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2017 (5) TMI 360 - ITAT JODHPUR

2017 (5) TMI 360 - ITAT JODHPUR - TMI - Addition on account of lower profit rate - Held that:- Assessing Officer adopted a method, which is not in accordance with the accounting standard. Further, none of the items in the closing stock was found to be valued at the lower rate than the opening stock rate and the ld. CIT(A) has recorded that most of the items were valued at higher rate. The assessee has provided closing stock value/rate of each item, which is higher than the opening stock value/ra .....

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ning stock. Thus, it is not correct and consistent in valuing in opening and closing stock. The assessee has adopted the same method of inventory since last 15 years. The net sales for the year under appeal are higher than the preceding year. - Decided against revenue - Addition u/s 68 - Held that:- It is undisputed fact that these credits were received during F.Y. 1997-98 and 1998-99. The Assessing Officer has made addition by invoking the provisions of Section 68 of the Act in the year und .....

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unt of differenence between gross turnover as per sales tax return and gross turnover as per balance sheet - CIT-A deleted addition - Held that:- D.R. was not able to controvert the finding recorded by the ld. CIT(A) with regard to clerical mistake while preparing the VAT-10 return of 4th quarter and the mistake was apparent from the record. The turnover declared in the P&L account was correct. Therefore, we concur with the finding of the ld. CIT(A) on this issue and the same is hereby uphold. - .....

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e order of the ld. CIT(A).- Decided against revenue - ITA No. 503 /Jodh/2014, ITA No. 381/Jodh/2015 - Dated:- 5-5-2017 - Smt. Diva Singh, JM And Shri Bhagchand, AM Revenue by : Smt. Alka R. Jain ( CIT D.R. ) Assessee by : Shri Amit Kothari ( CA ) ORDER Per: Bhagchand, A. M. These are the appeals filed by the revenue emanates from the two separate orders dated 04/07/2014 and 16/04/2015 respectively passed by the ld. CIT(A), Udaipur pertaining to the assessment years 2011-12 & 2012-13, wherein .....

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t proper. 1(b) ignoring the fact that specific defects in the valuation of closing stock of valves have been pointed out and communicated to the assessee for which the assessee failed give any satisfactory explanation. 1(c) ignoring the facts that the proposed GROSS PROFIT rate was worked out by taking specific cases of sale of specific valves and their purchase/cost price, wherever available and in remaining cases the GROSS PROFIT shown by the assessee itself was accepted and this GROSS PROFIT .....

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count of bogus unsecured loans without appreciating the fact that assessee failed to prove the identity, genuineness and creditworthiness of persons/concerns from whom said unsecured loans were received. 2(b) ignoring the fact that assessee action of treating these unsecured loans as his income during A.Y. 2013-14,itself proves that these were bogus unsecured loans and it was an adjustment made by the assessee. 2(c) admitting the additional evidence furnished by the assessee despite the fact tha .....

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of ITA No. 381/Jodh/2015 On the facts and in the circumstances of the case , the Ld CIT(A) has erred in deleting the addition of ₹ 1,48,52,972/- made on account of lower profit rate. 1. without appreciating the defects raised in the valuation of closing stock that in the closing stock many valves/various items were lying as-it-is, out of the opening stock and there is no production of such valves during the year, still the value of same were not the same as that of opening stock and there .....

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ed out in the books of account by way of incorrect valuation of closing stock of various items including many valves. 2. Both the appeals are being heard together and for the sake for convenience and brevity, a common order is being passed. 3. Firstly we take ITA No. 503/Jodh/2014. The assessee is a company following mercantile system of accounting and engaged in manufacturing of metal alloys valves. The return for the year under consideration was filed on 29/09/2011 declaring total income of &# .....

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18.54% as against 24.83% in the immediate preceding year. The reason for decline was stated to be the increasing of cost of raw material by about 25-26% in comparison to the preceding year. The sales prices were not increased correspondingly. In some of the products, even the sale price decreased in comparison to the preceding year. Moreover, the appellant s turnover increased from 11.60 crores to ₹ 14.25 crores in comparison to the preceding year and due to increase in turnover also, the .....

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order is reproduced hereunder:- I have carefully gone through the detail submissions and case laws cited by the Ld. AR and the report of the Ld. AO. The Ld. AO has objected the admission and consideration of additional evidences filed during the course of appellate proceedings. The Ld. AR in his written submission mention above has stated as under:- The appellant was also trying to obtain the confirmations from the said two companies. viz. M/s Bombay Metal & Alloys Mfg. Co. Pvt. Ltd. and M/ .....

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urse of assessment proceedings and the case of the assessee falls in the exceptions provided in Rule 46A(1)(b) / 46A (1)(c). The Ld. AR has relied on the following judicial pronouncements: * ITO v. Bhagwandas [ITA NO. 383 (CH) OF 2011] ITAT B BENCH, Chandigarh * ACIT, CIR 10(1)New Delhi v. M/s Dentsply India Pvt. Ltd.[ITA NO. 31/Del/2011] ITAT DELHI B BENCH * CIT v. Subhashndra Agarwal (1988) 172 ITR 166 (All.) * Smt. Mohinder Kaur vs. Central Govt. (1976) 104 ITR 120 (All.) I have carefully per .....

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ion, as well and therefore, the grounds of appeal are discussed and decided on merit. I have carefully perused the assessment order and the above written submission of the appellant I find force in the arguments of the appellant that the Ld. AO is not I justified in recalculating the gross profit without actually rejecting the books of accounts u/s 145(3) of the Act. The Ld. AO has not rejected the appellant s books of accounts u/s 145(3) of the Act, that itself means that he has accepted the bo .....

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anner provided in section 144. The Ld. AO on page No. 2 of his order has mentioned as under:- In response to the notices, the assessee s authorized representative Sh. R.C. Garg C.A. attended and submitted the requisite details, information, documents and clarification sought for vide notices u/s 143(2) & 142(1) and as per order sheet entries. The Authorized Representative of the assessee was heard and the case was discussed with him. The AR produced the books of account, bills/ vouchers in s .....

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. The simple and accepted formula for working of gross profit is sales minus cost of goods sold. When the Ld. AO has not given any finding that the cost of goods sold as shown by the appellant in its books of accounts is wrong, he^ cannot calculate or rather recalculate gross profit as per his sweet will. The Ld. AO should have proved with cogent evidence that the appellant has suppressed gross profit figures. I find that the appellant has satisfactorily explained the reasons for lower rate of g .....

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All these factors combined resulted in lower rate of gross profit during the current year. Due to increases in the cost of raw materials, wages and manufacturing expenses, the cost of production has gone up, which is also reflected in the closing stock of finished goods and WIP as the same have simultaneously increased by about 33-34%. Since, the appellant has shown higher value of closing stock of finished goods and WIP, it cannot be said that the appellant has undervalued its closing stock. I .....

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escribed manner. I find that the assessee has submitted complete details including quantities details of opening stock, production, sales and closing stock of raw materials, WIP and finished goods. The accounts of the assessee were duly audited U/S 44AB of the Income Tax Act, 1961 and the assessee has furnished complete details of stock as required by the statute. There is no finding that the actual cost of raw material purchased by the assessee was less than what was declared in account books. .....

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unts books. It is a well settled law that the assessment cannot be made on the basis of presumption, suspicion or surmises. This principle is reflected in the following judicial pronouncements: • Umacharan Shaw & Bros v. CIT (37ITR 271) (SC) • Dhakeshwari Cotton Mills v. CIT (26 ITR 775) (SC) • Sheonarain Dulichand v. CIT (72 ITR 766) (All.) The appellant s case is covered by the above mentioned Judgement of the Hon ble Delhi High Court in the case of CIT v. Smt. Poonam Rani C .....

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ccounted for, addition made by Assessing Officer was merely based on surmises or conjectures and thus liable to be deleted- Held Yes. In the case of the ACIT, Cir-II Vs. M/s S.E. Enterprises Pvt. Ltd. (ITA No. 485/(2010) Lucknow), it was observed by the Hon'ble CIT(A) and Hon'ble ITAT that A.O. has not established that there is any suppression of sales or undervaluation of closing stock. There is no dispute that valuation of closing stock was done at the end of financial year on the basi .....

