proved any under statement of yarn, grey and finished products of the appellant. Apart from the using various figures for reaching to a conclusion, the A.O. has not noticed any defect in appellant's books of account. Therefore, there was no base with the AO for rejecting appellant's books of accounts. It is' also worth noting that appellant's manufacturing activity/process was subjected to Excise Department supervision wherein the inputs and output/ production details were required to be recorded in RG-1 register on daily basis. However, no discrepancy appears to have been noticed by Excise Department. In the facts circumstances, the working made by A.O. was not proper and consequently different conclusion made on that basis were also not proper. The AO has worked out under valuation of ₹ 90,60,853/- in closing stock of yarn, gray and finished product which was included in addition of gross profit. On the basis of discrepancies in average rate of yarn, gray and finished cloth, the AO has justified his action of rejecting books of account and estimating the G.P. rate of appellant .. However, as explained above, the conclusions reached by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rate @ 24.33% for finished goods and @ 8.7% for grey. On seeing the book result and closing stock assessed, the Assessing Officer arrived at this conclusion that the book result is not correct therefore estimated Gross Profit rate should be @ 20% by considering rate of similar industry The Ruby Mills Ltd. wherein Gross Profit has been shown @ 33% for A.Y. 2007-08 on turnover of ₹ 108,68,01,077/-. Accordingly, the Assessing Officer assessed the value of cloths. When the matter came before the First Appellate Authority then the First Appellate Authority arrived at this conclusion that the Assessing Officer compared the Gross Profit rate with the Ruby Mills Ltd. which was manufacturing of the ladies dress material whereas the appellant was in manufacturing of suiting and shirting material. Learned CIT(A) also held that both the cases are not comparable. Therefore, the learned CIT(A) has deleted the said contentions. Even before us nothing was argued that any kind of material was purchased to which it can be estimated that the estimation of Gross Profit @ 20% was quite justifiable. No example of comparable industry of any kind was given before us to justify the estimated Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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