The ITO, Ward-2(4), Surat V. Bajaj Overseas, Surat

ITA 1789/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5837 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 30-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Keywords: Business income
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING:28.06.10 DRAFTED ON:28.06.10 ITA NO.1789/AHD/2007 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER, WARD-2(4), ROOM NO.119, AAYKAR BHAVAN, MAJURA GATE, SURAT. VS. M/S.BAJAJ OVERSEAS, 301, METRO TOWER, RING ROAD, SURAT. PAN/GIR NO. : AACFB 9464B (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI GAURAV BATHAM D.R. RESPONDENT BY: NONE O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SUR AT, DATED 23.02.2007 BY TAKING FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.40,43,491/- ON ACCOUNT OF UNDER VALUATION OF CLO SING STOCK. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.18,30,000/- ON ACCOUNT OF SUPPRESSION OF STOCK. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN DECLARING INCOME AT RS.34,89,370/-ON 30-10-2 003. ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 2 8-02-2006 DETERMINING TOTAL INCOME AT RS.64,45,340/-. THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF ART SILK CLOTH . THE ASSESSEE - 2 - HAS SHOWN TOTAL SALES AT RS.8,79,41,907/- WITH GROS S PROFIT AT RS.39,20,298/- WHICH WORKS OUT TO @ 4.46% AS AGAINS T THE TOTAL SALES AT RS.6,67,00,164/- WITH GROSS PROFIT AT RS.4 8,28,357/- WHICH WORKED OUT TO @ 7.23% IN THE IMMEDIATELY PRECEDING YEAR. THUS, THERE WAS A FALL IN G.P. BY 2.77%. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE A.O. FURTHER FOUND THAT IN THE TAX AUDIT REPORT, THE AUDITORS HAVE PUT THEIR REMARKS IN COL.NO.28 TH AT NO DAY-TO- DAY STOCK REGISTER IS MAINTAINED AS NUMBER AND QUAN TITY DEALT IN BY THE ASSESSEE ARE SAID TO BE NUMEROUS, THEREFORE, IT IS NOT POSSIBLE TO MAINTAIN THE STOCK REGISTER. THE A.O. ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SUBSIDIARY RECORDS MAINTAINE D BY THEM. THE ASSESSEE FURNISHED MONTH-WISE DETAILS OF PURCHASE A ND CLOSING STOCK IN TERMS OF VALUE AND QUANTITY. THE AVERAGE R ATE OR VALUE OF EACH MONTH WAS ALSO SHOWN. ON VERIFICATION, THE A.O . FOUND THAT THE AVERAGE COST OF THE CLOSING STOCK OF GREY WAS S HOWN AT RS.19.55 PER METER. HOWEVER, DURING THE MONTH OF FEBRUARY & MARCH, 2003, THE AVERAGE COST OF THE CLOSING STOCK WAS RS.21.71 PER METER. THEREFORE, THE ASSESSEE HAS SHOWN AVERAGE COST FOR WHOLE YEAR WAS LESSER THAN THE AVERAGE COST OF THE GOODS DURING TH E LAST QUARTER BY RS.2.17 PER METER. ON BEING ASKED, THE ASSESSEE SUB MITTED THAT AS PER THE PREVAILING MARKET PRACTICE, THE CLOSING STO CK WAS VALUED AT COST OR THE NET REALIZABLE VALUE WHICHEVER WAS LOWE R. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE SUBMITTED THE VALUATION OF THE GREY CLOTH WHICH WAS LYING WITH M/S. BAJAJ FASHIONS PVT. LTD. FOR PROCESSING AS ON 31-3-2003. THE A.O. FOUND THAT STO CK OF GREY CLOTH SENT TO BAJAJ FASHIONS PVT. LTD. AS EARLY AS JUNE, 1999 REMAINED UNPROCESSED AND THE COST OF THE SAME AS PE R THE ALLEGED PURCHASE BILL IS SHOWN AS PART OF THE CLOSING STOCK AS ON 31-3-2003. THEREFORE, THE A.O. HELD THAT THE PENDING LOT REGIS TER WITH M/S. BAJAJ FASHIONS PVT. LTD. CONTAINED EXHAUSTIVE DETAI LS, WHICH M/S. BAJAJ FASHIONS AS A PROCESSOR WAS NOT SUPPOSED TO B E CONCERNED - 3 - WITH. ON FURTHER VERIFICATION, THE A.O. ASKED THE A SSESSEE TO EXPLAIN A CONTRADICTION IN THE DETAILS FILED IN RESPECT OF GREY CLOTH SENT TO THE PROCESSING HOUSE ALONG WITH CHALLANS AND PURCHA SES. THE ASSESSEE CONTENDED THAT IT HAD NO STORAGE FACILITY OF ITS OWN AND THAT ALL PURCHASES WERE DIRECTLY SENT TO THE PROCES SING HOUSE. HOWEVER, A FRESH CHALLAN AND INVOICE IS ISSUED TO T HE PROCESSING HOUSE AFTER PURCHASING THE GREY CLOTH. THE A.O. DID NOT FOUND CONVINCING THAT AS TO WHY SUCH OLD LOTS WERE STILL AWAITING PROCESSING ESPECIALLY WHEN SUBSEQUENT LOT HAD BEEN PROCESSED AND THE MAJORITY OF THE PENDING LOTS PERTAIN ONLY TO TH E CURRENT YEAR. THE A.O., THEREFORE, REJECTED THE METHOD OF VALUATI ON OF CLOSING STOCK ADOPTED BY THE ASSESSEE. THE A.O. ALSO REJECT ED THE ASSESSEE'S CONTENTION IN RESPECT OF THE UNPROCESSED PENDING LOTS OF EARLIER YEARS WHICH HAD RESULTED IN THE VALUATION O F THE CLOSING STOCK AT LOWER VALUE. THEREFORE, THE A.O. WORKED OUT THE AVERAGE VALUE OF PURCHASES OF GREY CLOTH DURING THE LAST QUARTER OF THE FINANCIAL YEAR AT RS.22.07 PER METER AND WORKED OUT THE VALUE OF T HE CLOSING STOCK OF 1593415.5 METERS AT RS.3,51,78,830/-. AS A GAINST THE VALUE OF CLOSING STOCK AT RS.3,11,35,338/- SHOWN BY THE ASSESSEE. THEREFORE, THE DIFFERENCE OF RS.40,43,491/- WAS ADD ED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNDER VALUATIO N OF CLOSING STOCK. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF THE STOCK STATEMENT OF GREY CLOTH AND FINISHED F ABRICS, THE A.O. FOUND THAT THERE WAS A SHORTAGE OF 6,05,303 METERS @ 20.06% IN GREY FABRICS. SIMILARLY, AS PER THE GOODS RECEIPT C HALLAN FROM THE MILLS, THE SHORTAGE WAS 4,72,375.07 METERS OF CLOTH @ 15.65%. THEREFORE, THE DIFFERENCE OF SHORTAGE WAS 132928.55 METERS WHICH WAS NOT REFLECTED ANYWHERE IN THE BOOKS OF ACCOUNT. ON BEING ASKED, THE ASSESSEE CONTENDED THAT THE SHORTAGE REP RESENTED THE - 4 - QUALITY OF GOODS USED IN MAKING SAMPLES. AFTER THOR OUGH EXAMINATION, THE A.O. TOOK THE VIEW THAT IT WOULD B E REASONABLE TO ESTIMATE A QUANTITY OF 50000 METERS HAVING BEEN USE D FOR ALL SAMPLES. AS SUCH, REMAINING QUANTITY OF 82,928.55 M ETERS @ 22.07 PER METER THE WORKED OUT THE VALUE OF SUPPRESSED ST OCK OF GREY CLOTH AT RS.18,30,233/- AND THEREFORE, THE A.O. MAD E ADDITION ROUNDED OFF TO RS.18,30,000/-. 4. THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A)-II, SURAT. ON APPEAL, THE CIT(A) HELD THAT EVENTHOUGH T HE ASSESSEE MAY NOT HAVE MAINTAINED REGULAR DAY-TO-DAY STOCK RE GISTER YET THE ASSESSEE HAS PROVIDED A DETAILED INVENTORY ALONG WI TH VALUATION. THIS WAS NOT DISPUTED BY THE A.O. THE A.O. DID NOT POINT OUT ANY DEFECT EITHER IN THE QUANTITATIVE INVENTORY OR IN T HE VALUATION OF EACH ITEM. KEEPING WITH THE PRESCRIPTION UNDER THE REVISED AS-2 BY THE ICAI, IN PURSUANCE OF THE GOVERNMENTS NOTIFICAT ION DATED 1-4- 1997, THE ASSESSEE HAD BEEN FOLLOWING SYSTEM OF VAL UATION OF INVENTORIES CONSISTENTLY OVER THE YEARS. THE METHOD ADOPTED BY THE A.O. WAS NOT APPLICABLE TO THE CASE OF THE ASSESSEE . THE CIT(A), THEREFORE, DELETED THE ADDITION OF RS.40,43,491/-. IN RESPECT OF THE ADDITION OF RS.18,30,000/- ON ACCOUNT OF SHORTAGE O F STOCK, THE CIT(A) HELD THAT THERE WAS NO BASIS FOR THE A.O. TO APPLY THE AVERAGE RATE OF RS.22.07 PER METER AS IT HAS BEEN C ONSIDERED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNDER VALU ATION OF CLOSING STOCK. IT IS CONTENDED THAT THE A.O. COULD HAVE EAS ILY VERIFIED THE CERTIFICATE FURNISHED BY THE ASSESSEE FROM M/S. BAJ AJ FASHIONS PVT. LTD. THAT A TOTAL OF 132928.55 METERS HAD BEEN USED FOR MAKING SAMPLES DURING THE YEAR TO ASCERTAIN THE CORRECTNES S OF THE ASSESSEE'S CLAIM. THE CIT(A) ADMITTED THE EVIDENCE FURNISHED IN THE COURSE OF APPELLATE PROCEEDINGS AND HELD THAT THE A SSESSEE HAS RIGHTLY ESTABLISHED THAT 132928.55 METERS HAD BEEN UTILIZED IN - 5 - MAKING SAMPLES. HENCE, IT WAS NOT SHOWN IN THE STOC K OF GREY CLOTH. THEREFORE, THE CIT(A) DELETED THE ADDITION O F RS.18,30,000/-. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT ON BOTH THE ISSUE, THE DECISION OF THE CIT(A) IS NOT A CCEPTABLE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HAS DISPUTED THE DETAILED INVENTORY AND VALUATION OF CLOSING STOCK F URNISHED BY THE ASSESSEE. HE HAS POINTED OUT THE DEFECT IN THE VALU ATION SUBMITTED BY THE ASSESSEE. THE A.O. FURTHER FOUND THAT IN THE TAX AUDIT REPORT, THE AUDITORS HAVE PUT THEIR REMARKS IN COL. NO.28 THAT NO DAY-TO-DAY STOCK REGISTER IS MAINTAINED AS NUMBER A ND QUANTITY DEALT IN BY THE ASSESSEE ARE SAID TO BE NUMEROUS, T HEREFORE, IT IS NOT POSSIBLE TO MAINTAIN THE STOCK REGISTER. THEREF ORE, THE A.O. ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SUBSID IARY RECORDS MAINTAINED BY THEM. THE CIT(A) DELETED THE ADDITION HOLDING THAT EVENTHOUGH THE ASSESSEE MAY NOT MAINTAIN REGULAR DA Y-TO-DAY STOCK REGISTER YET THE A.O. HAS FAILED TO POINT OUT ANY DEFECT EITHER IN THE QUANTITATIVE INVENTORY OR IN THE VALUATION O F EACH ITEM AND ALSO FAILED TO ASCERTAIN THE CORRECTNESS OF THE ASS ESSEE'S CLAIM. IT IS NOT CORRECT. THE A.O. HAS RIGHTLY POINTED OUT THE D EFECTS IN THE VALUATION OF INVENTORY OR CLOSING STOCK AND IN RESP ECT OF SHORTAGE. THE ASSESSEE HAD NO ALTERNATIVE TO SUBSTANTIATE ITS CLAIM, THEREFORE, IT HAD STATED THAT THE VALUATION OF INVENTORIES FOL LOWED CONSISTENTLY OVER THE YEARS. THE CIT(A) ALSO WRONG IN HOLDING TH AT THE METHOD ADOPTED BY THE A.O. WAS SIMPLY NOT APPLICABLE TO TH E ASSESSEE'S CASE. ON BEING POINTED OUT THE SHORTAGE OF 132928.5 5 METERS, THE ASSESSEE HAS ENCLOSED A LIST OF PARCEL SENT TO THE EXPORTERS FOR APPROVAL ARGUING THAT 100 METERS OF CLOTH REPRESENT ED WEIGHT OF 5 KGS. WHICH WAS TOO HIGH. THEREFORE, THE A.O. HAS RI GHTLY TOOK THE VIEW THAT IT WOULD BE REASONABLE TO ESTIMATE THE QU ANTITY OF 50000 METERS OF CLOTH UTILIZED FOR MAKING OF SAMPLES. - 6 - 6. NOTICE OF HEARING WAS SENT TO THE RESPONDENT ASS ESSEE THROUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE. TH E LEARNED DEPARTMENTAL REPRESENTATIVE HAS FILED A REPORT FROM INCOME TAX OFFICER, WARD 2(4), SURAT BEARING FILE NO.SRT/ITO/W D.2(4)/ITAT- NOTICE/BO/2010-11 DATED 11.06.2010, WHEREIN IT HAS BEEN STATED THAT NOTICE OF HEARING WAS SERVED ON THE ASSESSEE O N 11.06.2010 AND DULY ACKNOWLEDGED OFFICE COPY OF THE NOTICE WAS ENCLOSED WITH THE LETTER. THE NEW ADDRESS OF THE ASSESSEE FIRM WAS M/S. BAJAJ OVERSEAS, 301, METRO TOWER, RING ROAD, SURAT. NONE WAS PRESENT WHEN THE CASE WAS CALLED FOR HEARING AND NEITHER AN Y ADJOURNMENT APPLICATION WAS FILED. THEREFORE, THE APPEAL WAS HE ARD EX-PARTE QUA THE RESPONDENT ASSESSEE AND DISPOSED OF CONSIDERING THE SUBMISSIONS MADE BY THE LEARNED DEPARTMENTAL REPRES ENTATIVE AND THE MATERIALS AVAILABLE ON RECORD. 7. WE HAVE HEARD THE LD.D.R. AND PERUSED THE MATERI ALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CA SE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF PR OCESSED FABRICS. THE ASSESSEE PURCHASED GREY FABRICS FROM THE MARKET AND MADE THE GREY FABRICS PROCESSED THROUGH ITS PROCESS HOUSE AN D EXPORTS THE PROCESSED FABRICS. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAD CLOSING STOCK OF GREY FABRICS OF 15,93 ,415.50 METERS. THE ASSESSEE VALUED THE SAME AS RS.3,11,35,338/- WH ICH COMES TO RS.19.55 PER METER ON AVERAGE BASIS. THE LD. AO OBS ERVED FROM THE PURCHASES MADE IN THE LAST QUARTER OF THE FINAN CIAL YEAR 2002- 03 THAT TOTAL PURCHASES WERE 17,99,118.95 METERS FO R THE TOTAL COST OF RS.3,97,20,274/- WHICH WORKS OUT TO AN AVERAGE C OST OF RS.22.07 PER METER. THE AO THEREFORE, CONSIDERED THE VALUE O F CLOSING STOCK WAS UNDERSTATED BY THE ASSESSEE BY RS.40,43,491/- . THE ASSESSING OFFICER HELD THAT AS THE GREY CLOTH P URCHASED BY THE - 7 - ASSESSEE IN DIFFERENT LOTS WERE INTERCHANGEABLE, TH E EXPLANATION OF THE ASSESSEE THAT THE CLOSING STOCK WERE FROM DIFFE RENT LOTS AND THEREFORE, COST SPECIFIC TO THESE LOTS SHOULD BE AP PLIED FOR VALUATION OF CLOSING STOCK IS NOT ACCEPTABLE IN VIEW OF PROVI SIONS OF SECTION 145 READ WITH ACCOUNTING STANDARD AS-2 WHICH PROVID ED AS UNDER:- THE COST FORMULAS AS PRESCRIBED THEREIN, CLEARLY R EVEALS THAT THE COST OF INVENTORIES OF ITEMS THAT ARE NOT ORDINARILY INTER CHANGEABLE AND GOODS OR SERVICES PRODUCED AND SEGREGATED FOR SPECIFIC PROJECTS ARE T O ASSIGNED BY SPECIFIC IDENTIFICATION OF THEIR INDIVI DUAL COSTS. 8. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION MADE BY THE LEARN ED ASSESSING OFFICER BY AGREEING WITH THE CONTENTION OF THE LEAR NED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT DUE TO CHANGE I N THE DEMAND IN EXPORT MARKET, PARTICULAR QUALITY OF FABRIC WHICH MIGHT HAVE BEEN PURCHASED BY THE ASSESSEE IN BULK BECOMES REDUNDANT AND THEREFORE, LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) AGREED WITH THE METHOD ADOPTED BY THE ASSESSEE FOR VALUING CLOSING STOCK BY BIFURCATING THEM IN DIFFERENT LOTS AND APPLYING THE COSTS RELATING TO PURCHASES OF THAT LOT. 9. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) WAS NOT JUSTIFIED IN ACCEPTING THAT THE CLOSING STO CK OF GREY FABRIC WERE OF DIFFERENT QUALITY AND THEREFORE, THE ASSESS EE WAS JUSTIFIED IN APPLYING DIFFERENT RATES FOR DIFFERENT LOTS OF CLOS ING STOCK . HE CONTENDED THAT THE GREY CLOTH PURCHASED IN THE YEAR 1999 AND LATER ON WERE OF THE SIMILAR QUALITY AND THEREFORE, INTER CHANGEABLE AND THEREFORE, THE ASSESSEE SHOULD HAVE VALUED THEM EIT HER BY APPLYING FIFO METHOD OR WEIGHTED AVERAGE METHOD AND NOT SPEC IFIC COST OF A PARTICULAR LOT. - 8 - 10. WE FIND THAT NO MISTAKE WAS BROUGHT ON RECORD B Y THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO SHOW THAT GREY CLOTH PURCHASED BY THE ASSESSEE IN DIFFERENT LOTS O VER THE PERIOD OF TIME WERE OF DIFFERENT QUALITY AND THEREFORE, NOT I NTERCHANGEABLE AND THEREFORE, THE COST RELATING TO THAT PURCHASE L OT SHOULD BE APPLIED FOR VALUING CLOSING STOCK LYING OUT OF THAT PARTICULAR LOT. 11. HOWEVER, WE ALSO FIND THAT THE LEARNED ASSESSI NG OFFICER HAS ALSO NOT BEEN ABLE TO BRING ANY MATERIAL ON RECORD AFTER VERIFYING THE PURCHASE BILL OF DIFFERENT LOTS OUT OF WHICH TH E ASSESSEE HAS CLAIMED CLOSING STOCK TO SHOW THAT THE GREY CLOTH W ERE OF THE SAME QUALITY. 12. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED O PINION, BOTH THE LOWER AUTHORITIES HAVE FAILED TO MAKE A PROPER VERIFICATION OF THE PURCHASE BILLS OF THE ASSESSEE AND TO BRING ON RECORD MATERIAL ON THE BASIS OF WHICH IT CAN BE CONCLUDED THAT THE GREY CLOTH PURCHASED BY THE ASSESSEE IN DIFFERENT LOTS AND FOR MING PART OF CLOSING STOCK ARE OF SAME QUALITY OR ARE OF DIFFERE NT QUALITY AND THEREFORE, NOT INTERCHANGEABLE. WE THEREFORE, SET A SIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUES AND RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PR OPER VERIFICATION OF ALL THE PURCHASE BILLS OUT OF WHICH GREY CLOTH WERE LYING IN CLOSING STOCK AS CLAIMED BY THE ASSESSEE AND THEREAFTER, TO DECIDE AFRESH IN LIGHT OF THE OBSERVATIONS MADE HEREINABOVE AFTER AL LOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STAT ISTICAL PURPOSE. 13. AS REGARDS THE DELETION OF ADDITION OF RS.18,30 ,000/- ON ACCOUNT OF SUPPRESSION OF STOCK, IT IS OBSERVED THA T THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS OBSERVED TH AT THE ASSESSEE FILED BEFORE THE LEARNED ASSESSING OFFICER CERTIFICATE - 9 - FURNISHED BY THE ASSESSEE FROM M/S.BAJAJ FASHIONS P VT. LTD. THAT A TOTAL OF 1,32,928.55 METERS OF FABRIC HAD BEEN USED FOR MAKING SAMPLES DURING THE YEAR UNDER CONSIDERATION AND THE LEARNED ASSESSING OFFICER COULD HAVE EASILY VERIFIED THE CE RTIFICATE FURNISHED BY THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FURTHER, HELD THAT ASSESSEE HAS PRODUC ED EVIDENCE REGARDING SAMPLES WEIGHING 2503.85 KG. SENT THROUGH COURIER AND HAS SUBMITTED THAT AVERAGE QUANTITY OF CLOTH IS 100 METERS FOR 5 KGS. OF WEIGHT. THE LEARNED ASSESSING OFFICER HAS T AKEN AVERAGE WEIGHT OF 7.5 KGS. OF 100 METERS AND ARRIVED AT THE CLOTH USED IN SAMPLES AT 34412 METERS AND HAS TREATED THE REMAINI NG QUANTITY OF CLOTH OF 82928.55 METERS AS STOCK OF GREY FABRICS N OT SHOWN IN THE BOOKS OF ACCOUNT AND BY TAKING AVERAGE RATE OF FABR IC AT 22.07 PER METER AND MADE ADDITION OF RS.18,30,000/- ON ACCOUN T OF SUPPRESSION OF STOCK. THE LEARNED ASSESSING OFFICER HAS NOT MADE ANY INQUIRY FROM OTHER BUSINESSMAN IN THE MARKET TO ASCERTAIN WHETHER THE CLAIM WAS FACTUALLY CORRECT. THERE WAS NO BASIS FOR THE LEARNED ASSESSING OFFICERS VIEW THAT ASSESSEE DID NOT MAKE MORE THAN ONE SAMPLES FOR EACH QUALITY OF FINISHED FABRI CS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT O NE SAMPLE WOULD HAVE BE SENT TO THE INTENDING BUYER AND ANOTH ER SAMPLE OF SAME QUALITY WOULD HAVE TO BE KEPT WITH THE PROCESS ING HOUSE SINCE IT WAS THE PROCESSING WHICH WOULD HAVE TO MANUFACTU RE OR PROCESS THE GREY CLOTH ONCE THE SAMPLE IS APPROVED BY THE B UYER AND THE THIRD SAMPLE WOULD HAVE TO BE KEPT WITH THE ASSESSE E SO AS TO KEEP A RECORD AS TO WHICH SAMPLE HAD BEEN SENT TO WHOM. THEREFORE, HE DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER HOLDING THAT THE FABRIC OF 1,32,928.55 METERS HAS BEEN UTIL ISED IN CREATING SAMPLES. NO SPECIFIC DEFECT COULD BE POINTED OUT IN THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. NO MATERIAL WAS BROUGH T ON RECORD - 10 - BY THE REVENUE TO SHOW THAT THE FABRIC OF 82928.55 METERS WAS SOLD BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. THERE WAS NO BASIS FOR THE LEARNED ASSESSING OFFICER TO ASSUME T HAT 100 METERS OF CLOTH WOULD WEIGH 7.5 KGS. AND TO ESTIMATE THE A MOUNT OF FABRIC OF 50000 METERS WHICH COULD HAVE BEEN USED BY THE A SSESSEE IN SAMPLES. WE THEREFORE, DO NOT FIND ANY GOOD AND JU STIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APP EAL OF THE REVENUE IS DISMISSED. 14. THEREFORE, GROUND NO.1 OF THE APPEAL OF THE REV ENUE IS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 16. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30 TH OF JUNE, 2010. SD/- SD/- ( T.K. SHARMA ) ( N .S. SAINI ) JUDICIAL MEMBER ACCOUNTAN T MEMBER AHMEDABAD; ON THIS 30 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, SURAT. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD - 11 - DATE INITIALS 1. DRAFT DICTATED ON 28.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 29.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 29.06.2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 29.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 30.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 30.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 30.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------