ADARSH JOURNAL PVT. LTD.,NEW DELHI vs. ITO WARD-1(3), NEW DELHI

The appeal in AY 2016-17, arises out of the order of the Commissioner of Income Tax (Appeals)-I, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.423/18-19 dated 23.08.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 28.12.2018 by the Assessing Officer, Ward 1(3), Delhi (hereinafter referred to as ‘ld. AO’). 2. The ground Nos.1 and 2 raised by the assessee are challenging the confirmation of the addition by the ld.CIT(A) in respect of difference in valuation of closing stock in the sum of Rs.27,64,859/-.

We have heard the rival submissions and perused the material available on record. The assessee is a company engaged in the business of purchase and sale of liquor. During the course of assessment proceedings, the assessee was asked to furnish the details of opening stock and closing stock with quantitative details together with its value. The method of valuation adopted by the assessee was also sought by the ld. AO. The assessee had valued the closing stock consistently at cost price on First-in-First-out (FIFO) basis. The ld. AO did not have any grievance with regard to the quantitative details submitted by the assessee and accepted the same as it is supported by the purchase bills and sale bills. However, the ld. AO sought to disturb the valuation of closing stock on the ground that weighted average rate of goods is to be applied instead of cost price. In other words, the ld. AO sought to disturb the value of closing stock reflected by the assessee by adopting weighted average method of valuation as against the valuation made by the assessee at cost price. This resulted in an addition of Rs.27,64,859/- in the assessment which was confirmed by the ld.CIT(A).

It is pertinent to note that the assessee has been consistently valuing its stock only at cost price based on FIFO method, i.e., the goods which comes into the assessee’s possession first are being sold first and, accordingly, the value of the goods lying as closing stock are to be valued only based on FIFO method. Moreover, since some of the products traded by the assessee have got expiry 2 date, hence, it would be advisable and desirable to adopt FIFO method of valuation in order to avoid loss on account of wastage of goods. In any case, the assessee has been consistently valuing the goods at cost price. Moreover, the ld. AO had merely resorted to change the valuation of closing stock alone at weighted average rate, but, had accepted the value at cost price in respect of opening stock. When the ld. AO resorts to disturb the method of valuation adopted by the assessee, he is expected to value both opening stock as well as the closing stock by applying the same method in order to avoid distortion in figures. In the instant case, as stated earlier, the assessee has been consistently following the method of valuation of stock at cost price based on FIFO method. There is absolutely no reason to take a divergent stand during the year by the ld. AO of disturbing the method thereof. It is not in dispute that the quantitative details submitted by the assessee in respect of opening stock, purchases, sales and closing stock has been accepted by the Revenue. The value of each product of liquor traded by the assessee carries a different price range. Hence, adoption of weighted average price thereon would be unfair. Accordingly, we do not find any infirmity in the valuation of closing stock method adopted by the assessee at cost price of the concerned product lying in the closing stock. Hence, we direct the ld. AO to delete the addition made in the sum of Rs.27,64,859/- with regard to difference in valuation of closing stock. Accordingly ground Nos.1 and 2 raised by the assessee are allowed.

Ground Nos.3 and 4 raised by the assessee are challenging the confirmation of disallowance of Rs.23,20,000/- made on account of rent expenses.

We have heard the rival submissions and perused the material available on record. The assessee had been operating the liquor trading business in the premises of 4,5,6, Omaxe Square, Jasola, New Delhi. The assessee submitted that it had taken another shop No.1, ground floor, Omaxe Square, Jasola, New Delhi on rent for shifting of its business premises. The assessee submitted that the shop No.1 is a corner shop and had the advantage of a better location being situated in the ground floor itself of the same mall. Further, the assessee had also planned to open an eatery/restaurant along with the sale of liquor which would, in the opinion of the assessee, increase the volume of business of the assessee. The assessee had applied for shifting of the premises from the existing shop to the new premises on 03.09.2015. The assessee had entered into rent agreement in August 2015 for the said new premises and made payment of rent of Rs.23,20,000/- during the year under consideration. The ld. AO sought to disallow this rent payment on the ground that no business was carried on by the assessee from the said premises and that no sale of liquor had happened from the said premises during the year. The ld. AO also stated that the application form for shifting the retail vend of licence from existing premises to the new premises was made only on 26.07.2016 which falls in AY 2017-18. This disallowance made by the ld. AO was upheld by the ld. CIT(A).

Before us, the ld. AR submitted that the letter dated 03.09.2015 addressed by the assessee to the competent authority is to be treated as application made by the assessee for shifting of premises. The ld. AR submitted that the intention of the assessee to use the new premises for the purpose of its business is proved beyond doubt and, hence, the rent paid thereof would become an allowable deduction.

It is not in dispute that every liquor shop run by a person is under the direct control and supervision of the excise authorities and licence therefor is given for each shop. During the year under consideration, for carrying on the liquor business, licence has been issued only for the premises at 4,5,6, Omaxe Square, Jasola, New Delhi. The assessee, in order to have a bigger space with better locational advantage, sought to shift its premises to the ground floor in the same building. The assessee, vide letter dated 03.09.2015, enclosed at page 64 of the paper book, addressed to the Assistant Commissioner of Excise for shifting of L-10 licence to the new premises furnished the following documents thereof:- a) Lease Deed; b) Property papers; and c) Mall map

Further, it is only on 26.07.2016, the assessee had preferred another letter to the Excise Department for shifting of L-10 licence to the new premises wherein an application in the prescribed format was made by the assessee. The Excise Department took due cognizance of the same and granted licence to the assessee for the new premises in AY 2017-18. Hence, it goes to prove that the business in the new premises was actually carried on by the assessee only from AY 2017-18 onwards and, accordingly, the rent paid thereon for AY 2017-18 has been duly allowed as deduction by the ld. AO while completing the scrutiny assessment for AY 2017-18 vide order u/s 143(3) dated 03.12.2019. But as far as AY 2016-17, i.e., the year under consideration is concerned, the assessee had not made an application in the prescribed format before the Excise Authorities for shifting of the licence. Hence, the ld. AO was duly justified in holding that the new premises was never utilized by the assessee for the purpose of its 5 business during the year under consideration. Accordingly, we confirm the action of the lower authorities in disallowing the rent of Rs.23,20,000/- paid for the new premises. Hence, ground Nos.3 and 4 raised by the assessee are dismissed.

Ground No.5 raised by the assessee is with regard to claim of benefit of brought forward losses. This matter requires factual verification and, hence, we direct the ld. AO to verify this claim of the assessee and decide the issue in accordance with law. Accordingly, ground No.5 raised by the assessee is allowed for statistical purposes.

Ground No.6 raised by the assessee is challenging the action of the ld.CIT(A) in rejecting the additional evidences filed by the assessee. No arguments were advanced by the ld. AR before us with regard to this ground and, hence, the same is hereby dismissed.

Ground No.7 raised by the assessee is challenging the chargeability of interest u/s 234B and 234C of the Act. We hold that chargeability of interest u/s 234B of the Act would be consequential in nature and does not require any specific adjudication. With regard to chargeability of interest u/s 234C of the Act, the law is well settled that the same shall be charged only on the returned income and not on the assessed income.

The ground No.8 raised by the assessee is general in nature and does not require any specific adjudication.

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 28.06.2023