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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Sri Rajpal Yadav & Sri Manish Borad
order
: June 6th, 2022 ORDER
Per Manish Borad, Accountant Member:
The captioned appeals filed by the assessee pertaining to the Assessment Years (in short “AY”) 2012-13 & 2013-14 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) of ld. Commissioner of Income-tax (Appeals)-13, Kolkata [in short ld. “CIT(A)”] dated 03.07.2018 which are arising out of the assessment orders framed u/s 143(3) of the Act.
Since the issues raised in both these appeals are common and pertain to the same assessee, these were heard together and I.T.A. Nos.: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. are disposed off by way of this common order for the sake convenience and brevity. For the purpose of adjudication, we will take the facts for AY 2012-13. 3. Brief facts of the case are that the assessee is an individual engaged in business. Income of Rs. 41,30,627/- declared in e- return of income filed on 25.09.2012. Books of accounts are audited u/s 44AB of the Act. Case was selected for scrutiny through CASS followed by serving of notice u/s 143(2) & 142(1) of the Act. Details called for were duly filed but ld. Assessing Officer (in short ld. “AO”) was not satisfied with the details including the self-made vouchers. Additions were made under various heads totalling to Rs. 51,75,886/-. Accordingly, the assessee preferred appeal before ld. CIT(A) and partly succeeded. Now, the assessee is in appeal before the Tribunal raising the following grounds: “
1. That Learned Commissioner of Income Tax (Appeals)-13/Kol as well as Learned Assistant Commissioner of Income Tax, Circle-43/Kol both erred in fact as well as in law in disallowing the claim of payments made towards ‘Delivery Charges’ for Rs.1,18,118/- incurred for “for plying, hiring or leasing goods carriages” wherein the ceiling is Rs.35,000/- per day w.e.f. 01.04.2009. Hence, it is prayed to allow the claim of Delivery Charges as the same was incurred within the limit specified in Section 40A(3). [Relief claimed-Deletion of Rs.31,83,697/-].
2. That the addition of Rs.5,73,244/- made by enhancing the value of Closing Stock without specifying any head of Direct Expenses is against law and hence prayed to be deleted. [Relief claimed-Deletion of Rs.5,73,244/-].
3. That your Appellant craves leave before your Honours to urge, to add, to alter, to amend or to adduce further Grounds of Appeal on or before the date of Appeal hearing.” .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty.
4. Ld. Counsel for the assessee vehemently argued referring to the submissions filed before the lower authorities as well as the paper book dated 16.01.2020 containing 73 pages which includes ledger accounts of various expenses and other supporting vouchers. They are made for deleting additions confirmed by ld. CIT(A) which have been raised before this Tribunal.
5. Per contra, ld. D/R vehemently argued supporting the orders of lower authorities.
6. We have heard rival contentions and perused the records placed before us. Ground No. 1:
7. Through this ground, the assessee has challenged the finding of ld. CIT(A) confirming the disallowance on delivery charges of Rs. 1,18,118/- incurred for plying, hiring or leasing goods carriages. The details of delivery charges are mentioned at page 6 of the impugned order. These are payments to truck drivers and individual payment in cash is more than Rs. 20,000/- but less than 35,000/-. It was brought to our notice by the ld. Counsel for the assessee that a proviso was added by Finance (No. 2) Act, 2009 w.e.f. 01.10.2009 in sub-Section 3a of Section 40A of the Act as per which in case of payment made for plying, hiring or leasing goods carriages the provision of sub-Section3 & 3a of Section 40A of the Act shall have the effect as if for the words Rs. 20,000/-, Rs. 35,000/- had been substituted. The instant appeal relates to AY 2012-13 and this amendment came to effect from 01.10.2009 and therefore, so far as plying, hiring or leasing goods carriages are .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. concerned cash payments in excess of Rs. 35,000/- are not disallowable u/s 40A of the Act. Since genuineness of the expenditure is not in doubt, we therefore, delete the disallowance of Rs. 1,18,118/- and thus, reverse the finding of the ld. CIT(A). Hence, ground no. 1 raised by the assessee is allowed. Ground No. 2:
8. Through this ground the addition for under valuation of closing stock at Rs. 5,73,244/- has been challenged by the assessee. Facts in brief relating to this ground are that the assessee values the closing stock “at cost”. Admittedly, the carriage inward is not added for the purpose of valuation of closing stock. This fact has not been rebutted by ld. Counsel for the assessee and the only argument is that the assessee is consistently following this method of valuing closing stock at cost without including the carriage inward cost for the purpose of valuing closing stock. As per the principles of accounting for valuing closing stock at cost, all the expenses incurred to purchase the goods (in case of trading units) and other direct expenses are to be considered for calculating the value of closing stock at cost price at the year end. This method of valuing closing stock at cost which even ld. Counsel for the assessee being fair has accepted. It was again contended that the assessee is maintaining the method consistently and if any change is made it will impact the financials of all the subsequent years. 8.1. We, however, are of the considered view that the error in valuing closing stock is a factual error and it needs to be corrected whenever a mistake is discovered. We find that ld. CIT(A) has dealt Page 4 of 10 I.T.A. Nos.: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. with this issue by referring to settled judicial precedence and the same is reproduced below:
“I have perused the argument of the appellant. The appellant has relied over the decision of Honourable ITAT for AY 2006-07 of his own case which is factually different in the present case, as the matter before the honourable ITAT was pertaining to the taking the valuation of stock at a lower price of cost due to fall of price in the market which is as per set method of accounting. Whereas the present case relates to correct method of valuation of closing stock where the appellant has not taking into account the proportionate direct cost in valuing the closing stock which was of course the cost price of the closing stock. In case of Honourable Supreme Court CIT Vs British Paints India Ltd (54 Taxman 499, 1991) it is held as under: "The object of stock valuation is the correct determination of the profits and loss resulting from a year's trading. [538B] Whimster & Co. v. Commissioners of Inland Revenue, [1926] 12 Tax Cases 813, 827; Chainrup Sampatram v. Commissioner of IncomeTax, West Bengal, [1953] 24 I.T.R. 481,485- 486; Patrick (Inspector of Taxes) v. Broadstone Mills Ltd., [1954] 25 I.T.R. 377, 395; Russell v. Town & County Bank, [1888] 13 App. Cas. 418, 424; 4 TLR. 500 and Minister of National Revenue v. Anaconda American Brass Ltd., [1956] A.C. 85; (1956) I.T.R. 84, 99, referred to. Section 145 of the Income Tax Act, 1961 confers sufficient power upon the officer and it imposes a duty upon him-to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the Income Tax Officer to determine the taxable income by making such computation as he thinks fit. Even if the assessee had adopted a regular system of accounting, it was the duty of the Assessing Officer under section 145 of the Income Tax Act 1861, to consider whether the correct profits and gains could be deduced from the accounts so maintained. If he was of the opinion that the correct profits could not be deduced from the accounts, he was obliged to have recourse of the proviso to section 145 of the Income Tax Act 1961. [536C, G] Commissioner of Income-Tax, Bombay v. Sarangpur Cotton Manufacturing Co. Ltd., [1938] 6 ITR 36; .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. Commissioner of IncomeTax, Madras v. A. Krishnaswami Mudaliar & Ors., [1964] 53 I.T.R. 122, 128 and 132; Commissioner of Income- Tax v. Mc-Milan & Co., [1958] 33 I.T.R. 182; S.N. Namasiva- yam Chettiar v. Commissioner of Income-tax, Madras [1960] 38 I.T.R. 579, 588 and Commissioners of Inland Revenue v. Cock, Russell and Co. Ltd., [1949] 29 Tax Cases 387, 392, referred to. Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw material for the goods in process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is 'likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. [539F-G]." Keeping in view of the aforesaid facts that the appellant has taken the direct tax into stock valuation. Therefore in view of the aforesaid decision of honourable Supreme Court the action of the AO is hereby upheld and the ground of appeal is dismissed.” 8.2. Considering the judicial precedence referred herein above and also considering the provision of Section 145A of the Act and the method of valuing closing stock at cost as per the settled accounting principles, we find no infirmity in the finding of the ld. CIT(A) and the same is confirmed. Hence, ground no. 2 raised by the assessee is dismissed.
