Arihant Corportion, Dist.Surat V. The ACIT., Circle-6, Surat

ITA 3752/AHD/2007

• Counselvise Citation: 375220514 RSA 2007
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 28-09-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT KUMAR
• Assessee Lawyers: S N SOPARKAR
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA, JUDICIAL MEMBER AND SHRI A N PAHUJA, ACCOUNTANT MEMBER ITA NO.3752/AHD/2007 (ASSESSMENT YEAR:-2004-05) M/S ARIHANT CORPORATION, C/O ABHISHEK ESTATE, OLD POWER HOUSE, STATION ROAD, VYARA, DIST. SURAT V/S ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6, AAYAKAR BHAVAN, MAJURA GATE, SURAT PAN: AAFFA 3750 Q [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR, AR REVENUE BY:- SHRI ABHIJIT KUMAR, DR DATE OF HEARING:- 25-08-2011 DATE OF PRONOUNCEMENT:- 09-09-2011 O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE FILED ON 28.9.2007 AGA INST AN ORDER DATED 14-08-2007 OF THE LD. CIT(APPEALS)-I V, SURAT, FOR THE ASSESSMENT YEAR 2004-05, RAISES THE FOLLOWING GROUN DS:- [1] IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE LD. AO HAS ERRED IN LAW AND IN FACT IN ENHANCING THE VALUE OF CLOSING WORK IN PROGRESS BY RS.18,9 2,038/- AND HENCE YOUR APPELLANT MOST HUMBLY PRAYS THAT THE SAME BE DELETED. [2] IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE DIRECTED THE LD. AO TO ALLOW THE APPELLANT TO INCREASE THE VALUE OF OPENING STOCK FOR THE AY 2005-06 BY RS.18,92,03 8/- AND HENCE YOUR APPELLANT MOST HUMBLY PRAYS THAT THE LD. AO BE DIRECTED TO ALLOW THE APPELLANT TO INCREASE THE VALUE O F OPENING STOCK FOR THE AY 2005-06 BY RS.18,92,038/-. [3] SUCH OTHER RELIEF(S) TO WHICH THE APPELLANT MAY BE LAWFULLY ENTITLED. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE T HAT RETURN DECLARING INCOME OF RS.6,82,337/- FILED ON 01-11-20 04 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF BUILDING CONST RUCTION, WAS 2 ITA NO.3752/AHD/2007 SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT] ISSUED ON 19-11-2005. AFTER GOING THROUGH THE BOOKS OF ACCOUN TS OF THE ASSESSEE, THE ASSESSING OFFICER [AO IN SHORT] SHO WCAUSED THE ASSESSEE AS TO WHY THE ADDITION OF RS. 18,92,038/ - TOWARDS WORK IN PROGRESS[WIP] ,CALCULATED AS UNDER, BE NOT MADE TO HIS TAXABLE INCOME FOR THE YEAR UNDER CONSIDERATION:- WIP VALUATION AT COST PARTICULARS AMOUNT (IN RS.) OPENING WIP (RS.) 14227920 ADDITION IN COST (RS.) 13650021 VALUE OF TOTAL BLOCK (RS.) 27877941 PROPORTIONAL WIP = VALUE OF BLOCK X BALANCE AREA 14252038 TOTAL AREA WIP AS PER BOOKS 12360000 ADDITION ON ACCOUNT OF RE-VALUATION OF WIP (RS.) 1892038 2.1 IN RESPONSE, THE LD. AR ON BEHALF OF THE ASSE SSEE SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF TAKING WIP AS PER THE CERTIFICATE OF ARCHITECT WHO IS ALSO APPROVED V ALUER FOR CIVIL WORK. SINCE THE VALUATION OF WIP DO NO AFFECT MATERIALLY THE OVE RALL TAX LIABILITY PARTICULARLY WHEN THE RATES OF TAXATION ARE SAME IN THE YEAR OF A SSESSMENT AND THE SUBSEQUENT YEAR WHILE THERE IS NO CHANGE IN THE QUANTIT ATIVE DETAILS, THE VALUATION MADE BY THEM BE ACCEPTED, THE ASSESSEE PLEADE D. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GRO UND THAT VALUATION OF RS.1,23,60,000/- ON ACCOUNT OF WIP IN THE BOOKS OF THE ASSESSEE WAS BASED ON THE ESTIMATE MADE BY A PRIVATE VALUER, NAMED SUMESH M ODI, ARCHITECT AND DESIGNER, WHICH WAS NOT VERIFIABLE. THE VALUER DETERMI NED THE VALUE PER SQUARE FEET OF LAND WITHOUT ANY BASIS WHILE THE ASSESSEE DID NO T MAINTAIN THE EXACT DETAILS PERTAINING TO THE COST OF CONSTRUCTION OF THE BUILDING. SINCE THE COST OF CONSTRUCTION WAS DEPENDENT ON VARIOUS PARAMETERS SUCH AS MAT ERIAL UTILIZED, LABOUR USED, STAGE OF COMPLETION, QUALITY OF CONSTRUCTIO N ETC. AND NO SUCH DETAILS 3 ITA NO.3752/AHD/2007 WERE FURNISHED BY THE ASSESSEE, THE AO CONCLUDED THAT THE VALUE OF WIP REPORTED BV THE ASSESSEE WAS LESS THAN THE ACTUAL COST INCURR ED ON THE CONSTRUCTION. ACCORDINGLY, WHILE REFERRING TO THE OBSERVA TIONS OF THE HON'BLE SUPREME COURT IN CIT VS. BRITISH PAINTS INDIA LTD. (19 99) 188 ITR 44 (SC), THE AO REJECTED THE VALUERS REPORT DUE TO THE FOLLOWIN G REASONS: I. THE VALUER'S REPORT MERELY STATED THE VALUE OF W IP BY MULTIPLYING THE AREA OF THE CONSTRUCTION WITH CERTAIN SUBJECTIVE COST PER UNIT AREA, THE FIXATION OF WHICH HAS NOT BEEN ELUCIDATED I N THE SUBMITTED REPORT. THE VALUER'S REPORT WAS INCOMPLETE AND LACKED FO UNDATION AS IT DID NOT GIVE ANY DETAILS REGARDING EXACT NATURE OF CONSTRUCTION AND BUILDING MATERIAL AND LABOUR INPUT USED IN SEPAR ATE AREAS OF THE BUILDING. THE VALUE OF STRUCTURE DEPENDED UPON THE MA TERIAL AND LABOUR COST INVESTED IN IT. IN THE ABSENCE OF SUCH DETA ILS, THE VALUER'S REPORT IS UNACCEPTABLE; II. THE VALUER'S REPORT WAS INCOMPLETE AS IT DID NOT GI VE ANY DETAILS REGARDING NATURE AND CHARACTERISTICS OF BUILDING; III. THE VALUER'S REPORT WAS PERVERSE AND WAS BASED ON P ATENT DEFECT IN TERMS OF VALUING THE WIP AT LESS THAN THE COST OF CONSTRUCTION; IV. THE VALUER'S REPORT HAD SHOWN THE VALUE TO BE LE SS THAN THE AVERAGE COST OF CONSTRUCTION, WITHOUT PUTTING ANY EVIDE NCE REGARDING RULING MARKET RATES. SUCH A SUBJECTIVE AND IN COMPLETE DOCUMENT IS NOT A VALID PIECE OF EVIDENCE AND IS NOT ACCEP TABLE. 2.2 ACCORDING TO THE AO, THE W.I.P ADOPTED BY THE ASSESSEE WAS BASED ON SUBJECTIVE VALUATION, BEREFT OF ANY SCIENTIFIC, LOGICAL A ND VERIFIABLE ASPECT. THE W.I.P SHOULD BE BASED ON THE DIRECT COSTS OF CONSTRUCTION AND NOT ON THE BASIS OF ESTIMATIONS AND SUBJECTIVE CONJECTURES, THE AO OBSERVED. A CCORDINGLY, IN ABSENCE OF ANY VERIFIABLE MATERIAL EVIDENCE IN SUPPORT OF BASIS OF VALUATION OF W.I.P AT THE MARKET PRICE, THE AO WORKED OUT THE WIP AS UNDER:- WIP VALUATION AT COST PARTICULARS AREA (IN SQ. FT.) OPENING TOTAL AREA (SQ. FT.) 93500 AREA OF FLATS REMAINING (SQ. FT.) 39100 AREA OF SHOPS REMAINING (SQ. FT.) 8700 BALANCE AREA AS COMPUTED (SQ. FT.) 47800 BALANCE AREA AS PER VALUER (SQ. FT.) 47800 4 ITA NO.3752/AHD/2007 AMOUNT (IN RS.) OPENING WIP (RS.) 14227920 ADDITION IN COST (RS.) 13650021 TOTAL VALUE OF BLOCK (RS.) 27877941 PROPORTIONAL WIP = VALUE OF BLOCK X BALANCE AREA 14252038 TOTAL AREA WIP AS PER BOOKS 12360000 ADDITION ON ACCOUNT OF RE-VALUATION OF WIP (RS.) 18,9 2,038 2.3 IN THE RESULT, THE VALUE OF WIP ON THE BASIS O F ACTUAL COST INCURRED WAS DETERMINED BY THE AO AT RS.1,42,52,038/-. SINCE THE A SSESSEE REFLECTED WIP OF RS.1,23,60,000/- IN THEIR BOOKS, AN AMOUNT OF RS.18,92, 038/- WAS ADDED TOWARDS THE WIP. 3 ON APPEAL, THE LEARNED CIT(A) UPHELD THE ORDER OF THE AO IN THE FOLLOWING TERMS:- BEFORE ME, THE ID. AR SUBMITTED THAT THE APPELLANT WAS A PARTNERSHIP FIRM ENGAGED IN CONSTRUCTING HIGH RISE RESIDENTIAL TOWER AND HAD VALUED THE CLOSING STOCK OF CIVIL WORK OF THE INCOMPLETE TOWER WHICH WA S TO BE DONE BY A CIVIL ENGINEER. THE WORK WAS GOT PHYSICALLY EXAMINED AND VERIFIED BY THE ARCHITECT AND THE CLOSING STOCK WAS VALUED AT LOWER OF THE COST OR NET REALIZABLE VALUE. THIS METHOD WAS ADOPTED REGULARLY AND WAS ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS. IT WAS SUBMITTED THAT THERE WERE SEVERAL METHODS OF VALUATION OF SHOPS AND DEPENDING UPON THE CIR CUMSTANCES OF EACH CASE, THE APPELLANT HAS AN OPTION TO SELECT THE METH OD OF VALUATION OF CLOSING STOCK WHICH WAS NOT TO BE CHANGED SUBSEQUENTLY UNLE SS THERE WERE VALID REASONS FOR THE SAME. A COPY OF VALUATION OF CERTIFICATE WAS ALSO FILED BEFORE ME. I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE THROUGH TH E WORKING OF THE CLOSING STOCK OF WORK IN PROGRESS MADE BY THE AO. IT IS SEEN THAT THE APPELLANT HAS WORKED OUT THE VALUE ON THE BASIS OF A CERT IFICATE FROM THE ENGINEER. THIS CERTIFICATE APPARENTLY HAS NO SCIENTIFIC O R LOGICAL BASIS, SINCE IT IS ONLY AN ESTIMATE. WHAT THE AO HAS DONE APPEAR S TO BE MORE LOGICAL WHERE HE HAS WORKED OUT THE PROPORTIONATE WIP BY TAKING THE VALUE OF EACH BLOCK AS DECLARED BY THE APPELLANT AND MULTIPL YING IT WITH THE BALANCE AREA AS CERTIFIED BY THE VALUER IN PROPORTION T O THE TOTAL AREA. THIS VALUATION ARRIVED AT BY THE AO IS BASED ON THE FIGURES SUP PLIED BY THE APPELLANT ITSELF AND THEREFORE THERE DOES NOT APPEAR TO BE ANY ARBITRARINESS IN THE RE-VALUATION OF CLOSING STOCK. IT IS A WELL SETTLED LAW THAT IF TRUE & CORRECT PROFITS OF BUSINESS CANNOT BE DEDUCED FROM THE BOO KS OF THE APPELLANT, THE AO IS AT LIBERTY TO REJECT THE SYSTEM OF A CCOUNTS, EVEN IF THESE ARE REGULARLY EMPLOYED BY THE APPELLANT, THE CORRE CTNESS OF WHICH HAS NOT BEEN QUESTIONED IN THE PAST. I AM THEREFORE OF THE CONSIDERED VIEW 5 ITA NO.3752/AHD/2007 THAT THE CLOSING STOCK RE-COMPUTED BY THE AO DOES NOT SUFFER ANY DEFECT AND ADDITION MADE ON ACCOUNT OF RE-VALUATION OF CLOSING STOCK IS HEREBY CONFIRMED. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LE ARNED CIT(A) WHILE CONTENDING THAT THE ASSESSEE REGULARLY FOLLO WED THE METHOD OF VALUATION OF WIP ON THE BASIS OF CERTIFICATE OF THE VALUER. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE FINDIN GS IN THE IMPUGNED ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS, ISSUE BEFORE US I S VALUATION OF WORK IN PROGRESS IN THE BUSINESS OF CONSTRUCTION OF BU ILDINGS. INDISPUTABLY, THE ASSESSEE IS VALUING CLOSING STOCK AT LOWER OF COST OR NET R EALIZABLE VALUE. WE FIND THAT THE VALUER IN HIS CERTIFICATE DATED 24.9.200 4 DETERMINED THE VALUE OF WORK IN THE FY 2003-04 @RS. 260 PER SQ. FT. AND DETER MINED COST OF WORK AT RS.1,24,28,000/- BASED ON HIS KNOWLEDGE .THE ASSESSEE IN THEIR BOOKS HAVE REFLECTED VALUE OF WIP AT RS.1,23,60,000/-. THE BASIS FOR THIS FIGURE HAS NOT BEEN EXPLAINED BEFORE US. SINCE THE ASSESSEE DID NOT EXPLAIN THE BASIS FOR ADOPTING COSTS OF VARIOUS INPUTS IN WORKING THE AMOUNT OF RS. 260/ - PER SQ. FT.BY THE VALUER IN THE FY 2003-04 WHILE THE VALUATION IS DEPENDENT ON VARIOUS PARAMETERS SUCH AS MATERIAL UTILIZED, LABOUR USED, STAGE OF COMPLETION, QUALITY OF CONSTRUCTION ETC. AND NO SUCH DETAILS WERE FURNISHED BY THE ASSESSEE, THE A O DETERMINED THE COST OF WIP BY MULTIPLYING THE VALUE OF BLOCK WITH BALAN CE AREA IN SQ. FT AND DIVIDED BY THE TOTAL AREA I.E THE AO ADOPTED AVERAGE COST AND DETERMINED THE VALUE OF WORK IN PROGRESS. THE AO OBSERVED THAT THE VALUER'S RE PORT MERELY MENTIONED THE VALUE OF WIP BY MULTIPLYING THE AREA OF THE CONSTRUCT ION WITH CERTAIN SUBJECTIVE COST PER UNIT AREA, THE FIXATION OF WHICH WAS WITHOUT A NY BASIS NOR THE SAID REPORT REFLECTED DETAILS REGARDING EXACT NATURE OF CONSTRUCTI ON AND BUILDING MATERIAL AND LABOUR INPUT USED IN SEPARATE AREAS OF THE BUILDING A ND THE VALUE DETERMINED IN THE REPORT WAS LESS THAN THE COST OF CONSTRUCTION. IN T HE ABSENCE OF ANY BASIS OF VALUATION IN THE REPORT OF THE VALUER, THE LD. CIT( A) ALSO UPHELD THE FINDINGS OF THE 6 ITA NO.3752/AHD/2007 AO. EVEN BEFORE US, THE LD. AR ON BEHALF OF THE ASSESSE E DID NOT PLACE ANY MATERIAL AS TO THE BASIS OF RATES ADOPTED BY THE VALUE R IN HIS REPORT DATED 24.9.2004 IN THE DETERMINING THE VALUE OF WIP NOR EVEN POINTED OUT ACTUAL COST INCURRED BY THE ASSESSEE TOWARDS WIP AND WHAT WAS THE RE ALIZABLE VALUE. THE INCOME-TAX ACT DOES NOT CONTAIN ANY SPECIFIC PROVISION FOR THE VALUATION OF STOCK. INCOME, PROFITS AND GAINS MUST, HOWEVER, HAVE TO BE COMP UTED IN THE MANNER PROVIDED BY THE ACT. IT IS THE DUTY OF THE OFFICER TO DETERMINE THE PROFITS AND GAINS OF A COMMERCIAL ADVENTURE ACCORDING TO THE CORRECT PRINCIP LES OF ACCOUNTING. IN DOING SO, HE MIGHT, DEPENDING ON THE NATURE OF THE B USINESS AND ITS SPECIAL CHARACTER, ALLOW CERTAIN ADJUSTMENTS BUT HIS PRIMARY PURP OSE AND DUTY IS TO DEDUCE THE CORRECT INCOME, PROFITS AND GAINS, AND THIS HE CANNOT DO WITHOUT TAKING INTO ACCOUNT THE VALUE OF THE STOCK-IN-TRADE AT TH E BEGINNING AND AT THE END OF THE YEAR AND BY ASCERTAINING THE DIFFERENCE BETWEEN THEM [P. M. MOHAMMED MEERAKHAN V. CIT, 73 ITR 735 (SC)]. 5.1 IN THE INSTANT CASE, THE ASSESSEE DETERMIN ED THE VALUE OF WIP ON THE BASIS OF A CERTIFICATE OF THEIR VALUER, WITHOUT DISCLOSING THE BASIS ADOPTED BY THE VALUER IN ARRIVING AT THE RATE S OF VARIOUS INPUTS . THE DETAILS DESIRED BY THE AO WERE NEVER SUBMITTED. IT IS CONTEND ED ON BEHALF OF THE ASSESSEE THAT, FOR A NUMBER OF YEARS, THE REVENUE D ID NOT QUESTION THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IT WAS DURING THE ASSESSMENT YEAR IN QUESTION THAT AN OBJECTION WAS RAISED FOR THE FIRST TIME IN VALUATION OF WIP AND THE AO SOUGHT DETAILS ON THE BASIS OF WHICH VALUE OF WIP WAS DETE RMINED. IN THE ABSENCE OF THESE DETAILS, THE AO DETERMINED COST OF WIP AT RS.1,42,52,038/- ,AS EXTRACTED IN PARA 2 ABOVE WHI LE ASSESSEE IN THEIR BOOKS DETERMINED VALUE AT RS.1,23,60,000/-.NO T EVEN A WHISPER HAS BEEN MADE BEFORE US NOR IT IS EVIDENT FROM THE IMPUGNED ORDER AS TO WHAT IS THE BASIS FOR ADOPTING THE AMOUNT OF RS.1,23,60,000/- AS WIP. IT IS A WELL RECOGNISED PRINCIPLE OF COMMER CIAL ACCOUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT, THE VALUE OF THE STOCK-IN- TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUN TING YEAR AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. WHERE THE MARKET VALUE OF 7 ITA NO.3752/AHD/2007 THE ARTICLES IS LESS THAN ITS ACTUAL COST, THE ASSE SSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VALUE AND THUS ANTICIP ATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SALE OF T HE GOODS. VALUATION OF THE STOCK-IN-TRADE AT COST OR MARKET VALUE, WHIC HEVER IS LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSE SSEE. BUT WHICHEVER METHOD HE ADOPTS, IT SHOULD DISCLOSE A TR UE PICTURE OF HIS PROFITS AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS FOR THE DETERMINATION OF TAX, IT IS THE DUTY OF THE AO TO ADOPT ANY SUCH COM PUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF T HE TRUE INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY IS PLACED ON THE OFFICER, IN TERMS OF THE PROVISIONS OF SECTION 145 OF THE ACT. IN NUTSHELL, THE CORRECT PRINCIPLE OF ACCOUNTING IS TO ENTER THE STOCK IN THE BOOKS OF ACCOUNT AT COST UNLESS THE VALUE IS RE QUIRED TO BE REDUCED BY REASON OF THE FALL IN THE MARKET VALUE O F THOSE GOODS BELOW THEIR ORIGINAL COST. NO SUCH CLAIM HAS BEEN M ADE BEFORE US THAT MARKET VALUE OF WIP IS BELOW COST WHILE THE AS SESSEE DID NOT SUBMIT RELEVANT DETAILS SOUGHT BY THE AO TO ARRIVE AT THE CORRECT COST. IN B. S. C. FOOTWEAR LTD. V. RIDGWAY (INSPECT OR OF TAXES) [1972] 83 ITR 269, 294 ; [1971] 2 WLR 1313, 1332 (H L), LORD PEARSON, CRITICISING THE SYSTEM ADOPTED IN THE VALU ATION, ACCEPTED THE CONTENTION OF THE INLAND REVENUE THAT, ALTHOUGH THE ASSESSEE'S SYSTEM OF STOCK VALUATION HAS BEEN ACCEPTED FOR TAX PURPOSES FOR MANY YEARS UP TO 1959, IT WAS LIABLE TO BE REJECTED FOR THE RELEVANT AND SUBSEQUENT YEARS AS THE SYSTEM ADOPTED, BY THE ASSESSEE WAS LIKELY TO PRODUCE STOCK VALUATIONS WHICH WERE SERIO USLY AND SUBSTANTIALLY INCORRECT, THEREBY CAUSING DISTORTION OF THE ASSESSMENT OF THE PROFITS AND GAINS FOR THE YEAR. 5.2 WE ARE OF THE OPINION THAT IT IS NOT ONLY T HE RIGHT BUT THE DUTY OF THE AO TO CONSIDER WHETHER OR NOT THE BOOKS DISC LOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DED UCED THEREFROM. IT IS INCORRECT TO SAY, AS CONTENDED ON BEHALF OF T HE ASSESSEE, THAT 8 ITA NO.3752/AHD/2007 THE AO IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THE SE MATTERS AND THE AO IS NOT BOUND BY THE METHOD FOLLOWED IN THE E ARLIER YEARS.THE OBJECT OF STOCK VALUATION IS THE CORRECT DETERMINAT ION OF THE PROFITS AND LOSS RESULTING FROM A YEAR'S TRADING. IT IS THE TRUE RESULT OF THE BUSINESS ACTIVITY OF THAT YEAR THAT MUST BE DISCLOS ED BY THE BOOKS.AS STATED BY HONBLE PATANJALI SASTRI C. J. IN CHAINRU P SAMPATRAM V. CIT 1953] 24 ITR 481, 485 (SC) : 'IT IS WRONG TO ASSUME THAT THE VALUATION OF THE CL OSING STOCK AT MARKET RATE HAS, FOR ITS OBJECT, THE BRINGING INTO CHARGE ANY APPRECIATION IN THE VALUE OF SUCH STOCK. THE TRUE P URPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE T HE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT T HE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEA VE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOSS ACTUALLY REALIS ED ON THE YEAR'S TRADING....' 