Income Tax Appellate Tribunal - Bangalore
V.M. Salgaocar And Bros. (P.) Ltd. vs Income-Tax Officer on 29 June, 1994
Equivalent citations: [1994]51ITD262(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. This appeal has been filed by the assessee against the order of the CIT(A).
2. The facts of the case are that the assessee filed a return of income on 30-6-1977 declaring the total income at Rs. 1,52,12,656. This was revised on 18-1-1978 and a total loss of Rs. 2,85,77,361 was declared in the revised return. The Assessing Officer completed the assessment on 6-9-1980 by determining the total income at Rs. 1,80,63,239.
3. The assessee-company is engaged in the business of mining iron ore and exporting the same to different countries and mainly Japan. The closing stock of the assessee as shown in the original return of income was revised slightly in the revised return. The following items at the values shown below were shown in the closing stock in the said revised return:
Quantity Rate Value
in tones per tonne Rs.
Lumpy Ore 58,310 12-50 7,28,750
Blue Dust 11,23,192 10-00 1,12,31,920
1,19,60,670
4. A search and seizure operation was conducted by the Department in the premises of the assessee-company during the period from 20-12-1980 and 22-12-1980. During the said operations, an unsigned paper, pur-ported to be showing the valuation of closing stock as on 30-9-1976 was found in the file of the Accountant dealing with the matter relating to determination of the closing stock, along with other papers. It may be mentioned in this connection that the previous year of the assessee for this year also ended on 30-9-1976 and hence, the closing stock as referred to above means the stock as on that date.
4.1 In the above-mentioned paper, found during the search and seized by the Department, the position of the stock as on 30-9-1976 was shown as below:
Vagus Plot:
Quantity in Rate Value
tones per tonne (in rupees)
V.M.S. Lumpy 58,300 16-00 9,32,800
V.M.S. Chips 4,33,374 6-00 26,00,244
V.M.S. Blue dust 11,03,606 13-00 1,43,46,878
Mechanical Plot:
V.M.S. Lumpy 36,988 25-00 9,24,700
Total 16,32,268 1,88,04,622
4.2 On the basis of the increased valuation of stock as shown in the abovementioned seized paper, the Department initiated proceedings under Section 147 to assess the escaped income. It is an undisputed fact that the proceeding was in fact started by the Department under Section 147(a) of the Act and not under Section 147(b). Representative of the assessee came up with various arguments against adoption of the figure of closing stock as per the seized paper, to which we shall refer to in due course. The Assessing Officer, however, ultimately did not accept the contentions of the assessee and finally completed the assessment by making additions on the different items of stock in accordance with the difference between the figures as shown in the seized paper and as disclosed in the return. Thus, not only the entire values of the chips and VMS Lumpy at the Mechanical Plot as shown in the seized paper were taken into consideration and added back, but also the valuations of Lumpy Ore and Blue Dust were also made in accordance with the rates shown in the seized paper. In all, therefore, the Assessing Officer made a total addition of Rs. 70,09,570 towards the value of the closing stock in the reassessment order. His action was upheld by the CIT(A).
5. Shri Damania, appearing on behalf of the assessee, has challenged the very basis of the reopening the assessment by arguing that inasmuch as the assessee had placed on record all the material facts necessary for the assessment, it did not lie on the part of the Assessing Officer to initiate proceedings under Section 147(a). It has been contended that there was no concealment or instance of non-furnishing of any inaccurate particulars or even holding back of any information from the Assessing Officer at the stage of the original assessment. Shri Damania relied upon a number of decisions of different courts to which we are adverting to gradually. He also put forward certain arguments which would also hold good in his defence against the valuation of stock accepted in the reassessment, on merits. Shri Puniha, the Departmental Representative, also placed reliance on a number of decisions and put forward elaborate arguments. We shall discuss all these arguments in due course.
6. It has firstly been contended by Shri Damania that the seized paper was merely an unsigned paper and does not have any practical significance. It has been argued that this particular paper might have been prepared by the person dealing with the valuation of stock for various purposes like submission of stock statement before the bank or as a working paper for final valuation of the stock, etc. It has furthermore been contended that this paper is not signed by any body nor does it show the date of preparation of the paper. It is thus argued that this paper does not have any evidentiary value at all in reopening the assessment and/or in deciding the issue.
6.1 Shri Puniha, on the other hand, argued that this paper was found duly placed in the file containing different papers relating to valuation of the stock and that although the paper might not be dated, yet, it clearly shows the stock position of the company as on 30-9-1976. It is, thus, contended by Shri Puniha that the paper cannot be ignored and must be taken into consideration for arriving at decisions relating to reopening as well as revaluation of the stock.
7. Shri Damania, first of all, brought to our notice the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. The Supreme Court decided in the said case that although it is the duty of the assessee to disclose all the facts which have a bearing on the question at issue, yet, the law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. It has furthermore been decided therein that the words "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year" used in Section 34 of the 1922 Act (corresponding to Section 147 of the 1961 Act) postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment and that what facts are material and necessary for the assessment differ from case to case. Shri Puniha has also relied on this particular decision of the Supreme Court in support of his contention that if it be ascertained that the ITO had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable.
7.1 Shri Damania also placed reliance on two more decisions of the Supreme Court in the cases of CIT v. Bhanji Lavji [1971] 79 ITR 582 and CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609. In the first of the said cases, it was decided that inasmuch as the assessee had disclosed primary facts relating to the sale proceeds in respect of ghee supplied received in Bombay and subsequently transferred to Porbandar in respect of assessment years 1947-48 and 1948-49, no more detailed disclosure was necessary to comply with the requirement that the assessee had fully and truly disclosed all material facts necessary for the purpose of the assessment. The Supreme Court remarked in that case that it was not the assessee's duty to disclose to or instruct the ITO that there were "profits embedded in the receipts" of the money at Bombay. The ITO might have raised a wrong legal inference from the facts disclosed but on that account he was not competent to commence proceedings under Section 34(1)(a) of the 1922 Act.
7.2 In the second case as mentioned above, the Supreme Court held that where on the evidence and the materials produced during the original assessment proceedings, the ITO could have reached a conclusion other than the one which he has reached, a proceeding under Section 34(1)(a) of the IT Act, 1922, will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous.
8. The main thrust of Shri Damania's arguments was that the assessee had truly and fully disclosed all the particulars relating to its closing stock at the stage of the original assessment. It has been argued that so far as chips are concerned, the value of the said chips was nil (as would be found during the course of discussions relating to the merits of the case) and the Lumpy Ores at Mechanical Plot were not to be included within the closing stock of the assessee inasmuch as such ores must have been sold away before the last date of the relevant previous year, but missed to be taken into consideration by the person preparing the stock statement on account of non-reaching of the relevant information relating to sale. He also argued that the physical quantum of the closing stock as disclosed in the revised return was on the basis of the figures of opening balance, the production and purchase and also sales effected during the year and hence there was no discrepancy in the said physical quantum. He thus argued that there was no necessity for taking into consideration the items relating to chips and Lumpy Ores at Mechanical Plot, in the finally prepared closing stock statement. As regards the valuations of the other two items, viz., Lumpy Ore at Vagus Plot and Blue Dust, it was argued by Shri Damania that the rates were determined on the basis of standard cost on LIFO basis which had been done in accordance with the standard method of valuation of inventories as prescribed by the Institute of Chartered Accountants of India and also the Expert Advisory Committee of the Institute of Chartered Accountants of India. It was thus finally contended that there was no omission or failure on the part of the assessee relating to disclosure of the value of the closing stock at the original assessment stage which could have warranted the reopening of the proceedings under Section 147(a).
9. Shri Puniha, on the other hand, relied on the decision of the Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT [1986] 159 ITR 624 and brought to our notice the following observation made by the Supreme Court in the said case :
It is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted.
