BASE METAL CHEMICALS,VADODARA V. THE ACIT, CIRCLE-1(3) NOW CIRCLE-1(1)(1), VADODARA

ITA 361/AHD/2025

AI Insights

Base Metal Chemicals, a partnership firm engaged in the chemical manufacturing business, appealed against the order of the Commissioner of Income Tax (Appeals) which had upheld various additions made by the A.O. during the assessment for the year 2016-17. The A.O. had made several additions including alleged suppression of conversion charges, excessive conversion charges paid, suppression of sales, and disallowance of interest paid to partners. The Tribunal examined each ground, considering the arguments and evidence presented by both the assessee and the revenue, and made determinations based on the merits of the case and applicable tax laws.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 778947 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 17-02-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Fair market value; TDS
• Section: 143(3); 133(6); 40(b)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Sanjay Garg, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member Base Metal Chemicals 101, Synerge House., Subhanpura, Baroda-390023, Gujarat PAN: AABFB7166P (Appellant) Vs The ACIT, Circle-1(3), Ahmedabad (Respondent) Assessee Represented: Shri Mehul K. Patel, Advocate Revenue Represented: Shri Alpesh Parmar, CIT-DR Date of hearing : 18-09-2025 Date of pronouncement : 16-10-2025 आदेश/ORDER PER : NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:- This appeal is filed by the Assessee as against the order dated 05.02.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), in the proceedings under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2016-17. 2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2016-17 on 02-09-2016 declaring income ITA No. 361/Ahd/2025 Assessment Year: 2016-17 Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 2 of Rs.2,99,67,050/-. The case was selected for complete scrutiny under CASS. The assessee is a Partnership Firm engaged in the business of manufacturing, processing, converting, making, producing, refining, formulating and dealing in all kind of organic & inorganic chemicals. In the course of assessment, the A.O. had made various additions and the assessment was completed u/s 143(3) on 28-12-2018 at total income of Rs.10,65,85,545/-. 3. Aggrieved with the order of the A.O., the assessee had filed an appeal before the First Appellate Authority which was decided by Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. 4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal: (1) That on facts, in law, and on evidence on record, the learned NEAC has grievously erred in confirming the addition of Rs.5,47,164/- in respect of alleged suppression of conversion charges received by appellant. (2) That on facts, in law, and record, the learned NFAC has grievously ezred on evidence on in confirming the addition of Rs.13,59,000/- in respect of alleged excessive conversion charges paid by appellant. (3) That on facts, in law, and on evidence on record, the learned NFAC has grievously erred in confirming the addition of Rs.1,02,59529/-in respect of alleged suppression of sales by way of under invoicing. (4) That on facts, in law, and record, the learned NFAC has grievously erred on evidence on in disallowance of confirming the Rs.45,33,324/- made u/s 40 (b) of the Act in respect of interest paid to partner. Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 3 (5) That on facts, in law, and on evidence on record, the learned NFAC has grievously erred in confirming the addition of Rs.23,94,498/-made as Income from other sources in respect of interest received from partner. (6) That on facts, in law, and on evidence on record, the learned NFAC has grievously erred in confirming the addition of Rs.33,41,564/- in respect of alleged suppression of trading sales. (7) That on facts, in law, and on evidence on record, the learned NFAC has grievously erred in confirming the addition of Rs. 5,41,83,416/-in respect of alleged suppression of closing stock. (8) That in the alternate, and without prejudice to the above ground no.7, if the addition is confirmed, then Directions may kindly be given to allow the same amount as Opening Stock of the next assessment year 2017-18. (9) The appellant craves leave to add, alter, amend any ground of appeal. 5. Ground No. 1 - Suppression of Conversion Charges: The first ground pertains to addition of Rs.5,47,164/- on account of suppression of “Conversion Charges”. In the course of assessment, the A.O. had noticed that the assessee had disclosed conversion charge receipt of Rs.3,95,91,805/- from M/s. Gujarat Alkalies and Chemicals Ltd. (GACL). The A.O. had made an enquiry u/s. 133(6) of the Act from GACL and it transpired that the GACL had credited Rs. 4,01,38,969/- to the account of the assessee during the year on account of conversion charges paid. Thus the A.O. noticed that the Conversion Charge received of the assessee was suppressed to the extent of difference of Rs.5,47,164/-. The A.O. was not satisfied with the explanation of the assessee in respect of this difference. Therefore, the addition of Rs. 5,47,164/- was made on account of suppression of the Conversion Charges. Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 4 6. Shri Mehul Patel, the Ld. A.R. of the assessee explained that the assessee had provided detailed reconciliation in respect of the discrepancy and there was no suppressed income and rather the A.O. made the addition based only on GACL ledger account. He explained that the assessee had reconciled the two ledger accounts which was not properly appreciated by the A.O. He further submitted that the GACL had deducted TDS on the gross value of the contract of Rs. 3,92,71,200/- and not on Rs. 4,01,38,969/-, i.e. the balance appearing in GACL ledger account. Therefore, there cannot be any question of suppression of Conversion Charges by the assessee. 7. Per contra Shri Alpesh Parmer the Ld. CIT-DR submitted that the onus was squarely on the assessee to reconcile the difference in the balance as per ledger account appearing in the books of the assessee and the ledger account appearing in the books of GACL. He submitted that the assessee had not properly reconciled the difference and the evidences in respect of the various adjustments made in the reconciliation statement were not provided. Therefore, the A.O. had rightly made the addition. 8. We have considered the rival submissions. The assessee in its books of accounts has disclosed Conversion Charges receipt of Rs.3,95,91,805/- from GACL. On the other hand, GACL had reported total credit of Rs. 4,01,38,969/- to the assessee during the current year. The onus was squarely on the assessee to reconcile this difference. The assessee had filed a reconciliation statement in Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 5 the paper-book which have been perused. It is found that the assessee had made adjustment in respect of rate difference entry of Rs.8,15,935/- and provision for income for A.Y. 2016-17 Rs. 10,99,194/- in the reconciliation statement, the basis of which was not explained. The assessee also failed to explain as to why the TDS was deducted by GACL on contract value of Rs. 3,92,71,200/- only, while the job work receipt as admitted by the assessee itself was Rs. 3,95,91,805/- and this difference was also not reconciled. Further, the reconciliation filed by the assessee is also not found confirmed by GACL. In view of these facts, the difference of Rs. 5,47,164/- in respect of Conversion Charge receipt is not found to be properly explained by the assessee. Under the circumstances, we do not find any reason to interfere with the order of the A.O. on this issue. Accordingly, the addition of Rs. 5,47,164/- in respect of difference in Conversion Charges receipt is confirmed. The Ground taken by the assessee is dismissed. 9. Ground No. 2 - Disallowance u/s 40A(2)(b). In the course of assessment, the A.O. noticed that the assessee had paid Conversion Charges of Rs. 81,54,000/- to M/s. Base Metal Chlorination Pvt. Ltd., which was a Partner of the assessee. The A.O. found that the conversion charges paid to the Partner was @ Rs. 6 per Kg, whereas the conversion charges received by the assessee from GACL was @ Rs. 5.10 per Kg for the same job work. The A.O., therefore, held that the conversion charge paid to the Partner was excessive considering the fair market value of the services rendered. According to the A.O., the fair market value of the service rendered was @ Rs. 5 per Kg only. Therefore, Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 6 the excessive job work charges paid to the partner was worked out at Rs. 13,59,000/- and disallowed u/s 40A(2)(b) of the Act. 10. Shri Mehul Patel, the Ld. A.R. of the assessee submitted that the A.O. had wrongly taken the job work charge received from GACL @ 5.10 per Kg. He explained that the A.O. did not take into account rate difference of Rs. 0.225 per Kg charged by the assessee and after taking into account this rate difference, the job work received by the assessee from GACL was @ Rs. 5.33 per Kg. The Ld. A.R. explained that the job work rate of Rs. 6 per Kg paid to the related party was on need basis for timely compliance with the orders. He explained that no facility was available within 100 Kms and sending