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ny factual basis and accordingly same is not sustainable. In the case of Garg India Pvt. Ltd. v. ITO (1983) 16 TTJ (Allahabad), the question arose where accounts of the assessee were found to be not detective, no addition could be made to the trading results as declared by the assessee as no consumption or production outside the records was established. Held - Yes. I have considered the submissions of the appellant as well as the findings of the Ld. AO. Keeping into consideration the various cas .....

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merging out of the above referred Judgements, I am of the considered opinion that the addition was made without any factual basis and on the basis of suspicion, conjectures and surmises. Accordingly the same is not sustainable and the addition of ₹ 1,50,17,636/- made on account of lower gross profit is deleted. The grounds of appeal are allowed. 6. Now the revenue is in appeal before us. The ld. CIT D.R. has relied on the order of the Assessing Officer. At the outset of hearing, the ld AR .....

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ck rate and the ld. CIT(A) has recorded that most of the items were valued at higher rate. The assessee has provided closing stock value/rate of each item, which is higher than the opening stock value/rate of corresponding item. Further, if DEPB sales amounting to ₹ 25,90,518/- and foreign exchange gains of ₹ 10,21,906/- is added to the gross profit then the ratio comes to 21.08% for the year under consideration. The Assessing Officer s allegation that the assessee has undervalued th .....

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ted relief to the assessee and the factual aspect recorded by the ld. CIT(A) was not controverted by the revenue. Considering all these facts, we do not find any infirmity in the order of the ld. CIT(A), therefore, we uphold the order the same on this issue. Accordingly, this ground of revenue s appeal is dismissed. 8. In the ground No. 2(a) to 2(c) of the appeal, the issue involved is against deleting the addition of ₹ 38,75,000/- made by the Assessing Officer U/s 68 of the Act. Brief fac .....

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he observations of the Ld. AO in the assessment order and the above written submission of the appellant. Since certain documents viz. confirmations from the said two companies, their audited Balance Sheet, IT acknowledgements, copies of assessment orders were not submitted before the Ld. AO, the same were forwarded to Ld. AO for his comments on the same. The Ld. AO in his remand reply has stated as under: That the additional evidence under Rule 46A shall not be admitted. The AO further elaborate .....

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e credit entries cannot be considered to be genuine in the year under consideration. In reply to the remand report the appellant submitted as under: That the Ld. AO has simply objected to the admission of additional evidence under Rule 46A of the I. T. Rules 1962 on the ground that sufficient and ample opportunity was provided to the assessee during the course of assessment proceedings to submit the details / clarifications and evidences. It is further stated in the remand report that vide order .....

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on page no. 206 to 211 of the Appeal Paper Book - III were submitted before the AO during the course of assessment proceedings. The appellant was also trying to obtain the confirmations from the said two companies. viz. M/s Bombay Metal & Alloys Mfg. Co. Pvt. Ltd. and M/s Iron & Metal Traders Pvt. Ltd., based in Mumbai. However since these two companies are not carrying out any business at present, there are hardly any employees in the company. Since, the loan transactions were very old .....

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OF 2011] ITAT B BENCH, Chandigarh • ACIT, CIR 10(1)New Delhi v. M/s Dentsply India Pvt. Ltd.[ ITA NO. 31/Del/2011] ITAT DELHI B BENCH • CIT v. Subhashndra Agarwal (1988) 172 ITR 166 (All.) • Smt. Mohinder Kaur vs. Central Govt. (1976) 104 ITR 120 (All.) In view of the facts and circumstances of the case and position of the law emerging out of the above referred Judgements, we pray before Your Honour to kindly consider the evidences placed before Your Honour while deciding the app .....

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moto offered the said loans as income in A.Y. 2013-14 and paid the tax thereon as evident from the audited Balance Sheet as on 31.03.2013 filed before the Ld. AO as well during the course of appellate proceedings. I am inclined to agree with the contention/ submission of the Ld. AR of the appellant that same income cannot be taxed twice. The appellant company has already offered the said loans as income in AY 2013-14, the addition of the same to the income of A.Y. 2011-12 is unjustified. I have .....