5.3 WHAT IS THE PROFIT OF A TRADE OR BUSINESS IS A QUESTION OF FACT AND IT MUST BE ASCERTAINED, AS ALL FACTS MUST BE AS CERTAINED, WITH REFERENCE TO THE RELEVANT EVIDENCE, AND NOT ON DOCT RINES OR THEORIES : 'NO ASSUMPTION NEED BE MADE UNLESS THE FACTS CANN OT BE ASCERTAINED, AND THEN ONLY TO THE EXTENT TO WHICH T HEY CANNOT BE ASCERTAINED. THERE IS NO ROOM FOR THEORIES AS TO FL OW OF COSTS . [MINISTER OF NATIONAL REVENUE V. ANACONDA AMERICAN BRASS LTD., 30 ITR 84,99 (PC)].HERE WE MAY REFER TO THE FOLLOWING OBSERVATIONS OF THE HONBLE APEX COURT IN COMMISSIONER OF INCOME-TAX.V S BRITISH PAINTS INDIA LIMITED.,188 ITR 44(SC) : SECTION 145 OF THE INCOME-TAX ACT, 1961, CONFERS S UFFICIENT POWER UPON THE OFFICER-NAY IT IMPOSES A DUTY UPON HIM-TO MAKE SUCH COMPUTATION IN SUCH MANNER AS HE DETERMINES FOR DED UCING THE CORRECT PROFITS AND GAINS. THIS MEANS THAT WHERE, A CCOUNTS ARE PREPARED WITHOUT DISCLOSING THE REAL COST OF THE ST OCK-IN-TRADE, ALBEIT 9 ITA NO.3752/AHD/2007 ON SOUND EXPERT ADVICE IN THE INTEREST OF EFFICIENT ADMINISTRATION OF THE COMPANY, IT IS THE DUTY OF THE INCOME-TAX OFFIC ER TO DETERMINE THE TAXABLE INCOME BY MAKING SUCH COMPUTATION AS HE THINKS FIT. 5.4 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT EXPLAIN THE BASIS FOR ADOPTING COSTS OF VARIOUS INPUTS IN WORKING THE AMOUNT OF RS. 260/- PER SQ. FT. BY THE VAL UER IN THE FY 2003-04 IN HIS CERTIFICATE DATED 24.9.2004 NOR THE BASIS FOR THE FIGU RE OF RS.1,23,60,000/- IN THE BOOKS OF THE ASSESSEE AND THE COST OF WIP BEING DEPENDENT ON VARIOUS PARAMETERS SUCH AS MATERIAL UTILIZED, LABOUR USED, STAGE OF COMPLETION, QUALITY OF CONSTRUCTION ETC. AND NO SUCH DETAILS WERE FURNISHED BY THE ASSESSEE EITHER BEFORE THE AO/LD. CIT(A) AND EVEN BEFORE US, WE AR E NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) . THEREFORE , GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. SINCE CLOSING STOCK OF THE YEAR UNDER CONSIDERATION IS ADOPTED AS OPENING STOCK IN THE SUCCEEDING YEAR, THE AO MAY CONSIDER THE CLAIM OF THE ASSESSEE RAISED IN GROUND NO.2 IN THE APPEAL BEFORE US IN ACCOR DANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. WITH T HESE OBSERVATIONS, GROUND NO.2 IN THE APPEAL IS DISPOSED OF. 7 GROUND NO. 3 BEING MERE PRAYER NOR ANY SUBMISSION S HAVING BEEN MADE ON THIS GROUND, DOES NOT REQUIRE ANY SEPA RATE ADJUDICATION AND IS, THEREFORE, DISMISSED. 8 NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US NOR ANY. ADDITIONAL GROUND RAISED. 9 IN THE RESULT, SUBJECT TO OUR OBSERVATIONS IN PAR A 6 ABOVE, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 9-09-2011 SD/- SD/- ( T K SHARMA ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 9-09-2011 10 ITA NO.3752/AHD/2007 COPY OF THE ORDER FORWARDED TO: 1. M/S ARIHANT CORPORATION, C/O ABHISHEK ESTATE, OL D POWER HOUSE, STATION ROAD, VYARA, DIST. SURAT 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-6, SURAT 3. CIT CONCERNED 4. CIT(A)-IV, SURAT 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD