Shri Dashrathbhai Kantibhai Patel, v. The Income tax Officer,Ward-2,, Anand

ITA 3826/AHD/2007 | 2003-2004
Pronouncement Date: 29-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 382620514 RSA 2007
Assessee PAN ADUPP8587G
Bench Ahmedabad
Appeal Number ITA 3826/AHD/2007
Duration Of Justice 3 year(s) 5 month(s) 20 day(s)
Appellant Shri Dashrathbhai Kantibhai Patel,
Respondent The Income tax Officer,Ward-2,, Anand
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-03-2011
Date Of Final Hearing 23-03-2011
Next Hearing Date 23-03-2011
Assessment Year 2003-2004
Appeal Filed On 09-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D. C. AGRAWAL AM) ITA NO.3826/AHD/2007 A. Y.: 2003-04 SHRI DASHRAHBHAI KANTIBHAI PATEL PROP. MARUTI TRADERS NR. SARDAR PATEL STATE-VILLAGE VALASAN TAL. DIST. ANAND VS THE INCOME TAX OFFICER WARD-2 ANAND PA NO. ADUPP 8587 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI N. C. AMIN AR RESPONDENT BY SHRI K. MADHUSUDAN SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV BARODA DATED 08-08-2007 FOR ASSESSMENT YEAR 2003-04 CHALLENGING THE ADDITION OF RS.16 44 439/- ON ACCOUNT OF UNEXPLAINED STOCK. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLESALE GRAIN MERCHANT. ON VERIFICATION OF THE RETURN OF IN COME THE AO NOTICED THAT THE CLOSING STOCK WAS VALUED AT A PRIC E MUCH LOWER THAN THE PURCHASE PRICE. SINCE THE VALUATION OF CLOSING STOCK AS PER THE AUDITED REPORT WAS AT COST PRICE THE AO REQUESTED THE ASSESSEE TO FURNISH THE METHOD OF VALUATION OF CLOSING STOCK WI TH SUPPORTING EVIDENCE. THE ASSESSEE STATED THAT THE DIFFERENCE I N STOCK IS DUE TO SHORTAGE ON ACCOUNT OF BIRDS INSECTS MOISTURE ETC . THIS SHORTAGE COMES TO 2 TO 3%. THERE IS ALSO PILFERAGE BY THE LA BOURERS WHO ARE ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 2 KEEPING WATCH ON THE SITE. CONSIDERING ALL THESE FA CTORS THE COST OF THE CLOSING STOCK WAS LESS THAN THE ACTUAL COST. AF FIDAVITS OF VARIOUS PERSONS WERE FILED IN SUPPORT OF THE ASSESSEES CLA IM. THE AO DID NOT ACCEPT THE ASSESSEES SUBMISSIONS AND HELD THAT STO CK OF THE ASSESSEE CANNOT BE LAID OUT IN THE OPEN GROUNDS SI NCE THE MAXIMUM PURCHASE OF THE ASSESSEE IS MADE IN THE MONTHS OF M AY TO JULY AND SEPTEMBER TO OCTOBER. THESE ARE MONTHS WHEREIN GUJA RAT HAS MONSOON SEASON AND THEREFORE IT WOULD NOT BE POSS IBLE FOR THE ASSESSEE TO LAY THE STOCK IN OPEN GROUNDS. SINCE TH E ASSESSEE COULD NOT ALSO ESTABLISH THE SHORTAGE OF 2 TO 3% OF GOODS WITH ANY CONCRETE EVIDENCE WHICH COULD BE RELIED UPON HIS CLAIM WAS REJECTED BY THE AO AND THEN PROCEEDED TO WORK OUT THE VALUE OF CLOS ING STOCK BY STATING THAT THE ASSESSEE FOLLOWED FIFO METHOD. HE THEREFORE VALUED THE CLOSING STOCK OF THE ASSESSEE AT THE PUR CHASE PRICE CLAIMED BY HIM AS HAVING BEEN PAID IN THE LATER MON THS OF THE FINANCIAL YEAR AND CONCLUDED THAT THE ASSESSEE HAS UNDERVALUED HIS STOCK BY RS.16 44 439/- AND ADDED THE SAME TO THE T OTAL INCOME OF THE ASSESSEE. 3. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS SUBMITTED THAT THE ACCOUNTS ARE AUDITED UNDER S ECTION 44AB OF THE IT ACT. THERE IS SHORTAGE OF COMMODITIES OF ABO UT 2 TO 3%. TO THIS EFFECT THE ASSESSEE FILED AFFIDAVITS OF VARIOUS FAR MERS AND LABOURERS AND ALSO CERTIFICATE FROM APMC. HE CHALLENGED THE C ONCLUSION OF THE AO THAT HE IS FOLLOWING THE FIFO METHOD. THE ASSESS EE WAS DIRECTLY PURCHASING AGRICULTURAL PRODUCTS FROM THE FARMERS I N THE OPEN MARKET. THE RATE OF GRAINS AND COMMODITIES IS OPEN AND EVEN DECLARED IN THE ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 3 NEWSPAPERS EVERYDAY. THE ASSESSEE IS PURCHASING FRO M FARMERS IN BULK BROUGHT BY THEM IN OPEN TRACTOR BULLOCK CART AND OTHER VEHICLES IN LOOSE AS WELL AS IN VERY OLD GUNNY BAGS. AFTER P URCHASE OF THESE PRODUCTS THE ASSESSEE IS SEPARATING WITH FILTER FIR ST QUALITY OF WHEAT BAJRI AND SELLING IN THE OPEN MARKET TO THE WHOLESA LERS FOR CONSUMPTION OF PUBLIC AND SECOND QUALITY WHICH IS S MALLER IN SIZE IS SOLD TO THE FLOUR MILLS FOR MAKING ATTA (FLOUR) UTI LIZED BY BAKERS AND HOTELIERS AND EATING HOUSES ETC. AND THE MEZO BAJRI WHICH IS VERY SMALL NOT FIT FOR HUMAN CONSUMPTION AND IS IN THE NATURE OF WASTE. IT WAS SUBMITTED THAT THE AO ON HIS OWN APPLIED THE FI FO METHOD AND WORKED OUT THE VALUE OF CLOSING STOCK AT RS.36 07 4 78/- WHICH IS ABSOLUTELY INCORRECT AND WITHOUT ANY BASE MATERIAL AND AGAINST THE AUDIT REPORT PREPARED BY REPUTED CHARTERED ACCOUNTA NT AFTER VERIFICATION OF PURCHASE BILLS SALE BILLS AND OPEN ING STOCK AND CLOSING STOCK. THEREFORE THE FINDING GIVEN BY THE AO WAS A BSOLUTELY PERVERSE. THE ASSESSEE EMPHASIZED UPON THE FACT THA T THE AGRICULTURAL PRODUCTS CONTAINED WASTES WEIGHT LOSS DUST BARDAN DISCOUNT ETC. A PLETHORA OF DOCUMENTS WERE FILED BY THE ASSESSEE PERTAINING TO EARLIER YEARS AND LATER YEARS. THE AS SESSEE ALSO PRODUCED ITS SALE AND PURCHASE REGISTER FOR PERUSAL OF THE AO. SUMMARY OF THE SALE AND PURCHASE REGISTER IS CONTAI NED IN PAGES 80 TO 84 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE BASIC CLAIM MADE BY THE ASSESSEE IS THAT THERE IS A SHORTAGE OF 2 TO 3%. IF THIS SHORTAGE IS TAKEN INTO ACCOUNT THERE WOULD BE NO DIFFERENCE IN THE CLOSING STOCK AS DECLARED BY THE ASSESSEE. HE ALSO OBJECTED TO THE AOS CONCLUSION THAT THE VALUATION OF CLOSING STOCK SHOU LD BE DONE AT THE ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 4 RATE AT WHICH THE COMMODITY HAD BEEN PURCHASED IN T HE CLOSING MONTHS OF THE YEAR. 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE CONFIRMED THE ADDITION AND DISMISSED THE A PPEAL OF THE ASSESSEE. THE FINDINGS OF THE LEARNED CIT(A) ARE PR ODUCED AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. LOOKING AT THE DETAILS OF THE PURCHASE A ND SALE OF COMMODITY FILED BY THE APPELLANT IT IS SEEN THA T EVERY MONTH THE APPELLANT HAS TAKEN INTO ACCOUNT THE SHORTAGE/DEFICIT WHICH RANGES FROM 2 TO 3%. AFTER CONSIDERING THIS SHORTAGE THE CLOSING STOCK OF THE MONTH IS COMPUTED WHICH IN TURN BECOME THE OPENING STOCK OF THE FOLLOWING MONTH. THEREFORE THIS SHORTAGE CLAIM ED BY THE APPELLANT IS INBUILT IN HIS WORKING OF AVAILABI LITY OF STOCK. AS AN EXAMPLE THE DETAILS OF BAJRI PURCHASE AND SALE IS GIVEN BELOW:- MONTH OPENING STOCK PURCHASE TOTAL SALE DEFICIT CLOSING STOCK APRIL 47308 - 47308 - - - APRIL 47308 349273 396581 330550 7823 58208 JUNE 58208 942390 1000598 941150 21109 38339 JULY 38339 338100 376439 352000 7573 16866 AUGUST 16866 198540 215406 120300 4447 90659 SEPTEMBER 90659 397452 488111 433200 8902 46009 OCTOBER 46009 525913 571922 533890 11780 26252 NOVEMBER 26252 122611 148863 93000 2746 53117 DECEMBER 53117 132806 185923 65700 2974 117249 JANUARY 117249 75574 192823 116750 1692 74381 FEBRUARY 74381 62205 136586 100250 1393 34943 MARCH 34943 15740 50683 10000 352 40331 3160604 3096790 70791 ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 5 5.1 IT WILL BE SEEN FROM THIS TABLE THAT SHORTAGE A S CLAIMED BY THE APPELLANT HAS ALREADY BEEN ALLOWED T O HIM SINCE IT IS INBUILT IN THE WORKING OF HIS CLOSING S TOCK. ONCE THIS SHORTAGE HAS ALREADY BEEN ACCOUNTED FOR EVERY MONTH THE VALUATION OF CLOSING STOCK SHOULD BE DON E AT THE COST PRICE. THE AUTHORIZED REPRESENTATIVE COULD NOT SHED ANY LIGHT AS TO WHY THE VALUATION OF STOCK SHO ULD NOT BE DONE AT THE PURCHASE PRICE WHEN HE HAS ALREADY T AKEN THE BENEFIT OF SHORTAGE/DEFICIT IN EACH OF THE COMM ODITIES DEALT IN BY HIM. 5.2 IN VIEW OF THE ABOVE THERE DOES NOT APPEAR TO B E ANY MERIT IN THE APPELLANTS CLAIM AND THE ADDITION OF RS.16 44 439/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF UNDERVALUATION OF CLOSING STOCK IS CONFIRMED. 6. IN THE RESULT THE APPEAL IS DISMISSED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ASSESSEE MAINTAINED DAY TO DAY QUANTITY DETAILS FOR PURCHASES AND SALES AND SHORTAGE AND BOOKS OF ACCOUNTS HAVE B EEN MAINTAINED WHICH ARE AUDITED. HE HAS SUBMITTED THAT THE ASSESS EE CLAIMED WASTAGE NOT ONLY IN THE ASSESSMENT YEAR UNDER APPEA L BUT IN THE EARLIER YEAR ALSO WHICH IS CLEAR FROM THE ASSESSMEN T ORDER U/S 143(3) OF THE IT ACT FOR ASSESSMENT YEAR 1997-98 COPY OF WHICH IS ALSO FILED AT PAGE 95 OF THE PAPER BOOK. HE HAS ALSO REFERRED TO THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF THE SAME ASSESS EE IN ASSESSMENT YEAR 1997-98 DATED 13-08-2004 (PB-85). H E HAS SUBMITTED THAT DISTRICT INDUSTRIES CENTRE ALSO ISSU ED CERTIFICATE IN FAVOUR OF THE ASSESSEE THAT DUE TO HEAVY RAIN THERE WERE DAMAGE TO GRAINS AND PULSES (PB 68 -68A). HE HAS SUBMITTED TH AT WASTAGE IS NOT ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 6 CLAIMED EVERY MONTH AS IS MENTIONED BY THE AUTHORIT IES BELOW. HE HAS SUBMITTED THAT THE STOCK VALUATION IS NOT DISTU RBED IN THE EARLIER YEARS AS WELL AS SUBSEQUENT YEAR. THE SALE PRICES O F THE COMMODITY HAVE BEEN ACCEPTED BY THE AUTHORITIES BELOW AND THA T THE ASSESSEE CLAIMED LABOUR CHARGES IN THE PROFIT & LOSS ACCOUNT FOR CLEANING THE SITE. HE HAS RELIED UPON THE ORDER OF ITAT JODHPUR BENCH IN THE CASE OF ACIT VS WOLKEM INDIA LTD. 107 TTJ 439 IN WHICH I T WAS HELD THAT CIT(A) WAS NOT JUSTIFIED IN VALUING THE OBSOLETE S TORES AT 10% OF THE COST AS AGAINST 5% SHOWN BY THE ASSESSEE. HE HAS ALSO RELIED UPON THE ORDER OF ITAT JODHPUR BENCH IN THE CASE OF ACIT VS TIRUPATI MICROTECH (P) LTD. 111 TTJ 149 IN WHICH IT WAS HELD THAT SINCE CLOSING STOCK HAS TO BE VALUED AT THE END OF THE YEAR THE NET REALIZABLE VALUE IS ALSO TO BE CONSIDERED AT TH E END OF THE YEAR AND NOT THE AVERAGE SELLING PRICE PREVAILING T HROUGHOUT THE YEAR. HE HAS ALSO RELIED UPON THE ORDER OF ITAT JAIPUR B ENCH IN THE CASE OF SHREYANS GEMS (P) LTD. VS ACIT 111 TTJ 959 IN WHICH IT WAS HELD THAT WHEN THE ASSESSEE HAS ESTABLISHED THAT THE CLOSING STOCK CONSISTED OF LOW QUALITY EMERALD AND HAS ACCO RDINGLY DETERMINED THE VALUE THEREOF VALUATION OF THE CLOS ING STOCK CANNOT BE ENHANCED BY APPLYING THE AVERAGE COST PRI CE WHICH IS BASED ON COST OF HIGH VALUE MATERIAL. HE HAS ALSO RELIED UPON THE ORDER OF ITAT AMRITSAR BENCH IN THE CASE OF ACIT VS PUNJAB BONE MILLS 103 TTJ 564 IN WHICH IT WAS HELD THAT ASSESSEE HAVING CONSISTENTLY FOLLOWED THE SAME METHOD OF VALUATION OF CLOSING STOCK AND THE REVENUE HAVING ACCEPTED THE SAME ALL ALONG AO WAS NOT JUSTIFIED IN VALUING THE CLOSING STOCK BY R EDUCING THE AVERAGE GP RATE OF 25.7 PER CENT FROM THE SALE PRIC E IN RESPECT OF ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 7 BOTH THE ITEMS PRODUCED BY THE ASSESSEE AND MAKING ADDITION IN THE ABSENCE OF ANY MATERIAL OR EVIDENCE TO SHOW THA T THE ASSESSEE HAD UNDERVALUED THE CLOSING STOCK. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS LTD. VS CIT 327 ITR 360 IN WHI CH IT WAS HELD AS UNDER: HELD THAT AFTER DISCARDING THE MARKET VALUE ADOPT ED BY THE ASSESSEE THE COMMISSIONER (APPEALS) AND THE TRIBUNAL PROCEEDED TO ADOPT THE COST PRICE AS THE VALUE OF THE CLOSING STOCK. THERE WAS NO BASIS OR EVIDENCE TO DISCARD THE MARKET VALUE SHOWN BY THE ASSESSEE MERELY BECAUSE SUCH A VALUE WAS ONE-THIRD OF THE SALE PRICE. THE SALE PRICE WOULD NOT INDICAT E IN ANY MANNER THAT THE MARKET PRICE SHOWN BY THE ASSESSEE WAS NOT THE MARKET PRICE AS ON JUNE 30 1983 THE LAST DAY OF THE ACCOUNTING PERIOD MERELY BECAUSE SUBSEQUENTLY A HIGHER SALE PRICE WAS REALISED. THE VALUATION BY THE ASSESSEE COULD NOT B E CHANGED. HE HAS ALSO FILED DETAILS OF ITEMS IN KG. AS WELL A S IN AMOUNT OF OPENING STOCK PURCHASES SALES SHORTAGE AND CLOSI NG STOCK ALONG WITH RATES PER KG. OF PURCHASES SALES CLOSING STO CK AND RATES APPLIED BY THE AO. 6. ON THE OTHER HAND THE LEARNED DR FILED WRITTEN SYNOPSIS WHICH READS AS UNDER: IN THIS CASE THE ASSESSEE CONTESTED THE VALUATION O F CLOSING STOCK MADE BY THE AO IN THE ASSESSMENT ORDE R. THE QUANTITY OF GRAINS/ GOODS AVAILABLE WITH THE ASSESS EE AS ON 1.3.2003 WAS TAKEN BY THE AO FROM THE ANNEXURE 2 TO THE AUDIT REPORT AND THE PURCHASE/COST PRICE OF GRAINS WAS ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 8 TAKEN FROM THE RECORDS OF THE ASSESSEE AND HE WORKE D OUT THE VALUE OF CLOSING STOCK AS PER THE COST METHOD. AS PER THE LAID OUR PROCEDURE THE CLOSING STOCK HA S TO BE VALUED 'AT COST OR MARKET PRICE WHICHEVER IS LESS AS ON 31 ST MARCH' HOWEVER THE ASSESSEE DID NOT FOLLOW ANY OF THESE METHODS BUT DECIDED CERTAIN VALUE FOR THE CLO SING QUANTITY OF GRAIN AS ON 31.3.2003. THIS IS AGAINST THE ACCEPTED PRINCIPLES OF ACCOUNTING. THIS ANOMALY WHI CH IS RESULTING IN SUPPRESSION OF PROFIT IS WHAT THE AO C ORRECTED BY FOLLOWING THE APEX COURT DECISION IN THE CASE OF BRITISH PAINTS INDIA LTD 188 ITR 44(SC). THE CLOSING STOCK AS PER THE ASSESSEE AND THE COST OF GRAINS PER KG AS PER THE VALUE ADOPTED BY THE ASSES SEE ARE AS UNDER GRAIN TYPE CL.QTTY AS PER AUDIT REPORT VALUE OF CL. STOCK RS RATE PER KG AS PER THE ASSESSEE WHEAT 153208 386040 2.52 BAJRI 111122 246439 2.22 PADDY 41570 160280 3.80 RAJGARO 52636 631632 12.00 RAIDO 19400 213400 11.00 GUVAR 17049 204588 12.00 CASTOR SEEDS 10055 120660 12.00 1963039 ASSESSEE IS WHOLE SALE DEALER AND DISPOSES OFF THE GOODS AS AND WHEN THERE IS DEMAND. HIS INTEREST IS IN TURNOVER. HIS INTENTION IS NOT TO HOARD AND JACK UP THE PRICES. AS CAN BE SEEN FROM THE AUDIT REPORT THE CLOSING STOCK/TURNOVER RATIO IS 0.003. IN THE CIRCUMSTANCES MOST APPROPRIATE METHOD IS FIFO METHOD. IT IS NOT THE CL AIM OF THE ASSESSEE THAT IT IS FOLLOWING A LIFO METHOD. TH E ARGUMENT OF THE ASSESSEE THAT ADOPTING OF FIFO IS N OT ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 9 CORRECT AS IT HAS NO BASIS AND ERRONEOUS. IF IT IS NOT FIFO OR LIFO METHOD THEN WHAT IS THE METHOD THAT IS FOLLOW ED BY HIM IS NOT MADE CLEAR BY THE ASSESSEE. IT IS NOT EV EN THE CASE OF THE ASSESSEE THAT THE AVERAGE PRICE OF THE PURCHASES HAS TO BE TAKEN FOR VALUATION OF CLOSING STOCK. IN THE FACTS OF THE CASE THE METHOD FOLLOWED BY THE A O IS CORRECT AND THERE WAS A DEFECT IN THE VALUATION OF CLOSING STOCK. AO HAS NOT ADOPTED RATES AND VALUES FROM NOWHERE. HE HAS TAKEN THE SAME FROM THE RECORDS MAINTAINED B Y THE ASSESSEE AND THE AUDIT REPORT. THE CLOSING STOCK IS OF GRAINS AS ON 31.3.2003 IS CERTIFIED BY THE ASSESSEE AND ACCEPTED BY THE AUDITORS WHO HAVE AUDITED THE ACCOU NTS OF THE ASSESSEE. THE DETAILS OF QUANTITY AND THE TOTAL PURCHASE PRIC E OF THE SAID QUANTITY FOR THE LAST FEW MONTHS BASED ON THE QUANTITY IN STOCK IS AVAILABLE ON PAGE 7 OF PAPER BOOK FILED BY THE ASSESSEE HIMSELF FROM HIS OWN RECORDS. THE A CTUAL PURCHASE PRICE OF THE GRAINS WORKED OUT AS UNDER IN COMPARISON TO THE RATE PER KG. ADOPTED BY THE ASSES SEE. GRAIN TYPE CL.QTTY AS PER AUDIT REPORT VALUE OF CL. STOCK RS RATE PER KG AS PER THE ASSESSEE RATE PER KG AS PER THE RECORDS WHEAT 153208 386040 2.52 6.70 BAJRI 111122 246439 2.22 5.89 PADDY 41570 160280 3.80 5.90 RAJGARO 52636 631632 12.00 16.20 RAIDO 19400 213400 11.00 15.36 GUVAR 17049 204588 12.00 16.74 CASTOR SEEDS 10055 120660 12.00 18.70 1963039 ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 10 AS CAN BE SEEN FROM THE ABOVE THE ASSESSEE HAS TAKEN A VERY LOW PRICE FOR KG OF GRAINS AS ON 31.3. 2003. IT IS NOT THE CASE OF THE ASSESSEE THAT THERE WAS A FALL IN THE GRAINS PRICES AS ON 31.3.2003. IN THAT CASE HE COUL D HAVE ADOPTED THE ACTUAL LESSER PRICES IF ANY. HOWEVER TH ERE WAS NO SUCH CASE. THEREFORE THE VALUATION OF CLOSING ST OCK BY THE ASSESSEE IS AGAINST THE ACCOUNTING PRINCIPLES A ND ALSO AGAINST HIS OWN RECORDS OF PURCHASES. IN THE CIRCUMSTANCES OF SUPPRESSION OF CLOSING STOC K THE BOOKS DO NOT REFLECT THE CORRECT PICTURE OF PRO FIT MADE BY THE ASSESSEE FOR THE YEAR. THIS UNDER VALUATION OF CLOSING STOCK HAS RESULTED IN UNDER STATEMENT OF PROFIT. IN SUCH CASE THE AO IS DUTY BOUND TO REJECT THE RESULTS OF THE A SSESSEE AND DETERMINE THE PROFIT AND IN TURN THE INCOME THAT IS TAXABLE FOR THE YEAR TO PROTECT THE INTERESTS OF THE REVENUE. T HIS AMOUNTS TO REJECTION OF THE BOOKS OF ACCOUNTS. HOWEVER THE AO WORKED OUT THE VALUE OF CLOSING STOCK AS THE PROBLEM LIED THERE ONLY. AS PER THESE DETAILS THE QUANTITY OF CLOSING STOCK AND THE AVERAGE PRICE OF SUCH GRAINS IN THE LAST FEW MO NTHS OF THE YEAR AS FURNISHED BY THE ASSESSEE AND THE VALUE OF CLOSING STOCK WORKS OUT AS UNDER MONTHS OF PURCHASE GRAIN TYPE QUANTITY PURCHASED TOTAL PURCHASE PRICE RATE PER KG AS PER RECORD CL.QTTY AS PER AUDIT REPORT VALUE OF CL. STOCK RS 1 2 3 4 5 6 7=5X6 MAR03 WHEAT 272652 1839708 6.70 153208 1026493 JAN TO MAR03 BAJRI 153519 905727 5.89 111122 654508 JAN FEB03 PADDY 42182 249226 5.90 41570 245263 MAR 03 RAJGARO 120676 1959095 16.20 52636 852703 MAR03 RAIDO 79700 1223976 15.36 19400 297984 JAN 03 GUVAR 22902 383468 16.74 17049 285400 MAR03 CASTOR SEEDS 16805 314337 18.70 10055 188028 3550379 ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 11 AGAINST REWORKING OF THE CLOSING STOCK VALUE THE ASSESSEE CAME UP WITH AN EXPLANATION THAT THERE WAS A LOSS IN HANDLING THE GRAINS AS THESE WERE PURCHASED FROM TH E FARMERS IN OPEN TROLLEYS/TRACTORS AND CLEANED BEFORE SELLIN G. THIS ISSUE HAS BEEN DISCUSSED BY THE AO IN PARA 4 ON PAGE 2 OF HIS ORDER. HOWEVER THE FOLLOWING POINTS ARE ALSO MADE I N FURTHERANCE OF THE ARGUMENT. 1. IT IS CONTESTED THAT THE GRAINS WERE PURCHASED IN O PEN TROLLEYS ETC. HOWEVER THE ASSESSEE PURCHASES THE GR AINS FROM FARMERS IN BARDANS. THIS FACT CAN BE SEEN FROM THE SUBMISSIONS OF THE ASSESSEE BEFORE THE CIT(A) FOR T HE AY 1997-98 (PAGE 91 AND 92 OF PB) 2. ASSESSEE ARGUED THAT THERE IS A LOSS OF 2-3% BEC AUSE OF CLEANING OF THE GRAINS RECEIVED FROM THE FARMERS . IF THE ASSESSEE HAS ENGAGES LABOUR FOR CLEANING THE GRAINS THERE SHOULD BE SOME EXPENDITURE FOR THE SA ME. TRADING ACCOUNT/ P & L ACCOUNT FOR THE YEAR UNDER CONSIDERATION AT PAGE 110 OF PB DOES NOT REFLECT AN Y SUCH EXPENDITURE ON CLEANING OF GRAINS. 3. IF THE ASSESSEE HAD INCURRED ANY LOSS AS CLAIMED NOW AT THE APPELLATE STAGE WHY IT WAS NOT SHOWN BY THE ASSESSEE IN THE RECORDS AT THE FIRST STAGE. THE LOS S WAS NOT FOUND BY THE AUDITOR WHO AUDITED THE ACCOUNTS. THE PHYSICAL STOCK AS ON 31.3.2003 IS CERTIFIED BY THE PROPRIETOR HIMSELF AND ACCEPTED BY THE AUDITORS. ASSESSEE CANNOT GO BACK ON HIS OWN CERTIFICATION AN D THE AUDITING OF THE BOOKS BY A REPUTED AUDITOR IN T HE AREA. 4. VARIOUS DOCUMENTS IN THE FORM OF AFFIDAVITS FROM FARMERS AND LETTER FROM AGRICULTURE COMMITTEE DOES NOT HAVE ANY CREDENCE AT THIS STAGE BECAUSE THE PHYSICAL STOCK O F GRAINS WAS AVAILABLE ON 31.3.2003 AS CERTIFIED BY T HE ASSESSEE HIMSELF. ANY AFFIDAVIT FILED AT THIS STAGE IS SELF SERVING AND THE CLAIM IS NOT SUPPORTED BY ANY PIECE OF EVIDENCE FROM THE RECORDS MAINTAINED. 5 THE STOCK OF GRAINS WAS AVAILABLE ON 31.3.2003 AS PER CERTIFIED BY THE ASSESSEE. IF THE CLAIM OF LOSS HAS TO BE ACCEPTED FOR THE PURPOSES OF ASSESSMENT/APPEAL AT T HIS ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 12 STAGE THEN THE VALUE OF THE EXCESS PHYSICAL STOCK HAS TO BE ASSESSED AS UNEXPLAINED INVESTMENT OF THE ASSESSEE FOR THE YEAR. ASSESSEE SUBMITTED ASSESSMENT ORDER CIT(A) ORDER AND THE ORDER OF THE ITAT IN HIS OWN CASE FOR THE 1 997- 98. IN THIS YEAR THE ISSUE WAS GP SHOWN BY THE ASSESSEE WHICH WAS DISCUSSED. THE VALUATION OF CLOS ING STOCK WAS NOT EXAMINED BY THE AO. FURTHER EACH ASSESSMENT YEAR IS SEPARATE AND THE CORRECTNESS OR OTHERWISE OF ACCOUNTS OF ONE YEAR DOES NOT HAVE ANY BEARING ON THE CORRECTNESS OR OTHERWISE OF ACCOUNTS OF ANOTHER YEAR. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE UNDERVALUED THE CLOSING STOCK AS EVIDENT FROM HIS O WN RECORDS AND THE CLAIM OF LOSS IS AN AFTERTHOUGHT NO T SUPPORTED BY ANY PIECE OF EVIDENCE/RECORD MAINTAINE D DURING THE COURSE OF BUSINESS. THEREFORE THE ORDER OF THE AO MAY BE CONFIRMED. THE LEARNED DR ALSO REFERRED TO PB 102 TO 108 WHICH IS AUDIT REPORT TO SHOW THAT NO WASTAGE IS REPORTED AND THAT VALUAT ION OF THE CLOSING STOCK IS AS IS CERTIFIED BY THE PROPRIETOR. THE LEA RNED DR THEREFORE SUBMITTED THAT SINCE THE ASSESSEE FAILED TO ADDUCE PROPER EVIDENCE THEREFORE FIFO METHOD WAS RIGHTLY ADOPTED. HE HAS SUBMITTED THAT NO EXPENSES HAVE BEEN CLAIMED FOR CLEANING THE ITEM S. THE D.I. CENTRE CERTIFICATE FILED BY THE ASSESSEE ARE SELF-SERVING AND IN THE ABSENCE OF ANY EVIDENCE ADDITION HAS BEEN RIGHTLY MADE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIALS AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE AS SESSEE POINTED OUT THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-9 8 U/S 143(3) OF THE IT ACT (PB-95) IN WHICH ON THE END OF THE ASSES SMENT ORDER THE AO FOUND THAT THE ASSESSEE HAS SHOWN SHORTAGE IN W EIGHT IN ITEMS ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 13 WHEAT BAZARI DANGER AND RAIDO ETC. ACCORDINGLY B OOK RESULTS WERE REJECTED AND ADDITION WAS MADE ON ACCOUNT OF HIGHER GP. PART ADDITION WAS DELETED BY THE LEARNED CIT(A) BY RESTR ICTING THE ADDITION TO RS.25 000/- WHICH WAS ALSO DELETED BY THE TRIBUN AL VIDE ORDER DATED 13-8-2004 (PB-85). THE ASSESSEE ALSO FILED CE RTIFICATE FROM DISTRICT INDUSTRIES CENTRE IN WHICH IT WAS CERTIFIE D THAT ON ACCOUNT OF HEAVY RAINS M/S. MARUTI TRADERS I.E. THE FIRM OF TH E ASSESSEE INCURRED ESTIMATED LOSSES ON ACCOUNT OF DAMAGES TO MATERIALS LIKE GRAINS AND PULSES IN A SUM OF RS.5 61 500/-. FURTHER THE ASSES SEE ALSO CLAIMED LABOUR EXPENSES FOR CLEANING THE SITE ON ACCOUNT OF WASTAGE. IT WOULD SUPPORT THE CLAIM OF THE ASSESSEE. THE LEARNED COUN SEL FOR THE ASSESSEE ALSO FILED DETAILS OF ITEMS IN WHICH THE A SSESSEE WAS DEALING SHOWING OPENING STOCK PURCHASE SALES SHO RTAGE AND CLOSING STOCK. THESE DOCUMENTS ON RECORD CLEARLY PO INTED OUT TO THE FACT THAT THERE WAS WASTAGE/SHORTAGE SUFFERED BY TH E ASSESSEE NOT ONLY IN THE ASSESSMENT YEAR UNDER APPEAL BUT IN THE PRECEDING ASSESSMENT YEAR ALSO. BY THE NATURE OF THE ITEMS IN WHICH THE ASSESSEE WAS DEALING IN AS WHOLESALE GRAIN MERCHANT THE EXPLANATION OF THE ASSESSEE IS BELIEVABLE THAT THE COMMODITIES PURCHASED BY THE ASSESSEE GET MOISTURE WASTAGE AND DUST AND FURTHER IN THE PURCHASES FROM THE FARMERS ON ACCOUN T OF KEEPING THE SAME IN OPEN PLACE THERE ARE BOUND TO BE WASTE ON ACCOUNT OF BIRD INSECTS MOISTURE ETC. THESE REASONS WERE SUFFICIEN T TO HOLD THAT THERE IS BOUND TO BE DIFFERENCE IN THE STOCK. THE ASSESSE E FILED DETAILS BEFORE THE AO BUT THE SAME HAVE NOT BEEN APPRECIAT ED BY THE AO BECAUSE MONSOON STARTS IN GUJARAT FROM JUNE ONWARDS AND KEEPING THE ITEMS IN OPEN IN MAY TO JULY SEPTEMBER AND OCT OBER THERE ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 14 WOULD NOT BE ANY POSSIBILITY AND FURTHER THE WASTAG E IS NOT SUPPORTED BY ANY CONCRETE EVIDENCE. ON THE OTHER HAND THE AS SESSEE PRODUCED THE BOOKS OF ACCOUNTS AND DETAILS BEFORE THE AO ALO NG WITH VALUATION AND THE DETAILS SUBMITTED IN THE AUDIT REPORT. THE DETAILS SO FURNISHED AND THE EXPLANATION OF THE ASSESSEE SUPPORTED BY TH E ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 WOULD SUPPORT THE EXPLANATION OF THE ASSESSEE THAT THERE WAS SHORTAGE IN ABOUT 2 TO 3% IN THE STOCK. THEREFORE THE ASSESSEE SHOULD HAVE BEEN GIVEN BENE FIT OF THE SAME BECAUSE THE ISSUE COULD BE DECIDED BY APPLYING THE TEST OF HUMAN PROBABILITY. MOREOVER FINDING OF THE AO BASED ON M ONSOON SEASON WITHOUT VERIFYING ACTUAL FACTS WOULD NOT BE VALID. IN ASSESSMENT YEAR 1997-98 ASSESSEE MIGHT HAVE PURCHASED ITEMS IN BAR DANA BUT NO SUCH FACTS ARE BROUGHT ON RECORD IN THIS YEAR. THE FIGURES OF THE ASSESSEE OF STOCK ARE REPORTED BY PROPRIETOR AND WO ULD SHOW SHORTAGE ULTIMATELY. 7.1 THE LEARNED DR ALSO POINTED OUT THAT THE ASSESS EE HAS TAKEN A VERY LOW PRICE OF PER KG. OF GRAINS ON END OF FINAN CIAL YEAR. THE ASSESSEE IN SUPPORT OF THE CONTENTION HAS NOT FURNI SHED SUFFICIENT EVIDENCE ABOUT THE COST OF THE CLOSING STOCK TAKEN IN THE VALUATION OF THE CLOSING STOCK. SOME AFFIDAVITS WERE FILED BUT T HEY WERE NOT TAKEN INTO CONSIDERATION BY THE AUTHORITIES BELOW BECAUSE OF SOME VARIATION NOTED BY THE AO THEREIN. THE DETAILED WRITTEN SUBMI SSION FILED BY THE LEARNED DR CLEARLY SUGGEST THAT THERE WAS SOME UNDE R-VALUATION OF THE CLOSING STOCK AND THE FIGURES SHOWN BY THE LEAR NED DR IN HIS STATEMENT HAVE NOT BEEN REFUTED THROUGH ANY EVIDENC E OR MATERIAL. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE FIELD DETAILED PAPER ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 15 BOOK BUT ONLY FEW PAGES HAVE BEEN REFERRED TO FROM THE PAPER BOOK AS ARE REFERRED TO ABOVE. IT WOULD THEREFORE SHOW THAT EXCEPT FOR WASTAGE/SHORTAGE FOR ABOUT 2 TO 3% NO FURTHER BENEF IT COULD BE GIVEN TO THE ASSESSEE BECAUSE THE ASSESSEE WAS NOT ABLE TO EXPLAIN ANY SPECIFIC DETAILS AS TO HOW HE HAS VALUED THE CLOSIN G STOCK. NO SUPPORTING EVIDENCES WERE FILED BEFORE THE AUTHORIT IES BELOW AND NOTHING WAS POINTED OUT DURING THE COURSE OF ARGUME NTS BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE CLAIM OF SHORTAGE/DEFICIT WHICH RANGES FROM 2 TO 3% HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE AUTHORITIES BELOW. THE ASSESSE E FAILED TO POINT OUT AS TO WHAT WAS THE BASIS FOR TAKING THE VALUATI ON OF THE CLOSING STOCK. EVEN WHEN THE AO APPLIED FIFO METHOD AS PER EXPLANATION OF THE ASSESSEE THERE WAS DIFFERENCE IN VALUATION OF CLOSING STOCK. THE AO HAS SPECIFICALLY NOTED THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE UNDER-VALUATION OF THE ITEMS. CONSIDERING THE T OTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE NOTED ABOVE IN THE LI GHT OF THE SUBMISSION OF THE PARTIES WE ARE OF THE VIEW THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION ON ACCOUNT OF SHORTAGE/DE FICIT/WASTAGE WHICH RANGES FROM 2 TO 3% IN THE COMMODITIES. HOWEVER RE ST OF THE FINDINGS OF THE AUTHORITIES BELOW WOULD BE MAINTAINED IN THE ABSENCE OF ANY COGENT EVIDENCE OR MATERIAL ON RECORD IN SUPPORT OF THE CONTENTION OF THE ASSESSEE. WE ACCORDINGLY DIRECT THE AO TO ALLO W THE BENEFIT TO THE ASSESSEE ON ACCOUNT OF SHORTAGE/WASTAGE/DEFICIT RANGING FROM 2 TO 3% AFTER VERIFICATION OF DATA SUPPLIED BY THE AS SESSEE AND THE AO THEREAFTER SHALL COMPUTE THE VALUATION OF THE CLOSI NG STOCK ON THE SAME METHOD AS WAS ADOPTED IN THE ASSESSMENT YEAR U NDER APPEAL. IT MAY RESULT IN GRANTING SOME BENEFITS TO THE ASSE SSEE AND SOME PART ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 16 ADDITION WOULD BE MAINTAINED. THE ASSESSEE IN THE A DDITIONAL GROUNDS OF APPEAL ALSO SUBMITTED THAT IN CASE CONTE NTIONS OF THE ASSESSEE RAISED IN GROUNDS OF APPEAL ARE NOT ACCEPT ABLE THEN SUITABLE DIRECTION MAY BE GIVEN FOR GIVING EFFECT T O THE SAID AMOUNT OF ADDITION IN QUESTION IN SUBSEQUENT YEAR. WE FIND TH AT THE ADDITIONAL GROUND IS CONSEQUENTIAL IN NATURE AND SHALL HAVE TO BE ADMITTED IN VIEW OF THE FINDINGS ABOVE BECAUSE IN CASE PART OF THE ADDITION IS MAINTAINED ON ACCOUNT OF ENHANCEMENT IN THE VALUATI ON OF THE CLOSING STOCK IN THE ASSESSMENT YEAR UNDER APPEAL THEN OPE NING STOCK IN NEXT ASSESSMENT YEAR 2004-05 WOULD GET ENHANCED. TH E ADDITIONAL GROUND IS THEREFORE ADMITTED. THE AO IS DIRECTED THAT AFTER VALUING THE CLOSING STOCK AFRESH AS IS DIRECTED ABOVE BY GI VING BENEFIT TO THE ASSESSEE OF SHORTAGE/DEFICIT FOR 2 TO 3% AS CLAIMED BY THE ASSESSEE IF ANY FURTHER ADDITION IS MAINTAINED SUCH ADDITIO N WOULD ENHANCE THE OPENING STOCK IN THE SUBSEQUENT ASSESSMENT YEAR 200 4-05 AND THE AO SHALL TAKE CARE OF SUCH ADDITION IN THE SUBSEQUE NT ASSESSMENT YEAR. THE AO WHILE RE-COMPUTING THE VALUATION OF TH E CLOSING STOCK SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. WITH THE ABOVE OBSERVATIONS THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ITA NO.3826/AHD/2007 SHRI DASHRATHBHAI KANTIBHAI PATEL VS ITO WARD 2 A NAND 17 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-03-2011 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29 -03-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD