TMI Blog2016 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been covered by the disclosure made by the Assessee. Before us, Revenue has not pointed out any fallacy in the findings of ld. CIT(A). In view of the these facts, we find no reason to interfere with the order of ld. CIT(A) - Decided against revenue Addition on account of quality allowance - Held that:- We find that ld. CIT(A) while deciding the issue in favour of the Assessee has given a finding that the Assessee had claimed similar expenditure in A.Y. 07-08 which was allowed by the A.O. in the assessment order passed u/s. 153A of the Act and further the deterioration of finished goods had led to quality allowance that was given by the Assessee to its customers and such expenditure was supported by third party evidences and were duly recorded in the books of accounts and the expenditure claimed was only 0.46% of turnover and therefore the expenditure could not have been treated as unexplained expenditure. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A) nor could point out any fallacy in his findings - Decided against revenue Addition made on account of brokerage - Held that:- We find that ld. CIT(A) while granting the reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 590/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 28.12.2011 granted substantial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee Revenue are now in appeal before us. The grounds raised by the Revenue in IT(SS)A No. 141/Ahd/2012 reads as under:- 1. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition made on account of unaccounted stock of ₹ 10,72,280/-. 2. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition made on account of quality allowance of ₹ 33,25,929/-. 3. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to delete the addition made on account of brokerage of ₹ 75,92,072/-. 4. On the other hand the grounds raised the Assessee in IT(SS)A No. 146/Ahd/2012 reads as under:- 1. On the facts and in the circumstances of the case the ld. CIT(A) erred in not accepting assessee s claim that the loss incurred in trading of equity shares was business loss and further erred in treating it as a loss under the head capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained that factory of appellant is working in two shifts of 12 hours i.e. from morning 8.00 AM to evening 8.00 PM and second shift from 8.00-PM to next day morning 8.00 AM and during the course of search, stock was inventoried_at 8.00 PM in the evening. The Assessing Officer has issued Show Cause Notice for both shortage and excess stock. It was explained by the appellant that stock issued for production on the date of search was 78,748 kgs and when the stock was taken by Authorised Officer at the time of search, one shift was already completed, which means that half of the stock issued for production comes to approximate 39,374 kgs. Entry for consumption in books is passed by appellant on next day and if quantity of consumption for first shift for 39,374 is reduced from book stock of 1,71,804 kgs, stock as per books would come to 1,32,430 as against physical stock of 1,35,415 kgs. The explanation of appellant regarding shortage of stock has been accepted by AO and no addition is made. While coming to this conclusion, AO has also stated that in support of his argument appellant has submitted copies of daily stock register and daily production report. The similar explanation-was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no reason for not accepting plea regarding production of finished goods as method of keeping stock for both the products are similar and when finished goods are counted as on the date of search in the evening whereas book stock does not include production during the day, effect of such production ought to have been given by the A.O. With regard to shortage of stock of 35,389 kgs and excess stock of 39,520 kgs, partner of the appellant in his statement dated 28th April, 2009 has stated that net result of both shortage and excess is only 4,131 kgs which can be considered as covered by disclosure made on 9th March, 2009. The reason for netting both shortage and excess stock with each other was explained by appellant in its written submission by stating that as stock found during the course of search was counted in the evening was compared with opening stock of both the materials without giving effect to consumption of raw material and production of finished goods during day time. It was explained that raw material was found short only because though same was issued for consumption, same was not reduced from opening stock of the day as per method of keeping stock record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 4131 kg. which can be considered to have been covered by the disclosure made by the Assessee. Before us, Revenue has not pointed out any fallacy in the findings of ld. CIT(A). In view of the these facts, we find no reason to interfere with the order of ld. CIT(A) and thus the ground of Revenue is dismissed. Ground no. 2 is with respect to addition on account of quality allowance of ₹ 33,25,928/- 10. On comparison the Profit and Loss Account, AO noticed that Assessee has debited Quality Allowance Expenses ₹ 33,25,928/-. He also noticed that there was an increase in expenditure as compared to the same in immediately preceding assessment year. The Assessee was asked to justify the increase but the submission of the Assessee was not found acceptable to the A.O. He therefore held that in the absence of any evidence or justification, the claim of expenditure cannot be allowed. He accordingly disallowed ₹ 33,25,928/- by holding it to be unexplained and unsupported expenditure. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who deleted the addition made by the A.O holding as under:- 6.2 I have carefully considered the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same, disallowance made by A.O is deleted. The related ground of appeal is allowed. 11. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us. 12. Before us, ld. D.R. supported the order of A.O and further submitted that in the absence of any evidence and justification for increase in expenditure as compared to that of earlier year, A.O was fully justified in making the disallowance. Ld. A.R. on the other hand reiterated the submissions made before A.O and ld. CIT(A) and supported the order of ld. CIT(A). 13. We have heard the rival submissions and perused the material available on record. We find that ld. CIT(A) while deciding the issue in favour of the Assessee has given a finding that the Assessee had claimed similar expenditure in A.Y. 07-08 which was allowed by the A.O. in the assessment order passed u/s. 153A of the Act and further the deterioration of finished goods had led to quality allowance that was given by the Assessee to its customers and such expenditure was supported by third party evidences and were duly recorded in the books of accounts and the expenditure claimed was only 0.46% of turnover and therefore the expenditure could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. With regards to brokerage on sale, appellant has claimed that in A.Y. 2009-2010, there was drastic fall in the production of cotton all over the country and selling was difficult in local markets due to higher rates and import of goods was cheaper than prices prevailing in market and in such situation, appellant has paid higher brokerage to make sale of finished goods. Otherwise, appellant would not be able to sale finished goods in local market. The appellant has also explained that India's cotton exports fell over 95% year-on-year to 75,000 bales on sluggish overseas demand and the reason for fall in export is that overseas traders were not ready to buy since prices fixed by the government were higher as compared to prices offered by the other countries and to overcome such situation and without pilling up the finished goods, brokerage had to be paid at a higher rate by the Appellant. The appellant has also submitted a number of news paper articles in support of its expenditure and claim. On careful consideration of entire details, the payment made by appellant is after deducting TDS, supported by third party evidences and none of the parties to whom appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the rival submissions and perused the material available on record. We find that ld. CIT(A) while granting the relief has given a finding that the claim of brokerage expenses is supported by third party evidences and the payment have been made after deduction of TDS from such brokerage expenses and the addition has been made simply on the basis of comparison of expenditure. He has further given a finding that none of the parties to whom Assessee has made payments were related party covered u/s. 40A (2b) of the Act and the A.O has not questioned the genuineness of entire expenditure. He has further given a finding that the entire explanation regarding higher brokerage payment in comparison to earlier years has been fully explained. Before us, Revenue could not controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus the ground of Revenue is dismissed. 18. In the result, the appeal of Revenue is dismissed. Now we take up Assessee s appeal in IT(SS)A No. 146/Ahd/2012 The issue is treatment of loss on shares. 19. On perusing the Profit and Loss account, A.O noticed that Assessee has debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. During appellate proceedings, the appellant was asked to file the annual accounts for the financial year 2006-07 and 2007- 08. From the annual accounts of F.Y.2006-07, it is observed that the transaction of shares was treated as investment by the appellant. The closing stock of various shares amounting to ₹ 10,36,260/- were shown under the head investments in the balance-sheet as on 31.03.2007. Like-wise in the F.Y.2007-08, the closing stock of shares was shown as investment, amounting to ₹ 81,87,730/- in the balance-sheet as on 31-03.2008. The statement of computation of income was also verified during appellate proceedings. The computation of income statement for the A.Y.2008-09 (F.Y.2007-08) revealed that profit on transactions of shares amounting to ₹ 48,187/- was considered as short term capital gain by the appellant. From the facts mentioned above, it is absolutely clear that the appellant was treating the share transactions as investment and accordingly, the intention of the appellant was to hold the shares as investment only. 5.2.3 The appellant was also asked to submit the ledger account of profit and loss incurred on share transactions durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the submissions made before A.O and ld. CIT(A) and further submitted that the auditor in the notes to final accounts has mentioned that the Assessee had carried out the business in shares and therefore the loss incurred on sale of shares was rightly set off against the business income. Ld. D.R. on the other hand supported the order of A.O and ld. CIT(A) and further submitted that in F.Ys.06-07 07-08, Assessee has treated the shares as investments and in A.Y. 08-09 the profit earned on sale of shares was treated as short term capital gains and in such a situation, the loss on sale of shares which were treated as investment by the Assessee in earlier years was rightly denied the claim of set off. He thus supported the order of A.O and ld. CIT(A). 22. We have heard the rival submissions and perused the material available on record. We find that ld. CIT(A) while deciding the issue against the Assessee has given a finding that Assessee has treated the shares transaction as investments in F.Y. 06-07 07-08 and the Assessee by passing a journal entry on 31.03.2009 accounted for the notional loss of value of closing inventory of shares. Before us, Assessee could not controvert th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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