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Before: SHRI SANDEEP GOSAIN & SMT. RENU JAUHRI
सुिवधई की िधरीख / Date of Hearing 26.03.2025 घोर्णध की िधरीख/Date of Pronouncement 30.05.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the revenue against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 25.06.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2017-18.
The revenue has raised the following grounds of appeal:
A.Y. 2017-18 Bombay Jewellery Manufacturers “(a) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 10,55,01,707/-mode on account of under valuation of closing stock, that the Government of India has issued a notification dated 29th September, 2016 revising the provisions of ICDS and which are applicable from AY 2017-18. (b) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that section 145(2) & (3) of the Act mandates that income has to be computed in accordance with ICDS for AY 2017-18 onwards. (c) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in without appreciating the fact that as per ICDS-II, valuation of inventory has to be made as per FIFO and Weighted Average Cost formula. (d) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that as per ICDS, adjustments have to be made in the computation of Income chargeable under the head "profits and gains of business or profession" and "income from other sources" which the assessee has failed. (e) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of claim of deduction/s. 10AA of Rs. 1,79,62,417/- on account of sifting of profit from taxable unit to 10AA unit holding that there is no purchase/sale as well as shifting of profit between taxable unit and 10AA unit when there are transactions of taxable unit which has been accounted in 10AA unit and vice versa. (f) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in without appreciating that in assessment proceedings the assessee explained that goods were exported from 10AA unit whereas some of debtors paid in the account of taxable unit and in appeal proceedings there was different submission that contra entries are on account of loan allocated to taxable unit was repaid from 10AA unit. (g) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact the assessee failed to prove that sales receipts of Rs. 7,65,80,719/ belongs to Unit-ll, i.e. for deduction, with documentary evidences and hence the deduction claimed uls 10AA of the Act to the tune Rs. 1,79,62,417/-remained unverified during the assessment proceedings as well as well before the Ld. CIT(A). (h) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,90,42,932/- on account of Loss on Goods Returned, without appreciating the fact that the assessee failed to furnish the documentary evidences and hence, the said claim of the assessee remained unverified during the assessment proceedings as well as well before the Ld. CIT(A). (i) The appellant craves leave to amend or alter or add a new ground which may be necessary."
Brief facts of the case are that the assessee filed return for AY 2017-18, declaring total income of Rs. 4,18,50,180/- on 20.11.2017. The assessee is engaged in the business/export of diamond jewellery. It has two units, both A.Y. 2017-18 Bombay Jewellery Manufacturers situated in Seepz. Unit II has commenced production during FY 2015-16, and assessee is claiming deduction u/s 10AA of the Act for the same. In respect of unit I, exemption u/s 10A is being claimed. During the course of assessment proceedings, Ld. AO examined the method of valuation of closing stock as well as the claim of deduction u/s 10AA. The assessment was finalised at an income of Rs. 20,23,19,650/- after making the following additions/disallowances: a. Undervaluation of closing stock – Rs. 10,55,01,707/- b. Reduction in claim u/s 10AA – Rs.1,79,62,417/- c. Loss on sales goods return - Rs. 1,90,42,932/- 4. Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The assessee filed additional evidences by way of the paper book during the course of appellate proceedings with a request to allow relief after seeking a remand report from the Ld. AO. However, Ld. CIT(A) proceeded to decide the issue on merit based on the assessee’s submissions as well as additional evidences and allowed the assessee’s appeal vide order dated 25.06.2023 without seeking any report from the Ld. AO.
Aggrieved with the order of Ld. CIT(A), the revenue has preferred an appeal raising as many as nine grounds.
Subsequently, additional grounds were filed by the revenue on 29.01.2025 as under: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in admitting the additional evidences of the assessee without remanding the same to A.Y. 2017-18 Bombay Jewellery Manufacturers the file of the Ao for verification which was in violation of the provisions of Rule- 46A of the Income Tax Rule 1946.”
Before us, Ld. DR has submitted that the appeal was decided by the Ld. CIT(A) without seeking the remand report from the AO, even when additional evidences had been filed by the assessee. In this regard, he has drawn our attention to the appellate order, wherein the submissions of the assessee have been reproduced and it has been specifically mentioned in respect of each of the three grounds as under: “In light of the above claim, we have submitted documents in Pg. _ of PB, Volume II, all of which are in the nature of additional evidence. We therefore humbly request you to kindly admit the same under Rule 46A of the 1. Tax Act, 1961 and call for a Remand Report from the Assessing Officer, for his comments.”
However, Ld. CIT(A) did not seek any remand report from the Ld. AO and proceeded to decide the issues on the merits. In respect of each of the additions, he has made cryptic reference to the assessee’s submissions without specifying the contents of the additional documentary evidences and has proceeded to give relief to the assessee with the following observations in respect of each of the three grounds:
Ground No. 1: Addition of closing stock Rs. 19,55,707/- “I have observed that the appellant is following the practice since inception and the same method of valuing the stock is also accepted as per ICDs of ICAI. Valuation of stock at cost or market value whichever is lower is generally accepted principle of the system and I do not find any irregularities in valuing the stock under this method. Also, it is observed that they have furnished the details reconciling the purchases cost with closing stock. Considering the aforesaid facts and other evidences filed before me I note that the Ld. AO was not justified in making an addition of Rs. 10,55,01,707 as undervaluation of stock Hence, the addition made by the A.O. is deleted. Accordingly, the ground raised by the assessee is allowed.
Ground No. 2: Reduction in claim of deduction u/s 10AA Rs. 1,79,62,417/- “I have gone through all the documents and papers submitted by the appellant. Considering the aforesaid facts and other evidences filed before me, I find there is no purchase / sale between two units and there is no shifting of profit between units. Based on the materials produced before me and on the facts and circumstances of the case, I uphold the contention of the assessee. And accordingly I set aside the wrongful reduction in deduction of section 10AA of the Act, Accordingly, the ground raised by the assessee is allowed.” Ground No. 3: Addition on account of loss of goods return Rs. 1,09,42,912/- “I have gone through all the documents and facts. Considering the aforesaid facts and other evidences filed before me I note that the Ld. AO was not justified in making an addition of Rs.1,90,42,932/- as disallowance on goods returned. Hence, the addition made by the AO is deleted. Accordingly, the ground raised by the assessee is allowed.”
9. In view of the above, Ld. DR has vehemently argued that the matter may be restored for a fresh examination of additional evidence as the same has not been confronted to the Ld. AO and even in the order of Ld. CIT(A), there is no detailed discussion in respect of the additional evidences filed by the assessee.
10. On the other hand, Ld. AR has vehemently argued that there is no requirement to remand the matter to the AO. In this regard, he has placed reliance on the decision of the Hon’ble High Court of Panjab & Haryana in the case of CIT v/s The Jind Corporate Sugar Mills Ltd. of 2008, wherein it has been held as under: “6………………………….It is not necessary that when additional evidence is furnished, the matter must be remanded to the Assessing Officer. It depends on nature of issue and nature of evidence. In an appropriate case, without any prejudice to either of the parties, the evidence can be looked into by the appellate authority itself. In such a case, it may not be necessary to remand the matter to the assessing officer………………..”
A.Y. 2017-18 Bombay Jewellery Manufacturers Ld. AR has further made submissions on the merits of the issue involved which are placed on record.
We have considered the rival submissions and perused the material placed before us. We first take up the issue raised by the revenue by way of additional grounds. It is seen that the assessee, while filing his submissions and paper book before Ld. CIT(A) has categorically mentioned that the additional evidences were being filed on which remand report could be sought from the Ld. AO. However, Ld. CIT(A) did not make any reference to the Ld. AO and proceeded to decide the appeal by considering the assessee’s submissions.
A perusal of the Ld. CIT(A) order reveals that the additional evidences submitted by the assessee have not been discussed properly, and the appeal has been decided in favour of the assessee without giving any opportunity to the Ld. AO to examine or rebut additional evidence. We are, therefore, of the considered opinion that Ld. CIT(A) was not justified in proceeding without seeking the remand report from the AO under the facts and circumstances of the case. In the interest of justice, we deem it appropriate to restore the matter back to the Ld. CIT(A) with directions to seek remand report from the Ld. AO on the additional evidences filed during the appellate proceedings, and thereafter, the issues decide afresh on merits.
A.Y. 2017-18 Bombay Jewellery Manufacturers 13. Since additional ground is decided in favour of the revenue and the matter is restored back for fresh adjudication, remaining grounds on merits are not required to be adjudicated upon 14. In the result, the appeal of the revenue is allowed for statistical purposes. Order pronounced in the open court on 30.05.2025.