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2015 (7) TMI 292 - ITAT JAIPUR

2015 (7) TMI 292 - ITAT JAIPUR - TMI - Addition on account of under valuation of closing stock - CIT(A) deleted the addition - Held that:- The assessee had valued the closing stock consistently on the sale method as followed during the year i.e. 50% fresh material and 50% inferior material. In past, similar additions were made by the Assessing Officer, which has been deleted by the Coordinate Bench in A.Y. 2008-09 and 2005-06. The assessee has maintained quantitative details and no specific defe .....

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deducted on the commission and also explained the nature of service rendered by them. It also filed copy of account of 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 .....

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₹ 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 ₹ 2,61,840/-. Therefore, in absence of proper evidence with the assessee for claiming the expenditure as incurred wholly and exclusively for the business purposes, we confirm the .....

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"On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in:- (i) Deleting the addition of ₹ 2,11,29,247/- made by the A.O. on account of under valuation of closing stock without appreciating the fact that the assessee could not identify the defective stock and could not justify its valuation at reduced rate. (ii) Restricting the addition to ₹ 1 lac in place of addition of ₹ 43,36,130/- made by the A.O. on account of disallowance of comm .....

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company is engaged in business of manufacturing and trading of Marble, slabs and blocks. It filed its return of income declaring total income of ₹ 49,26,810/- on 29/09/2009 alongwith audit report. This case was scrutinized U/s 143(3) of the Act. He further observed that the assessee had declared undervalue of the closing stock as no identification was maintained for defective goods, which was also not reflected in the sales bill. Further on transfer of goods from one unit to another, no de .....

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sessing 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 h .....

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reover, there was no defective stock, which was maintained in the books of account. The complete details of expenses, mines unit and others units had not been supported with the voucher. The consumption of raw material has not been filed before him particularly with reference to blade, segment, filling material, store and spare and others. The ld Assessing Officer recalculated the closing stock under the head mines, marble blocks at factory, polish tiles at factory, gangsaw slab at factory, gang .....

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ct on the basis of valuation of closing stock. The appellant was maintaining day to day books of account alongwith stock register and the method of valuation of closing stock (50% as fresh stock and 50% as inferior stock) was being consistently followed since last many years. However, the Hon'ble Jaipur Tribunal vide its order in ITA No. 32/JP/2009 dated 24/04/2009 held that this method of valuation of stock was consistently followed by the assessee and it could not be rejected in the absenc .....

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ny since last many years. The ld Assessing Officer had valued the closing stock at cost by adopting the FIFO method (First In and First Out). However, this method could not have been applied in the present case due to peculiar nature of marble business. In this line of business, 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 variat .....

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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 discrepancy whatsoever .....

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uding stock register. In assessment proceedings, assessee has filed month wise quantities details of each item of stock showing opening stock, purchases, production, transfer of goods, receipts on transfer, sales and closing stock vide letter dated 18.11.2011. The quantitative details are also part of the annual accounts. Therefore the observation of the AO at page 3 of his order that assessee has not maintained stock register is incorrect. 2. The assessee is regularly valuing finished stock at .....

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refore the best quality goods are sold first and the remaining goods gets accumulated. Such accumulated stock has a lower realizable value and therefore stock of such goods are valued at lower than cost. Normally, considering the past experience, the assessee in respect of certain items like marble blocks/tiles/slab etc treat 50% of the stock as fresh and 50% as defective. The fresh stock is valued at weighted average cost and defective goods are valued at 25% of the weighted average cost. Howev .....

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tal 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 .....

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ed law that the choice of adopting a particular method of valuation is on assessee. The only condition is that whatever method of valuation is adopted by the assessee, the same should be consistently followed. The assessee has also consistently followed the same method of valuation which was followed in earlier years. Therefore AO is not justified in devising his own method of valuation of the stock and making the addition. He relied on the following case laws:- (i) DCIT Vs. MAHESH EDIBLE OIL IN .....

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hough in that year addition was made on the basis of electricity consumption. The CIT(A) vide order dated 14-10-2008 held that on account of valuation method, section 145(3) has been wrongly invoked by the AO and deleted the addition by giving the following findings:- "I have carefully considered the facts of the case. I find that the Ld. AO has invoked section 145(3) only on the ground that valuation of the defective stock is done on estimation basis. However, he has not made any addition .....

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e as in earlier years and it is consistently followed. No adverse inference on the valuation is drawn by the AO in framing the assessment. On these facts, it is held that section 145(3) has been wrongly invoked by the Ld. AO. Further, in respect of the power consumption, the Ld. AO has not appreciated the claim of the assessee that in the year 2002-03, the production was totally of white marble of Andhi mines whereas the production during the year is totally of color marble of Bidasar mines, whi .....

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ble 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 .....

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he assessee in the preceding years is that there was total production of marble of M/s Andhi Mines whereas during the year the total production was of colour marbles of Bidasar mines which is more hard resulting into more power consumption. Therefore, in such circumstances and facts of the case and in the absence of any specific defect, we find no infirmity in the order of the ld. CIT(A) who has rightly reversed the order of the AO." 5. In A.Y. 2008-09 also, AO made the similar observation .....

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er:- (i) The stock of the assessee comprises of 41 type of items for which valuation is done. Out of it assessee has reduced the value of the stock on account of old, inferior or defective stock in 11 items only. The AO, however, made adjustment in stock valuation in seven items and has accepted the valuation in four items. No specific reason is given why the valuation is disturbed only in respect of few items. (ii) The AO has accepted that stock is to be valued as per cost or market value which .....

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by the AO in other items, the value of Marble Block 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 st .....

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84,155 Slab from Job work at Kishangarh 553,263 1,106,527 19,619,603 37,732,074 After considering this the net impact on the profit for the year would be only ₹ 30,17,776/- (2,11,29,247 - 1,81,12,471). As per section 4 of the Income tax Act tax is charged in respect of the total income of the previous year. Therefore income of one year can't be taxed in other year. In the present case the AO changed the valuation of the closing stock only and made addition of ₹ 2,11,29,247/-. If .....

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that closing stock of one year becomes the opening stock of the next year. The AO simply increased the value of the closing stock of this year by ₹ 2.11 crores without directing to correspondingly increase the value of the opening stock of next year. Hence in case the valuation of stock as done by AO is approved, he has to adopt the same as opening stock in next year. In next year i.e. AY 2010-11, the closing stock as valued by the assessee as per his consistent method has been accepted. .....

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atter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it. It further 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 .....

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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 under:- A.Y. Turnover Gross Profit G.P. Rate 2009-10 Rs.914.43 Rs.342.41 37.45% 2008-09 Rs.957.56 Rs.363.12 37.92% 2007-08 Rs.640.19 Rs.261.11 40.79% 2006-07 Rs.576.08 Rs.203.76 35.37% From the a .....

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ed the material on record. The assessee had valued the closing stock consistently on the sale method as followed during the year i.e. 50% fresh material and 50% inferior material. In past, similar additions were made by the Assessing Officer, which has been deleted by the Coordinate Bench in A.Y. 2008-09 and 2005-06. The assessee has maintained quantitative details and no specific defects has been pointed out by the ld Assessing Officer. The ld. DR has also not controverted the finding given by .....

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mission and dalali expenses of ₹ 67,82,463/-. Vide ordersheet entry dated 18/11/2011, the assessee was asked to produce supporting evidence in support of expenses of commission and dalali. In response thereto, the assessee had filed confirmation of 40 parties out of 42. On verification of records, it is observed that the commission 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. .....

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ssment 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, the .....

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the ld CIT(A), who had restricted the addition to ₹ 1,00,000/- instead of addition of ₹ 43,36,130/- made by him by observing that commission of ₹ 43,36,130/- paid to various persons, the appellant has filed details of commission paid, tax deducted at source and PAN of each recipient vide letters dated 01/07/2011, 29/08/2011 and confirmations of commission recipient vide letters dated 01/07/2011 and 29/08/2011 and confirmations of commission recipients vide letter dated 18/11/2 .....

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OT 495). 9. Now both the parties are in appeal as well as in C.O.. The ld DR supported the order of the Assessing Officer. At the outset, the ld AR for the assessee submitted as under:- 1. In the assessee's business payment of commission and dalali is common feature. Commission is paid to the person who brings the buyer or introduces the buyer or gives assistance in sale of the product. Commission accrues only when the sale is materialized. The commission paid is duly linked with the sales a .....

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11 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 .....

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nvoice no.7, 7A, 7B & 7C to Uma Agarwal are to same party and four bills are raised as the goods are dispatched in different containers. This fact was explained to the AO also vide letter dated 12-12-2011 (P.B.61- 71). The total commission paid to Uma Agarwal is on sales of ₹ 49 lacs. This sale is in respect of the following bills:- Bill No. Amount 6 18,52,077/- 7 5,36,484/- 7A 6,18,788/- 7B 1,99,715/- 7C 3,63,778/- 34 8,22,661/- 36 5,35,866/- Total 49,29,369/- Thus bill no. 7A, 7B &am .....

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p. rate types of goods sold, area of sales i.e. local/export are provided. Therefore the assessee's case can't be compared with him. (v) AO has considered 11 persons covered u/s 40A(2). However, out of these 11 persons only Shri Jagdish Prasad Khetan, Shri Banwari lal khetan, Shri Kamal Kishore Khetan, Shri Mukesh Khetan & Shri Dinesh Khetan are covered by the provisions of section 40A(2)(b). Detailed reply regarding the persons covered under this section was filed by assessee vide l .....

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the AO has not brought any evidence to prove that the payment of ₹ 34,52,200/- made to the relatives is excessive or unreasonable. In earlier years payment 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. I .....

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e 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 commission and payment thereof. 5. Reliance is placed on the following cases:- (i) Syntexa vs. Asstt. CIT [2000] 111 Taxman 47 (Cal.) (Mag.) (Trib.) (ii .....

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