TMI Blog2017 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is directory in nature and so long as the audit report has been filed during the course of assessment proceedings, substantial compliance has been made. In the result, ground no. 1 of the assessee’s appeal is allowed. Cash payments in violation of provisions of section 40A(3) - Held that:- In the present case, the assessee company has hired the services of transport agency, it thus incurs a liability and owe payment to such transport agency for availing its services. It can either make payment through account payee cheque or bank draft or in cash. Where it makes payment in cash, it is hit by provisions of section 40A(3). The payment to a truck driver is thus a payment to and on behalf of the transport agency and is not a payment to the truck driver in his individual capacity as the assessee has availed the services of the transport agency to transport its goods and not that of the truck driver simpliciter. Therefore, where the payment is made to the agent of the payer, Rule 6DD comes to the rescue and not otherwise. The truck drivers are not the agent of the assessee company and thus not covered under the exception carved out in Rule 6DD. Given the current provisions in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing appropriate opportunity to the assessee. In the result, the ground of the revenue is allowed for statistical purposes. - ITA No. 353/JP/2017 And ITA No. 505/JP/2017 - - - Dated:- 9-8-2017 - SHRI KUL BHARAT, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P.C. Parwal For The Revenue : Shri R.A. Verma ORDER PER: VIKRAM SINGH YADAV, A.M. These are two cross appeals filed by the assessee and the revenue against the order of Ld. CIT (A)-2, Jaipur dated 27.03.2017 for A.Y. 2013-14 wherein the respective grounds of the appeal are as under:- ITA No. 353/JP/17 (Ground of Assessee s appeal):- 1. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in upholding the action of AO in disallowing the claim of deduction u/s 80IA(1) of ₹ 13,04,887/- by holding that assessee has neither complied with the mandatory requirement of e-filing the tax audit report for claiming the deduction nor filed the audit report manually before the due date. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of ₹ 2,97,115/- u/s 40A(3) of IT Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-filing of audit report in order to claim deduction under section 80IA was introduced by Income Tax (seventh amendment) Rules 2013 w.e.f. 01.04.2013 and was applicable from assessment year 2013-14. The report was also not filed in the extended date for the same under section 119(2)(a) to 31.10.2013. Thus, the assessee has not complied with the mandatory requirement of e-filing of the tax audit report for claiming the deduction. The Authorized Representative placed reliance on Raj Kumar Bafna vs. ITO (2016) 48 CCH 244 (Jaipur Tribunal). This case relates to penalty under section 271B and the assessee was illiterate and dependent on professionals which was a finding of the appellate authority. In the case of Harisbhai Babubhai vs. ITO in ITA No. 646/Ahd/2016 (Ahd. Trib.) also the audit report under section 44AB was filed manually within the due date. In the present case neither the reports were e-filed nor manually filed before the due date. Further, no valid reasons for not e-filing the report have been forwarded. There is a clear violation of the provisions of the Act. In view of the same, deduction under section 80IA cannot be allowed. The ground of appeal is dismissed. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the requirement of the section as to the filing of the report should be taken as complied with. For this proposition, reliance is placed on the following cases:- CIT Vs. G.M. Knitting Industries Pvt. Ltd. Anr. (2015) 125 DTR 38 (SC) It was held that assessee is entitled to deduction u/s 80IB even though it has not filed the audit report in Form 10CCB along with the return but has filed the same before the completion of assessment. CIT Vs. Fortuna Foundation Engineers Consultants Pvt. Ltd. (2017) 152 DTR 236 (All.)(HC) Filing of audit report along with return is not mandatory and only directory and assessee cannot be made to suffer if it filed audit report in Form 10CCB in the course of assessment proceedings and not along with return. CIT Vs. Godha Chemicals (P.) Ltd. 83 DTR 190 (Raj.) The expression along with return of income as occurring in sub-section (4) of section 80HHC is directory in nature in so far as it relates to the time for furnishing of the report of an accountant by the assessee in the prescribed form even if such a report in the prescribed form is not furnished along with the ROI but is furnished during the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 11. In view of above, the AO be directed to allow claim of deduction u/s 80IA to the assessee. 