M/S SHRI SIDDHI VINAYAK INDUCTION P. LTD.,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3, JAIPUR

per provision of section 145A of the Act the thus, it cannot be termed

a business income or business expenses and in that set of facts the

courts have taken a view that the provision of section 145A r.w.s.

43B will not attract disallowance since section 145A does mandate

assessee to include service tax portion while computing the

business income. Whereas the VAT and other indirect tax levy

related to the goods were already part of section 145A of the Act

40 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur and the assessee being company has to comply the provisions of

section 145A of the Act and for computing the business income

chargeable to tax the company has to include the indirect tax levy

and thus, on a joint reading of the provision of section 145A r.w.s

43B the disallowance made by the AO is in accordance with the law

and the decision relied upon are not applicable in the facts of the

case.

decisions relied upon by both the parties to drive home to their

contentions. As the issue before us is revolving between the

provisions of section 43B and section 145A of the Act. We have

perused the provisions both the sections. The decisions relied upon

by the ld. AR of the assessee is related to the disallowance of

services and that too before the amendment made in the provision

of section 145A of the Act by Finance Act 2018. The relevant

memorandum explaining the amendment is as under ;

These amendments will take effect from 1st April, 2018. Clause 45 of the Bill seeks to substitute new sections 145A and 145B for section 145A of the Income-tax Act relating to method of accounting in certain cases and taxability of certain income: The proposed new section 145A provides that for the purpose of determining the income chargeable under the head "Profits and gains of business or profession",— (i) the valuation of inventory shall be made at lower of actual cost or net realisable value in accordance with the income

41 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur

computation and disclosure standards notified under sub-section (2) of section 145; (ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; (iii) the valuation of inventory being securities not listed on a recognised stock exchange; or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (iv) inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 and for this purpose the comparison of actual cost and net realisable value shall be done category-wise. It is also proposed to provide for an Explanation in the said section so as to provide that any tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment for the purposes of the said section. The proposed new section 145B provides that notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. It is further proposed to provide that the claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved. It is also proposed to provide that income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income tax for any earlier previous year. These amendments will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.

17.1 It is also necessary to see the provision of section 145A before

amendment which is extracted here in below:

“Method of accounting in certain cases. 145A. Notwithstanding anything to the contrary contained in section 145,- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession" shall be

42 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur

(i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation-For the purposes of this section", any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.”

17.2 As it is evident that the above provision did not include

valuation of services and thus the section 145A after amendment

reads as under :

“[Method of accounting in certain cases 145A. For the purpose of determining the income chargeable under the head Profits and gains of business or profession’- (i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (ii) the valuation of purchase and sale of goods or services and a inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; (iii) the inventory being securities not listed on a recognised stock change, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; (iv) the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;”

17.3 Ongoing through the above provisions of section 145A which

is considered by the various high courts that since in the earlier

provisions services were not included the assessee cannot be

43 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur obligated to considered it as income and thus the courts considering

the legislative intentions allowed the view that since the assessee is

under no obligation to considered the services while following the

said old provision of section 145A and thus, the courts has vacated

the disallowance of service tax under section 43B. Whereas in this

case the assessee has to consider the VAT while computing the

income and in accordance with the provision of section 145A of the

Act the disallowance of unpaid VAT is very well attracted under the

provision of section 43B of the Act and since all the decisions relied

upon by the ld. AR are related to the service tax laws and ld. AR

could not brought on record any judgement on the VAT laws we do

not find force in the arguments of the ld. AR of the assessee and

based on the above observations of the law the case law relied upon

are also differentiated. Thus, considering the above set of findings

and considering the detailed finding recorded by the ld. CIT(A) citing

the judgement of the Honourable apex court in the case of

Chowringhee Sale Bureau (P) Ltd Vs. CIT 87 ITR 542 we confirm

the disallowance made by the AO. As regards the other

disallowance made u/s. 43B such as PF, ESI, TDS since the ld. AR

did not controvert the findings of the lower authority the same is also

44 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur confirmed. Thus, we dismiss the ground no 2 raised by the

assessee.

to addition of Rs. 98,02,903/- made by the assessing officer after

rejecting the books of account of the assessee.

assessee is a private limited company. A survey action u/s 133A

was carried out at its factory premises on 17.12.2014. During the

course of survey, stock verification was done by survey team and it

is alleged that there is shortage in physical stock when compared to

stock recorded in books of accounts. Ld. AO has tabulated such

stock as per physical verification and that recorded in books in

Assessment order at page 11 para 7. However, after considering the

objections raised by the assessee the stock of finished goods was

revised by the ld. AO and accordingly the shortage was finally

worked out at Rs. 3,80,55,100/- as against the shortage of stock

worked out at Rs. 4,23,84,100/- at the time of survey (AO para 7.12

page 19 of the order). The statements of the concerned persons

were also recorded. Thereafter, during the course of assessment

45 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur proceedings a show cause notice was issued by Ld. AO, in

response to which vide reply dt. 28.11.2016 (APB 51-109) detailed

explanation and relevant extract of stock registers and bills were

filed. However, ld. AO has not accepted the same and invoked the

provisions of section 145(3) by alleging that assessee has made out

of books sales of both raw material and finished goods to the extent

of Rs.3,80,55,100/-. During the year which is solely based on the

alleged shortage of stock worked out during the course of survey

and made the addition of Rs.98,02,903/- by applying GP rate of

2.87% on total sales declared by the assessee and also on alleged

unaccounted for sales of Rs.3,80,55,100/-.

in the observations of the ld. CIT(A) is extracted here in below :

17.2 The Ld. A/R has contended that his stock was lying elsewhere and an attempt is made to reconcile the stock. I am NOT in agreement with the Ld. A/R. During the course of survey the appellant /his main accountant was asked multiple times, before and after taking of the inventory that whether the stock is lying else where. The person replied in negative. The detailed discussion in this regard can be seen in the para 7.4 to 7.6 of the AO order. The infirmity found are sound and based on investigations. The rejection of books and consequent estimation of profit is confirmed.”

46 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur 21. The ld. AR of the assessee submitted that the ld. CIT(A) in

summary manner solely on the basis of statement of junior staff Sh.

Sunil Sain, and also on the observations of ld. AO upheld the

addition. The ld. CIT(A) has completely disregarded the details

furnished by the assessee in the shape of Audited Financial

Statements, Excise Records and Statements of Director and rather

relied upon statement of a junior level staff who, incidentally is the

son of the factory supervisor and was not having overall authority

nor fully aware with the stock and other related issues. The ld. AR of

the assessee further submitted that assessee company is registered

with Service Tax, Excise and VAT and maintains regular books of

accounts along with stock records, excise records and also files

regular returns of manufacturing, sales etc. as per the applicable

Excise Law. The books of accounts of assessee are audited both

under Companies Act 2013 as well as u/s 44AB of the Income Tax

Act. It is further submitted that the assessee is a manufacturer of MS

Billets which is an excisable product and is registered with the

excise department. As per requirements of the Excise Rules and

Regulations, it is mandatory for the assessee to record daily

production and sales of the finished goods (MS Billets) in Excise

Register. Accordingly, assessee is complying all the legal

47 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur requirements. A copy of the relevant Excise register for the period

15.12.2014 to 31.03.2015 was also submitted (APB 61-64). The ld.

AR of the assessee further submitted that at page 61 of paper book,

i.e. copy of such register where the opening stock of the Finished

Goods as on 17.12.2014 is appearing at 1183 MT and production

from 17.12.2014 to 31.03.2015 was only around 433 MT. As

against this, sales during the period 17.12.2014 to 31.03.2015 is

appearing at 1567 MT. There was no purchase of finished Goods

(MS Billets) by the assessee during the FY 2014-15. Thus, it is

evident that the assessee had sold the goods which were there in

the stock as on 17.12.2014 in the subsequent period and a closing

stock of around 50 MT as on 31.03.2015 was left out of the

production made during the balance period of the subject AY 2015-

the ld.AO who further made the addition of the GP on the alleged

shortage of stock which tantamount to double addition.Similarly, the

assessee has to mandatorily record the purchases and consumption

of Raw Material in the excise record. A copy of the relevant Excise

register for the period 15.12.2014 to 31.03.2015 was also furnished

(APB 55-60). It may be observed from the above register that on

17.12.2014 the stock of the Raw Material was 500 MT (APB 57) and

48 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur inwards out of Purchases from 17.12.2014 to 31.03.2015 was Appx.

1130 MT. As against this, consumption for production of MS Billets

during the period 17.12.2014 to 31.03.2015 was only 472 MT,

leaving closing stock of Raw Material of 1158 Mt as on 31.03.2015.

Thus, it is evident that the assessee had consumed the stocks of

Raw Material which were there in the stock as on 17.12.2014 in the

subsequent period and there was no major shortage of Raw Material

of 275 MT as alleged by ld.AO. It is submitted that the excise

records are frequently inspected and checked by Excise Range

office, Excise Anti Vision and DGCE office. These are also

inspected by Commercial Tax Authorities ( VAT – Range and Anti

vision both) and there cannot be any substantial difference in the

quantities of Raw Material and Finished Goods in such a tightly

supervised regulatory environment as alleged in the show cause

notice. It is further submitted that the stock of Raw Material

comprises of Melting scrap, Sponge Iron, Silico Magnese, H. R.

