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Khetan Tiles Pvt. Ltd., C/o Kalani & Co. Versus ACIT Circle-4 Jaipur And Vice-Versa

Disallow the claim of deduction u/s 80IA - non filing of audit report in Form 10CCB before the due date of filing of return - mandatory requirement of filing of Audit Report - Held that:- Admittedly, in support of claim of deduction under section 80IA, the audit report in prescribed Form 10CCB has been filed by the assessee company during the course of assessment proceedings. - The Hon’ble Supreme Court in CIT v. G.M. Knitting Industries (P) Ltd. (2015 (11) TMI 397 - SUPREME COURT) dismissed .....

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andatory, the further condition that it should be filed with the return of income 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 .....

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iciter. 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 - Decided against assessee - Addition u/ .....

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ned by the Ld. CIT(A). After hearing both the parties, disallowance of administrative expenses is restricted to ₹ 1,487. In the result, the ground is partly allowed. - Rejection of method of valuation of stock - identification of stock - defective stock identification - Held that:- As find that the defective stock has been referred to by the assessee as a stock which is not of best quality, is slow moving and has got accumulated at the end of the year and which is determined based on p .....

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specified goods as defective, the same can then be accepted as a reliable and robust basis to help determination of relevant trend for identification of defective stocks. - As we have held above, the assessee has to demonstrate through facts of the instant year that such a trend percentage of defective stock can be applied for the year under consideration taking into consideration the position of opening stock, purchases, sale and closing stock. There is however nothing on record to suggest .....

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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 .....

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17 (Ground of Revenue s appeal):- (i). Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in directing to treat 25% of stock as defective as against the findings of the AO that no stock was found defective on the basis of sale bills denoting similar value. 2. Firstly, regarding ground No. 1 of the assessee, brief facts of the case are that the assessee claimed deduction u/s 80IA of ₹ 13,04,887/- on the income from two wind mill turbines. The assesse .....

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nically. The proviso was made applicable w.r.e.f. 01.04.2013 and is thus applicable for subject assessment year 2013-14, and e-filing of audit report u/s 44AB and section 80IA in Form 10CCB have become mandatory to be file on or before the due date of filing of the return. The CBDT has issued order u/s 119(2)(a) on 26/09/2013 and extended the date of filing of audit report to 31.10.2013 subject to the condition that the assessee should file the audit report along with copy of return in paper for .....

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udit report has not been filed electronically within the due date and the report is also filed manually during the assessment proceedings. It is seen that the amendment to Rule 12(2) relating to 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. Thu .....

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der 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. During the course of hearing, the ld. AR submitted that from the facts stated above, the moot question which ar .....

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proviso was substituted by IT(Seventh Amendment) Rule, 2013 dt. 11.06.2013 to provide that the audit report required u/s 80IA is also to be furnished electronically. It was submitted that the proviso was made applicable w.r.e.f. 01.04.2013 and is thus applicable for the subject assessment year. It was further submitted that there is no dispute as to the fact that assessee has filed the audit report manually during the course of assessment proceedings and that it is eligible to claim deduction u .....

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e audit report u/s 80IA was also required to be filed electronically with the return. This amendment missed the attention of the assessee and therefore, audit report in Form 10CCB could not be filed on or before the due date of filing of the return or by the extended date of 31.10.2013. these amendments having been introduced for the first time in the relevant AY, there is a reasonable cause for not e-filing the audit report in Form 10CCB electronically. 4.1 It was further submitted that it has .....

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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 .....

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of consideration only for the reasons of the same having not been filed at the initial stage of filing the return. Therefore, assessee could not be denied the benefit of deduction u/s 80HHC because the audit report in Form No. 10CCAC had been filed during the course of assessment proceedings. CIT Vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust 195 ITR 825 (Cal.) The assessee has been denied the benefit of exemption u/s 11 as the audit report in Form No. 10B was not filed along with the ret .....

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e auditor in Form 10B should be furnished along with the return. If sec. 12A is read in isolation and the rule of strict and literal construction is applied, the approach of the revenue in this case has to be held as correct. But there is no justification for applying the rule of strict construction or for considering the provisions of section 12A is isolation. Having regard to the other provisions of the act regarding filing of the return or revised return or rectifying the defects in the retur .....

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llowed to be filed before the completion of the assessment. No case has been made out that the delay in getting the accounts audited and in filing of the report in Form No. 10B defeated any object of the Act, or the assessee s action was in substance not in conformity with the intent and purpose of the Act. The IT authorities fell into error in denying the claim of 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 supporte .....

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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 re .....

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. [2012] 18 taxmann.com 25 (Mad.) holding that Even though necessary certificate in Form 10CCB along with return of income had not been filed but same was filed before final order of the assessment was made, the assessee was entitled to claim deduction under section 80-IB. In light of the above, we agree with the contention of the ld AR that while filing of the audit report is mandatory, the further condition that it should be filed with the return of income is directory in nature and so long as .....

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Roadlines 16-11-2012 37,500/- Dinesh Goods Transport Company 26-11-2012 36,595/- Dinesh Goods Transport Company 30-11-2012 40,000/- Arihant Roadlines 10-08-2012 97,020/- For Marble Block Purchase Total 2,97,115/- 8.1 In assessment proceeding, assessee filed its submission justifying the cash payment and also that how section 40A (3) is not applicable to such payment in as much as the payment made to the individual drivers does not exceed the limit specified u/s 40A(3). The AO, however, held tha .....

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ed 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 transpor .....

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t agency on that date. Section 40A(3) is attracted when payment made to a person in a day exceeds the prescribed limit. In the present case, payment made to a person, i.e. to the individual driver do not exceed the prescribed limit and therefore, provisions of section 40A(3) is not violated. The Ld. CIT(A) has observed that assessee has not filed evidence in this regard whereas such evidence were available with the AO in the books of accounts produced and examined by him on test check basis. Cop .....

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of ₹ 2,97,115/-, lower authorities have not objected to the genuineness of the payments made to the transporters. Where the person to whom payment is made is genuine and cash is paid in business expediency, the same cannot be disallowed u/s 40A(3). Reliance in this connection is placed on the following cases:- Brothers Pharma (P.) Ltd. ITO (2016) 45 ITR(Trib.) 0154 (Jpr.): - Anupam Tele Services vs. Income Tax Officer (2014) 366 ITR 122 (Guj)(HC) - Sri Laxmi Satyanarayana Oil Mills Vs. Co .....

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tions enumerated in Rule 6DD. The Hon ble Supreme Court in case of 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 g .....

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essee 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 difficulty for the payee not to accept cheque payment. In our view, more than the market practice, it is the compelling circumstances in the given facts and situations which should determine the allowability of cash payments. There is nothing on .....

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l transport agency . In this regard, we refer to the provisions of Section 40A(3) which provides that Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. The proviso further provides that Provided further that in the case of payment made for plyin .....

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text. 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 .....

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n 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 trans .....

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O disallowed ₹ 14,901/- by computing the expenditure incurred in relation to earning exempt income in accordance with Rule 8D of Income Tax Rules, 1962. 15. The ld. CIT(A) accepted the submission of the assessee that the interest free funds were available with the assessee which were much than the investment made by the assessee and thus, no disallowance on account of interest expenses is called for. However, she confirmed the disallowance of ₹ 13,414/- out of administrative expenses .....

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interest expenses but has wrongly confirmed the disallowance out of administrative expenses at ₹ 13,414/- as against ₹ 1,487/- disallowed by AO. Therefore, even if order of Ld. CIT(A) is upheld, the disallowance be directed to be restricted at ₹ 1,487/- as against ₹ 13,414/- incorrectly mentioned by the Ld. CIT(A). 17. After hearing both the parties, disallowance of administrative expenses is restricted to ₹ 1,487. In the result, the ground is partly allowed. ITA No .....

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e goods. All the sale vouchers are for fresh goods and of similar values. Accordingly, he issued show cause notice as to why the method of valuation of stock should not be rejected. The assessee filed its explanation which is reproduced at page 3 & 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 .....

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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 goods are valued on cost of production and net reali .....

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. Normally, considering the past experience, the assessee in respect of certain items like marble blocks/tiles/slab, etc., treat 75% of the stock as fresh and 25% as defective. The fresh stock is valued at average cost of production and defective goods are valued at 50% of the average cost of production. However, in some cases, this ratio is increased or decreased considering the actual position of the defective goods. This method of valuation of closing stock has been consistently followed by t .....

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ion % 25 25 25 25 25 50 Marbles Slabs Imported Defective % 0 0 0 50 50 50 Valuation % 0 0 0 50 50 50 Polish Tiles Defective % 50 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 fol .....

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verage cost of production. 21. It is a settled law 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 the year by ₹ 73,28,633/- without directing to correspondingly increase the value of the opening stock of next year. The Ld. CIT(A) has given the direction to increase the value of opening stock by the amount of addition confirmed by him. This direction is not challenged by the department. Hence, in case the .....

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t any success, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter 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. It was therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only w .....

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present case also, for subsequent AY 2014-15, AO has accepted the closing stock declared by the assessee as opening stock and also accepted the closing stock declared in that year. Therefore, the ground raised by the department is only academic having no tax effect. 22. Similar issue has come 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 de .....

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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 appellant. This grou .....

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s and for the last five years the value of the same stood at ₹ 4,17,24,506/-. Further, the Assessing Officer noted that no stock was found to have been sold at lower rate as per the books of accounts and sale bills. In view of the above, the Assessing officer enhanced the closing stock by treating the stock treated as defective by the assessee as normal stock and valuing it at full value instead of 50% applied by the assessee. In the present proceedings, it is submitted that as per schedul .....

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se and reliance was placed on the Apex Court in the case of CIT vs. Excel Industries ltd. 358 ITR 295. It was also submitted that the same issue arose in assessment year 2005-06 and travelled upto ITAT, in assessment year 2008-09 and 2009-10 also issue arose and the CIT(A) following the decision of the ITAT for earlier years deleted the same. In assessment year 2010-11, the Assessing Officer has accepted the valuation of the closing stock as such in the assessment under section 143(3). It is see .....

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fective 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 ot .....

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of defective stock is restricted to 25%, to that extent the addition for under valuation of closing stock is upheld. The ground no. 1 is partly allowed. Further as held in the assessment year 2011-12 by my predecessor, an addition made on account of under valuation of closing stock in this year will result in increase of the same in the next year. The Assessing Officer is therefore directed to increase the value of opening stock of assessment year 2014-15 by the amount of addition made in this .....

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s of accounts and bills and vouchers. Thereafter, she has examined the comparative chart showing defective percentage of stock in the previous years and observed the comparative position vis-a-vis previous year and further taking into consideration the orders of ITAT for earlier years, held that the contention of the Assessing Officer that there was no defective stock cannot be accepted. Apparently, this finding is in relation to finished stock other than imported marble slabs . In respect of st .....

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he fact that the assessee does possess defective stock for the year under consideration. 28. In our view, the results of the earlier years might show the relevant trend but are not necessary conclusive for determination of position of actual stock of defective goods for the year under consideration. It is a function of identifying and determining the position of defective stock through an appropriate methodology taking into consideration the physical condition and movement of stock during the ye .....

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ot 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 .....

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tock has been shown fluctuating between 25% and 50% during the same period. In respect of Gangsaw tiles, percentage of defective stock has been static at 50% right from AY 2008-09 onwards and suddenly, there is drastic fall to 25% during the year under consideration. What is therefore unclear is how the percentage of defective stock can be so consistent and static, and that too over a long period of six years and secondly, what is the reason for sudden fall in the percentage of defective stock d .....

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Highlight: MAT - Adjustment to book profit - computation u/clause (f) of Explanation-1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w.Rule 8D of I.T. Rules.

Highlight: Addition on account of alleged suppression of service value received - the addition made simply believing the Form 26AS will be an arbitrary exercise of power which cannot be sustained

Notification: Exempts intra state supply of heavy water and nuclear fuels from DAE to NPCIL

Notification: Seeks to amend notification No. 12/2017-UTT(R) to exempt right to admission to the events organised under FIFA U-17 World Cup 2017

Notification: Seeks to amend notification No. 11/2017- UTT(R) to reduce CGST rate on specified supplies of Works Contract Services

Highlight: Liability to pay duty on import of software - Though no authorization was given by the appellant to DHL, it is an undisputed position that the software has, in fact, been ordered by the appellant and have been delivered to them by DHL - the appellant is to be considered as the importer



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