materials to the other parties would have cost Rs. 1 per Kg average as transport cost and thus the effective price would come to more than Rs. 6 per Kg only. The Ld. A.R. further explained that the Partner M/s. Base Metal Chlorination Pvt. Ltd. was Pvt. Ltd. Company and assessed at same rate of tax. Therefore, there was no revenue leakage by making payment to the Partner @ 6 per Kg. 11. Per contra Shri Alpesh Parmer the Ld. CIT-DR submitted that admittedly the assessee had received job work charges @ Rs. 5.33 per Kg only from GACL. The assessee had not explained any rational for making payment for the same nature of job work to related parties at a much higher rate of Rs. 6 per Kg. The Ld. CIT- DR submitted that the arrangement with the Partner was in the nature of sub-contracting its job work and, therefore, the payment Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 7 for such sub-contract should not have exceeded the actual rate at which the assesse had received payment for such job work. 12. We have considered the rival submissions. The assessee has submitted that the job work charge received by the assessee from GACL was @ Rs. 5.33 per Kg., considering the rate difference charges separately billed, which has not been disputed by the Revenue. This rate received by the assessee from GACL was based on tender for a large quantity. As explained, GACL was supplier of major raw materials and offered substantial discounts to the assessee on purchases and the rate of the assessee for job work was based on different factors and not comparable with market rate. If the assessee had to get some of job work completed by 3rd parties, the rate charged by them would be much higher than the rate for job-work as received by the assessee from GACL. The job work rate for a small quantum of work would always be higher than the job work rate of bulk order. The assessee had explained that in order to timely compliance of the sale orders, it had to get some of the job work done through 3rd parties. The rate charged by any party for such pressing and time-bound job work would always be higher. Considering these factors, the job work rate of Rs. 6 per Kg paid by the assessee to the related party on need basis for timely compliance with the orders, can’t be held as unreasonable and excessive. 13. The assessee has submitted that job-work was done through the related party in order to maximum utilization of installed capacity throughout the year, minimal working capital requirement Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 8 with savings of interest thereon, spread of overheads over the large quantity and thus the assessee had explained the commercial consideration for making payment to the related party at a slightly higher rate than the job work rate received by it. Thus, the assessee had derived indirect benefits and the payment to the related party at a higher rate for the job work done was justified. Considering these facts, the job work charge paid by the assessee to its partner can’t be held as excessive and unreasonable having regard to the fair market value of the services rendered and the benefits derived. Considering the commercial realities of the business and the principle of revenue neutrality, no addition under Section 40A(2)(b) of the Act was called for in the present case. Hence, the disallowance of Rs.13,59,000/- made u/s 40A(2)(b) of the Act is deleted. The ground taken by the assessee is allowed. 14. Ground No. 3 - Suppression of Sales. The A.O. noticed that the assessee had made sales to M/s. Camphor & Allied Products Ltd. (CAPL) at a rate which was about Rs. 10 per Kg less than the sale rate made to other parties. The A.O. was not satisfied with the explanation of the assessee in this regard. He, therefore, held that the sales of the assessee made to CAPL was under-invoiced by Rs. 10 per Kg and accordingly he made addition of Rs. 1,02,59,529/- on account of suppression of sales. 15. Shri Mehul Patel, the Ld. A.R. of the assessee explained that CAPL was an unrelated party and that the sales made to different parties cannot be at a single uniform rate. He explained that Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 9 various factor such as material specification and purity, packing material, logistic and distance, payment terms etc. are considered for deciding the rate for different parties. He explained that in the present case, the sales made to CAPL was an Arm’s Length keeping the mind in various factor and the addition made by the A.O. was not correct. He further submitted that there was no question of any suppression of sales and no evidence was brought on record by the A.O. that the assessee has received any additional sale consideration from this party. 16. Per contra Shri Alpesh Parmar Ld. CIT-DR supported the order of the Lower Authorities on this issue. 17. We have considered the rival submissions. The assessee has brought on record a comparative chart of sale price charged from different parties in the Paper Book which is reproduced below: Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 10 18. It is noticed from the above chart that the finding of the A.O. that sales made to CAPL was at a rate lower by Rs. 10 Per Kg than the sale rate to other parties, was not correct. The average rate charged by assessee from CAPL was Rs. 38.67, whereas the rate charged from other parties was Rs. 39.80, 38.51, 41.22, 45.02 and Rs.48.30. It is further found that the total quantity supplied to CAPL was far in excess than the quantity sold to other parties and this factor certainly had a bearing on the rate charged. It is also noticed that higher rate was charged in respect of supply in crystal form whereas the rate was lower where the supply was in powder form, as in the case of the assessee. Further, the packing material used by the assessee in supply to CAPL was “jumbo bags” whereas the packing materials in respect of other supplies were “HPD Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 11 drums”. In addition, the freight charge paid by the assessee in respect of this party was least (25 Kms. only) and the payment term received from this party was much better compared to other parties. Considering these factors, the sales made by the assessee to CAPL at a lower rate of Rs.38.67 can’t be held as unreasonable. The A.O. has not brought on record any evidence for suppression of sales in respect of supplies made to CAPL. The addition made by the A.O. is found to be based on mere presumption. There cannot be a uniform rate for the supplies made to different parties and the explanation of the assessee for selling the materials to CAPL at a lower rate is found to be justified. Therefore, the addition of Rs. 1,02,59,529/- on account of suppression of sales is deleted. The ground of the assessee is allowed. 19. Ground Nos. 4 & 5 - Interest on partner’s capital: The A.O. had made an addition of Rs.45,33,324/- u/s 40(b) of the Act in respect of interest paid to the partner on capital account. According to the A.O., there was withdrawal of Rs. 2.91 crores in the partner’s account of Mr. Bipin Ramani and the assessee did not charge any interest in respect of this withdrawal, which was treated as loans and advances and was not reduced from the capital account. 20. Shri Mehul Patel, the Ld. A.R. of the assessee explained that the assessee had charged interest of Rs. 23,94,498/- from the partner on the current account, which was adjusted with interest of Rs. 89,93,948/- paid to the partner on his capital and only the net interest of Rs. 65,99,450/- was debited to the P&L account. He Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 12 explained that considering this treatment of the assessee, the A.O. was not justified in making separate addition of Rs. 43,33,324/- on account of interest to partners. He further submitted that the A.O. had made the addition of Rs. 45,33,324/- under the head income from other income which was not justified considering the explanation of the assessee. 21. Per contra Shri Alpesh Parmar Ld. CIT-DR supported the order of the Lower Authorities on this issue. 22. We have considered the rival submissions. The assessee firm had two partners and the working of interest on the fixed capital as well as the withdrawals made by the partners was furnished by the assessee, which is found to be as under: 23. It is found from the above table that the assessee had charged interest on the debit balance of the partners and only the net interest was credited to the partner’s account. In fact, the interest on the capital of two partners was Rs. 1,30,53,193/-, which was adjusted with the interest of Rs. 24,60,494/- charged on the debit balance of the partners and thereafter only the net amount of Rs. 1,05,92,699/- was credited to the partner’s account. The revenue has been unable to controvert the accounting of interest on Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 13 partner’s capital account and the debit balance of partners, as detailed above. The assessee had debited the net amount of Rs. 1,05,92,699/- only to its P&L account. The A.O. did not give any reason to reject the working of the assessee. Further, when the assessee had already adjusted the interest of Rs. 24,60,494/- charged on the debit balance of partners, there was no rational for making separate addition for this amount as income from other source. This addition made by the AO had led to double addition. Since, the assessee had separately charged interest on the debit balance of the partners, the addition of Rs. 69,27,822/- as made by the A.O. was not justified. Accordingly, the addition made by the A.O. is deleted. The Grounds taken by the assessee are allowed. 24. Ground No. 6 - Suppression of sales: The assessing officer found that the sales figure as appearing in two different ledgers of the assessee did not match with the total export sales figures reported in the financial statements. The difference in sales was worked out by the AO as under: (i) Sales Aluminum Chloride-Export-Dahej ledger: Rs.24,02,55,784 (ii) Sales Aluminum Chloride-Export-Savli ledger: Rs. 65,68,680 (iii) Total export sales as per ledgers Rs. 24,68,24,464 (iv) Total export sales as per financial statements: Rs. 25,01,16,123 (iv) Difference (the alleged suppression): Rs. 33,41,564/- The A.O. treated the difference of Rs. 33,41,564/- as suppression of sales and accordingly made the addition. Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 14 25. Shri Mehul Patel, the Ld. A.R. of the assessee explained that this difference was due to the reason that one invoice of manufacturing sales was wrongly posted as trading sales and that there was no impact on the total sales of the assessee. He explained that this was only a clerical mistake and the A.O. was not correct in making addition on the basis of this difference in export sales without considering the total sales of the assessee, in which there was no difference. 26. Per contra Shri Alpesh Parmar Ld. CIT-DR supported the order of the Lower Authorities on this issue. 27. We have considered the rival submissions. The addition of Rs. 33,41,564/- on account of difference in export sales is found to be totally misplaced. The total export sales from the two ledger accounts of the assessee was Rs. 24,68,24,464/-. On the other hand, the assessee had disclosed total export sales of Rs. 25,01,16,123/- in the financial statements, which was higher than the export sales as appearing in the ledgers. Under the circumstances, the difference of Rs. 33,41,564/- could not have been considered as suppression of sales, as the assessee had disclosed higher sales in the financial statements. Further, the fact that there was no discrepancy in the total sales of the assessee, has not been disputed. The difference in export sales in the ledgers and the financial statements was due to wrong posting of one of the manufacturing sales to trading sales account. Considering the explanation of the assessee, the addition of Rs. 33,41,564/- on Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 15 account of suppression of sales is deleted. The ground of the assessee is allowed. 28. Ground No. 7 - Suppression of closing stock: In the course of assessment, The A.O. fond certain discrepancy in the quantitative details as reported in Tax Audit Report. The Auditor has reported manufacturing goods at Nil which was not found to be correct. The A.O., therefore, reworked the quantitative details and made addition of Rs. 5,41,83,416/-on account of suppression of closing stock. 29. Shri Mehul Patel, the Ld. A.R. of the assessee explained that the A.O. had ignored the reconciliation furnished by the assessee and made addition on an arbitrary basis. He submitted that the manufacturing details were clubbed with purchases and there was no suppression of closing stock. He further submitted that the A.O. had valued the suppressed quantity of closing stock at Rs. 52.43 per Kg which was held by the A.O. himself as absurd. The Ld. A.R. further submitted that the addition made by the A.O. was revenue neutral as the closing stock for the current year will become opening stock for the next year and the addition in the current year will be neutralized in the next year. He, therefore, requested that if the Tribunal is unable to agree with the assessee on merits, then direction should be given to treat the closing stock for the current year as opening stock for the next year. 30. Per contra Shri Alpesh Parmar Ld. CIT-DR submitted that the assessee had not correctly explained the discrepancy in the Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 16 quantitative stock and, therefore, the A.O. had rightly made the addition. He justified the order of the lower authorities on this issue. 31. We have considered the rival submissions. It is found that the A.O. noticed that there was reduction of work-in-progress from Rs. 1.88 crores in the preceding year to Rs. 1.40 crores in the current year, which was considered as suspicious by the A.O. However, no reason was given by the A.O. as to why the reduction of work-in- progress during the year was suspicious. The variation of work-in- progress on year to year basis is natural and this variation alone cannot be a subject matter of suspicion, unless supplemented by some other factors. The A.O. next observed that the Auditor had reported manufactured goods at Nil in the Tax Audit Report. The assessee had explained that quantity of manufactured goods was clubbed with purchases and a reconciliation statement in this respect was filed. The A.O. did not give any reason as to why the reconciliation statement of the assessee was not acceptable. Neither any defect in the reconciliation of the assessee was brought on record. The A.O. had worked out the quantity manufactured by the assessee by taking into account the total weight of the inputs viz. the quantity of Aluminum and the quantity of Chloride and the manufactured amount was taken at 100% of the input quantities. This working of the A.O. is not found correct as there is always a manufacturing loss in any activity of manufacturing and the A.O. was not correct in taking the input-output ratio at 100%. No expert opinion was obtained by the A.O. from any independent authority about the input-output ratio of the manufactured items in the line Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 17 of manufacturing activity, as carried out by the assessee. Therefore, the production figure as worked out by the A.O. was not reliable and the addition made on such basis cannot be sustained. 32. The quantitative records of the assessee were subject to audit by the Central Excise Department and if the A.O. had any doubt about the correctness of the quantity manufactured by the assessee, a reference should have been made to the Central Excise Department to find out whether any discrepancy in the manufactured quantity of the assessee, was noticed by them. No such reference was made by the A.O. and thus we don’t have any evidence of discrepancy in the manufactured quantity noticed by the Central Excise Department or any other authority. In the absence of any evidence against the correctness of production figures as reconciled by the assessee, the addition made by the AO on account of excess closing stock is found to be based on mere presumptions. It is not the case of the AO that the excess stock, if any, was sold during the year out of books and there was suppression of sales. The AO had quantified excess closing stock only, which becomes opening stock in the next year and as rightly pointed out by the AO this adjustment was revenue neutral. Further, the A.O. had applied the rate of Rs. 52.33 per Kg for valuation of the excess closing stock as quantified. The A.O. had himself observed in the assessment order that “This rate of Rs. 52.43 is also absurd because almost all the sales were made below this rate.” If, according to AO, this rate of Rs. 52.43 was absurd and the actual sales were made at much lower rate, this rate shouldn’t have been adopted for valuation of excess closing stock. Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 18 The AO didn’t give any reason for adopting this absurd rate for valuation of excess closing stock. Thus the quantification of additional closing stock as worked out by the A.O. is also found to be exaggerated and cannot be relied upon. 33. In view of the above facts, it is found that the addition made by the A.O. was based on presumptions, incorrect facts and wrong assumptions about input-output ratio. We do not find any rational basis for addition of Rs. 5,41,83,416/- on account of suppression of closing stock. As rightly contended by the assessee, the closing stock for the current year becomes opening stock for the next year and, therefore, the credit for addition of Rs. 5,41,83,416/- as made in the current year has to be allowed to the assessee in the next year. We are, therefore, of the opinion that in view of the various infirmities as discussed above and also considering the fact that this was a revenue neutral exercise, the addition of Rs. 5,41,83,416/- on account of excess closing stock was not called for. Accordingly, the addition of Rs. 5,41,83,416/- on account of suppression of closing stock is deleted. 32. In the result, the appeal filed by the Assessee is partly allowed. Order pronounced in the open court on 16-10-2025 Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 16/10/2025 आदेश क\u0006 \u0007\bत ल प अ\u000fे षत / Copy of Order Forwarded to:- Printed from counselvise.com I.T.A No. 361//Ahd/2025 A.Y. 2016-17 Page No Base Metal Chemicals vs. ACIT 19 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील\u0012य अ\u0013धकरण, अहमदाबाद Printed from counselvise.com "