Sheet Etc. which was lying as a large heap except for Silico

Magnese which was there in Jute bags in the factory go-down. The

density and weight of different type of raw material is different and

the actual weight can be known only by actual weighment on

weighbridge in some truck or other container. The survey was

49 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur commenced and concluded on the very same day. Weighing so

much of the stock available at different places at the factory

premises [as is evident from the survey records (APB 111-114)] is

humanly impossible task more particularly looking to the total

number of three officials in the survey team out of which two were

the ITO rank officer and only one inspector was present. During the

course of assessment proceedings, it was contended that, on the

date of survey, there was no physical counting and/or weighing of all

the stocks of Raw Material and Finished Goods carried out by the

Income Tax Officials. There is nothing on record which establishes

any actual weighment of Raw Material Stock nor any proof was

given to the assessee. However, such contention was rejected by

ld.AO by simply stating that the stock was taken in the presence of

the employees of the assessee company and director Shri Ashok

Dharendra also not raised this issue when he was confronted with

the same. In this regard it is submitted that at the residential

premises of Shri Ashok Dharendra search action was carried out

and he was under pressure and that pressure has made this

assertion. It is submitted that later on he has retracted from his

statements also, copy of the affidavit filed in this regard is at APB

36-38 which remained uncontroverted in the case of the assessee

50 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur company. Further, it is submitted that from 07.12.2014 to

16.12.2014, around 795 MT of Raw material was received in the

factory out of which around 195 was local scrap and 600 MT was

Imported scrap for which documentary evidence of clearance from

Customs, CONCORE, and shipping companies, transportation of

the material in closed containers from ICD Kanakpura to factory

premises is available on record and the same is duly entered in the

excise records too. Total consumption of Raw Material for

manufacturing of Billets is only around 299 MT and thus raw

material stock of over 500 Mt was very much there mostly

comprising of the Imported scrap which by nature is heavier but will

appear as small heap compared to the local scrap, visually. As

already submitted that the Income Tax Officials have only estimated

the quantity / weight of the raw material by visual inspection only. It

may also be noted that there was stock of End Cuttings billets of 5

Mt appx. as on 17.12.2014 which was neither shown in the physical

stock present nor shown as shortage whereas the officials had taken

the excise records for End Cuttings too during the survey. Thus, it

appears that the stock taking was done in a casual manner and

there were shortcomings / errors in the process and recordings of

the stocks. As submitted above, on 17.12.2014 the opening stock of

51 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur the Finished Goods was 1183 MT and production from 17.12.2014

to 31.03.2015 was only around 433 MT. Whereas the sales during

the period 17.12.2014 to 31.03.2015 was 1567 MT and no

purchases of Finished Goods were made during this period. This is

evident from the excise record of the assessee. Out of these sales,

around 810 MT was Interstate Sales which involves actual

movement of Finished goods from factory to different state. If the

stock of Finished Goods was not there with the assessee on

17.12.2014, with just 433 MT of production, how the sales of 1567

MT were made by the assessee. Another aspect worth noting in this

case is that the assessee has already accounted for sales of the

subject stock in the books of accounts and it is reflected in the Profit

and Loss of the assessee for the AY 2015-16. How it can be shown

again as out of the books sale again which effectively will mean

double booking of the sale of material and thus not possible. Thus,

although the assessee had submitted all the relevant details,

quantitative figures reconciling the stock with the books, stock

records, excise records, subsequent sales, purchases etc, the

learned AO has not taken any cognizance and has rather

concentrated on making high pitched order by rejecting the books of

accounts all-together under section 145(3) of the IT Act, 1961.

52 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur 21.1 The ld. AR submitted that in para 7.13 of the assessment

order, the Learned AO has taken altogether different view of taking

basis of lower GP rate during the assessment year 2015-16 as

compared to the earlier years as basis for rejecting the books of

accounts and made lump sum addition on the basis of arbitrarily

applying average GP rate of past four years not only to the whole

turnover of the assessee for the AY 2015-16 but also on the alleged

out of the books Sales of raw material and finished goods. This

shows the casual approach of assessing officer.

22.2 The assessee had appraised the learned AO about the

declining trend in the business and mounting losses during the

assessment proceedings. She herself has mentioned in the

assessment order that the profits are continuously declining since

past three years, but has still made addition on the basis of average

rate. It is also relevant to state that in the preceding assessment

year the GP rate declared by the assessee was never doubted

where the assessment was completed u/s 143(3). Incidentally

assessment for AY 12-13 and 14-15 are also before the hon’ble

bench wherein no such doubts were raised about the

reasonableness of the gross profit rate declared by the assessee.

53 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur Further the GP rate worked out by the ld.AO at 2.87% also is not in

accordance with the GP rate of past 4 assessment years as adopted

which is evident from the table below:

AY Turnover Gross Profit GP %

2011-12 69,63,20,432/- 2,10,86,499/- 3.02

2012-13 74,71,14,618/- 3,44,82,706/- 4.62

2013-14 81,98,64,757/- 2,45,72,221/- 3.00

2014-15 41,19,58,844/- (83,32,850/-) (2.02)*

* Assessee was in Gross loss

It was further submitted that average GP rate of past 4 years

has been taken arbitrarily. The average GP rate of past 4

years actually comes to 2.15%, thus, it is seen that the AO has

taken a casual approach. However, not admitting the above

position, it is submitted that normally for estimating the profit

by applying GP rate, average GP of last 3 years is taken as

basis and this practice had been is broadly accepted / upheld

by hon’ble ITAT benches/ hon’ble High courts, considering this

proposition, the average GP of past 3 years comes to 1.86% .

recorded by the assessing officer and reasoning given by the ld.

54 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur CIT(A) while dealing with the additions. He has further submitted

that the stock was taken in the presence of the party and the

difference is found which is substantial and looking the facts as

detailed in the assessment the addition made by the ld. AO deserve

to be confirmed.

arguments and decisions relied upon by both the parties. It is not

disputed by the revenue that the records maintained by the

assessee was in accordance of the excise records and not a single

defect pointed except that there is a difference in the physical stock

and book stock. For this the ld. AR has argued various aspect that

the working done by the department was not possible in a single day

to take the complete stock but at the same time he has not justice

the working done by the survey team to tally the difference in stock.

His arguments that each and every purchase and sales is recorded

in terms of value and quantity in the records maintained by the

assessee is not disputed but once the team has taken the stock in

the presence of the officer and the ld. AR except the general

arguments unable to reconcile the figure. At the same time the

various contentions raised by the assessee in the assessment

55 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur proceedings were not considered by the ld. AO and even the ld.

CIT(A) has not given his detailed finding so as to deal with the

contentions raised by the assessee in full. The order of CIT(A) is

non speaking on these aspects. The ld. AR also brought to our

notice that stock of finished goods was revised by the ld. AO and

accordingly the shortage was finally worked out at Rs. 3,80,55,100/-

as against the shortage of stock worked out at Rs. 4,23,84,100/- at

the time of survey (AO para 7.12 page 19 of Assessment order ).

We found force in the alternative argument of the ld. AR of the

assessee that since the department has alleged that there is a

shortage of stock in the physical stock taking then in that case since

the purchases are already recorded and if the allegation of the

department considered true and disregarded the submission of the

assessee on merits then in that case only profit can be added for

these alleged out of books sales which is considered as shortage of

stock. For this contention he relied on the decision of the coordinate

bench in the case of Gunesh India Private Limited in ITA no.

38/JP/2021 and 21/JP/2021. The relevant extract is duly form part of

the submission of the assessee. Being consistent on the finding

given in that case that we considered that when the ld. AO has not

disputed the purchases and only the shortage is to be considered as

56 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur out of book sales and in that situation only the average profit as

worked out @ 1.86% can be added considering the average of last 4

years on the corrected shortage worked out for Rs. 3,80,55,100/-

which we considered that will end the justice in the present set of

facts. Thus, ground no. 5 to 6.1 raised by the assessee are partly

allowed.

in ITA NO. 279/JPR/2019 are similar to the case in ITA NO. 01/JPR/2021 so

far as Ground No.1 and 1.1 in ITA 116/JPR/2017 and ground no. 2 in ITA

No. 279/JPR/2019 is concerned and we have heard both the parties and

persuaded the materials available on record. The bench has noticed that

the issues raised by the assessee in these appeals are equally similar on

set of facts and grounds. Therefore, it is not imperative to repeat the facts

and various grounds raised by both the parties. Hence, the bench fees that

the decision taken by us in ITA No. 01/JPR/2021 shall apply mutatis

mutandis in the ITA No. 116/JPR/2017 and ITA NO. 279/JPR/2019 in those

similar grounds raised in these two appeals. The other ground raised by the

assessee are not pressed as per their written submission and thus,

dismissed.

57 ITA No. 01/JP/2021 Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur vs. DCIT, Jaipur In the result ITA NO. 01/JPR/2021 for A. Y. 2015-16 is partly allowed,

ITA NO.116/JPR/2017 for A. Y. 2012-13 is dismissed and ITA No.

279/JPR/2019 for A.Y. 2014-15 is also stands dismissed.

Order pronounced in the open court on 29/08/2022 Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 29/08/2022 *Ganesh Kumar आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- M/s Shree Siddhi Vinayak Induction Pvt. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-03, Jaipur DCIT, Circle-07, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 01/JP/2021, 116/JP/2017 & 279/JP/2019) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत