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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 ..... oss Profit @ 20% on sales per meter of Finished Cloths. Since the Assessing Officer has wrongly calculated the cost of closing stock and also assessed the value estimated Gross Profit @ 20% of sales of per meter of Finished Cloths. Therefore, the appeal 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 Rs. 51.3 per mts of grey (115.38./2.25) Tax Audit report mentions kgs should be metres Mts AMOUNT AVG Grey OS 105284 5843262 55.5 PURCHASES 30902 1665340 53.89101 PRODUCTION 5398530 CONSUMPTION 442462 SALES 192880 10140313 52,57,317 CLOSING STOCK 820312 39377971 48003651 SHORTAGE 2.13% 5 How justified? Give industry comparison from published data. 6 How CS valuation is less than OS and purchase rate UNDERVALUATION (53.9-48)x820312= 4839840.8 7 How sale rate is less than purchase and OS rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the cart in para '5' supra. From the above it is clear that the books result of the assessee are not correct and hence rejected as per the provisions of section 145(3) of the IT Act 1961. The estimated GP rate is taken at 20% by considering the per meter GP rate mention in the similar industry like 'The Ruby Mills Ltd. (PAN AAACT0220G) where GP is shown by 33% for A. Y. 07-08 on turnover of 108,68,01,077/-. In view of the above. GP is estimated @ 20%. Net profit is computed as under: GP Estimated @20% 96335656 Less: Expenses Administrative expenses 10402345 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast 3 months purchases. Thus this mistake was consequential effect of adopting incorrect figures at first stage itself. In the above working the A.O. adopted average rate of Rs. 53.89 of purchases of grey on the basis of total meters of grey purchased during the year divided by amount of purchase. On the basis of this average rate of Rs. 53.89 of purchases during the year of grey cloth, the A.O. has workout the value of closing stock of grey at Rs. 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 Rs. 53.09 per meter of grey whereas the appellant's cost of manufacturing of grey was only at the average rate of Rs. 48.03. This difference h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process of manufacturing, the wastage on account of shrinking, cutting, sampling etc. could not be ruled out resulting in reduction of quantity manufactured. Considering the entirety of facts and circumstances, the working made by A. O. could not 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 Rs. 90,60,853/- in closing stock of yarn, gray and finished product which was included in addition of gross profit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in deleting the addition made by estimating the Gross Profit @ 20% on sales per meter of finished cloth. 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 shown @ 33% for A.Y. 2007-08 on turnover of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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