DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR vs. ZARI SILK (INDIA) PVT. LTD. , NARAYAN SINGH CIRCLE, JAIPUR

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"clean_text": "आयकर अपीलीय अधिकरण, जयपुर न्यायपीठ, जयपुर\nIN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR\nBEFORE: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM\nआयकर अपील सं. / ITA No. 693/JP/2024\nनिर्धारण वर्ष / Assessment Year :2015-16\nDeputy Commissioner of Income\nTax,\nJaipur\nVs.\nZari Silk (India) Pvt. Ltd.,\nNarayan Singh, Circle,\nJaipur\nअपीलार्थी / Appellant\nप्रत्यर्थी / Respondent\nआयकर अपील सं. / ITA No. 631/JP/2024\nनिर्धारण वर्ष / Assessment Year :2015-16\nZari Silk (India) Pvt. Ltd.,\nNarayan Singh, Circle,\nJaipur\nबनाम\nVs.\nDeputy Commissioner of\nIncome Tax,\nCircle-2, Jaipur\nअपीलार्थी / Appellant\nप्रत्यर्थी / Respondent\nनिर्धारिती की ओर से/Assessee by :\nSh. S. R. Sharma, CA &\nSh. R. K. Bhatra, CA\nMrs. Anita Rinesh, JCIT-Sr. DR\nराजस्व की ओरसे / Revenueby:\nसुनवाई की तारीख / Date of Hearing\n: 12/12/2024\nउदघोषणा की तारीख / Date of Pronouncement\n: 09/01/2025\nआदेश/ORDER\nPER: RATHOD KAMLESH JAYANTBHAI, AM\nBoth the present cross appeals are filed because revenue and assessee feel\naggrieved by the order dated 11.03.2024 by the Id. Commissioner of Income Tax\n(Appeals), Jaipur- 5 [ for short CIT(A) ], for the Assessment Year 2015-16.\nThe said order of the Id. CIT(A) was passed because the assessee\nchallenged before him the assessment order passed by DCIT, Circle-2,\nJaipur [ for short AO ] u/s 143 (3) of the Income Tax Act, 1961 [ for short\n\"Act”] on 26.12.2017.\n2. At the outset of hearing, the Bench observed that there is delay of 05\ndays in filing of the appeal by the revenue for which the Id. DR representing\nthe revenue relied upon the condonation petition filed by AO vide letter\ndated 14.05.2024. In that condonation petition Id. AO pleaded that he was\nbusy with additional pressure of work related to pending SLPs to be filed\nwhich were over hundred in number. Thus, he could not attend the work of\nthe filling of the appeal in due time.\n2.1 On the other hand, Id. AR of the assessee did not raise any objection\nto the prayer of the Id. AO.\n2.2 We have heard rival contentions. As we note that the reasons\nadvanced by the Id. AO in the prayer was that he was under pressure of\nfilling 100 plus SLPs and therefore, he could not attend to the work of filling\nthe present appeal in time. We note that though the appeal is to be filed\nwithin 60 days' time and the appeal filed was reasoned to be delayed that\nthe Id. AO was busy. We consider the peculiar facts of the case and\ncondone the delay but at the same time expect that revenue should be\nvigilant while adhering to the timeline for filling of the appeal.\n3. As is evident that the cross appeal relates to one assessee, involving\nthe same assessment year and it deals with the one order of the Assessing\nOfficer as well as one order of Id. CIT(A). We have heard the parties on the\nsame day and by way of this consolidated order proceed to deal both the\ncross appeals.\n3.1 The grounds of appeal taken by the revenue in ITA No. 693/JP/2024\nfor A.Y 2015-16 read as under;\n(i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is\njustified in deleting the addition of Rs. 1,98,88,536/- made on account of value of\nstock found without appreciating the fact that during the assessment\nproceedings, the assessee claimed that, wages paid to labour in the Tally was\nrecorded as indirect expense, however, the same is direct expense and\ntherefore, the closing stock will increase by Rs. 1,98,88,536/- and hence added\nto the total income of the assessee.\n(ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is\njustified in deleting the addition of Rs.1,29,81,073/- made on account of value of\nstock found without appreciating the fact that assesse claimed that it is usual\npractice to value stock at 100% of the cost if purchased in same year, 90% of\ncost if purchased in immediate preceeding year and 80% of cost for all previous\nyear stock, thus, the difference to the extent of Rs.1,29,81,073/ is nothing but\nageing effect only. However, on the date of survey, the physical stock was valued\nat Rs. 31,38,42,649/- and valuation was done keeping in view both net realizable\nvalue of the stock and the cost that would have been incurred by the assessee.\nTherefore, any difference due to ageing will automatically be subsumed in the\nvaluation so made.\n(iii) The appellant craves leave to add, amend or withdraw any of the ground of\nappeal during the course of appellant proceeding.”\n3.2 Whereas the grounds appeal raised by the assessee in appeal No.\n631/JPR/2024 for assessment year 2015-16 read as follows:\n\"1. That on the facts and in the circumstances of the case the Id CIT(A) is wrong,\nunjust and has erred in law in confirming addition to the extent of Rs. 375913/-\nmade by the Id AO an account of difference in value of stock as per book and as\nper physical verification at the time of survey u/s 133A of the IT Act, 1961 as\nundisclosed income. While confirming the said addition of Rs. 375913/-, the Id\nCIT (A) did not accepted submission of the appellant that the said difference is\nvery insignificant/meager considering total stock of Rs. 27.95 corers and turnover\nof Rs. 32.00 corers and so deserves to be ignored.\n2. That on the facts and in the circumstances of the case the Id CIT(A) is wrong,\nunjust and has erred in law in confirming lump sum disallowance of Rs. 300000/-\nmade by the Id AO out of travelling, repairs & other expenses u/s 37(1) and 38(2)\nof the IT Act, 1961 on account of alleged un-verifiability thereof and/or not being\nincurred wholly/exclusively for business purpose\n3. The appellant craves permission to add to or amend to any of grounds of\nappeal or to withdraw any of them.”\n4. First, we deal with the appeal filed by the revenue in ITA no.\n693/JP/2024. The brief facts as culled out from the records are that return\nof income declaring 'Nil total income' was filed by the assessee on\n30.9.2015.\nUpon filing of the ITR the case was selected for scrutiny and notice\nu/s 143(2) & 142(1) were issued from time to time and served upon the\nassessee. Books of accounts were produced which were examined on test-\ncheck basis by the Id. AO. The assessee is engaged in the business of\nManufacturing & Trading of Sarees, Salwar Suites and Dress Materials.\n4.1 In the case of the assessee a survey u/s 133A of the Act was carried\nout on the business premises of the assessee on 26.11.2014 and the\nsurvey team took the inventory of stock found at the business premises\nwhich reads as under :-\nS.No.\nName of Premises\nStock found on physical verification (Rs.)\n1\nGround Floor at\nNarain Singh Circle\n7870620\n2\nGround Floor at\nNarain Singh Circle\n1755313\n3\n2nd Floor at Narain\nSingh Circle\n35135844\n4\n3rd Floor at Narain\nSingh Circle\n38771713\n5\n5th Floor Whole Sale,\nNarain Singh Circle\n9651418\n6\nKartarpura Ind. Area\n93208999\n7\nAmrapura shop\n2621200\n8\nGT Central, Gaurav\nTower\n1530583\n9\nOther locations\n86151081\n10\nWhole sale\n37145878\nTotal\n31,38,42,649/-\nAs is evident that the value of inventory available with the assessee was\ndetermined by the survey team at Rs. 31,38,42,649/- as on 26.11.2014 (as\nindicated in store wise details reproduced in the above table), whereas\ninventory reported on accounting software (Tally) was at Rs.\n27,95,30,977/-. The assessee also maintained inventory in the separate\nsoftware (named MISSBS) where in the figure of stock was reported at Rs.\n31,24,00,586/-. Considering the differences in the stock while in the\nassessment proceeding the assessee was asked to show cause vide\nnotice dated 30.11.2017 as to why the difference of Rs. 3,43,11,672/- not\nconsidered as income. The content of the show cause notice reads as\nunder :\n\"A survey has been conducted at various business premises on 26.11.2014.\nDuring the survey proceedings, the physical stock was taken and determined at\nRs. 31,38,42,649/-. Further, it was also noticed that the assessee company was\nmaintaining its stock on its internal software-MISSBS. Moreover, the figures of\nopening & closing stock are also fed manually on the accounting software- TALLY.\nAccordingly, there were three figures of closing stock as on date of survey i.e.\n26.11.2014:-\n(i) Stock as per physical inventory- Rs. 31,38,42,649/-\n(ii) Stock on MISSBS- Rs. 31,24,00,586/-\n(iii) Stock on TALLY- Rs. 27,95,30,977/-\nIn view of the above, it is amply clear that there is excess stock found during the\nsurvey proceedings to the tune of Rs. 3,43,11,672/- ((i) (iii)). Accordingly, you are\nhereby showcause as to why the excess stock difference of Rs. 3,43,11,672/-shall\nnot be added back to your income.”\nVide submission dated 11.12.2017 the assessee filed a detailed reply\nopposing the addition and explained as to why there was the alleged\ndifference. The reply along with the documents furnished by the assessee\nwere given thoughtful consideration by Id. AO, however, it was found that\nthe claim of the assessee that stock was matching completely and there\nwas no difference / variation in the stock reported on its accounting\nsoftware (Tally) with that of stock reported on its inventory software\n(MISSBS) as well as physical inventory was not considered as acceptable\ndue to the reasons as indicated in the order of the assessment, which\nreads as under :-\n\"First of all vide para 3 of the reply to Q. No. 1 of show cause the A/R contended\nthat how the figure of Rs. 31,38,42,649/- was derived. During the course of hearing\ndated 21.12.2017 A/R Shri R.K. Bhatra and Shri Virendra Dhadhich was\nconfronted with Annexure-A-8 page no 70 and 71 wherein the details of stock\ninventory were provided. As per this document the following description is written\nby Shri Rajesh Jain\n\"this report is generated by me from MISSBS software and data base of\nZSPL on the basis of barcode. This represents the stock position of all\nstores/ factory of ZSPL as on 26.11.2014 for flagship store\"\nThese pages were signed by, Siri Rajesh Jain who is the employee of the\nassessee company and Manager of EDP. The physical inventory was taken by the\nDepartment with the help of employees/ incharge of stores/ factories. A/R Shri\nR.K. Bhatra and Shri Virendra Dhadhich also admitted this position of physical\nstock as on 26.11.2014. Hence the objection raised by the assessee through his\nreply to show cause dated 11.12.2017 that the assessee does not know how the\nfigures of Rs. 31,38,42,649/- is arrived by the Department does not hold good.\nGrouping of wages Expenses\nIn the subsequent part assessee claimed that, wages paid to labour in the Tally\nwas recorded as Indirect Expense, however, the same is Direct Expense.\nTherefore, if the same is considered as direct expenses the closing stock will\nincrease by Rs. 1,98,88,536/-. The reply of the assessee is found not only vague\nbut contrary to the facts of the case of the assessee, because;\n(a) Assessee is maintaining stock records and there exist a method based on\nwhich Sale Price of each item is fixed and accordingly Price Tags are tagged. The\nmethod for arriving at MRP of the items has been explained by Shri Shri Virendra\nDadhich, in-house Chartered Accountant of assessee in his statement recorded\nu/'s 131 on 26.11.2014. Further, the said procedure has also been acknowledged\nby Shri Arun Palawat in his statement recorded u/s 131 dated 26.11.2014.\n(b) Perusal of the statement shows that the Sale Prices is determined by inflating\nthe cost of that particular item by a certain percentage. It is relevant to mention\nhere that the percentage is also fixed based on the type of trade i.e. for wholesale\nthere is a fixed percentage and for retail percentage is different.\n(c) Since, Sale Price of an item is only a markup on cost of that item, it is\nnecessary to have ascertained cost of that item first. Had assessee not considered\nthe wages expenses as costing of such items beforehand it would have not been\nable to determine the sale price.\n(d) Therefore, the claim of assessee that wages paid to labour were not included\nwhile reporting the closing stock in its accounting software is contrary to the fact.\n(e) It is relevant to mention here that, in the parallel inventory software (MISSBS)\nmaintained by the assessee stock on the date of survey stood at Rs.\n31,24,00,586/-, which is very close to the physical inventory found during the\nsurvey.\n(f) However, the trading results of the assessee are prepared on the basis of the\naccounting software and not on the basis of inventory software. The inventory\nreflected by the assessee in trading account prepared as on 31.03.2015 is short by\nRs. 1,98,88,536/-.\n(g) It is relevant to add here that since, nssessee is maintaining stock records and\nthe trading results are not based on reverse calculation of gross profit ratio. The\nclaim of the assessee that, if the wage expenses of Rs. 1,98,88,536/- is\nconsidered as direct expense the stock on the date of survey will increase by that\nsame amount i.e. Rs. 1,98,88,536/- and the Gross profit will remain same, cannot\nbe accepted as it is against the facts of the case and contrary to the accounting\nprinciples.\nIn view of these observation Id. AO noted that the stock is undervalued/\nunderstated by Rs. 1,98,88,536/-.\nAgeing of Stock Item\nAssessee also claimed that, it is their usual practice to value stock at 100% of cost\nif purchased in same year, 90% of cost if purchased in immediate preceding year\nand 80% of cost for all preceding year stock. Therefore, the difference to the\nextent of Rs. 1,29,81,073/- is nothing but ageing effect only. The reply of the\nassessee was considered, but however, the same was not found tenable by the\nAO due to following reasons:-\n(a) On the date of the survey the physical stock was valued at Rs.\n31,38,42,649/- The valuation has been done keeping in view both net\nrealizable value of the stock and the cost that would have been incurred by the\nassessee. Therefore, any difference due to ageing will automatically be\nsubsumed in the valuation so made.\n(b) Further, assessee has not brought even a single instance on record to\nshow that the physical inventory taken on the date of survey was not in\naccordance to its net realizable value.\n(c) It is relevant to mention here that, assessee neither challenged the\nvaluation of physical inventory nor comments or reconciliation was made or\nw.r.t. the physical inventory taken at the time of survey.\n(d) In view of the above it is clear that that, argument put forward by the\nassessee is not only vague but also not corroborated with any documentary\nevidence. Therefore, the same is not acceptable and thus, the stock is\nundervalued/ understated by Rs. 1,29,81,073/-.”\nBased on the above reasons, Id. AO did not consider the explanation\nfurnished by the assessee in stock for an amount of Rs. 1,98,88,536/- and\nRs. 1,29,81,073/-. For the balance amount of Rs. 14,42,063/- assessee\nfailed to furnish any justification. Based on said observations, Id. AO\nadded the difference in inventory of Rs. 3,43,11,672/- as income in the\nhands of the assessee as undisclosed investment.\n4.2 During the course of assessment proceedings, the Id. AO noticed that\nthe assessee had claimed various expenses as detailed here under:\nNature of expenses\nAmount (Rs.)\nConveyance Expenses\n668449\nRepair & Maintenance Exp.\n1481096\nVehicle Running & Maintenance Exp.\n647402\nShowroom Misc. Exp.\n3302639\nTotal\n6099586\nOn perusal of bills/vouchers produced, it was noticed that some of the\nexpenses were not fully vouched and not supported by any documentary\nevidence & most of these expenses had been incurred in cash, without the\nidentification of recipients. It was also noticed that the expenses had been\nincurred not wholly and exclusively for the purpose of business u/s 37(1)\nand 38(2) of the Act. As such, the expenses incurred were not proved\nwholly for business purpose. Considering that observation, a lump-sum\ndisallowance of Rs. 3,00,000/- was made in respect to the above-\nmentioned expenses by Id. AO.\nAccordingly, income was assessed at total income of Rs.\n2,56,84,080/- u/s 143(3) of the Income Tax Act, 1961.\n5. Aggrieved by the order of Assessing Officer, assessee preferred an\nappeal before the Id. CIT(A). Apropos to the grounds so raised the relevant\nfindings of the Id. CIT(A) are reiterated here in below:\n\"Decision [ for the stock valuation addition ]\n4.2 I have considered the facts of the case and written submission of the\nappellant as against the observations/findings of the AO in the assessment order\nfor the year under consideration. After carefully going all the above the point wise\ndiscussion is as under;\n• The issue is related to excess stock found during the course of survey.\n•\n•\n•\n•\n•\nDuring the course of survey the physical stock was calculated and valued at Rs\n31,38.42.649/-.\nThe survey team had also valued the physical stock as per inventory software\n(MISSBS) maintained by assessee at Rs. 31,24,00,586/-.\nThe survey team had also calculated and valued the physical stock as per\naccounting software (Tally) at Rs. 27,95,30,977/-.\nThe AO had made addition of excess stock of Rs 3,43,11,672/- by reducing stock\nas calculated on tally software from physical stock (31,38,42,649 less\n27,95,30,977).