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Assessing Officer. On the contrary, the ld AR of the assessee has reiterated the arguments as made before the ld. CIT(A) and prayed to uphold the order. 11. We have heard the rival contentions of both the parties, perused the material available on the record and also gone through the orders of the lower authorities. It is undisputed fact that these credits were received during F.Y. 1997-98 and 1998-99. The Assessing Officer has made addition by invoking the provisions of Section 68 of the Act i .....

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e same on this issue. Accordingly, this ground of revenue s appeal is dismissed. 12. In the ground No. 3 of the appeal, the issue involved is against deleting the addition of ₹ 3,47,186/- made on account of differenence between gross turnover as per sales tax return and gross turnover as per balance sheet. The ld. CIT(A) has deleted the addition made by the Assessing Officer by holding as under:- The A.O. made the third addition of ₹ 3,47,186/- to the total income of the appellant. T .....

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Form CST-1 whereas the A.O. has taken a figure of ₹ 4,67,75,290/- as the sales of the fourth quarter and thereby the difference of ₹ 3,47,186/- has arisen, which the A.O. has added to the total income of the appellant. This addition has been made purely because of the wrong figure of turnover for the fourth quarter taken by the learned A.O. Since, the mistake committed by the learned A.O. is apparent from the Form CST-1 of the fourth quarter, the addition may kindly be deleted as it .....

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led for the 4th quarter gives the correct figure of gross sales turnover of ₹ 4,64,28,104/-. I have carefully considered the observations of the Ld. AO in the assessment order and the above written submission of the appellant. The Ld. AR has filed copies of assessment order reveived from Rajasthan sale tax department which proves that sales turnover figure appearing in the audited P & L account is correct. I find that this is a clerical mistake while preparing the VAT-10 return of 4th .....

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A) with regard to clerical mistake while preparing the VAT-10 return of 4th quarter and the mistake was apparent from the record. The turnover declared in the P&L account was correct. Therefore, we concur with the finding of the ld. CIT(A) on this issue and the same is hereby uphold. Accordingly, this ground of the revenue s appeal is dismissed. 15. ITA No. 381/Jodh/2015. In this appeal, the only issue involved is against deleting the addition of ₹ 1,48,52,972/- made on account of lowe .....

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as not brought any materials on record to suggest that the books of account regularly maintained by the appellant suffers major defects due to which the actual profits earned by the appellant cannot be adduced. It is not a case of the A.O. that the appellant has indulged in transactions out of books of accounts. It is also not a case of the A.O. that the expenses debited claimed under various heads are not supported by proper vouchers and such expenses were inflated with the main intention to re .....

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and he should have pointed out such defects due to which the actual income earned by the assessee cannot be adduced and the law does not permit the rejection on doubtful presumption/assumption using either this or that . As regards the doubtful under valuation of closing stock, it may be mentioned here that the appellant company has valued the closing stock as per the valuation method consistently followed by it since the beginning of the business and this has not been disputed by the A.O. anywh .....

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the closing stock should have been valued. Admittedly, he has not given any such rate the A.O. was not sure as to whether there was any under valuation. Moreover, the only under valuation of closing stock cannot be made a basis for rejection of duly regularly maintained and audited books of accounts. The A.O. was also not sure as to whether there was any inflation of expenses debited in the profit & loss account due to which the income declared by the appellant company is on the lower side. .....

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e administrative expenses. The appellant has rectified this mistake and filed reconciled statement before the A.O. according to which, the gross profit declared by the appellant company comes to 23.63% which is higher than the gross profit declared in the immediately preceding year. It is also a case of the A.O. that the reconciliation statement filed by the appellant during the assessment proceedings was not acceptable as it was only an attempt to cover up the low gross profit rate declared dur .....

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Act, but apparently, the A.O. had made the trading addition on similar issue i.e. doubtful under valuation of closing stock. Therefore, the case of the appellant company for the assessment year 2012- 3 is covered by the said decision. In view of above discussions and considering the entirety and totality of the case of the appellant, it is held that the invocation of provisions of section 145(3) is without any basis and only on assumption/presumption that either the appellant company has underva .....

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