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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MAHAVIR PRASAD & SHRI MANISH BORAD
The above captioned appeal filed at the instance of the Assessee for Assessment Year 2018-19 is directed against the order of Ld. Commissioner of Income Tax(Appeals) (in short ‘Ld. CIT]-3 Bhopal dated 13.08.2020 which is arising out of the order u/s M/s. Vyanktesh Corrugators Pvt. Ltd.
143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 30.12.2019 framed by ACIT(Central) Ujjain.
Brief facts of the case as culled out from the records are that the assessee is a Private Limited Company. The assessee company is engaged in the business of Manufacturing and trading of plastic goods and corrugated boxes, accessories and job work. Search and seizure operation u/s 132 of the Act was carried out at the business and residential premises of the assessee and its concerns on 27.07.2017. Notice u/s 153A were issued on 30.11.2018. In reply assessee filed return of income on 28.03.2019 for A.Y.2018- 19 declaring total income of Rs. 1,79,35,360/-.After making various additions Ld. AO assessed the income at Rs. 2,00,85,130/-
3. Aggrieved assessee preferred an appeal before the Ld. CIT(A) and partly succeeded.
Now the assessee is in appeal before the Tribunal raising following grounds of appeal:
1. That, the Ld. CIT(A) grossly erred, both on facts and in law, in partly confirming the addition to the tune of Rs.4,28,336/- out of the total addition of Rs.9,43,234/- so made by the Assessing Officer in the appellant’s income, on account of alleged undisclosed business profit by applying gross profit at the rate of 13.87% on the alleged variation of Rs.10,05,46,627/- in the inventories physically found during the course of search with that recorded in the books of account.
2. That, the Ld. CIT(A) grossly erred, in law, in not allowing the claim 2
M/s. Vyanktesh Corrugators Pvt. Ltd. of the appellant as lodged before the Assessing Officer as well as before him, for grant of deduction under s.37(1) of the Act in respect of payment of education cess and secondary higher education cess aggregating to a sum of Rs.1,42,446/- made by the appellant during the relevant previous year, without considering the material fact that the education cess is different from income tax and therefore, the same is wholly allowable as business deduction.
3. That, the appellant further craves leave to add, alter or amend the foregoing ground of appeal
as and when considered necessary.
5. Ld. counsel for the assessee vehemently argued referring to the following written submissions:
GENERAL DETAILS
1 Section under which the assessment 143(3) of the IT Act, 1961 Order has been passed
2 Date of passing the Assessment 30-12-2019 Order
3 Income assessed under section 143(3) Rs.2,00,85,130/-
4 Total Additions made by AO and Total Additions of reason thereof Rs.21,49,770/- (i) Rs.12,06,536/- on account of interest expenses
(ii) Rs.9,43,234/- on account of alleged undisclosed business profit in respect of shortage of inventories. [Para (13.7) on page no. 62 & 63] 5 Relief granted by the ld. CIT (Appeals) Total Relief of Rs.17,21,434/- (i) Rs.12,06,536/- on account of interest expenses
(ii) Rs.5,14,898/- on account of alleged undisclosed business profit in respect of shortage of inventories.
6 Addition confirmed by the ld. CIT(A) (i) Rs.4,28,336/- on account of 3
M/s. Vyanktesh Corrugators Pvt. Ltd.
[subject matter before the Hon’ble alleged undisclosed business Bench] profit in respect of shortage of inventories [Para (4.4.4) on page no. 161]
(ii) Rs.1,42,446/- on account of grant of deduction u/s. 37(1) for payment of education cess. [Para (4.2) on page no. 156 & 157] 7 Date of passing the Order by learned 13-08-2020 CIT(A)
A. ISSUE NO. 1: UNDISCLOSED BUSINESS PROFIT OF Rs.4,28,336/- IN RESPECT OF ALLEGED VARIATION IN THE INVENTORIES PHYSICALLY FOUND DURING THE SEARCH WITH THAT RECORDED IN THE BOOKS OF ACCOUNT 1. Summary of additions made/ sustained: S. No. Particulars As computed As per the As per the AO As per the ld. by the Search Computation CIT(A) Party of Total Income 1 Inventories 19,85,00,000 19,62,74,025 19,85,00,000 19,85,00,000 as per the regular books of account 2 Inventories 8,70,66,973 8,79,29,218 8,70,66,973 8,70,66,973 as per physical verification as on the date of search 3 Difference 11,14,33,027 10,83,44,807 11,14,33,027 11,14,33,027 4 Less: - 1,31,75,225 1,08,86,400 1,31,75,225 Stock lying (PB 259) with M/s. Shriniwas Board & Paper Pvt. Ltd. 5 Less: Sales - 14,23,489 - 14,23,489 made on 26-07- 4
M/s. Vyanktesh Corrugators Pvt. Ltd.
2017 Net - 9,37,46,093 10,05,46,627 9,68,34,313 6 Difference 7 Gross - 1,30,02,583 1,39,45,817 1,34,30,919 Profit @ 13.87% 8 Less: - - 1,30,02,583 1,30,02,583 Shown by the Appellant in its return of income 9 Addition - - 9,43,234 4,28,336 made/ sustained
2. Justification for inventories as per books taken at Rs.19,62,74,025/- in the Computation of Total Income instead of Rs.19,85,00,000/- adopted by the Search Party:
2.1 Stock as per the books of account as on the date of search i.e. on 27-07-2017 was taken by rounding off to a higher sum of Rs.19,85,00,000/-. The actual value of stock as on 27-07-2017 was at Rs.19,62,74,025/- [kindly refer PB Page No. 261]. The comparison of actual stock value and round-off stock figures is given in a tabular form as under: S. Particulars Quantity Rate Value Round-off No. (Rs.) (Rs. In Lacs) 1 Finished Goods i) Box 327712 45.63 1,49,53,004 150.00 ii) Corrugated 135395 51.26 69,39,952 70.00 Sheets Sub-total (1) 4,63,107 2,18,92,956 220.00 2 Job Work 7,47,974 37.59 2,81,16,343 290.00 kgs. 3 Kraft Paper i) Kraft Paper L 3980491 34.30 13,65,14,167 1370.00 kgs. ii) Kraft Paper 269660 27.26 73,51,567 80.00
M/s. Vyanktesh Corrugators Pvt. Ltd.
Sheet kgs. Sub-total (3) 4250151 14,38,65,734 1450.00 kgs. 4 Raw Material 3,18,842 4.00 5 Store 5,02,285 5.00 6 Waste 15,77,865 16.00 TOTAL 19,62,74,025 1985.00
Justification for Recomputation of the physical Inventories at Rs.10,25,27,932/- in the Computation of Total Income as against the valuation adopted by the search party at Rs.8,70,66,973/-: 3.1 Physical Inventories on the date of search were valued by the Search Party at Rs.8,70,66,973/- on approximation basis. 3.2 Further, the stock weighing 315.650 MT valuing a sum of Rs.1,31,75,225/- kept lying at factory premises of sister concern namely M/s. Shriniwas Board & Paper Pvt. Ltd. [SBPPL] for job work was not taken into consideration. Such fact was brought to the notice of the Search Party by Shri Rajendra Maru while giving his statement u/s. 133A before the Search Party in the case of SBPPL [PB Page No. 259]. 3.3 Reduction of stock on account of Sales made on 26-07-2017 for Rs.14,23,489/- immediately one day before the date of search which was pending for recording was not considered by the Search Party [PB Page No. 234 to 256]. 3.4 Remaining difference of Rs.8,62,245/- is owing to incorrect valuation of inventories adopted by the search party. Such fact was duly brought to the notice of the ld. DDIT (Inv.)-II, Indore, post search, by the head of the Group namely Shri Anand Bangur through his letter dated 19-08-2017 [kindly refer PB Page No. 222 to 226].
3.5 Reconciliation of the recomputed physical inventories of Rs.10,25,27,932/- with that adopted by the search party at Rs.8,70,66,973/-: S. Particulars Amount Remarks No. 1 Craft Paper Reels (Grade-A) 2,96,32,948 As per Inventory Sheet at PB Page No. 220 2 Craft Paper Reels (Grade-B) 1,76,50,074 PB Page No. 219 3 Craft Paper Reels (Grade-C) 1,34,21,894 PB Page No. 218 4 Finished Goods and WIP 1,07,55,730 PB Page No. 217 5 Consumable Items found 6,65,210 PB Page No. 216
M/s. Vyanktesh Corrugators Pvt. Ltd.
6 Stock of Reel at Dewas 1,49,41,117 PB Page No. 221 432324 kg @34.56/kg TOTAL 8,70,66,973 7 Stock of goods kept at factory 1,31,75,225 PB Page No. 259 premises of SBPPL (315.650 M.T.) 8 Sales made on 26-07-2017 14,23,489 PB Page No. 234 to 256 9 Difference due to Incorrect 8,62,245 PB 222 to 226 Valuation of Inventories by the Search Party RECOMPUTED & REVALUED 10,25,27,932 STOCK AS PER PHYSICAL VERIFICATION
4. Thus, the income so offered by the appellant in its return of income on account of difference in stock is fully correct and deserves no further interference. B. ISSUE NO. 2: NON-GRANT OF DEDUCTION OF Rs.1,42,446/- FOR PAYMENT OF EDUCATION CESS U/s. 37(1) OF THE ACT 1. The appellant, vide its letter dated 26-12-2019, lodged its claim for grant of deduction for payment of education cess at Rs.1,42,446/- u/s. 37(1) of the Act [kindly refer PB Page No. 242 to 250]. 2. The appellant also raised a specific ground No. 5 before the ld. CIT(A) in its appeal and made detailed submission [kindly refer PB Page No. 46 to 56]. 3. The ld. CIT(A), at para (4.2) on page no. 156 & 157 of his Order, rejected the claim of the appellant. 4. The claim of the appellant is duly allowable under the provisions of s.37(1) as held by various Courts of Law.
Reliance is placed on the judicial pronouncements: i) Sesa Goa Ltd. vs. JCIT (2020) 107 CCH 376 (MumHC) [PB Page No. 262 to 268] ii) Agrawal Coal Corporation Pvt. Ltd. vs. ACIT (2020) 39 ITJ 227 (ITAT Indore) [PB Page No. 269 to 273]
At last, it is prayed that the appeal of the assessee may kindly be allowed fully and oblige.
Per contra ld. Departmental Representative (DR) supported the order of Ld. CIT(A). 7
M/s. Vyanktesh Corrugators Pvt. Ltd.
We have heard rival contentions and perused the records placed before us and carefully gone through the submissions filed by the assessee. Ground no.1 of the assessee’s appeal challenges the finding of Ld. CIT(A) partly confirming the addition for alleged undisclosed business profit at Rs. 4,28,336/- as against the addition made by the ld.AO at Rs. 9,43,234/-.
Brief facts relating to this issue are that during the course of search physical verification of inventories was done. Ld. AO adopted value of inventories as per books of account at Rs. 19,85,00,000/- and made few adjustment for the inventories physically found and then computed gross profit @ 13.87% at Rs. 1,39,45,817/-and against this amount gave deduction to the income shown by the assessee in the return of income under this head at Rs.1,30,02,583/- and the remaining amount i.e. Rs.9,43,234/- was added to the income.
When the matter came up before the Ld. CIT(A) he noticed certain error in the computation made by the Ld. AO, firstly, with regard to valuation of stock lying with M/s. Shriniwas Board & Paper Pvt. Ltd. in which ld. AO adopted the figure of Rs.1,08,86,400/- whereas the actual value of stock lying with M/s
M/s. Vyanktesh Corrugators Pvt. Ltd.
Shriniwas Board & Paper Pvt. Ltd. was Rs. 1,31,75,225/-. Ld. CIT(A) also gave benefit of sales made on 26.07.2017 i.e. a date before the date of search which were not accounted by the search team. Accordingly, Ld. CIT(A) computed the gross profit addition at Rs. 4,28,336/-. Ld. counsel for the assessee has filed summary of addition made/sustained which is reproduced in the preceding paras under the submission given to the Ld. counsel for the assessee.
From perusal of the same as well as other details filed before us we find that the figure of inventories as per regular books of account taken by both lower authorities is Rs. 19,85,00,000/- which is an approximate figure and the actual figure of the inventories as per the books is Rs. 19,62,74,025/- which is duly supported by the details of quantity rate and value given in the submissions. We find that if this actual figure of inventories as per regular books of account is applied in the computation sheet mentioned in the impugned order as well as in the finding of Ld. AO, the resultant gross profit @ 13.87% will need to be worked out on the figure of Rs.9,37,46,093/- and the same will be Rs.1,30,02,583/- which is the same figure that the assessee has M/s. Vyanktesh Corrugators Pvt. Ltd.
disclosed in the return of income. In other words there will remain no difference to make addition for low gross profit as all the necessary reconciliation has been proved to our satisfaction by the ld. counsel for the assessee. We, accordingly set aside the finding of Ld. CIT(A) and held that Ld. AO erred in making the addition for undisclosed cost profit of Rs.9,43,234/-. Ground No.1 of the assessee’s appeal is allowed.
Apropos to ground no.2 relating to claim of education cess and secondary higher education cess aggregating to a sum of Rs.1,42,446/- as expenditure deductible u/s 37(1) of the Act. Ld. counsel for the assessee has submitted that the issue stands squarely covered by the decision of this Coordinate Bench in the case of Agrawal Coal Corporation Pvt. Ltd. vs. ACIT (2020) in ITANo.776/-Ind/2019 dated 24.08.2020 and also by the judgment of Hon'ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT (2020) 107 CCH 376 (Mum HC). We have gone through these decisions and are of the considered view that the issue raised in ground no.2 by the assessee stands squarely covered by these two decisions and as Ld. DR failed to bring on record any binding preceding in its favour, we, allow this ground of the assessee
M/s. Vyanktesh Corrugators Pvt. Ltd. claiming the deduction for payment of Education Cess at Rs.1,42,446/- as business expenses u/s 37(1) of the Act. Ground no.2 of the assessee’s appeal is allowed.
In the result, Assessee’s appeal ITANo.304/Ind/2020 is allowed.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 30.11.2021.