M/S ANJUNA ,KOLKATA vs. J.C.I.T.,RANGE -28, KOLKATA

Ground No. 1 raised by the assessee in this appeal relates to the issue of disallowance of Rs.1,25,510/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40A(3) of the Income Tax Act, 1961.

The assessee in the present case is a partnership firm, which is engaged in the business of trading and manufacturing of all kind of Sarees Fabrication. The return of income for the year under consideration was filed by it on 26.09.2011 declaring total income of Rs.8,22,770/-. As Assessment Year: 2011-2012 M/s. Anjuna noticed by the Assessing Officer during the course of assessment proceedings, labour charges aggregating to Rs.1,25,510/- were paid by the assessee to the two parties in cash in the sums exceeding Rs.20,000/- on a single day. He, therefore, invoked section 40A(3) and made a disallowance of Rs.1,25,510/-.On appeal, the ld. CIT(Appeals) confirmed the said disallowance observing that there was failure on the part of the assessee to show that the payments in cash against labour charges were made in any exceptional circumstances as prescribed in Rule 6DD of the Income Tax Rules, 1962.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Even before the Tribunal, the ld. Counsel for the assessee has not been able to show any exceptional circumstances as prescribed in Rule 6DD of the Income Tax Rules, 1962 under which the assessee was required to make the payments in question against labour charges in cash. I, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) confirming the disallowance of Rs.1,25,510/- made by the Assessing Officer under section 40A(3) of the Act and upholding the same, I dismiss Ground No. 1 of the assessee’s appeal.

Ground No. 2 raised by the assessee relates to the issue of the addition of Rs.6,11,628/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of the alleged suppression of sales by the assessee.

During the survey carried out in the business premises of the assessee under section 133A of the Act on 21.03.2011, stock of the finished goods on physical verification was found to be worth Rs.19,53,450/-. Taking the said stock into consideration as well as the expenses incurred by the assessee on labour charges and raw material consumption and the closing stock of finished goods as disclosed by the Assessment Year: 2011-2012 M/s. Anjuna assessee as on 31.03.2011, the cost of goods sold for the period 22.03.2011 to 31.03.2011 was worked out by the Assessing Officer at Rs.13,91,055/-. Since the cost of goods sold for the said period was shown by the assessee at Rs.8,65,150/-, the assessee was called upon by the Assessing Officer to explain the difference of Rs.5,25,905/- on account of goods sold. In reply, reconciliation was filed by the assessee explaining the said difference. The Assessing Officer, however, did not find the same to be acceptable and by adding the gross profit @ 16.30% as disclosed by the assessee, the unaccounted sale of the assessee was worked out by the Assessing Officer at Rs.6,11,628/-. Accordingly an addition to that extent was made by the Assessing Officer to the total income of the assessee on account of suppression of sale.

The addition made by the Assessing Officer on account of suppression of sale was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was submitted on behalf of the assessee that the stock of finished goods found during the course of survey was valued at MRP instead of valuing the same at cost. It was contended that if the value of the said stock was adopted at cost, the suppression of sale would be only to the extent of Rs.1,57,255/- as against Rs.6,11,628/- as worked out by the Assessing Officer. This stand of the assessee was not found acceptable by the ld. CIT(Appeals) in the absence of relevant details filed by the assessee to support and substantiate the same. He accordingly confirmed the addition of Rs.6,11,628/- made by the Assessing Officer on account of the alleged suppression of sale.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. Counsel for the assessee has reiterated before me the stand taken before the ld. CIT(Appeals) that the stock of finished goods as found during the course of survey was valued at MRP and not at cost. He has contended that if the Assessment Year: 2011-2012 M/s. Anjuna cost of the said stock is taken into consideration by reducing the gross profit, there would be hardly any difference in the trading results shown by the assessee for the post-survey period. The ld. D.R., on the other hand, has submitted that this stand taken by the assessee before the ld. CIT(Appeals) as well as before the Tribunal was never taken by the assessee before the Assessing Officer during the course of assessment proceedings and the same, therefore, has remained to be verified. Keeping in view the submissions made by both the sides, I consider it just and proper to set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer to decide the same afresh after verifying the stand of the assessee that the stock of finished goods as found during the course of survey was valued at MRP instead of at cost. The Assessing Officer shall verify this factual aspect and re-compute the addition, if any, which is liable to be made on account of suppression of sale after giving the assessee a proper and sufficient opportunity of being heard. Ground No. 2 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.

In the result, the appeal of the assessee is treated as partly allowed for statistical purposes. Order pronounced in the open Court on January 10, 2020.