M/S UNITED PLYWOOD,AJMER vs. PR. COMMISSIONER OF INCOME TAX, AJMER

PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the revision order passed by ld. PCIT dated 27.02.2019 passed under section 263 of the IT Act for the assessment year 2014-15. The assessee has raised the following grounds of appeal :-

“ 1. Under the facts and circumstances of the case, order passed by the ld. PCIT u/s 263 is illegal & bad in law and the same be quashed.

Subsequently on examination of record, the ld. PCIT noted that the assessee has reduced the value of closing stock by a sum of Rs. 11,04,944/- as an effect of section 145A of the Act, however, the assessee has not maintained any stock record

for the year under consideration. Therefore, the ld. PCIT has observed that the closing stock as on 31st March, 2014 was not ascertainable and hence the deduction

of Rs. 11,04,944/- claimed by the assessee is not allowable as effects of section 145A on account of VAT computed on valuation of closing stock. The ld. PCIT

accordingly issued a show cause notice under section 263 on 18.09.2018 on this issue and asked the assessee to show cause as to why the order passed by the AO

dated 28.12.2016 should not be considered as erroneous in so far as it is prejudicial

to the interest of the revenue. The assessee filed reply to the show cause notice and submitted that the assessee has computed the impact of section 145A correctly

and the closing stock has been valued after giving the effect of section 145A on account of VAT paid or payable as on 31st March, 2014. The ld. PCIT was not impressed with the reply and explanation of the assessee and held that the assessee

has shown negative VAT amount of Rs. 11,04,944/- which is not actually paid or incurred by the assessee, therefore, no adjustment is required to be made by the assessee under section 145A of the Act. Consequently, the ld. CIT has held that the order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue and the same was set aside to the file of AO for making afresh after

carrying out enquiry in the manner as discussed in the impugned order.

which is evident from Annexure D to the Tax audit Report. In this annexure the impact of Section 145A on the profit has been computed and accordingly, the profit

has been reduced to the extent of Rs.11,04,944/-. The Ld. PCIT has stated that the assessee is not maintaining stock register and the effect of VAT has been taken on estimated basis. It is explained that the nature of the business is such that assessee

does not maintain stock register. However, at the year end the same is determined

by the assessee and is considered in the books. The assessee is following this method from past many years and the impact of is given accordingly. In AY 2013-

14, there is addition to the income u/s 145A by Rs.8,55,867/- as is evident from Annexure C to the audit report. Thus, the assessee has correctly computed the impact of Section 145A on the profit. This has also been considered by the AO

during the assessment proceedings as is evident from the replies filed. Thus, it can be noted that the AO after considering the impact of Section 145A allowed the claim.

Thus, when AO has allowed the claim of VAT u/s 145A after examining all the facts

and conducting proper enquiry, it cannot be said that he has not made proper

enquiry in allowing the claim. Therefore, the order passed by AO by no stretch of imagination can be considered as erroneous for want of proper enquiry. The ld. A/R

further submitted that it may be noted that assessee has been following the consistent method of giving the impact of section 145A in the computation of total

income. As a result of the same there is addition to the income in some year and deduction in some year. The impact of section 145A in the computation of total

income from the last 7 years is as under:-

Impact of section 145A considered in return of income Asstt. Year Addition to Deduction to Income income 2007-08 5,55,070 2008-09 1,25,227 2009-10 5,87,391 2010-11 5,21,397 2011-12 4,60,259 2012-13 3,37,509 2013-14 8,55,867 2014-15 11,04,944 Total 29,82,461 15,65,203

Thus, it can be noted that over these years assessee has made addition to the total

income u/s 145A for Rs.29,82,461/- whereas he has claimed deduction of Rs.15,65,203/- only. In all earlier years the working of the assessee has been accepted and therefore, the adjustment made in the computation of total income for the year under consideration cannot be held to be erroneous. This adjustment is made as per the provisions of the Act, Guidance Note issued by ICAI u/s 44AB of IT Act, 1961 and duly verified and certified by the tax auditor. Hence, the observation

made by Ld. PCIT about non maintenance of stock record is irrelevant. In fact the Ld. PCIT has not appreciated the mandate of section 145A in holding that adjustment made by the assessee is erroneous. The ld. A/R has also referred to the statement of computation of impact of section 145A which was filed before the AO

and submitted that the assessee has computed the amount of Rs. 11,04,944/- after

giving the effect of VAT paid/payable on opening stock, purchases and sales and consequently the profit stand decreased by Rs. 11,04,944/- due to the net payment

on the purchases and sales during the year under consideration as well as the opening stock as on 1st April, 2013. He has referred to the summary of VAT input

and VAT output and submitted that the average of VAT comes to 3.44% by considering all the components i.e. the purchases made within the State, purchases

made outside the State attracting CST at 2% and purchases high sea sales. The ld.

A/R has filed the details of purchases and details of sales which are attracting

different rates of VAT and CST and also explained the details of sales returned,

discount on purchases etc. The said computation shown in the details now filed are matching with the details of the statement computing impact of section 145A on the profit as Annexures C and D to the audited financial statements. Thus the ld. A/R

has pointed out that all the relevant details were filed before the AO in response to the notice under section 142(1) wherein the AO has raised a specific query about

the impact of section 145A. He has also referred the reply of the assessee dated

Therefore, the AO has accepted the claim without conducting verification and enquiry. This case falls in the category of lack of enquiry on the part of the AO

which has rendered the order of the AO as erroneous in so far as prejudicial to the interest of the revenue. He has referred to the Explanation to section 263 of the Act and submitted that if the AO has not conducted a proper enquiry then the order

of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. The ld. PCIT has considered all the facts as well as the reply filed by the assessee and found that when the assessee is not maintaining the stock register then the calculation of the assessee showing negative amount of VAT at Rs. 11,04,944/-

cannot be verified. Thus the claim allowed by the AO without verification of the relevant facts renders the order of the AO erroneous. He has supported the impugned revision order of the ld. PCIT.

passed by the AO as erroneous in so far as it is prejudicial to the interest of the revenue. However, in the case in hand, the AO has issued the notice raising the query regarding the valuation of closing stock and opening stock by giving effect of section 145A of the Act on account of VAT. The assessee in its reply dated

the assessee has filed these details in response to the notice which were accepted

by the AO, then the case will not fall in the category of lack of enquiry. The ld. PCIT

while assuming the jurisdiction under section 263 has proceeded on the assumption

that the reduction of profit by a sum of Rs. 11,04,944/- on account of effect of section 145A is not allowable. During the proceedings under section 263, the ld.

PCIT has given the emphasis only on the point that the assessee is not maintaining

stock register. However, the details filed by the assessee before the AO were not examined by the ld. PCIT. Therefore, the ld. PCIT has not pointed out the defects in the computation and calculation made by the assessee as per Annexures C & D to the financial statements. Thus the impugned order passed by the ld. PCIT is based

only on the assumption and presumption without going into the factual aspects of correctness of the various details produced by the assessee. The ld. A/R has produced further bifurcation of purchases attracting the CST & VAT at different rates

and has computed the average VAT on total purchases @ 3.22%, the details as produced by the ld. A/R are as under :-

Particulars Amount in Rs. 2% CST Purchase 14,91,96,892 Purchase E-1 Transit Sales 5,61,84,628 14% VAT purchases 5,84,72,396 5% VAT purchases 6,33,312 Purchases High Sea Sales 3,69,312 26,48,56,541 Less : Discounts/Claims 94,34,610 Net purchases 25,54,21,931

VAT paid on purchases : 82,17,801.07

Average VAT rate on total purchases : 3.22%

In view of these facts and circumstances, we find that when the assesee is only a trader in the Plywood and not a manufacturer, then maintaining a stock register is not mandatory and even not possible to show all details of daily purchase and sale.

Once the assessee has given the details of opening stock which is not in dispute,

purchase, sales and then computing the closing stock after giving effect to section 145A not a matter of dispute though the correctness of such computation and details furnished by the assessee is required to be verified. Accordingly, we modify

the impugned order passed by the ld. PCIT under section 263 and direct the AO to verify the correctness of the computation and details filed by the assessee and then decide the issue afresh after giving an opportunity of hearing to the assessee.

Order pronounced in the open court on 08/08/2019. ¼ fot; iky jkWo ½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 08/08/2019. das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant-M/s. United Plywood, Ajmer. 2. izR;FkhZ@ The Respondent-The Pr. CIT, Ajmer. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 352/JP/2019} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत