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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2010-11, arises from order of the CIT(A)-XVI, Ahmedabad dated 06-03-2014, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”. 2. The assessee has raised following grounds of appeal:- “1. The learned A.O. and CIT (Appeal) have erred in not considering that when the books of account are rejected, no amount can be added of individual items as has been made by the learned A.O. 2. The learned A.O. and ClT(Appeal) have erred in making and confirming the addition of Rs. (14,12,064-2,80,800)= 11,31,264/- on account of alleged under valuation of closing stock u/s
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145A disregarding the submissions made viz. (a) method of accounting applied consistently (b) if addition made, effect of section 145A should be given in the opening stock purchases and sales and consequently addition will be Nil 3. The learned A.O. and CIT(Appeal) have erred in making and confirming the addition of (6,93,924-28,444/-)r= 6,65,480/- on account of unexplained purchase of raw material disregarding the submission of the assessee. 4. (a) The learned A.O. and CIT (Appeals) have erred in making addition of Rs. 3,36,727/- and CIT (A) in enhancing the addition by Rs. 2,03,708/- on account of difference in creditor's account of one M/s. Royal Seals Pvt. Ltd. disregarding the submissions matte by the assessee that there is no difference in the account of the creditor vis-vis transactions in current year except the small amount of kasar and hence no addition can be made in current year. (b) The learned A.O. and CIT(Appeal) have erred in not considering that the discrepancy in the figures are pertaining to opening balance and hence, no effect of the same can be made in the year under assessment as no discrepancy is seen in the year under assessment. 5. The Hon. CIT(Appeal) has erred in issuing notice u/s 271(1)(c) on account of enhancement of income of Rs. 2,03,708/- being discrepancy in one creditor's account, which difference does not pertain to current year.”
The brief fact of the case is that return of income declaring income of Rs. 9,41,700/- was filed on 22nd July, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 28th Sep, 2012.
Further fact of the case are discussed under different grounds of appeal.
Ground Nos. 1 & 5 are not pressed at the time of hearing by ld. counsel of the assessee, therefore, the same are dismissed as not pressed.
Ground No. 2 (Addition u/s. 145A)
During the course of assessment year on verification of the details filed, assessing officer observed that assessee has not included the direct taxes like excise duty, education cess, surcharge and VAT in the value of closing stock. The assessing officer asked the assessee to explain why the
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aforesaid direct taxes should not be included in the valuation of closing stock. The assessee explained that closing stock has been valued net of taxes and excise duties and further stated that the aforesaid taxes has been shown in the balance sheet and not claimed as expenditure in the profit and loss account. The assessing officer has not accepted the explanation of the assessing officer and stated that as per section 145A, it is required to value the closing stock after including the amount of any tax duty cess etc. actually paid by the assessee. Consequently, the assessing officer included the excise duty, VAT etc. in the valuation of closing stock and made addition of Rs. 14,12,064/- and added to the total income of the assessee.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly sustained the addition after deleting the calculation error of Rs. 2,80,800/- in the valuation of closing stock and restricted the addition to the extent of Rs. 11,31,264/-.
During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing detail of submission made before assessing officer and CIT(A). The ld. counsel has contended that assessee has not included excise duty and VAT element in the valuation of closing stock as this practice has been followed by the assessee from year to year. He has further submitted that assessee has followed exclusive method and not claimed these expenses on the debit side of the P & L a/c. On the other hand, ld. departmental representative has supported the order of ld. CIT(A).
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We have heard the rival contentions and perused the material on record carefully. It is noticed that assessee has been following the exclusive method of accounting for excise duty and VAT element i.e. excise duty and VAT collected was accounted in the balance sheet. The assessee has also not claimed payment of such excise duty VAT etc. as expense in the debit side of the P & L a/c. It is also brought to our notice that the identical issue has been adjudicated in the case of the assessee for assessment year 2012-13 by the Co-ordinate Bench and the issue was decided in favour of the assessee. We have gone through the aforesaid order of the Co-ordinate Bench in the case of the assessee for the assessment year 2012-13 Vide ITA No. 2676/Ahd/2016 dated 17th July 2018 wherein the issue has been decided in favour of the assessee. Relevant part of the decision is reproduced as under:- “2. With the assistance of the representatives for Revenue and the Assessee, we have carefully examined the issue. While it is the case of the Revenue that the element of excise duty and VAT amounting to Rs.38,74,927/- represents part of the closing stock of the assessee in terms of Section 145A of the Act, it is the case of the assessee on the other hand that Section 145A has no application to the facts of the case. It is further case of the assessee that the assessee follows exclusive method of accounting for valuation of inventory and therefore, entire exercise would be taxed neutral. It is the case of the assessee that on account of the exclusive method of accounting, the excise duty and VAT is excluded at the threshold and accounted for separately as a balance sheet item. Thus, when the purchase cost does not include the excise duty and VAT etc. and consequently do not form part of the profit & loss account, there is no warrant to include such duty and costs in the closing stock. It is the case of the assessee that when seen in perspective, accounting method adopted by the assessee is revenue neutral and does not make any impact on the profitability of the concern per se. In the backdrop of facts noted above, we do not see any error in the conclusion drawn by the CIT(A). In essence, there will be no infringement of Section 145A where the action of assessee is revenue neutral. In this regard, the CIT(A) observed that the issue is no longer res integra and adjudicated the issue in favour of the assessee placing reliance upon several decisions of the co-ordinate bench of Tribunal as listed in the order of the CIT(A). The conclusion of CIT(A) is on legally sound footing. In these circumstances, we decline to interfere with the order of the CIT(A).”
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Respectfully following the decision of the Co-ordinate Bench of the ITAT on identical issue and fact as supra, we allow the appeal of the assessee .
Ground no. 3 (unexplained investment in purchase of raw material)
During assessment, the assessing officer noticed that assessee has not maintained any stock register except the register maintained for the purpose of payment of excise duty as per excise law. The assessee has not furnished time wise consumption details of raw material. After verification of the details furnished by the assessee, the assessing officer noticed the following discrepancies in the maintenance of stock at various items:-
Month Item name Opening Inward Consumption Closing Closing Differen stock InKgs InKgs InKgs stock as reflected in ce In the RG (A) (B) (Q per 23 Part Kgs I calculation furnished by the (A)+(B)- Assessee In Kgs (C) InKgs
April M S Round 92955 9895 51930 50920 50890 (-)30 Bars 2009
June M S Round 25750 5740 19470 12020 11750 (-) 270 Bars 2009-
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Nov MS 0 167938 67788 100150 99150 (-)1000 2009 Tube/Pipe
January MS 151421 127653 110773 168301 184721 (+) 2009 Tube/Pipe 16420
= The assessing officer has asked the assessee to explain the discrepancies as mentioned in the table and the assessee has failed to explain the excess stock of 16420 kg MS tubes/pipe as on Jan, 2009. Consequently, the assessing officer has made addition of Rs. 693934/- as unexplained investment u/s. 69 of the act.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal subject to re-verification and re- calculation by the A O
We have heard the rival contentions and perused the material on record carefully. On verification of the detail, the assessing officer noticed that there was excess stock of 16420 kg MS tubes in the month of Jan, 2009 as reported above in this order. In spite of giving a number of opportunities, the assessee has failed to explain the discrepancy noticed in the stock of MS tubes. We have gone through the order of the Ld. CIT(A) reproduced as under:- “4.2 I have carefully considered the facts of the case in the light of submissions in a in and in a made by the appellant, the arguments taken by the assessing officer & material available on records. It is the case of the appellant that it has maintained all records as per excise law. It has
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been argued that the addition is based upon an isolated instance of excess which was actually on account of an arithmetical error of c/f balance of stock on 11-1-2010, of Rs. 154,133/- as against Rs. 1,30,713/-. Thus it has been submitted that the discrepancy is actually of Rs. 14,420/- and not Rs. 16,420/-. The appellant has pointed out that there are other discrepancies on account of totalling errors which if considered would lead to reduction of the total addition of at least Rs. 28,444/-. The appellant has admitted that there are discrepancies in the stock statement vij a vi excise records which indicate towards an unaccounted investment. The appellant on its part has not been able to satisfactorily explain the reasons for repeated occurrence of these so called arithmetical and calculation errors. Thus there can be no justification in the argument of the appellant that the difference noted by the ld A O is purely a case of inadvertent arithmetical error. Consequently, the action of the A O in making addition on account of stock discrepancy is sustained. As far as the argument of the appellant regarding the arithmetical and calculation errors of Rs. 28,444/- is concerned, the A O is to re-verify and recalculate the valuation done by him in respect of closing stock. In case, it is found that a calculation error of Rs. 28,444/- or any other amount has crept in the same has to be removed. Thus, the addition to the extent of Rs.6,65,490/- is confirmed forthwith (693934 minus 28444). As regards, the balance addition of Rs. 2S444/-, the A O shall re-verify and recalculate the valuation done by him and in case it is found that it was on account of calculation errors then the same shall be removed. In case, it is noted that there was no such calculation error, then the said addition of Rs. 28444/- will also prevail. To the extent the ground of appeal No. 2 raised is partly allowed subject to re- verification and re-calculation of the A O.”
With the assistance of learned counsel we have gone through the material on record and observed that in spite of giving a number of opportunities the assessee has failed to explain the reason for the aforesaid discrepancy with any relevant supporting evidence and material. Even during the course of appellant proceeding before us the learned counsel has failed to explain with relevant material about the interconnectness in the action of the assessing officer in pointing out the aforesaid discrepancy in the stock. In the light of the above facts and circumstances we consider that there is no infirmity in the order of ld. CIT(A). Accordingly, appeal of the assessee on this issue is dismissed.
Ground No. 4 ( Error in enhancing the addition by Rs. 2,03,708)
During the course of assessment proceedings, the assessing officer has made addition of Rs. 3,36,727/- on account of difference in account of
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creditors. In the assessment, the assessing officer has issued notice u/s. 133(6) to the creditors calling for ledger account confirmations from their books of account. Thereafter, the assessing officer has verified the confirmations received from the creditors with the balance of those creditors appearing in the books of account of the assessee. On verification he noticed that one of the creditors namely Royal Seals Pvt. Ltd. has shown an amount of Rs. 62,951/- as payable to the assessee on the other hand the assessee has shown an amount of Rs. 2,73,777/- as payable by M/s Royal Steel Pvt. Ltd. to the assessee. Since the assessee has failed to reconcile the aforesaid discrepancy, therefore, the assessing officer has added Rs. 3,36,727/- (Rs. 2,73,777+ Rs. 62,951) as unexplained payment made by the assessee to the said parties and added to the total income of the assessee.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has enhanced the aforesaid addition to the amount of Rs. 5,39,805/- by making another addition of Rs. 2,03,708/-. In this connection, the ld. CIT(A) stated that in respect of RSPL the assessing officer had not considered the reconciliation on account of non-deposit of cheque of Rs. 2,03,078 by RSPL and if that amount is taken into account then the difference could be actually increased to Rs. 5,39,805/-. During the course of appellate proceedings, ld. counsel has submitted paper book containing the ledger account of Royal Steel Pvt. Ltd. in which as per page no. 57 of the paper book the assessee has made payment of Rs. 2,03,708/- on 29th March, 2010 by RTGS and it is contended that said party RSPL had accounted the said amount of Rs. 203708/- in their account in the month of April, therefore, there should not be any enhancement. The learned counsel has
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also submitted that other part of addition to the amount of Rs. 3,36,727 was incorrectly made without considering the detail of transactions reflected in the ledger account of the RSPL placed ar page no. 56 of the paper book. On the other hand, ld. departmental representative relied on the order of ld. CIT(A). After considering the above submission of the assessee along with supporting document and material as mentioned above in the submission of ld. counsel we consider it appropriate to remit this issue to the file of the assessing officer for deciding a fresh after examination of the material to be produced by the assessee. In the result this ground of appeal of the assessee is allowed for statistical purposes.
Ground No. 4(B): ( Discrepancy in the figure pertaining to opening balance) 15. Ld. counsel has contended that the assessing officer has made addition in respect of sundry creditors by taking into account the opening stock balance of sundry creditors. He has further contended that addition on account of opening balance should not be made in the current year. On the other hand, ld. departmental representative has supported the order of assessing officer.
We have heard the rival contentions and perused the material on record carefully. We find that strength in the argument of the ld. counsel, therefore, we restore this issue to the file of assessing officer to adjudicate after verification and with direction that if the balance pertaining to the
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opening stock, the same should not be added during the year under consideration. In the result, this issue is allowed for statistical purposes.
In the result, Ground No. 1 is dismissed, ground no. 2 is allowed, ground no. 3 is dismissed, ground no. 4 (a) and ground no. 4(b) allowed for statistical purpose and ground no. 5 is dismissed.
Order pronounced in the open court on 14-02-2019
Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 14/02/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद