INCOME TAX OFFICER, WARD-1, ICHALKARANJI, ICHALKARANJI vs. NAVDURGA YARNS LLP, ICHALKARANJI

Aggrieved by the order of the Ld. AO passed u/s 143(1) of the Act, the assessee appealed before the Ld. Addl./JCIT(A). Before the Ld. Addl./JCIT(A), the assessee submitted that the books of account of the assessee were audited as required under the relevant provisions of the Act and the audit report was submitted electronically by the assessee. The 2 ITA No.1287/PUN/2024, AY 2022-23 auditor has given intimation regarding ICDS adjustment in Column 14 of audit report. The Ld. AO has made an addition of Rs.10,26,76,090/-. However no such adjustment has been reported by the auditor. On the contrary, the auditor has reported effect of ICDS adjustment at ZERO i.e. Nil. The assessee further contended that no intimation regarding such adjustment was given to the assessee by the Ld. AO. The assessee contended that any adjustment in account is not permitted without giving prior intimation before making any such adjustment.

1 The assessee filed detailed written submissions vide letter dated 17.12.2023 and 16.03.2024 before the Ld. Addl./JCIT(A) reiterating the above contentions which are incorporated in para 5 of the appellate order. Having considered the facts of the case and submissions of the assessee, the Ld. Addl./JCIT(A) held that the addition to the total income of the assessee on account of ICDS adjustment to the tune of Rs.10,26,76,090/- is unjust and unwarranted and directed the Ld. AO to delete the addition by observing as under : “6.1 Grounds 1 & 4 : I have gone through the grounds of appeal, facts of case and submissions of the appellant in the case. It is noticed that the CPC has made an adjustment of Rs.102676090/- by way of ICDS adjustment under the head income from business on account of increase in profit on inclusion of GST in finished products which the appellant claims has already been considered in its total income. It is noticed from the submissions of the appellant that it follows exclusive method of accounting wherein GST is separately accounted for in the books of accounts. Now the impact of GST on profit or loss as verified in clause no 14B of audit report (Form 3CD) is NIL which shows that there is no increase of Rs.10,26,76,090/- in the profit of the appellant. The auditor of the appellant has specifically certified the above finding that there is no net increase in profit of the appellant on account of inclusion of GST on finished goods (screenshot attached). CA S. N. RANDAR & ASSOCIATES CHARTERED ACCOUNTANTS DATE:12/12/2023 To whomsoever it may concern, We herewith certify that M/s.Navdurga Yarns LLP having PAN NO. AAPFN7837F has followed exclusive method of accounting and stock valuation. However exclusive method of accounting has no effect on profit of the firm under section 145A and accounting/valuation of inventory is as per method and valuation prescribed. The details of effect has been provided under clause 14b of 3CD form of the firm, for the AY. 2022-23. As per the details effect of profit is as under: Particulars Total effect on Profit/(Loss) Increase in Profit 206549216 There is no effect on profit from method of valuation. FOR S.N. RANDAR AND ASSCOCITES CHARTERED ACCOUNTANTS AND ASSOCIATY Decrease in Profit Net Effect 206549216 NIL RAVI RANDAR PARTNER

Dissatisfied, the Revenue is in appeal before the Tribunal raising the following grounds of appeal : 3 ITA No.1287/PUN/2024, AY 2022-23 “1.

On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.10,26,76,090/- under the head 'Increase in profit or decrease in loss on account of ICDS adjustments and deviation in method of valuation of stock'. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in not allowing the AO to examine the additional evidence admitted by him a: per the provisions u/s 46A(3) of the I.T. Rules 1962. The appellant craves leave to add, alter, amend and modify any of the above all grounds raised at the time of proceedings before the Hon'ble Tribunal which may please be granted."

The Ld. DR contended that the order of the Ld. Addl./JCIT(A) is in violation of Rule 46A of the Income Tax Rules, 1962 (“the Rules") as the Ld. Addl./JCIT(A) did not call for any remand report from the Ld. AO. The Ld. Addl./JCIT(A) deleted the addition of Rs.10,26,76,090/- made by the Ld. AO on the basis of the Auditor's Certificate/letter dated 12.12.2023 certifying the net effect on profit/loss at Rs. Nil. However, the claim of the assessee remains unverified by the Ld. AO. He, therefore, requested that the matter may be set aside to the file of the Ld. AO to verify the claim of the assessee.

The Ld. AR, on the other hand, strongly supported the order of the Ld. Addl./JCIT(A) and submitted that no new evidence has been filed before the Ld. Addl./JCIT(A) by way of an additional evidence. The assessee has submitted the audited books of account and the audited report which clearly stated the claim of the assessee in Column 14 thereof pertaining to information regarding ICDS adjustment. The Auditor's Certificate has been filed only in support of the claim of the assessee that the impact of GST as increase or decrease in profit is ‘Nil'. The audit report filed in Form 3CD already shows the details of GST having no impact on profit and loss account. He, therefore, submitted that the Ld. Addl./JCIT(A) was completely justified in deleting the addition made by the Ld. AO by way of ICDS adjustment.

We have heard the Ld. Representative of the parties and perused the material on record. We find that the Ld. AO, CPC made the addition of Rs.10,26,76,090/- vide intimation u/s 143(1) of the Act dated 07.06.2023 on account of ICDS adjustment and deviation in method of valuation of stock as against income of Rs.2,74,64,880/- returned by the assessee. It is also an admitted fact that the assessee furnished audit report in Form 3CD showing ICDS adjustments at ZERO i.e. Nil therein. The assessee filed detailed submissions before the Ld. Addl./JCIT(A) in support of its 4 ITA No.1287/PUN/2024, AY 2022-23 contention along with Auditor's Certificate/letter certifying the net impact on his profit and loss account at Rs. Nil and that there is no effect on profit from method of valuation. The Ld. Addl./JCIT(A) has observed that the Ld. AO, CPC has made an adjustment of Rs.10,26,76,090/- by way of ICDS adjustment under the head income from business on account of increase in profit on inclusion of GST in finished products which the assessee claims has already been considered in its total income. Further, the assessee follows exclusive method of accounting wherein GST is separately accounted for in the books of account. The impact of GST on profit or loss as verified in Clause No. 14B of audit report (Form 3CD) is NIL which shows that there is no increase of Rs.10,26,76,090/- in the profit of the assessee.

1 In view of above finding, the Ld. Addl./JCIT(A) has held that no addition to the total income of the assessee is called for since there is no net profit accrued to the assessee as a result of ICDS adjustment. The grievance of the Revenue is that the Ld. Addl./JCIT(A) has allowed the appeal of the assessee by deleting the addition made by the Ld. AO without affording any opportunity of verification of such claim made by the assessee. Therefore, the Revenue has prayed for remanding the matter to the file of the Ld. AO for verification of the claim made by the assessee.

2 Considering the totality of the facts and in the circumstances of the case, we deem it fit, in the interest of justice and fair play to set aside the order of the Ld. Addl./JCIT(A) and restore the matter back to the file of the Ld. AO with a direction to verify the claim of the assessee and decide the impugned issue afresh as a result of such verification thereof as per fact and law, after giving adequate opportunity of hearing to the assessee. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for statistical purposes. Order pronounced in the open court on 31st January, 2025. (R.K. Panda) VICE PRESIDENT (Astha Chandra) JUDICIAL MEMBER पुणे / Pune; दिनांक / Dated : 31st January, 2025. रवि 5 ITA No.1287/PUN/2024, AY 2022-23 आदेश की प्रतिलिपि अग्रेषित /