\nThe appellant had explained this difference/ reconciliation in 4 categories which are\nas under:\nWages Expenses not included in Rs 1,98,88,536\ntrading a/c prepared by the survey\nteam on tally software\nStock Ageing Effect\nकोष मूलो\nRs 1,29,81,073\nRs 10,66,150\nTAV\nRs 3,75,913\nTotaling Mistake COME\nOther difference\nTotal Difference\nRs 3,43,11,672\n• Wages Expesnes\n• The survey team had calculated the valuation of stock on \"Tally software\" by\napplying last year GP rate at 28.11% and did reverse calculation of stock.\n• While preparing this trading account, first step is to take opening stock as on first\nday of financial year which is same as closing stock of last year. Second step to\ntake actual sale. Third step to debit purchase. Fourth step to debit all direct\nexpenses. Fifth step is to apply GP rate and calculate gross profit. Now the last\nstep to calculate balance in credit side which will be the closing stock as on date.\nThis is reverse calculation of stock as on date of survey which the survey team had\ncalculated the stock as per accounting software (Tally) at Rs. 27,95,30,9771-.\n• Now the appellant had taken one plea that while debiting direct expenses in this\ntrading account, the survey team had not taken the wages expenses Rs\n1,98,88,356/- incurred during the year which was classified as Indirect Expenses\nunder the head \"Employee Welfare & Other Benefits\" total of Rs 3,80,72,334/-.\nHad the amount of manufacturing wages for Rs 1,98,88,356/- transferred to trading\naccount, the stock valuation as per tally software would have increased by the\nsame.\n• It is important to mention here the survey team had themselves calculated the\nEmployee Welfare & Other Benefits\" total of Rs 3,80,72,334/- and had taken into\nconsideration as Indirect expenses while preparing trading and P&L a/c.\n• Thus it is an undisputable fact that the expenses under the head Employee\nWelfare & Other Benefits was of Rs 3,80,72,334/-. The dispute is only related to\nclassification.\n• Now to verify this, it is necessary to check whether the appellant had taken this\nwages expenses in earlier/last year because the survey team had taken GP rate of\n28.11% from last year.\n• On verification of trading account prepared by survey team, the direct expense had\ntaken into consideration for the year under consideration are as under;\nFactory expense\nJob work\nAmrapur Ind exp\n5948689\nINCOME TA31506463\n157152\nKartarpura Ind Exp\n1946688\nCarriage inward\n40556\nConsumable stores\n86269\nFactory Misc Expenses\n150000\n• The survey team had taken GP 28.11% from last year to prepare the trading\naccount on tally software on the date of survey. The last year (i.e. for AY 2014-15)\nthe GP was Rs 14,13,17,765/- and turnover was Rs 50,27,70,697 which leads to\nGP at 28.11%.\nIn last AY (i.e. for AY 2014-15) the direct expenses had taken into trading account\nwas as under:\nConsumable stores\n17938745\nWages Expenses\n28231875\nLabor welfare exp\n654671\nFactory water and Electricity expense 1539141\nFactory Mis. Exp\n1850711\nJob work\n64321583\nRepair & Maint.\nFactory rent\nCarriage inward\n626620\n2159338\nINCOME TAX DEPARTMENT\n1674958\n• From the above facts the plea taken by the appellant is found to be correct that\nwages expense of Rs 1,98,88,536/- was not taken in trading account prepared for\nthe year under consideration.\n• Now to further strengthen this issue, it is necessary to compare the figures of year\nunder consideration and preceding years which is as under:-\nParticulars\nAs\n31.03.2014\non Till the date of As\nsurvey\n26.11.2014\nOn\n31.03.2015\nSales\n50,27,70,697\n25,69,22,781\n43,14,00,149\nEmployee Welfare & Other Benefits 3,12,26,312\n3,80,72,334\n3,06,06,813\nRatio of Sales to Employee Welfare 6%\n& Other Benefits\n15%\n7%\nWages Expenses\n2,82,31,,875\n1,98,88,536\n3,94,53,369\nCorrect Employee Welfare & Other 3,12,26,312\n1,81,83,798\n(38072334\n3,06,06,813\nBenefits\n19888536\nRatio of sales to Correct Employee 6%\nWelfare & Other Benefits\n7%\n7%\n• The argument of the appellant is on merit that from the bare perusal of the table it\nis evident that wages expenditure of Rs. 1,98,88,536/-was inadvertently classified\nunder head \"Employee Welfare and other benefit\". Because of which total direct\nexpense of Rs. 3,80,72,334/- recorded under head\" Employee Welfare and other\nBenefit" as on date of survey are seen to be comparatively higher than that of\nactual direct expenses of Rs. 3,06,03,813/- for the full year under consideration.\nAlso, the error of wrong classification is also evident from the fact from comparison\nof correct ratio of Employee Welfare and Other Benefit Expenses to Sales, which is\nseen to be at 15%, as against the actual ratio of 7%, which is consistent and in line\nwith the past history. The significantly higher ratio as indicated before correction as\nabove also justifies the explanation of the Appellant that due to wrong classification\nof wages expenses under the head \"Employee Welfare and Other Benefit" at the\ntime of survey, the same were not considered under trading account.\n• From the above discussion the argument of the appellant is correct that wages\nexpense of Rs 1,98,88,536/-. Thus, if the amount of manufacturing wages for Rs\n1,98,88,356/- transferred to trading account, the stock valuation as per tally\nsoftware would have increased by the same and the difference up the extent of Rs\n1,98,88,536/- is hereby explained.\n• Stock Ageing Effect\n• It is pertinent to mention here that the stock as on date of survey in quantitative\nterms was not disputed as it was the same as found in the books. The dispute is\nonly related to valuation of stock as per tally software and as per MISSBS software\n• For financial reporting and accounting purpose the appellant uses accounting\nsoftware-Tally but the appellant maintains MISSBS inventory software for keeping\nrecords of inventory. The Survey Team valued the stock as per MISSBS inventory\nsoftware at Rs 31,24,00,586/-.\n• The inventory details/valuation taken from MISSBS software are subject to\nadjustment for ageing effect and determination of Net realizable value of the stock\nwhich provides inventory to be valued at lower of cost and Net Realizable\nValue(NRV) as per AS-2. The value of the stock which is recorded in Tally software\nis at net realizable value because the same is lower than the cost\n• The Appellant is valuing its stock by making necessary adjustment of stock ageing\nin its stock valued at 100% of cost price on MISSBS inventory software. The\nappellant had stated that even during the course of survey as well as during\nassessment proceeding that the basis of calculating the net realizable value (NRV)\nis that the same year stock including the purchases of the current year is valued at\n100% of cost price, one year old stock valued at 90% of cost price, two years old\nstock is valued at 80% of cost price and stock purchased before that third year, is\nvalue at 50% of cost price. It was because of valuation of inventory at net\nrealizable value by giving effect to stock ageing calculated separately, and\nrecorded in Tally only.\n• The survey team, during the course of survey proceeding had valued the stock by\ngiving effect to stock ageing and taken printout of valuation sheet at page no 64 of\nAnnexure A-8. From this impounded document it is evident that on 31.03.2014 (ie.\non last day of preceding year) cost arrived from MISSBS software was Rs\n21,88,73,000/-, however, after considering the ageing effect, NRV was taken at Rs.\n20,54,30,000/-.\n• Thus, while preparing the trading a/c on Tally Software during the course of survey,\nthe opening stock was taken at Rs 28,66,09,180/- which was the closing stock of\npreceding year for which the bifurcation is as under:\nStock of Bar Coded Goods kept at Different store Rs 20,54,30,000\nand selling Point\n(Cost arrived from MISSBS software was Rs.\n21,88,73,000/- which is reduced\nby\nRs\n1,34,40,000/- due to ageing effect)\nStock at factory raw material, semi- finished/Rs 8,11,79180\nfinished goods\nTotal\nRs 28,66,09,180\n• Therefore, the closing stock of preceding year was valued at Rs. 20,54,30,000/- as\non 31.03.2014 after considering ageing effect of Rs. 1,34,40,000, which has not\nbeen disputed by the AO while passing assessment order for AY 2014-15 and\naccepted this ageing effect of Rs 1.34 cr. All such figures are taken from audit\nreport for previous assessment year as well as stock summary of valuation of\nopening stock. Similarly the AO had passed the assessment order for AY 2012-13\nand AY 2017-18 and had accepted the ageing effect while calculating the stock.\n• Further for the year under consideration i.e. AY 2015-16, the AO had again taken\nthe opening stock same as closing stock of preceding year as mentioned above.\nThus, the AO had again taken said ageing effect in opening stock in impugned\nassessment order, however, the said treatment is being disputed only as far as the\nvaluation as on date of survey is concerned which is not correct.\n• While preparing trading account, the opening stock was valued at Net Realisable\nValue (NRV), thus the closing stock as per tally software was also calculated at\nNRV at 28,66,09,180/-. It shows that the actual difference calculated by the AO for\nmaking addition was the difference between the physical stock valued from MISSB\nsoftware and the physical stock valued at NRV in tally, which is not a correct\nmethod. When the AO had valued the stock physically from MISSB software, then\nthe AO have to take value of stock in trading account as per cost shown in MISSB\nsoftware.\n• In simple words while preparing the trading account from tally software, the AO is\ntaking stock value as per Net realizable value i.e. the cost reduced by ageing\neffect, but while calculating the stock physically, the AO is taking the value as per\nMISSB software where actual stock cost is taking without considering the reduced\ncost due to ageing effect. Thus, due to this ageing effect, the difference is\nexplained.\n• It is pertinent to mention here that there is no dispute on the quantity.\n• The assessee had himself valued the Stock as per his stock maintaining software\n(MISSBS) at Rs 31,24,00,586/-. Whereas during the course of survey the physical\nstock was calculated and valued at Rs 31,38,42,649/-. Thus, the difference was not\nwhat the AO had made addition.\n• The Appellant has regularly followed valuation of finished goods at lower of cost or\nnet realizable value after following stock ageing effect. This approached/manner of\nvaluation of stock was prevalent in previous assessment year also including AY\n2014-15 as the opening stock was derived following the said method of accounting.\n• Thus, while taking the opening stock in tally software as on date of survey, the\nreduced value of opening stock up to Rs 1,34,40,000/- was taken. However the\nappellant had valued this ageing effect as on date of survey i.e. on 26.11.2014 was\nof Rs 1,29,81,073/-, in valuation of inventory resulting in reduced value of Stock as\nper tally software.\n• As stated above, the appellant has regularly followed valuation of finished goods at\nlower of cost or net realizable value after following stock ageing effect and the AO\nhad passed the assessment order for AY 2012-13, 2013-14 and AY 2017-18 and\nhad accepted the ageing effect while calculating the stock.\n• Considering the above discussion, the arguments and contention of the appellant\nis found to be correct and the reconciliation / difference of Rs 1,29,81,073 is hereby\nexplained due to ageing effect on valuation of stock.\n• At the time of hearing Id. DR did not find any fault with the observations of\nthe Id. CIT(A) and on the facts placed on record upon which Id. CIT(A) has\ngiven his finding in favour of the assessee-appellant, the decision cannot go\nin favour of the revenue, without pointing out that how that finding is\nincorrect or inconsistent. Thus, on this aspect of the matter we do not find\nany merits on the ground of ‘valuation', and therefore, the same deserves to\nbe dismissed.\n17. Now coming to the last item being the difference remained after giving\neffect to the above two adjustment one of labour and other of ageing of\nstock. That difference the assessee-appellant explained that there exist\nsome calculation errors in the working sheets prepared for valuation of\nstock in survey proceeding. The Id. CIT(A) in his order considered the\ninstance that while preparing details of stock available at Kartarpura Indus\nArea as available in Annexure AS-12 Page No. 24 where in the said sheet\ntotal value of the stock was calculated by the survey authorities at Rs.\n96,51,418/-. However, correct total of value of the stock in the sheet\navailable marked as page no. 24 of AS-12 is Rs. 85,85,268/-. It is explained\nfurther that the stock of \"plain fabric and sarees\" of Rs.7,83,550/- valued at\npage no. 8 of AS 12 has not been carried forward/considered in the final\nstock sheet prepared on page no 24 of AS-12. Therefore, after considering\nthe stock of \"plain fabric and sarees\" of Rs 7,83,550/- as mentioned on\npage no.8 of AS-12 but not considered in the final stock sheet (Page No.\n24 of AS- 12), the correct total of the stock sheet at page no.24 of Annexure-12\ncomes at Rs.85,85,268/-. Thus, there was difference of Rs 10,66,150 (Rs.\n9651418 85,85,268/-) on account of totalling mistake/omission as explained\nabove, which is apparent from the stock sheet summary prepared by the\nsurvey authorities. That arguments of the assessee-appellant were\naccepted by Id. CIT(A) and before us Id. DR did not point out anything\ncontrary on facts and that finding being very simple like one plus one. Thus,\nwe do not find any infirmity in that finding of the Id. CIT(A) while accepting\nthe total mistake for an amount of Rs 10,66,150/-.\nBased on the discussion recorded herein above, the appeal of the\nrevenue in ITA No. 693/JP/2024 is hereby dismissed.\n18. Now, we take up the appeal filed by the assessee, wherein the\nassessee has raised two grounds of appeal. First one relates to the\nsustained addition on account of Rs. 375913/- by Id. CIT(A). The assessee\ncontends that the said difference is very insignificant / meager considering\ntotal stock of Rs. 27.95 corers and turnover of Rs. 32.00 corers and so\ndeserves to be ignored and should be deleted. Second addition confirmed\nby the Id. CIT(A) is the amount of lump sum disallowance for an amount of\nRs. 3,00,000/- made by the Id AO out of travelling, repairs & other expenses\nu/s 37(1) and 38(2) of the IT Act, 1961 on account of alleged un-verifiability\nof those expenses and not being incurred wholly/exclusively for the\nbusiness of the assessee.\nThe facts relating to these two grounds being already discussed\nherein above while dealing with the appeal of the revenue and therefore,\nthe same are not repeated to avoid duplication but will deal with it when it\nrequired to do so while decided grounds of appeal of the assessee.\n18.1 As regards the first ground taken by the assessee, same is related to\nthe addition sustained by the Id. CIT(A) being the amount of excess stock\nfound during the course of survey. As discussed herein above the physical\nstock was calculated and valued at Rs 31,38.42.649/-. Survey team had\nalso valued the physical stock as per inventory software (MISSBS)\nmaintained by assessee at Rs. 31,24,00,586/-. Whereas the physical stock\nas per accounting software (Tally) was worked out at Rs. 27,95,30,977/-.\nLd. AO made addition of excess stock of Rs 3,43,11,672/-\nby reducing stock as calculated on tally software from physical stock\n(31,38,42,649 less 27,95,30,977). The assessee-appellant explained the\ndifference / reconciled before the Id. CIT(A) who has considered the major\ndifference of addition due to wages expenses, ageing effect and totalling\neffect mistake total of Rs 3,39,35,759/- (Rs. 1,98,88,536 + Rs. 1,29,81,073\n+ Rs. 10,66,150, respectively) and has sustained the balance amount of Rs\n3,75,913/-. In terms of the percentage, same is about 0.12 %. As is evident\nthe inventory has been taken by item wise and there was not allegation of\nthe revenue that the assessee could not reconcile the quantitative records.\nThere was also no allegation or material found showing that the assessee\nwas engaged in the unaccounted purchase and sales of goods. The books\nof accounts are maintained as per the companies act as well as under the\nIncome tax Act. No adverse finding of the Id. AO on the records of the\nquantity maintained by the assessee. It is also evident that in this case, the\nrevenue has prepared the list of 10 different type or location of the goods,\nwhile doing so and is confirmed by the Id. CIT(A) that there was totalling\nmistake/omission for an amount of Rs. 10,66,150/-. The balance difference\npleaded on account of stock taking error and omission and in fact\nconsidering the volume of the stock and taking them hurriedly while\nrecording the figure and benefit of the error and\nomission be given to the assessee when there is no dispute on the\nquantitative terms. Even in value terms the difference is less than 1 %\nand while taking the stock the error of less than 1 % shall be considered as on\naccount of error or omission when the assessee is following the same\nmethod of accounting year to year and there is no adverse comments on\nthe quantitative record. Based on these observations we direct the Id. AO\ndelete the addition of Rs. 3,75,913/- which was sustained by the Id. CIT(A).\nIn the light of this observation ground no. 1 raised by the assessee is\nallowed.\n18.2 The second ground of the appeal relates to the disallowance of lump\nsum disallowance of Rs. 3,00,000/- made by the Id. AO out of travelling,\nrepairs & other expenses u/s 37(1) and 38(2) of the IT Act, 1961 on account\nof alleged un-verifiability nature of expenses and not considered to be\nexpended wholly/exclusively for the purpose of the business of the\nassessee. In support of the grounds so raised, it has been argued that the\nprovision of section 37(1) does not provide allowability of the expenditure in\npart based on the surmises and conjectures and without specifying the specific\nfault on the part of the assessee. Ld. AO has not identified as to which of the\nexpenses and for what amount was not considerable as for the purpose of the\nbusiness. The expense pickup were conveyance expenses, repairs\nand maintenance expenses, vehicle running and maintenance expenses\nand show room miscellaneous expenses. As is clear from the heading of\nthe expenses itself that all expenditure are expressly demonstrate it nature\nand once the expenditure is duly recorded in books supported by bills and\nvouchers no lump sum addition can be sustained in the corporate entity.\nEven if the same is not for the purpose of the business the same is for the\nemployee welfare and are also considered as allowable and part of\nperquisite and thereby also stands allowable. Therefore, we do not concur\nwith the finding of the lower authority and the same are directed to be\ndeleted. While arriving at this conclusion we get support from the decision\nof our own juri ictional High Court's in the case of CIT-II, Jaipur Vs. M/s.\nConsulting Engineering Group Ltd., [ 44 taxmann.com 232(Rajasthan) ]\nwherein Hon'ble High Court observed that ;\n12. We have considered the arguments advanced by counsel for the parties and\ngone through the impugned orders as well as the orders of the lower authorities.\n13. In so far as the payments to sub-contractors are concerned, it is noticed that\nall the payments are by account payee cheques and the work, which the\nrespondent-assessee is doing, certainly required sub-contractorship to look into\nvarious other jobs which possibly the respondent-assessee was unable to handle\non its own. Admittedly, Shri Bhura Ram Chaudhary appeared before the AO,\naccepted that he has worked for the respondent-assessee and had also received\npayments from the said concern. One may not remember after lapse of years as\nto exact amount having been received from a particular concern and therefore, to\nsay that there was discrepancy in the statements of Shri Bhura Ram Chaudhary\nis not proper. He had already conveyed that he had filed his return u/s 44AF\n(should be 44AD as he was not aware of the provisions of law) but did not\nmaintain the books of accounts which, in-fact, is not required to be maintained in\na case of presumptive taxation. He has already conveyed that he had taken 25\npeople for working for the respondent-assessee and used to take 10 to 12\npersons as and when required and that the tax was also deducted at source. In\nso far as the Payal Builders and Consultants & Gautam Builders & Consultants,\nboth have admitted that they have received amount from the respondent-\nassessee for the work done by them and tax has also been deducted in their\nrespective cases. It may be that these are small time persons and as required\nunder the IT Act u/s 44AD, they were filing return and therefore, not required to\nmaintain regular and proper books of accounts and if adverse inference is drawn\nby the AO on account of this fact, in our view, is not proper. It is also an admitted\nfact, as observed by the CIT(A) as well as the ITAT that income from DPR work\nhad increased by 21.35% over preceding year whereas the corresponding\nexpenditure is only 17.19%. We also observe that while the payment to the three\nsub-contractors totaled Rs.60,09,550/- whereas the AO, for no reason, disallowed\n5% out of the total job work charges paid amounting to Rs.2,51,80,655/- and this\nexercise of the AO appears without any justification and was not proper. When all\nthe three recipients did claim that they have received the amount for the work\ndone on behalf of the respondent-assessee, then by and large there was no\noccasion for the AO to disallow the same and if or any reason the AO was not\nsatisfied with reference to the income shown by the recipients in their respective\nhands, adverse inference at least could not have been made in the hands of the\nassessee and if at all then, the AO, assessing the assessee ought to have\nforwarded such information to the AO, assessing those recipients and action, if\ndeemed proper, could have been taken in their respective hands rather than\nobserving here in the case of the respondent-assessee that the sub-contractors\nhave not shown proper income or the income is disproportionate to the receipts.\nTherefore, we feel that such an observation and ultimate conclusion by the AO to\ndisallow the adhoc amount was not correct and rightly accepted by both the\nappellate authorities.\n14. In so far as the disallowance out of the Soil testing and surveying expenses is\nconcerned, both the ITAT as well as CIT(A) have correctly disallowed the deletion\nand there was no occasion for any adhoc disallowance out of the said\nexpenditure at the rate of 10%. The CIT(A) so also the ITAT had considered the\nmatter after analyzing the details submitted before them and it has been observed\nby the CIT (A) and approved by the ITAT that the receipts by the assessee were\nto the extent of Rs.85,75,162/- as against the expenditure of Rs.50,18,663/-.\nTherefore, even the receipts are substantially higher than the expenditure and in\nour view, the disallowance deleted by the CIT(A) and approved by the ITAT\ncannot be faulted with.\n15. In so far as the salary/remuneration to the Chairman-cum-Managing Director\nShri Viswas Jain to the extent of Rs.24 lac is concerned, in our view, it is for an\nassessee, a businessman, who happens to be well versed in running\nbusiness/profession to come to a conclusion as to what remuneration/salary is to\nbe paid to an employee and in our view, reasonableness is to be judged from the\nangle of a businessman rather than from the angle of the AO who may not be\naware of the realities and peculiarities of business. It has already been explained\non the assessment records that the reasonableness or the justification of paying\nsalary to the tune of Rs.24 lac to Shri Viswas Jain was highest as he was the sole\nperson who was influential in getting business for the assessee-company. It is\nalready observed in the assessment record that the receipts of the assessee had\nincreased from 7.73 crores in the assessment year 2003-04 to 9.92 crores during\nthe previous year relevant to the year under appeal due to competence of Shri\nViswas Jain whereas the salary has been increased from 12 lac to 24 lac during\nthe previous year under appeal. Not only this, it is a case of a limited company\nand the said remuneration/increase in the remuneration was approved after\npassing a proper resolution in an extra-ordinary general meeting of the\nshareholders u/s 269 of the Companies Act. The minutes of the said meeting\nwhere all the directors were present had also been produced before the lower\nauthorities. It is already on record that it was on account of Shri Viswas Jain who\nhappens to be the key person of the Company and whole time Director and who\nhad converted his proprietorship concern into a limited company from the\nassessment year 2003 and when he has been proved to be an asset for the\ncompany, in our view, the CIT(A) rightly deleted the said disallowance which was\nupheld by the ITAT and we also see no reason in interfering with the same. In our\nview, on the face of overwhelming evidence on record, salary of Rs.24 lac cannot\nbe said to be excessive or unreasonable and the revenue has not been able to\nmake out as to whether the salary paid to Shri Viswas Jain was not as per the fair\nmarket value as provided u/s 40A(2)(a) and 40A(2)(b) of the IT Act.\n16. Certainly, aforesaid section provides that the AO, if he is of the opinion that\nsuch expenditure is excessive or unreasonable, having regard to the legitimate\nbusiness needs of the company and the benefit derived by assessee, is not\nproper, has a chance to disallow any amount over and above which he feels\nappropriate but the opinion should be formed objectively from the point of view of\na prudent businessman and after taking into account the statutory criteria and all\nrelevant circumstances and should not be influenced by immaterial\nconsiderations. Therefore, the AO, in our view, has been influenced by\nextraneous considerations and has not properly appreciated the involvement of\nShri Viswas Jain in leading a limited company of having substantial increase in\nreceipts and overall results since the limited company was formed. Not only that,\nwe also notice that the assessee-company as well as the salary paid to Shri\nViswas Jain has offered to tax at maximum rate in his individual capacity and\ntherefore, it can be said that there is hardly any loss to the revenue in so far as\nthe payment of salary is concerned. We have observed this only by way of an\nobservation, otherwise, as observed herein above, the reasonableness has to be\nconsidered from the angle of a businessman and the assessee, who happens to\nbe a businessman, certainly did consider that salary of Rs.24 lac to Shri Visvas\nJain was fair and reasonable and after getting it approved, as observed herein\nabove, in the extra-ordinary general meeting of the company.\n17. In view of what we have discussed herein above, on all the three issues, the\nITAT, after appreciation of evidence, has come to the conclusion that the\ndisallowance out of job work charges, soil testing and surveying charges and\ndirectors' remuneration is not proper and it had been rightly deleted by the CIT(A)\nand we do not find any infirmity or perversity in the said order of the ITAT. It is\npurely a finding of fact and no question of law much less substantial question of\nlaw can be said to emerge out of the said order of the ITAT so as to call for any\ninterference of this Court. In our view, no substantial question of law arises out of\nthe order passed by the ITAT.\n18. Consequently, the appeal, being devoid of merit, is hereby dismissed in\nlimine. No order as to costs.\nRespectfully following the above binding precedent, we do not find any\nreason to sustain the addition, and thereby direct to delete the same. Based\non this observation, ground no. 2 raised by the assessee is allowed.\nIn the result appeal filed by the assessee is allowed and that of the\nrevenue stands dismissed.\nOrder pronounced in the open court on 09/01/2025.\n \n(नरेन्द्र कुमार)\n(NARINDER KUMAR)\nन्यायिक सदस्य/Judicial Member\n \n(राठौड़ कमलेश जयन्तभाई)\n(RATHOD KAMLESH JAYANTBHAI)\nलेखा सदस्य / Accountant Member\nजयपुर/ Jaipur\nदिनांक/Dated:- 09/01/2025\n*Ganesh Kumar, Sr. PS\nआदेश की प्रतिलिपि अग्रेशित/Copy of the order forwarded to:\n1. The Appellant- DCIT, Circle-02, Jaipur\n2. प्रत्यर्थी / The Respondent- M/s Zari Silk (India) Pvt. Ltd., Jaipur\n3. आयकरआयुक्त / The ld CIT\n4. आयकर आयुक्त (अपील) / The ld CIT(A)\n5. विभागीय प्रतिनिधि, आयकर अपीलीय अधिकरण, जयपुर/DR, ITAT, Jaipur\n6. गार्डफाईल / Guard File (ITA Nos. 693 & 631/JP/2024)\nआदेशानुसार / By order,\nसहायक पंजीकार / Asst.