9911796707
TMI Blog1999 (5) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... Outwards (kg) Stock (kg) 31st May, 1987 - - 9,344.000 30th June, 1987 39,804.650 34,625.250 5,179.400 Net stock as on 30th June, 1987 14,523.400 The AO found that these sales, purchase and stock were not reflected in the regular books of accounts maintained by the assessee. The AO issued summons under s. 131 of the IT Act to Shri Madanlal M. Hundia on 25th Oct., 1989, partner of the assessee-firm and examined him on oath regarding the discrepancy with regard to the sales, purchase and stock. The extracts from the examination of the partner are reproduced at pp. 3 to 6 of the assessment order. The assessment order indicates that the assessee filed revised return on 20th Oct, 1989, disclosing additional income of Rs. 5,69,403. This figure has been arrived at on the basis of the following details: Rs. (1) The value of total sales now found recorded in some pages of the rough note-book amounting to 6,10,459 (2) Stock as found 14,523 kg. in the note book and valued at 2,75,944 (3) Amount of loose papers Nos. 30 44 33,000 9,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority in the impugned order, substituted the rate of Rs. 19 per kg. for Rs. 30 adopted by the AO and as regards the other rate of Rs 22 he found it reasonable and unheld the addition. With regard to the two specific sales to M/s Hundia Metals, one to Shanti Circles and the last sale to Uma Metal Industries, the CIT(A) upheld the addition in respect of the sales to the first mentioned two parties whereas in the case of last mentioned party the addition was deleted. The relevant portion of the CIT(A)'s order reads as under: "3. I have considered the facts and have gone through the loose papers on which the addition has been made. From the notings made and also by the total and by the nature of items, it is clear that these are scrap items and cannot be taken as the value of finished goods. The assessee has bifurcated that there are two qualities of poor scrap and S.S. Patta which is of better quality. Regarding the rate, I find that in the earlier year, the assessee had made proper entries for this year also, some sales are made at the rate of Rs. 16 per kg. by the assessee itself. In view of the earlier records and the absence of any specific proof of the rate, the value of unacc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,515 in respect of the value of the closing stock of 14,523.400 kg. of scrap valued at Rs. 22 per kg. when the value of such stock ought to have been accepted as claimed by the appellant. (c) The addition of Rs. 1,75,535 in respect of the alleged unaccounted sales referable to Hundia Metals and Santi Circles without considering the fact that such sales are already accounted for by the said concerns and that the appellant had nothing to do therewith. (d) In not appreciating the fact that the amount of Rs. 2,30,000 represents income of Arihant Rolling Mills and Mahavir Metals and ought not to have been included while determining the total income of the appellant. The appellant, therefore, prays that this Hon'ble Tribunal may be pleased to delete the entire addition of Rs. 2,64,531 retained by the CIT(A). 7. The learned counsel for the assessee reiterated the submissions made before the AO and the CIT(A). He pointed out that the details mentioned in Akar Note Book contained sales of scrap of different qualities, some of the items were of superior quality, but most of the scrap was of poor quality. The AO has taken the rate of Rs. 30 per kg. which is for finished goods. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar books of account and closing stock unrecorded in the regular books of account is not disputed by the assessee itself. The present dispute boils down to the rate to be applied in respect of unaccounted sales and in respect of unaccounted stock. The AO has taken the value of Rs. 30 per kg. for sale of scrap and average of Rs. 22 purchase price per kg. for the unrecorded closing stock. On the other hand, the assessee pleaded that the sales shown in the seized materials are of scrap of low quality which would not fetch the same price as for good quality material. According to the assessee such sale of scrap should be valued @ 15 per kg. and the closing stock should be taken @ Rs. 19 per kg. The CIT(A) reduced the rate to be applied in the case of sale of scrap from Rs. 30 to Rs. 19 per kg. and in respect of closing stock he upheld the rate of Rs. 22 per kg. as computed by the AO. We have reproduced already the reasoning given by the CIT(A) in para 5 above. The CIT(A) has noted that in the earlier year the assessee had made proper entries where the rate of Rs. 16 per kg. is shown. The assessee had quoted instances of sales below Rs. 16 also but the CIT(A) jumped to an estimate @ Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per kg. and Rs. 19 per kg. respectively, we have taken into consideration the Accounting Standard 2(AS-2) issued by the Council of the Institute of Chartered Accountants of India on "Valuation of Inventories". According to cl. 29.4 of the Accounting Standard inventory of non-reusable waste or inventory of reusable waste for which facilities for reprocessing do not exist should be valued at net realisable value. One of the arguments raised before us, on behalf of the assessee was that scrap when sold is accounted for on cash basis as and when sold and the closing stock of scrap as such is not accounted for in the regular books of account. It is true, the assessee may do so for reasons best known to itself, but in the context of the IT Act when the profit of the business has to be computed on the basis of certain accounting principles consistently followed it is clear that closing stock valuation cannot be kept outside the regular books of account. The guiding principle will be cost of market price which is lower and cl. 29.4 of AS-2 gives proper guidelines in this regard. 13. Coming to cl. (c) of ground No. 2 in respect of alleged unaccounted sales to M/s Hundia Metals, Santi Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. With regard to the income disclosed in the case of M/s Mahavir Metals and M/s Arihant Rolling it is clear that no deduction can be made in respect of such disclosure in the hands of the assessee as those concerns are separately assessable to tax. Moreover, the declaration under s. 132(4) is relevant only in the context of penalty for concealment under s. 271(1)(c) and not for computing taxable income when the computation is made on a different basis. Accordingly we modify the direction of the CIT(A) in para 10 of his order. Our decision in this para covers ground No. 5 in which the assessee has challenged the direction of the CIT(A) in para 10 of the impugned order. 15. While doing the assessment the AO has disallowed 1/5th of the telephone expenses debited in the P L a/c as attributable to the personal use of the partners. The total expenses relating to telephone comes to Rs. 38,041. The CIT(A) has upheld the disallowance stating that the personal use of telephone cannot be ruled out by the partners or the family members. Before us it is pleaded that the phones having been installed at business premises and not at residential premises the entire expenses should be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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