TMI Blog2015 (7) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... f the old commission old agent and new commission agent before the Assessing Officer. The assessee made payment through account payee cheque and recipients had been disclosed these commissions in their respective returns. The ld AR explained the discrepancy mentioned by the ld. Assessing Officer on service rendered and commission payment to 25 parties and particular invoice number mentioned in assessment order in case of commission paid to Uma Agarwal. The AR argued that during the year sale through the commission agent has increased and direct sale has been decreased. The Ld. Assessing Officer had not provided the facts and figure of comparable case i.e. Agarwal Marble Pvt. Ltd. to the assessee. The case laws relied by the assessee squarely applicable in the case of the appellant. However, the assessee could not furnish the confirmation in case of commission payment of ₹ 95,707/- to Mahesh Kumar and ₹ 1,66,133/- paid to Naresh Bhawani before the lower authorities as well as before us. The ld. CIT(A) confirmed the addition of ₹ 1 lac on estimated basis when commission payments are specified amount, the CIT(A) should have confirmed the whole commission payment of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard on this issue. The assessee has admitted that it followed weighted average for valuation of closing stock in the year under consideration. The assessee filed detailed reply on sale affected during the year and explanation of remaining material accumulated from year to year. The assessee filed reply before the Assessing Officer and explaining the sale process, consumer behavior, defects in lot of finished product, export out of India for better quality and inferior quality remained with the assessee. It also submitted some evidences before the Assessing Officer to show that how the assessee's closing stock of marble remained inferior quality with him. It further argued before the Assessing Officer that closing stock has been valued on the basis of cost price or market price whichever is low, which has been done as per the guide note of accounting standard prescribed for the company. The company has followed the AS-1, disclosure of accounting policies and sale is on the basis of generally accepted accounting assumption. After considering the assessee's reply, the Assessing Officer held that there was no basis of defective goods claimed by the assessee and also not able t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customers always purchased the goods on selective basis and the best lot was always sold first. The unsold goods got accumulated and it was difficult to see it due to defective material, natural cracks, colour variation etc. This particular stock became obsolete and had low margin value. The ld. Assessing Officer had also valued this particular obsolete stock at cost which was totally unjustified. He further relied on the case of DCIT Vs. Mahesh Edible Oil Ind. Ltd. (2010-TIOL-479-ITAT-Delhi) on valuation of closing stock, ITO Vs. M/s Vaibhav gems (2010- TIOL-98-ITAT-Mumbai), Investment Ltd. vs. CIT (77 ITR 533), CIT Vs. Fazilka Co-operative Sugar Mills Ltd. (255 ITR 411), CIT Vs. Doom Dooma India Limited (200 ITR 496) on accounting method followed by the assessee, Concordia Corporation Ltd. vs. CIT (22 ITR 344), ACIT Vs. Jagdish Chand (90 TTJ 943), KG Khosla Co. Pvt. Ltd. Vs. CIT (99 ITR 574) and Ahmedabad ITAT decision in the case of ACIT Vs. Shree Krishan Salt Industries (60 TTJ 125). The appellant had maintained complete stock records, details of production, transfer of goods and receipt of material.. The quantitative details were also part of the annual income. No discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified. He ignored the fact that due to peculiar nature of the marble trade, the goods are sold on selective basis. From the total lot of production/purchase made by the assessee, customer selects the best piece/lot as per his requirement. Therefore, the goods which are procured/produced last are sold first being the latest. Any unsold goods out of it get accumulated and it is difficult to get a buyer for the same. Further due to natural cracks or defects or color variation in blocks, some of the productions from a lot have defective quantity, which have no value or very low value. These goods also get accumulated. With the passage of time such old/defective stock become obsolete and gets accumulated due to changing demand of customer from time to time regarding color, quality etc. Therefore in such trade FIFO method of valuation of the stock is not justifiable. The assessee has filed a detailed explanation on the method of valuation of the closing stock vide letter dated 29-08-2011 12- 12-2011. AO has totally ignored the same and devised his own method of valuation which is not as per law. It is a settled law that the choice of adopting a particular method of valuation is on as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally of color marble of Bidasar mines, which is more hard, resulting into more power consumption. In support of this, the technical data of Andhi marble and Bidasar marble was filed. In addition, I find that in the immediately preceding year, the power consumption was .067 sq. meter of production per unit as compared to .074 sq. meter of production per unit during the year. Hence, the average of the preceding two years (when facts of 2002-03 are not comparable to this year) taken by the AO is incorrect. However, the last year is comparable and it is seen that the G.P. rate and the N.P. rate of the assessee have gone up significantly in this year as compared to the last year. Further, no material for any unrecorded production or sale has been pointed out by the Ld. AO. Therefore, considering the entirety of the facts, neither the application of section 145(3) is justified nor any addition for the alleged sale of suppressed production is warranted. Hence, the addition made by the AO is not sustainable. Consequently, this ground of appeal is allowed. Against this order, department filed appeal before Hon'ble ITAT. The Hon'ble ITAT vide order dated 24/04/2009 in ITA No. 32/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Factory would work out at ₹ 1,20,07,625/- (6091.478*1971.217) as against value determined by the AO at ₹ 1,86,60,938/- (6091.478 * 3063.45). Thus the addition to the extent of ₹ 66,53,313/- (18660938 - 12007625) is incorrect. (iv) The AO has increased the value of the closing stock without corresponding change in the value of the opening stock. If the opening stock of items is revalued on the same basis at which closing stock is valued than value of the opening stock would be increased by ₹ 1,81,12,471/- (37732074 - 19619603) as per the following table:- Particulars of items Value of the opening stock As per assessee As per method adopted by the AO (PB 43A) Marble block at Mines 757,602 757,602 Marble Block at Factory 8,734,263 21,319,278 Polish Tiles at Factory 4,059,746 6,495,594 Gangsaw Slab at Factory 3,754,518 6,007,229 Gangsaw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that when the rate of tax remained the same in present A.Y. as well as in subsequent A.Y., the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. (vi) It may be noted that the Punjab Haryana High Court in case of CIT Vs. Satish Estate Pvt. Ltd. (2014) 226 Taxman 11 where addition of ₹ 75 lakhs was made on account of undervaluation of closing stock of the land but the closing stock of land shown by the assessee is accepted by AO as opening stock for the subsequent year in the assessment made u/s 143(3) for the subsequent year deleted the addition made by the AO as no loss to the revenue has been caused. In the present case also for subsequent AY 2010-11 AO has accepted the closing stock declared by the assessee as opening stock and also accepted the closing stock declared in that year. Therefore, also the addition made by him is legally not tenable. 7. The comparative position of the G.P. rate is tabulated as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount was also paid on the invoice which was not mentioned in the confirmation and not mentioned by the assessee to commission agent, for instance invoice No. 7A, 7B and 7C. He further observed that the Rajasthan is the biggest mandi of marble stone in the world. The buyer needs knowledge of availability of the stones in market. There is business culture that commission to be paid to the person who brings the buyer or introduce the buyer or giver assistance in sale of the product. The assessee has paid ₹ 34,52,200/- as commission to the persons covered U/s 40A(2)(b) of the Act. The details of which is reproduced at page No. 12 and 13 of the assessment order. He further observed that the assessee has only diverting his income by giving commission to his relatives who are covered U/s 40A(2)(b) of the Act, further these persons have been paid commission only on the last day of the financial year. During A.Y. 2008-09, the assessee himself has turnover of ₹ 9,57,56,350/- and paid a commission of ₹ 42,92,450/- while during the A.Y. 2009-10 on a turnover of ₹ 8,91,83,854/- commission of ₹ 67,82,463/- had been paid, therefore, while the turnover was decreas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as new commission agents. The assessee vide letter dated 18-11-2011 also filed the confirmation of 40 persons. The commission agents mainly introduce the customer or influence the customer to purchase the goods of the assessee. For such introduction/persuasion, there can't be any documentary evidences for establishing the services rendered. Hence the disallowance made by the AO for this reason is misconceived. 2. The explanation in respect of each commission payment is given at. From the same it can be noted that commission payment is fully verifiable and incurred for the purpose of the business. 3. The various observations made by the AO are incorrect or not relevant as explained here under:- (i) In respect of evidence of services rendered, the assessee has filed complete details of the persons linking with the sales. The AO himself on the basis of these information accepted the commission payment to 25 parties. Hence on the similar evidences, rendering of services can't be ignored in respect of 17 parties. (ii) The commission paid on the invoice no.7, 7A, 7B 7C to Uma Agarwal are to same party and four bills are raised as the goods are dispatched in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of commission made to them was accepted (vii) In assessment proceeding director of the M/s Tileco Land Developers Pvt. Ltd was appeared and his statement was recorded wherein he has accepted the fact of receipt of commission. (viii) AO has disallowed the commission expenses of 5 parties due to non compliance of summon issued u/s 131. In this regard we may point out that out of these 5 parties Anil Sharda (HUF), Uma Agarwal, Smt Sarita Kant, Smt Samriddhi Agarwal have duly submitted the documents required by the AO in compliance to the summons issued to them. Thus they have complied the summons issued. If the AO has any doubt in his mind he should have enforced their personal attendance. In view of the above, the observations of the AO are not sufficient to make the disallowance of the commission. 4. The assessee could not file the confirmation of Mahesh Kumar Naresh Kumar Bhagwani as they are out of station and not in touch with the assessee. However, the assessee has filed the details of the sales made through them. TDS has been deducted on the commission. Payment is made by cheque. Copy of their account in the books of assessee indicating complete details of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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