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Income Tax Appellate Tribunal, “GUWAHATI” BENCH, GUWAHATI
Before: SHRI RAJPAL YADAV, HON’BLE & SHRI MANISH BORAD, HON’BLE
PER MANISH BORAD, ACCOUNTANT MEMBER:
The present appeal is directed at the instance of the revenue against the order of the Learned Commissioner of Income Tax (Appeals) - Shillong, (hereinafter the “ld. CIT(A)”) dt. 03/06/2016, passed u/s 250 of the Income Tax Act, 1961 (“the Act’) for the Assessment Year 2010-11, on the following grounds:- “1. For that the Ld. CIT(A) has erred in deleting the addition made by A.O. of Rs.8,81,708/- on account of unexplained expenditure.
For that the Ld. CIT(A) has erred in deleting the addition of Rs.4,02,36,806/- made by A.O. on account of undisclosed stock.
For that the Ld. CIT(A) has erred in deleting the disallowance of Rs.16,20,750/- made by A.O. on account of making charges u/s 40(a)(ia).
For that the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,34,640/- and Rs.83,385/- made by A.O. on account of advertisement expense u/s 40(a)(ia).”
Brief facts of the case are that the assessee is a partnership firm engaged in jewellery business. Income of Rs.56,80,854/- was declared in the return filed on 23/09/2010. The case was manually selected for scrutiny followed by service of notice u/s 143(2) & 143(1) of the Act. The ld. Assessing Officer called for various Assessment Year: 2010-11 M/s. Kalika Jewellers 2 details of transactions carried out during the year and after considering the submissions of the assessee making the following addition assessed the income of the assessee at Rs.4,91,97,800/-:- Particulars Amount Amount Total Income as per Return 56,80,854/- Add: (as discussed above) (i) Making charges: Rs.8,81,708/- (ii) Difference in Closing Stock Rs.4,02,36,806/- (iii) Non deduction of TDS on Rs.20,04,100/- making charges: Rs.3,94,332/- 4,35,16,946/- (iv) Non deduction of TDS on Advertisement Net Total Income 4,91,97,800/-
Aggrieved the assessee preferred an appeal before the ld. CIT(A) who made detailed submissions and most of the additions made by the Assessing Officer were deleted and assessee partly succeeded.
Aggrieved the revenue is in appeal before this Tribunal.
The ld. D/R, vehemently supported the order of the Assessing Officer and the ld. Counsel for the assessee supported the detailed findings of the ld. CIT(A). The ld. Counsel for the assessee also filed a copy of the audited balance sheet for the financial year 2009-10. 6. We have heard the rival submissions and perused the record placed before us.
Ground No. 1:
This ground relates to the addition on account of unexplained expenditure of Rs.8,81,708/-. This sum was paid to various karigors for making charges of jewellery. The ld. Assessing Officer issued summons u/s 131 of the Act, to four karigors and in the statement recorded it was stated by them that only wastage/loss while making the ornaments were received by them as making charges and no other amount was received. However, it remained a Assessment Year: 2010-11 M/s. Kalika Jewellers 3 fact that all these karigors were paid through proper banking channels and assessee also filed details for genuineness of the transactions. During the course of hearing before the Assessing Officer, the assessee requested for an opportunity of cross-examination of the karigors which was not allowed and only a copy of the statement given by the karigors were given to the assessee. In these given facts, we find that the ratio laid down by the Hon’ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II reported in [2015] 62 taxmann.com 3 (SC) is squarely applicable wherein it has been held that, denying the assessee an opportunity to cross- examine the witnesses by the Adjudicating Authority when the statements of those witnesses were made the basis of the impugned order would tantamount to a serious flaw will make the order nullity inasmuch as it amounts to violation of principles of natural justice. We find that the ld. CIT(A) following the ratio of law laid down by the Hon’ble Apex Court (supra) deleted the impugned addition and, therefore, we fail to find any infirmity in the said finding. Thus, Ground No. 1 of the revenue is dismissed.
Ground No. 2: Through this Ground, the revenue has agitated the deletion of addition of Rs.4,02,36,806/- made by the Assessing Officer for the difference in the value of closing stock declared in the return of income and this stock being shown to the bank. We, after going through the details, find that the assessee has cash credit limit of Rs.1,00,00,000/- from UCO Bank. On 10/09/2009, a process note dt. 31/08/2009 signed by the Branch Manager sanctioning the cash credit limit was signed. That as on 31/08/2009, the assesse stated to have had closing stock at Rs.9,85,00,000/-. Further in column 5(A) of the said process note it was certified that the stock has been physically verified and the value of the stock mentioned in the statement is correct. The ld. Assessing Officer taking the basis of the figure of Rs.9,85,00,000/- as value of stock of jewellery as on 01/09/2009, prepared the trading account from 01/09/2009 to 31/03/2010 and after Assessment Year: 2010-11 M/s. Kalika Jewellers 4 applying the gross profit @ 132.28% which is generally declared by the assessee, computed the closing stock figure at Rs.9,64,18,503/-. Thereafter, the ld. Assessing Officer took note of the closing stock figure actually declared by the assessee in its audited financial statement which was shown at Rs.5,61,81,697/-. The difference of the two figures i.e., the closing stock calculated by the Assessing Officer on the basis of trading account prepared for the period 01/09/2009 to 31/03/2010, at Rs.9,64,18,503/- and the actual closing stock shown by the assessee at Rs.5,61,81,697/-, the difference of Rs.4,02,36,806/- was treated by the Assessing Officer as difference in closing stock which remained undisclosed. During the course of first appellate proceedings before the ld. CIT(A), the basis of relief was majorly on account that the working carried out by the Assessing Officer is only on the basis of a letter given by the assessee to its bank and that it is a statement given by the assessee to a third party in connection with the transaction which was not directly related to the assessee and making that, the sole basis for a finding that the assessee had deliberately suppressed its income. In support of this finding, the ld. CIT(A) has relied on the various judicial precedents.
Before adverting to the findings of the ld. CIT(A) and the case-laws relied upon, we find that it is not necessary at this stage to directly go to the judicial pronouncements and the primary requirement is to find out the correct facts of the case. The process note referred to by the Assessing Officer is a document signed by Branch Manager who has stated to have physically verified the closing stock as on 31/08/2009. Also the assessee has prepared the stock statement in writing and under his signature given it to the Branch Manager stating that as on 31/08/2009, the value of stock i.e., gold earning and process note as Rs.9,85,00,000/-. Both these documents are part of the paper book and on the basis of these documents, the assessee has been able to renew its cash credit limit. There is no dispute to the fact that both these documents are not dumb documents as both the assessee and the bank officials have Assessment Year: 2010-11 M/s. Kalika Jewellers 5 signed the documents and, therefore, there is a reasonable basis for the Assessing Officer to have computed the value of opening stock as on 01/09/2009 as Rs.9,85,00,000/-. Now, the assessee’s contention during the proceedings before the lower authorities is that the said valuation of closing stock was given only to get the high cash credit limit and it was merely on an estimate basis and the same should have been ignore by the Assessing Officer and should have relied only on the audited financial statements. However, at this juncture, we differ with the contentions of the assessee because the estimates are not too far from the actuals and there may be a variation of 2%-5%. But here there is a variation of almost 50% of value of the stock. Now to counter the allegation by the Assessing Officer, the assessee was required to furnish the quantitative details of its stock as on 31/08/2019 and the valuation of such stock as per the valuation method regularly adopted by the assessee. It is claimed by the assessee that it maintains stock records and in the audited financial statements also, quantitative details of gold jewellery at the opening and closing of the year have been shown. It is not easy for the assessee to merely get away by stating that the addition is made mainly on the basis of statement given to a third party. Rather it is the assessee who has given its statement in writing and the bank officer who has accepted the same and is said to have physically verified the stock. We, therefore, are of the considered view that, at this juncture, there is no need to go through the judicial precedents but what is required is the actual quantitative stock held with the assessee as per its stock register regularly maintained and the quantity so available in its stock record as on 31/08/2009. We, therefore, are of the considered view that this issue needs to be restored to the ld. CIT(A) for fresh adjudication with a direction to call for a remand report from the Assessing Officer who shall in turn call the assessee to bring forth all the quantitative records for the financial year 2014-15 and specifically furnish the stock details as on 31/08/2009 and as per the prevailing market rate and Assessment Year: 2010-11 M/s. Kalika Jewellers 6 the stock valuation method. The details should be filed before the ld. Assessing Officer and thereafter, the ld. CIT(A) shall decide the issue in accordance with law after affording reasonable opportunity to the assessee. Accordingly, Ground No. 2 of the revenue is allowed for statistical purposes.
Ground No. 3:
This ground relates to disallowance made u/s 40(a)(ia) of the Act, for non-deduction of tax at source on making charge of Rs. 16,20,750/-. We find that the appellant has furnished copy of the certificate prescribed in Form No. 26A, dt. 05/05/2015, issued by chartered accountant to the effect that the payee i.e., Moder Guinea House Pvt. Ltd. had furnished its original return of income for the year under consideration on 29/09/2010 and has taken into account Rs.16,25,210/- received from the assessee as part of its revenue and has paid due taxes thereon. Under these given facts, which remain uncontroverted, we fail to find any infirmity in the ld. CIT(A) deleting the disallowance. Accordingly, we dismiss Ground No. 3 of the revenue.
Ground No. 4:
This Ground relates to disallowance of unexplained expenditure u/s 40(a)(i) of the Act for not deducting tax on the amount of Rs.3,94,332/-. Out of the said amount of Rs.3,94,332/-, a sum of Rs.2,59,692/- has been paid by the assessee towards purchase of material and it was not for any contract work as mentioned u/s 194C of the Act. Accordingly the ld. CIT(A) deleted the disallowance to this extent. The revenue has not challenged this addition before us. As regards the remaining sum of Rs.1,34,640/- is concerned, the ld. CIT(A) has confirmed the disallowance of Rs.51,255/- being hit by the provision of Section 40A(3) of the Act since it was paid in cash and this being not in dispute before us by the assessee, needs no adjudication. Now, remains Assessment Year: 2010-11 M/s. Kalika Jewellers 7 the sum of Rs.83,385/- for which the assessee had already filed a copy of the certificate in Form No. 26A dt. 26/08/2015 to the effect that the payee i.e., Mr. Bhupen Chandra Datta Bhaumik has furnished the return of income and has considered the same at Rs.1,56,240/- received from the assessee as its income and paid due taxes thereon and the ld. CIT(A) has rightly forwarded these details to the Assessing Officer for necessary verification and looking into these facts, hold that no interference is called for in ld. CIT(A)’s findings and hence dismiss Ground No. 4 of the revenue.
In the result, appeal of the revenue is partly allowed for statistical purposes. Order pronounced in the Court on 9th November, 2022 at Kolkata. (RAJPAL YADAV) (MANISH BORAD) VICE-PRESIDENT ACCOUNTANT MEMBER Kolkata, Dated 09/11/2022 *SC SrPs आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील / The CIT(A)- ( ) 5. िवभागीय "ितिनिध,आयकर अपीलीय अिधकरण गुवाहाटी /DR,ITAT, Guwahati, 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,