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TMI Blog2010 (1) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of the audit report, it has been noticed that the appellant has shown closing stock of Bagasse of 40688 qtls. But the value of the same has not been shown in the trading account. On being asked to explain as to why the value of Bagasse has not been shown in the trading account, the appellant has submitted that it is practically impossible to weigh Bagasse lying in the yard at the close of the financial year. However, sale of Bagasse is accounted for on cash basis in concerned F.Y. However, the AO has not accepted such explanation of the appellant because the appellant company has been adopting mercantile system of accounting and as per the procedures laid down in such accounting system, the closing stock of Bagasse generated out of production would have been shown in the balance sheet which has not been done. As a result, the AO has computed the value of such Bagasse at ₹ 25,58,055/- by adopting the average selling price of one quintal of Bagasse at ₹ 62.87. The closing stock for AY 2003-04, was taken by the AO at ₹ 15,82,552/- and therefore the AO has made net addition of (Rs. 25,58,055 ₹ 15,82,552) i.e. ₹ 9,75,502/- to the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valued at the lower of cost and net realizable value. Cost of Inventories 6. The cost inventories should comprise all cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of Purchase 7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase. Costs of Conversion 8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d figures, we are unable to give any finding in this regard. Hence, we remit this issue to the files of the AO to examine the same afresh. Needless to add that the assessee should be granted adequate opportunity of being heard. 9. The next issue raised is that ld. CIT(A) has erred in not disposing of the following additional ground taken by the appellant on 4.1.2008:- That the learned ACIT has erred on facts and in law in making disallowance of ₹ 50,000.00 out of vehicle running expenses. 10. On this issue ld. counsel submitted that assessee has got the necessary relief from the ld. CIT(A) under section 154. Hence, he submitted that he is not pressing this issue. Accordingly, this issue is dismissed as not pressed. Revenue s appeal ITA NO. 345/DEL/2009 11. The issue raised is that ld. CIT(A) erred in deleting the addition of ₹ 15 lacs on account of sale of scrap. 12. On this issue AO noted that sale of scrap were lower as compared to earlier years as well as the subsequent years. Assessee has explained that scrap is not an item of sale but sold only when it is collected in sizeable lots. AO observed that assessee has incurred expenditure on repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 15,00,000/- on account of unaccounted sale of scrap and the AO is hereby directed to delete such addition. 13. Against this order the revenue is in appeal before us. 14. We have heard both the counsels and perused the records. We find that AO has made the addition on bizarre foundation that if expenditure is incurred on repair and maintenance, sizeable amount of scrap should come out. This proposition is not acceptable at the threshold. However, the assessee has stated that scrap is sold when the same becomes in sizeable lot. From the chart prepared by the AO himself, it is found that as against the sale of scrap of ₹ 413109 in the impugned year and in the next year 2005-06 the sale is 46,83,652/-. Further assessee submitted before the ld. CIT(A) that scrap sale in previous year was only 17998/-. Under the circumstances, AO inference that there is 15 lacs of sale of scrap outside the books in the impugned financial year is devoid of cogency. Under the circumstances, we do not find any infirmity in the order of the ld. CIT(A) and hence we uphold the same. 15. In the result revenue s appeal is dismissed. Assessee s appeal ITA NO. 561/DEL/09 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mill, quantity of closing stock and production of bagasse all are estimated on the basis of cane crushed. It was also not tally with the actual sales as per books. On being pointed out the assessee filed a reply on 19.11.07 stating that the difference is due to typographical mistakes. It was stated that actual sales are of 20,589/- quintals only as against 2,05,886 quintals shown in manufacturing a/c. Similarly the baggase used for own consumption is 11,24,741/- quintals as against 9,39,444 quintals shown in the manufacturing a/c. It was stated that the figures of quantity taken is by estimate only. Neither any record is maintained for recovery of baggasse nor for consumption and neither for closing stock. In view of what has been discussed above , the books of a/c of the assessee cannot be accepted as correct and complete to the extent that the quantity of bagasse produced, disclosed by the assessee cannot be accepted as correct. Considering that in the immediately preceding year, the yield of baggase has been shown at 3.46 and also considering that this year yield of sugar has declined by .37% as compared to immediately preceding year, the yield of bagasse for the year is es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t good quality of cane be available to the growers and it was also stated that this was an agricultural income and it was not the business of the assessee. AO did not accept the above. He held that assessee has himself admitted that this activity is for research purpose to grow good quality of cane. Hence, he held that the activity is incidental to the business of the assessee and it is not an agricultural income. 21.2 Upon assessee s appeal the ld. CIT(A) confirmed the addition. 21.3 Against this order the assessee is in appeal before us. 21.4 We have heard both the counsels and perused the records. We find that it is not disputed that income from cane nursery was on account of growing of cane and sale thereof. This is admittedly an agricultural income. Only because as a result of this operation, good quality of cane can also be identified cannot lead to the conclusion the activity it is not an agricultural income. Under the circumstances, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 22. The last issue raised is that the ld. CIT(A) erred in confirming the action of AO in disallowing ₹ 1808337.00 being expenses r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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