STANZEN LINKS,BANGALORE vs. ITO, BANGALORE

This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-III, Bangalore dated 25- 11-2013 for the assessment year : 2009-10.

2. The assessee raised the following grounds of appeal;

“1. The order of the CIT(A) to the extent it confirms the order of the AO and also enhanced the income is bad in law and is liable to be quashed.

ITA No.304 (B)/2014

2.1 The AO had erred in increasing the gross profit rate from 17.57% to 27% and the CIT(A) has erred in confirming the gross profit rate of 25%. 2.2. The appellant had explained and substantiated the reason for the gross profit rate as achieved and the lower authorities should have accepted the gross profit as returned without making any addition thereon. 2.3. The enhancement in gross profit as done and sustained is not based on the material and is done without properly appreciating the facts and circumstances of the case. 2.4 The appellant has maintained regular and proper books of accounts which have not been rejected. The addition to gross profit as confirmed being had on the facts and law is to be deleted. 3.1 The CIT(A) has erred in adding a sum of Rs.10,38,574/- being unavailed excise duty to the value of closing stock. 3.2 The enhancement as done by the CIT(A) is not proper and nit in accordance with law. 3.3 In any case and without prejudice the addition of Rs.10,38,574/- is bad in law and in fact and is to be deleted.

ITA No.304 (B)/2014

4. In view of the above and on other grounds to be adduced at the time of hearing it is requested that Gross Profit percentage as returned be accepted and the addition made on account of Gross Profit as also of Rs.10,38,574/- on account of unavailed excise duty be deleted.

ITA No.304 (B)/2014

4. Being aggrieved by the assessment order an appeal was filed before the learned CIT(A), who vide his impugned order deleted the addition made on account of difference in contract receipts as per P&L account and form no.16A. However, made an addition of Rs.10,38,574/- account of valuation of closing stock following the decision of the jurisdictional High Court in the case of CIT Vs HP Global Soft Ltd. 342 ITR 276. However, while confirming the addition on account of low GP, reduced the GP to 25% as against 27% adopted by the AO.

5. Being aggrieved, the assessee company is in appeal before us with the present appeal.

3. ITO Vs Sai International (2013) 31 Taxmann.com 346(Del.)

6. CIT Vs K.S.Bhatia (2002) 125 Taxmann 454(P&H)

8. ITO Vs Girish M Mehta (2007) 105 ITD 585(Rajkot)

6.1 On the other hand, learned SR DR relied on the orders of the authorities below.

7. We heard the rival submissions and perused the material on record. The AO estimated the GP at 27% on the sales of 9,72,51,257/- as ITA No.304 (B)/2014 against GP shown by the assessee of Rs.17.57%. The AO also further noted that the GP in the immediate previous year was 29.53%. However, as clear from the assessment record, we find that the assessee had not offered any explanation to the satisfaction of the AO. Now, the assessee filed before us the copies of explanation offered before the CIT(A). The assesee only filed the copies of the explanation filed before the CIT(A) and the CIT(A) after considering the explanation filed reduced the GP to 25% which is far less than the immediate last year of 29.53%. During the course of hearing before us, we directed the learned AR to file the comparative figures of profits for the last three years which had not been filed so far. In the circumstances, we are of the considered opinion, we do not have any reason to interfere with the order of CIT(A) on this ground. Thus, the grounds of appeal nos.2.1 to 2.4 are dismissed. Ground no.3 relates to the addition of Rs.10,38,574/- on account of un-availed excise duty to the value of closing stock. The CIT(A) made this addition after giving due opportunity of being heard to the assessee following the decision of the Hon’ble jurisdictional High Court in t he case of CIT Vs HP Global Soft Ltd (Supra)

ITA No.304 (B)/2014

“Be that it may, as in the order pertaining to other assessment years of the very assessee in sofaras the dispute relating to the assessee being entitled to deduct the amount from out of its value of closing stock, an amount that is attributable to the excise duty paid at the time of purchase is a question directly linked to the purchase price and the duty paid on that and a duty actually paid at the time of purchase. This aspect has been discussed by the AO and though even as pointed out by the assessee that there is considerable confusion as to whose duty liability is sought to be passed on to whom, as to whether the assessee was required to bear some duty being utilized by the assessee from out of the product sold to its customers, ultimately these things do not reflect into a method of accounting for the purpose of computing profits of the assessee, but only the question is one of duty paid for the purpose of acquisition of raw materials to be consumed in producing finished product.

While it is no doubt true that the cost of purchases inevitably to include a duty component in sofar as an assessee is concerned, significance of section 43B is only that if a deduction is claimed in respect of any tax or duty paid. It should be on actual basis and on ITA No.304 (B)/2014 making payment. Section 43B does not by itself or per- se disallow any value from the cost, but only stipulates condition that if the value of purchases includes a duty component, that should be made good to the hilt. It is for this season, it is held that on the principle or requirement of section 43B, an assessee is duty bound to make good actual duty it has paid on account of purchases of raw materials for producing finished product by producing proof of payment etc. it made and that not having been made good anywhere on record, in fact, for the other assessment years also, that is a matter which can be made good as amount claimed, but not in vaccum.

The concept of method of accounting as is sought to be applied, particularly in the context of the provisions of sec.145 is more in the nature of a jugglery than a standard method of accounting for the purpose of claiming a duty deduction on the cost of purchases. A duty paid can always be claimed in terms of sec.43B, but not otherwise as the section mandates it.

It is for this reason, the MODVAT credit is correctly added to the income as well as the value of the closing stock for the current assessment year by the AO”.

ITA No.304 (B)/2014

The decision of the Hon’ble jurisdictional High Court is in line with the settled principles of law and therefore, we do not find any infirmity with the order of the learned CIT(A), hence the appeal filed by the assessee is dismissed.

Order pronounced in the open court on the 11th December, 2015.