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Income Tax Appellate Tribunal, “SMC-C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT (A), Hubli dated 05.06.2017 for Assessment Year 2013-14.
2. The concise grounds raised by the assessee are as under. “1. The learned Commissioner of Income tax (Appeals) erred in confirming addition of Rs.6,07,783/- made under Undervaluation of Closing Stock.
The learned Commissioner of Income Tax (Appeals) erred directing the Assessing Authority to value the Closing Stock of "MOTH" at Rs.1,309.74/- (Average Selling Price) per bag rejecting the regular system of valuation of stock on weighted Average Cost followed by the appellant.
3. The learned Commissioner of Income Tax (Appeals) erred in confirming the valuation of closing stock of SUGAR, RAWA, TORDHALL, WHEAT and MAIDA valued under FIFO as against AVERAGE COST BASIS regularly adopted by the Appellant.
4. The appellant has been following similar method of valuing the stocks in the previous years and the learned Commissioner of Income Tax (Appeals) ought to have directed the learned Assessing Authority to value the Opening Stocks also under similar method.
5. The learned Commissioner of Income Tax (Appeals) erred in confirming the additions made by applying the provisions of section 40(a)(ia) of the Act in respect of reimbursement of expenses charged under warehousing charges at Mumbai.
The learned Commissioner of Income Tax (Appeals) failed to consider that the appellant is not required to deduct tax on reimbursement of expenses which are judicially supported decision of the Hon'ble Tribunal rendered in Deputy Commissioner of Income Tax Vs. M/ s. Dhaanya Seeds Pvt. Ltd., and Assistant Commissioner of Income Tax Vs. M/s. National Timbers, Kochi.”
Regarding ground nos. 1 to 4 in respect of addition of Rs. 6,07,783/- by alleging that there is undervaluation of closing stock, it was submitted by ld. AR of assessee that assessee is regularly following the Weighted Average Method for valuing closing stock but in the audit report, it was stated by mistake that the assessee is following FIFO method of valuing closing stock. In support of this contention that the assessee is regularly following this method of valuing stock i.e. Weighted Average Method, he brought on record the stock summary for the previous year i.e. 2010-11 and 2011-12 which are relevant for Assessment Year 2011-12 and 2012-13 and also for the present year and along with subsequent year and he pointed out that in all these four years i.e. present year, preceding two years and succeeding one year, the assessee is following the same method of valuing stock i.e. Weighted Average Cost Method and therefore, no addition is called for by alleging under valuation of closing stock by the assessee because the method being adopted by assessee is acceptable method. The ld. DR of revenue supported the orders of authorities below. He submitted that it is noted by the AO in para 6 of the assessment order that the assessee is a wholesale and retail trader in grocery items which are perishable one and therefore, any businessman will first sale the goods purchased first and hence, FIFO method has to be adopted in the facts of the present case.
I have considered the rival submissions. In my considered opinion, the method being adopted by the assessee i.e. Weighted Average Cost Method is an approved and acceptable method and the same is being followed by assessee consistently because as per material brought on record by assessee before the Tribunal, it was followed in Financial Year 2010-11, 2011-12, 2012-13 and 2013-14. Regarding this argument of ld. DR of revenue that assessee is dealing in perishable items and therefore, FIFO method should be adopted, I feel that this argument is not valid. In the light of these facts, the assessee is consistently following the Weighted Average Cost Method, in the preceding years, present year and succeeding year, in my considered opinion, no addition is called for by adopting a different acceptable method i.e. FIFO method as done by the AO. Hence I delete this addition made by the AO on this account.
The second issue as per ground nos. 5 and 6 of the assessee’s appeal is about disallowance u/s. 40(a)(ia) of IT Act. The ld. AR of assessee has submitted that as per written submissions filed before the AO, copy available on pages 1 to 3 of paper book, it was submitted by the assessee in Para 9 of this letter that the assessee was required to make TDS only on the commission / charges paid to M/s. Chitalia Logistics Pvt. Ltd. and since, the assessee has not made any payment of such charges to that party because of some disputes due to which the assessee has paid only Rs. 4,30,000/- as against the bill of that party of Rs. 4,88,363/-, no disallowance is called for u/s. 40(a)(ia) of IT Act. Reliance was placed by him on Tribunal order rendered in the case of DCIT Vs. M/s. Dhaanya Seeds Pvt. Ltd. in dated 27.09.2013, copy available on pages 59 to 76 of paper book and in particular, my attention was drawn to para no. 6.4.1 of this Tribunal order and it was pointed out that it was held by Tribunal in this case that since reimbursement of expenses do not constitute trading receipts or have no element of income therein, TDS is not liable to be made from reimbursements. At this juncture, query was made by the bench as to whether the relevant bill raised by that party is available on record to find out as to whether the payment made by the assessee to this party is reimbursement only of the exact amount spent by that party on behalf of the assessee. In reply, it was submitted by ld. AR of assessee that the bill in question is not readily available and therefore, the matter may be restore back to the file of AO for fresh decision with proper directions. The ld. DR of revenue supported the orders of authorities below.
6. I have considered the rival submissions. I find that in the case of DCIT Vs. M/s. Dhaanya Seeds Pvt. Ltd. (supra), the Tribunal has reproduced para 4.6 of the order of CIT(A) in that case in which a categorical finding is given by CIT(A) that the expenses were incurred by the C&F agents on behalf of the assessee in that case and claims were made in their bills on actual basis and the amounts were shown separately supported by necessary evidence and therefore, these payments were made on actual basis and they do not contain any element of income. In the present case, the copy of relevant bill raised by that party on assessee is not available and no finding is given by any of the authorities below that the bill raised by that party is on the basis of actual reimbursement of the expenses incurred by that party on behalf of the assessee. Under these facts, I feel it proper to restore the matter back to the file of AO for fresh decision. I order accordingly. I restore the matter back to the file of AO with the direction that if the assessee brings evidence on record to substantiate its contention that the amount paid to that party is on account of reimbursement of actual expenses incurred by that party on behalf of the assessee then it should be accepted that no TDS is required to be deducted by assessee from such reimbursement and therefore, for such payment on account of actual reimbursement, no disallowance is called for u/s. 40(a)(ia) of IT Act and only in respect of those payments which are not in the nature of actual reimbursement, it should be held that TDS was required to be deducted and disallowance should be made u/s. 40(a)(ia) because assessee has not deducted TDS. The AO should pass necessary order as per law as per above discussion after providing reasonable opportunity of being heard to assessee. This ground is allowed for statistical purposes.
In the result, the appeal filed by the assessee stands allowed for statistical purposes in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.