5. The ld. D/R supported the order of the lower authorities and submitted that e-filing of audit report within the prescribed time limit is mandatory in nature and the AO has rightly denied the deduction on account of failure of the assessee to comply with the said requirements. 6. We have heard the rival submissions and pursued the material available on record. It is not in dispute that the assessee was entitled to deduction under section 80IA of the Act. The provisions of section 80IA(8) under consideration reads as under: (8) Where the assessee is a person other than a company or a cooperative society, the deduction under sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that submission of assessee does not explain as to how section 40A(3) is not applicable. Accordingly, he made disallowance of ₹ 2,97,115/-. 9. The ld. CIT(A) confirmed the disallowance. The relevant finding of the CIT(A) is reproduced as under: 4.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The books of accounts clearly reflected that cash amounts exceeding the limit prescribed under section 40A(3) had been made and the same were not covered in the exceptions enumerated in Rule-6DD. The Authorized Representative submissions that these were advances which were later adjusted against payments is not supported by any evidence whatsoever. In view of the same the disallowance made by the Assessing Officer is confirmed. The ground of appeal is dismissed. 10. During the course of hearing, the ld. AR submitted that the assessee is exporting the marble and for this purpose it hired the trailers from various transport agencies for transportation of goods at the Mundra port. From the same transport agency on the same day, more than one trailer is hired. As per the general market practice, assessee give advance to the indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Attar Singh Gurmukh Singh reported in 191 ITR 667 has held that Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with rule. It was further held by the Hon ble Supreme Court that it is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. In the instant case, the assessee company has hired trailers from well-established transport agencies such as Arihant Roadlines, Delhi Haryana Roadlines, Dinesh Good Transport company. The ld AR has submitted that it hired the trailers from various transport agencies for transportation of goods at the Mundra port and from the same transport agency on the same day, more than one trailer is hired. It was further submitted that as per the general market practice, assessee give advance to the individual trailor driver and the advance so given is less than the limit of ₹ 35,000/- prescribed u/s 40A(3). So, the question is whether general market practice is good enough to satisfy the test of genuine or practical difficul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment or aggregate of payment to a transport agency (and not to an individual driver) in a single day and where the same exceeds the threshold of ₹ 35,000, unless it is specifically covered by the exception as provided in Rule 6DD, it will be subject to disallowance. Infact, Rule 6DD(k) talks about the reverse situation where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person. Therefore, where the payment is made to the agent of the payer, Rule 6DD comes to the rescue and not otherwise. The truck drivers are not the agent of the assessee company and thus not covered under the exception carved out in Rule 6DD. Given the current provisions in section 40A(3) read with Rule 6DD, in the instant case, the payments to individual transport agencies exceed the threshold of ₹ 35,000 and thus rightly disallowed by the AO. In the result, ground no. 2 of the assessee is dismissed. 14. Regarding ground No. 3 of the assessee s appeal, brief facts of the case are that assessee invested ₹ 2,97,358/- in shares of SBBJ in earlier years. It received dividend income of ₹ 32,480/- during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the assessment order. The AO, however, rejected the contention of the assessee by holding that assessee has no basis to value 25% of the stock at 50% of value holding it as defective. Accordingly, he held the stock as non-defective stock and thus enhanced the value of closing stock by ₹ 73,28,633/-. During AY 2012-13, value of closing stock was enhanced by ₹ 31,44,138/- which resulted in increase in value of opening stock for the year under consideration. Accordingly, AO made net addition of ₹ 41,84,495/- (73,28,633-31,44,138) on account of under valuation of the closing stock. On appeal, the ld CIT(A) has partly upheld the order of the AO and partly allowed the appeal of the assessee. The assessee has accepted the order of the ld CIT(A) and the revenue is in appeal against the relief granted by the ld CIT(A) whereby the latter has directed to treat 25% of stock as defective. 19. During the course of hearing, the ld. AR submitted that the assessee is regularly valuing finished stock at cost of production or net realizable value whichever is lower. In Schedule 21 to the accounts, the method of valuation of the finished goods is stated as under:- Finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 25 25 50 25 Valuation % 25 25 50 50 25 50 Gangsaw Tiles Defective % 50 50 50 50 50 25 Valuation % 25 25 50 50 25 50 From the above table it can be noted that assessee on the basis of physical verification is estimating the defective stock and the same is valued at certain percentage of the average cost of production to arrive at the net realisable value. This is followed consistently on year to year basis. Assessee has consistently taken the defective stock at 50% and valued it at 25% (50% in case of marble slab imported) of the average cost of production. During the year, assessee has taken the defective stock at 25% (50% in case of marble slab imported) and valued it at 50% of the average cost of production on the basis of physical verification. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e up before the Hon ble ITAT in AY 2005-06, 2008-09, 2009-10 where the order of ld. CIT(A) was upheld. Therefore, also the ground of the department should be dismissed.In view of above, ground of the department be dismissed by upholding the order of Ld. CIT(A). 23. The ld. D/R supported the order of the Assessing Officer and submitted that there was no basis for ld CIT(A) to treat 25% of stock as defective. 24. We have heard rival submissions and perused the material available on record. The issue under consideration relates to finding of the ld CIT(A) to the limited extent it relates to determination of 25% of stock as defective and basis thereof for the purposes of valuing the closing stock. Regarding the other finding of the ld CIT(A) that an addition made on account of undervaluation of closing stock in this year will result in increase in the value of opening stock in subsequent year, the same has not been challenged by the Revenue before us and hence, we are not commenting on the same. 25. We now refer to the detail findings of the CIT(A) which are reproduced as under: 2.3 I have perused the facts of the case, the assessment order and the submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve stock was called for, for the last 6 years i.e. 2008-09 onwards and it is seen that the appellant has been valuing the percentage of defective stock sometimes at 50% and sometimes at 25%, no consistent policy has been adopted. Even compared to the previous year purchases of marble slabs, polish tiles and gangsaw tiles have been changed. As regards imported tiles, my predecessor for the assessment year 2011-12, which is the first year of these tiles, has held that 50% of stock being taken as defective is on higher side and has restricted the same to 25%. In the present year also, the assessee has taken the same at 50%. In the other categories it is seen that the appellant has valued the defective stock at lesser percentage i.e. 25% and valued at a higher value (50%) as compared to last year. In view of the orders of ITAT for earlier years, the contention of the Assessing Officer that there was no defective stock cannot be accepted. However, in case of imported marble slabs which were dealt with for first time in assessment year 2010-11, the decision of CIT(A)-2, for assessment year 2011-12 is being followed and the 50% of defective stock is restricted to 25%, to that extent the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the physical condition and movement of stock during the year. Secondly, the position in the past years can be relied upon as far as method of valuation of stock is concerned. Where there is consistency in the method of valuation, the same should not be disturbed and ordinarily be followed unless there are valid reasons identified by the AO to deviate from the same. However, the fact remains that such method of valuation has to be applied to the actual facts pertaining to year under consideration. There cannot be a situation where the actual facts are not emerging from the records but following the past years, where it is found that there is a consistency in the method of valuation of stock is concerned, the same should be followed in the year under consideration. In the instant case, there is no dispute regarding valuation of defective stock at lower of cost and net realisable value. The dispute relates to determination of the extent of the defective stock. In the instant case, the ld AR has contended that based on past experience, estimation of defective stock is made on year on year basis. It is interesting to note from table reproduced at para 20 above, in respect of marble sla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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