He also cited the decision of the Gauhati High Court in the case of Dhansiram Agarwalla v. CIT. That is a case where there existed discrepancy between value of stock as disclosed to the bank and as shown in the balance-sheet. Reopening was held to be valid by the High Court in that case.
10. When we look to the facts of the present case, we find that the assessee disclosed two items, viz., VMS Lumpy and VMS Blue Dust only in its closing stock statement. The Department found a paper not only from the business premises of the assessee but also from the very file in which the papers relating to preparation of stock statement were maintained. Therefore, at least the primary significance of this particular paper found during the search cannot be brushed aside, although whether whatever written therein can be accepted in toto or not is a different question. This particular paper showed not only higher rates of valuation in respect of the two items disclosed by the assessee in its stock statement, but also included two further items, viz., chips and lumpy ore at Mechanical Plot which had not been shown in the stock statement of the assessee at all. Even if it be contended that the Lumpy Ore at Mechanical Plot did not form a part of the closing stock inasmuch such Ore had already been sold away, the finding of a paper purporting to be the list of closing stock as on the relevant date showing this particular item would naturally give rise to the reasonable belief in the mind of the Assessing Officer that on account of omission on the part of the assessee to disclose the existence of this item, income chargeable to tax has escaped assessment. So far as the Chips are concerned, the main argument of the assessee before us is that the value of this particular item was nil and hence, the item was not shown in the inventory of closing stock. But, since the assessee was in the habit of showing this particular item in its closing stock for earlier years at the rate of Rs. 6 per ton, if the rate had gone down to nil in this particular year, it was certainly the duty of the assessee to have disclosed the existence of the stock but at nil value. The two decisions, as cited by the learned DR and as referred to by us above, also clearly show that the primary duty of the assessee to disclose fully and truly all material facts does not end with showing only what the assessee intends to show or considers as material. What the Assessing Officer could have considered as material fact should also have been disclosed by the assessee. The Bombay High Court has also held in the recent case decided by it in Raymond Woollen Mills Ltd. (207 ITR 929) that the mere provision of evidence by the assessee is not enough. There may be an omission or failure to make a full and true disclosure, if some material fact necessary for the assessment lies embedded in the evidence which the assessee can uncover but does not. If there is such a fact, it is the duty of the assessee to disclose it. In the instant case, the failure on the part of the assessee to disclose the value of the stock of Chips even at nil value at the original assessment stage coupled with the later discovery of a paper showing such fact would clearly lead any man of ordinary prudence to the reasonable belief that the assessee had failed to disclose truly and fully all facts necessary for the assessment which has led to under-assessment of income. Therefore, we are of the view that on account of failure of the assessee to at least indicate the presence of stock relating to Chips at the original assessment stage, the Assessing Officer could be said to have reasonable belief as spoken of in Section 147(a) and had, therefore, the jurisdiction to initiate proceedings under that Section. The preliminary objection as taken up by the assessee against the validity of the reopening itself is therefore being dismissed by us.
11. While taking the merits of the additions, we first of all propose to discuss the matter relating to revaluation of VMS Lumpy and VMS Blue Dust at the Vagus Plot. The assessee had valued these two items at the rates of Rs. 12.50 per ton and Rs. 10 per ton respectively in the computation of its closing stock and the said valuation was also accepted by the Assessing Officer in the assessment. In the impugned re-assessment however, the valuations have been adopted by the Assessing Officer at the respective rates of Rs. 16 per ton and Rs. 13 per ton as per the seized document, as discussed above. The argument of the assessee in support of the valuation adopted in the original assessment is that the assessee has been valuing these two items at standard cost over a number of years, that inasmuch as the assessee has been following the LIFO method of accounting, which is actually the case in respect of Mineral Ores required to be dumped in heaps, the stock of the assessee remaining at the bottom is always required to be valued at the old rate over the years and also that the method of accounting and estimating the stock as valued by the assessee is in accordance with the principles laid down by the Institute of Chartered Accountants of India with regard to valuation of inventories and has also been approved by the Expert Advisory Committee of the said Institute.
11.1 The learned DR, on the other hand, has firstly relied on the decision of the Privy Council in the case of CIT v. Sarangpur Cotton Mfg. Co. Ltd. [1938] 6 ITR 36 to draw inspiration from the following observation made in the said judgment :
The view that an Income-tax Officer is prima facie entitled to accept the profits shown by the assessee's accounts where there is a method of accounting regularly employed by the assessee, is not a correct view.
The DR, therefore, contends that simply because the assessee has been following the so-called method of valuation by standard cost, that method need not be accepted by the Department in the present assessment. He has furthermore relied on the decision of the Madras High Court in the case of Asher Textiles Ltd. v. CIT [1952] 22 ITR 125 in which it has been held that cost price for valuation of stock should be taken as meaning "original cost price" and not a notional cost price. Shri Puniha, learned DR, thus argues that inasmuch as the assessee has not considered the actual cost price in valuing its stock in respect of its Lumpy Ores and Blue Dust, the argument that the method of valuation on the basis of cost price as put forward by the assessee is not acceptable. Shri Puniha also has relied on the decision of the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 where the concept of inflating the original cost of raw materials by taking into consideration the value of other input items has also been discussed. Shri Puniha has also attacked the claim of the assessee that it follows UFO method for valuing its stocks by arguing that the same iron ore cannot be retained for 15 years and even the principle of inventory management also cannot support this proposition. He has tried to draw our attention to the fact that the assessee itself made increase in the valuation of Blue Dust from Rs. 10 to Rs. 16 in subsequent years and consequent upon the search. He thus ultimately argued that the same valuation in respect of Lumpy Ore and Blue Dust being Rs. 12.50 and Rs. 10 as adopted by the assessee over a number of years must give a distorted picture of the real valuation of the stock in view of the inflationery trend in the market. Ultimately, he argues that the valuation as adopted in the impugned re-assessment order on the basis of the own working of the assessee, as finding place in the seized document, must be considered to be correct.
11.2 We hereby take due note of the fact that although the seized document may be considered to be a valuable evidence for giving the Assessing Officer a reasonable belief to reopen the proceeding, at the same time, it cannot be considered as sufficient evidence to come to a conclusion that whatever is written in the said seized document must be taken as gospel truth regarding valuation of closing stock of the assessee. Even the Department has also not relied on the said document fully inasmuch whereas the seized document shows the quantity of Blue Dust at Vagus Plot to be 11,03,606 tonnes only, the Assessing Officer has chosen to stick to the old higher figure of 11,23,192 tonnes as disclosed by the assessee at the original assessment stage and as accepted in the original assessment. It is, therefore, required for us, first of all, to examine whether the figures as mentioned in the seized document stand to proper reason and in that way may be acceptable even in the reassessment. The normal procedure for maintenance of stock in the business of export of Iron Ore should be to dump new items over the old ones and at the time of actual despatch of the Ores from the site of deposit of the stock, should be to take the upper portion first. In that way, the LIFO method of accounting, as stated by the assessee to be being followed by it should be considered as depicting the correct picture. Iron Ore is not at all a perishable substance and by its nature is required to be stored in the open over a considerable period without losing its quality or Iron content. Any oxidation which may occur to the Ores, if at all, on account of exposure to the open air, sunshine and rains is not at all likely to reduce the quality of the Ore in any way. In such a system, the old deposit should always lie at the bottom which gets cleared off only if at certain point of time, the entire stock is despatched. Hence, there is justification in the argument of the assessee that the old rates considered by it over a number of years be applied while valuing its stock of Iron Ores.
11.3 Furthermore, the very nature of the business involving the handling of bulk quantities of Iron Ores, does not permit the assessee quantification of the Iron Ore stocked in an accurate manner. In this type of business, quantification of production, purchase, despatch and of stock all have necessarily got to be made on some rough estimate basis alone. So would be the case about valuation of the stock. Since a number of factors and multiple input items are required to arrive at the actual cost of Iron Ores, a rough and ready method for evaluation of closing stock in such cases, should suffice the purpose of determining the income of the business concern either for income-tax purpose or for any other purpose. It is a fact that the assessee actually adopted higher figures of rate per ton in respect of valuation of Lumpy Ores and Blue Dust in later years. That, however, does not necessarily mean that the figures as adopted in the original assessment for this year were distorted ones. Furthermore, as discussed earlier, not much significance can be put to the seized document, which might have been prepared for a host of purposes as argued by the assessee and it is not exactly known for which purpose this particular document was prepared.
11.4 Another point which also deserves a strong consideration in this regard is that the valuation of the stock of these two items was attempted to be done by the Assessing Officer at the reassessment stage under Section 147. Had there been any escapement of income, the Assessing Officer would have certainly been at liberty at the reassessment stage, to revalue the stock. But, as has been discussed earlier, whether there was any escapement of income by adoption of old figures of rate of these two types at the original assessment stage itself, is not very clear and hence disturbing the valuation already adopted in the original assessment, at the reassessment stage, does not seem to be permissible in the present case. The Supreme Court has held in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 that where reassessment is made under Section 147 in respect of income which had escaped tax, the ITO's jurisdiction is confined only to such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment. In the instant case, there are no sufficient evidences to show that any escapement of income actually occurred in the original assessment with regard to the matter of valuation of Lumpy Ores and Blue Dust at the Vagus Plot. The revaluation as done by the Assessing Officer in the impugned reassessment order has, therefore, got to be considered as merely a review or revision of the issue as concluded in the original assessment. It is also found that the ITAT, Bangalore Bench, in its order dated 23-3-1985 in ITA No. 694/Bang./1983, for assessment year 1979-80, had approved of adoption of the rate of Rs. 10 per ton with regard to the valuation of Iron Ore for that year. Hence, we are finally of the opinion that firstly, there was no sufficient materials for the Assessing Officer to consider the rates as shown in the seized documents in preference to the rates being followed by the assessee over a number of years and secondly, even if that were the case, the Assessing Officer could have at best taken a higher valuation in respect of the two items under consideration at the original assessment stage and that in the impugned reassessment, there was no case for disturbing the already concluded issue relating to the valuation of Lumpy Ores and Blue Dust.
12. Now, we come to the consideration of the addition of Rs. 26,00,244 made with regard to the stock of VMS Chips as per the seized document. The learned DR has brought it to our notice that this particular item has all along been included within the closing stock at the rate of Rs. 6 per tonne by the assessee itself in its inventory of closing stock as on 31-3-1973 (assessment year 1973-74), on 31-3-1974 (assessment year 1974-75) and also on 30-9-1975 (assessment year 1976-77) being the immediately preceding year. He has thus argued that there is no case for the assessee for not taking into consideration the stock of VMS Chips in the inventory of closing stock as finally considered in the accounts.
12.1 Thelearned counsel for the assessee, on the other hand, has drawn our attention to the detailed discussions made by the LAC in his order under Section 144B dated 22-9-1982 for assessment year 1979-80. In the said order, while dealing with the problem relating to valuation of closing stock and especially with regard to the valuation of Chips the IAC is found to have taken into consideration various expert opinions like statement under oath from Mr. Y. Yajima, Asstt. General Manager of M/s. C. Itoh & Co. Ltd., Bombay (representatives of the buyers of Iron Ore in Japan), of Shri S.K. Agarwal, Senior General Manager, Mineral & Metals Trading Corporation of India, New Delhi and finally of Shri U.P. Nayak, Senior Manager, Vasco-da-gama branch of Canara Bank. The IAC held in brief that although these Chips were not totally worthless or valueless, but that there was no regular long-term market for this type of Ore in the then international situation. He discussed in the aforesaid order that a certain percentage of this type of Lumpy Ore known as Chips was required to be added to the blast furnace to get optimum result. However, the percentage of Lumpy Ore had fallen from 42% in 1972 to 7% or 8% in 1978. He also discussed that in the days of rising fuel costs, Lumpy Ores of Goan origin were not being preferred by the buyers at Japan. He also took into consideration the opinion of Shri Agarwal of M.M.T.C. that it was very difficult to assign any specific value of these types of lumps as a market for the Chips was absolutely uncertain. Finally, the IAC came to the conclusion that inasmuch as there was no regular steady assured market in respect of Chips, the assessee, keeping with the principle of accountancy described as Doctrine of Conservatism, was not obliged to take value in respect of these Chips in its closing stock. Lastly, the IAC held that adoption of nil value in respect of the closing stock of Chips was in order.
12.2 Shri Puniha argued in this connection that that not only the assessee considered the value of Chips at Rs. 6 per ton as at the beginning of the accounting year under present consideration but also the assessee started revaluing the Chips once more from assessment year 1981-82 onward. Shri Damania replied to this point by stating that when the assessee felt that the Chips were no longer marketable, it started adopting nil value in respect of this particular item. He furthermore stated that the assessee itself installed another plant for filtering the Chips and using the same during the previous year corresponding to assessment year 1981-82 and that is why some value was shown in respect of Chips from that year onward.
12.3 On an overall assessment of the situation, we are of the opinion that the assessee cannot be said to be wrong in having taken the value of the Chips to be nil in its inventory of closing stock. It is a fact that the assessee altogether omitted this item in the list of closing stock submitted by it before the Assessing Officer and thereby gave a handle to the Assessing Officer to reopen the instant assessment under Section 147. But, as has been discussed by us earlier, not much evidentiary value can be attached to the seized document under consideration unless it is corroborated by certain other evidences. It is quite possible that at the time of preparation of the valuation of the closing stock for this year, the employee of the assessee dealing with the matter had first put the old value of Rs. 6 per tonne to the stock of Chips as per papers. Later on, however, on a proper appraisal of the facts, the assessee considered nil value in respect of the Chips and hence, did not include the said item in the list of closing stock. We are inclined to believe that this proposition is more plausible. In any case, we do not find any reason why the value of Chips cannot be considered to be nil as at the end of the relevant previous year. The addition as adopted by the Assessing Officer on this account is therefore being deleted.
13. With regard to the consideration of VMS Lumpy Ore at the Mechanical Plot of the quantity of 36,988 tons and shown at the rate of Rs. 25 per ton, to be of the value of Rs. 9,24,700 in the seized document and also adopted in the reassessment, the learned DR has brought to our notice to the fact that in assessment year 1975-76 also, the assessee itself had taken into consideration VMS Lumpy Ore at Mechanical Plot to the extent of 5,997 tonnes and had included the value thereof in the final stock valuation. Shri Damania, on the other hand, has argued that might have been the case on the basis of the facts existing at the relevant time. He however contends that so far as the present year is concerned, there was no stock of Lumpy Ores at the Mechanical Plot and that the entire stock of Lumpy Ore at the Mechanical Plot (from where direct shipment is made) had already been sold away in the last month of the relevant accounting year, viz., September 1976. In support of this contention, he has produced the figures to show that 14,446 L.Ts of Lumpy Ore at the Mechanical Plot were shipped on 8-9-1976 to M/s. C. Itoh & Co. Ltd., of Japan and furthermore that two shipments of 15,900 and 20,147 L.Ts respectively were made on behalf of an inland party, viz., M/s. Shantilal Khushaldas on 13-9-1976 and 25-9-1976 respectively. These figures lead to the aggregate of 36,048 L.Ts of Lumpy Ores which, more or less correspond with the amount of 36,988 tonnes shown in the seized document. Shri Damania has thus argued that although the entire stock of Lumpy Ores at the Mechanical Plot had already been sold before the end of the relevant previous year, the person dealing with the valuation of stock, having not yet received the relevant intimation, might have taken into consideration the quantity of 36,988 tonnes of Lumpy Ores at the Mechanical Plot in the work-sheet for preparation of the closing stock as found during the search and seized by the Department. As regards the slight variation in the two figures as mentioned above, it has been argued that precise quantification of stock or of shipment is not possible in respect of bulk items like Ores. In support of the above contention, Shri Damania has placed on our record copies of the relevant invoices relating to the above sales. Shri Puniha, DR, on the other hand, has argued that inasmuch as the lading of ores took place in the month of September itself, there was no case for treating the stock to be existent as at the last date of the relevant previous year. We are, however, not moved with the above argument of Shri Puniha. On the other hand, we feel inclined to be in agreement with the argument of the assessee that in a big company like this one where various Departments are located at different places, it might have been possible that the information relating to actual sale and shipment of the stock under consideration did not reach the person in-charge of preparation of the inventory of closing stock and that is why in the provisional list of closing stock, he included the stock of Lumpy Ore at Mechanical Plot and valued the same also. In this case, as has been discussed by us earlier, there is no point in attaching much importance to the seized document unless further corroborative evidences be available. The explanation as put forward by the assessee along with evidences relating thereto seem to be plausible and more or less convincing too. We, therefore, see no reason why such explanation should not be accepted and, on the other hand, addition should be allowed to be made simply on the basis of the seized document, the proper significance of which is not readily understandable. Hence, we are of the view that addition in this regard also cannot stand.
14. Finally, we reverse the decisions of the lower authorities and delete the entire addition of Rs. 70,98,570 on account of revaluation of closing stock as done in the reassessment order.
15. In another ground, the assessee contends that the CIT(A) erred in sustaining the disallowance of Rs. 94,065 out of Rs. 1,33,565 in respect of the payment to M/s. Agenda Caestano Figueredo. Shri Damania was fair enough to point out that similar disallowance was upheld by the ITAT, Bangalore Bench, in its order dated 23-3-1985 in ITA No. 667 (Bang.)/1983 with regard to the assessee's appeal for assessment year 1979-80. Following the said line, therefore, we uphold the disallowance for the present year also.
16. In the last effective ground, the assessee contends that the CIT(A) erred in not giving appropriate relief in respect of disallowance made by the Assessing Officer under the item "maintenance of building". From a perusal of the assessment order, it is found that certain items of works carried out at the residential premises of the various directors to the total extent of Rs. 30,430 were disallowed on the ground that the expenses had been incurred on personal account of the directors and did not relate to the business of the assessee company. Furthermore, another amount of Rs. 29,637 representing maintenance expenses, with regard to the bungalow serving the purpose of residence of some of the directors of the assessee-company was also disallowed on exactly the same ground. Shri Damania has relied on the decision of the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 to argue that inasmuch as the bungalow belonged to the company, the company was under obligation to undertake repairs and maintenance works with regard to the said bungalow and that the expenses incurred in this regard did not amount to any perquisite, amenity or benefit arising to the directors. The learned DR, on the other hand, contends that only 1/4th of the bungalow belongs to the company whereas the balance 3/4th belongs to the directors themselves. He argues that any repair expenses in respect of the portion of the bungalow belonging to the directors should not be allowable in the hands of the company.
16.1 We are not aware of the exact facts in this case. There is nothing on record to show whether the entire bungalow belonged to the company or any portion thereof belonged to the directors in their personal capacities. Reliance placed by the representative of the assessee on the decision of the Karnataka High Court in Motor Industries Co. Ltd.'s case (supra) is well taken. At the same time, if the factual contention, as raised by the learned DR be also correct, then, it must be held that repairs expenses on such portion of the bungalow which belongs to the directors and not to the company, are not allowable in the hands of the company. Hence, we remit this particular matter back to the file of the Assessing Officer with a direction that factual verification be made about how much portion of the bungalow belongs to the company. Out of the total expenditure incurred on maintenance and repairs of the bungalow, only the proportionate portion should be allowed. The Assessing Officer should act in accordance with our directions above after verifying the facts.
17. In the result, the appeal is partially allowed to the abovementioned extent.