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Being aggrieved, the assessee carried the matter in appeal before the CIT (Appeals).

6. The learned first appellate authority after hearing the authorised representative of the assessee in detail, which has been dealt at pages 6, 7 and 8 of his order, sustained an addition of Rs. 57,234 and granted relief to the assessee to the tune of Rs. 4,42,766 on the following lines :

"I have considered the facts of the case and the submissions of the learned representative. The assessing officer has found the books of account not reliable on the ground that there was fall in gross profit when compared to the earlier year and the appellant was found to have suppressed closing stock valued at Rs. 56,066 and accounted the purchase of an item costing Rs. 6,168 which was actually received by the appellant in the subsequent month. The assessee's representative has pointed out and in my view correctly, that there has been only an increase in gross profit from 3.78 per cent of last year to 4.1 per cent for this year and the method of computation of gross profit by the assessing officer was wrong. At any rate, the percentage of gross profit or whether it has gone up or down are not very relevant in deciding the question of the reliability of the accounts as has been held by the Tribunal in the decision relied on by the appellant. This also seems to be the view of the Kerala High Court as reflected in its decision in the case of M. Durai Rai v. CIT, Ernakulam (......) 83 ITR 485 (Ker). Nowthe question is whether the omission noted by the assessing officer in accounting certain items of spares as closing stock can be held to be an adverse factor impeaching the credibility of the accounts maintained by the appellant. In this connection, it is to be noted that the omission found is in respect of non-accounting of certain items of spares. In respect of certain items, the appellant has straightaway admitted the omission whereas in respect of certain others, the appellant says that they could have been included in the cash or credit sales but the appellant is not in a position to confirm as the concerned bills were destroyed. In respect of spares and accessories the appellant does not maintain any day-to-day stock register and it is virtually impracticable to do so considering the large number of spares involved. On the last day of the accounting year, an inventory is prepared on the basis of physical verification. During the year, the total turnover of the appellant was in excess of 31 crores and that of spares and accessories about 1.68 crores and the closing stock of spares and accessories alone came to about 68 lakhs. When physical inventory of such stock is taken on the last day of the year and the stock is constituted of hundreds of small items it is quite possible that some items could be omitted because of the human error. The total value of the items found to be not included as closing stock is less than I per cent of the closing stock of spares and accessories and totally insignificant in comparison with the total value of stock of mbre than 2 crores and the turn over of more than 31 crores. No unaccounted purchases or sales have been pointed out by the assessing officer. In the above circumstances, to conclude that the entire accounts of the appellant are totally unreliable merely based on certain omissions in respect of closing stock is unwarranted. The decision of the Cochin Bench of the ITAT in the case of sister concern of the appellant, M/s. Popular Automobiles referred to above support the above view. Therefore, I would hold that the materials brought on record by the assessing officer, do not justify the rejection of books of account and the gross profit addition made at Rs. 5 lakhs. Hence this addition is deleted. But the fact is that the spares and accessories for the value of Rs. 52,066 are neither reflected in the sales or stock inventory. The omission could be on account of a genuine mistake in preparing stock inventory. But the stock credited in the P & L account is less to the extent of the above amount. Therefore, the sum of Rs. 52,066 will be added by the assessing officer to the income returned while giving effect to this order. Similar is the position with regard to Rs. 5,168 representing the purchase debited in account, but goods received in April. This item also needs to be added as closing stock. Thus a total addition of Rs. 57,234 is confirmed. Net relief to the appellant in respect of this ground will be Rs. 4,42,766."