9. Ground no. 3 is general in nature which need no adjudication.
10. Now we will take up AY 2013-14 in which the following grounds of appeal have been raised: .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. “1) That Learned Commissioner of Income Tax (Appeals) - 13/ Kol as well as Learned Assistant Commissioner of Income Tax, Circle - 43/Kol both erred in fact as well as in law in disallowing the claim of payments made towards ‘Delivery Charges’ for Rs.2,25,209/- incurred for both Carriage Inward and Outward. Your appellant submits that the local transporters do not give proper Bills as most of the vehicles are hired from local stand. Hence, it is prayed to allow the claim of Delivery Charges as the same was incurred for business purpose. [Relief claimed - Deletion of Rs.2,25,209/-]. 2) That addition has been made by disallowing the claim of payments made towards ‘Repairs & Maintenance’ for Rs.4,17,187/- incurred for regular repairs and as alleged for constructing Boundary Wall of Factory premises. Your appellant submits that the materials were purchased locally and Labourers were also appointed locally, who do not give proper Bills as per trade practice. Hence, it is prayed to allow the claim of Repairs & Maintenance as the same was incurred for carrying out regular maintenance work of Factory building. [Relief claimed - Deletion of Rs.4,17,187/-]. 3) That addition has been made by disallowing the claim of payments made towards ‘Travelling & Conveyance’ and ‘Printing & Stationery’ for Rs. 1,30,892/- incurred for both the heads. Your appellant submits that most of the expenses are supported by self made Vouchers as per business custom as proper Bills are not issued by the suppliers. Hence, it is prayed to allow the claim of Travelling & Conveyance’ and ‘Printing & Stationery’ for Rs. 1,30,892/- as the same was incurred for business purpose. [Relief claimed - Deletion of Rs.1,30,892/-].
4. That the addition of Rs.3,18,992/- made by enhancing the value of Closing Stock by considering Carriage Inward as part of Closing Stock valuation is against law as this method of valuation is being followed for last several years. Further, the same Ld. ACIT has failed to allow deduction of Rs.5,73,244/-on account of enhancement of Opening Stock made in preceding assessment year on the same point. Hence it is prayed to delete the said addition. [Relief claimed - Deletion of Rs.3,18,992/-]. 5) That your Appellant craves leave before your Honours to urge, to add, to alter, to amend or to adduce further Grounds of Appeal on or before the date of Appeal hearing.” .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. Ground Nos. 1, 2 & 3:
11. Through these three grounds disallowance of delivery charges of Rs. 2,25,209/-, repairs & maintenance expenditure of Rs. 4,17,187/- and travelling & conveyance and printing & stationery expenditure of Rs. 1,30,892/- are in challenge before us. The common reason for the said disallowance is that they are mostly supported by self-made vouchers and in some cases payments have been made in cash. The disallowance made by the ld. AO prima facie looks ad-hoc in nature. The turnover during the year is 53.66 Cr. Profit of Rs. 43,77,320/- has been declared by the assessee in return of income. Books of accounts are audited and no specific discrepancy has been found and book results have been accepted. Under these given circumstances and being fair to both the parties and also considering the fact that most of the expenses are self-made and not properly supported by the required documentary, we, therefore, in place of 20% disallowance confirmed by the ld. CIT(A) of the total expenses shown under the specific heads of repair, maintenance, delivery charges, travelling conveyance sustain the disallowance only to the extent of 5%. Thus, in ground no. 1, against the disallowance of Rs. 2,25,209/- we sustain the disallowance of Rs. 56,302/-, in ground no. 2, against the disallowance of Rs. 4,17,187/- we confirm the disallowance of Rs. 1,04,296/- and in ground no. 3, against the disallowance of Rs. 1,30,892/- we confirm the disallowance of Rs. 32,723/-, Thus, ground nos. 1, 2 & 3 raised by the assessee are partly allowed. .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. Ground no. 4:
12. This ground relates to the addition for under valuation of closing stock at Rs. 3,18,992/-. This addition was made by the ld. AO by enhancing the value of closing stock for the proportionate carriage inward cost not considered by the assessee in valuing the closing stock. Since we have already dealt with this issue in ground no. 1 raised for AY 2012-13, our decision shall apply mutatis mutandis on ground no. 4 also. However, the assessee shall get the benefit of the increased value of closing stock for AY 2012-13 in AY 2013-14. Thus, ground no. 4 of the assessee is dismissed.
13. Ground no. 5 is general in nature which need no adjudication.
14. In the result, the appeals of the assessee for AY 2012-13 & 2013-14 are partly allowed. Kolkata, the 6th June, 2022. Sd/- Sd/- [Rajpal Yadav] [Manish Borad] Vice President Accountant Member Dated: 06.06.2022 Bidhan (P.S.) .: 2351 & 2352/Kol/2018 Assessment Years: 2012-13 & 2013-14 Kanak Chakraborty. Copy of the order forwarded to:
1. Kanak Chakraborty, C/o. N.B. International, 11A, Nather Bagan Street, Kolkata-700 005.
2. ACIT, Circle-43, Kolkata. 3. CIT(A)-13, Kolkata. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.