TMI Blog2018 (10) TMI 1166X X X X Extracts X X X X X X X X Extracts X X X X ..... hod adopted by the assessee for valuing raw material held as closing stock is in variance to what is stated by tax-auditor to be method of valuation of stock. None of the authorities below have made any enquiry or verifications as to contentions/ evidences filed by the assessee and no verification of the claim of the assessee was undertaken. In the immediately preceding year i.e. AY 2009-10, the assessment was framed by Revenue u/s 143(3) r.w.s. 153A vide assessment orders dated 31.12.2010 pursuant to search conducted by Revenue on 29.04.2008 against the assessee u/s 132(1) wherein additions have been made towards discrepancies in the stock wherein at different locations/ premises belonging to the assessee excess physical stock was found to the tune of ₹ 13.01 lacs while at the same time, in some of the locations/premises belonging to the assessee, excess book stock to the tune of ₹ 55.76 lacs was found. The rollover impact of such addition made by the AO in assessment of the AY 2009-10 to the year under consideration as was done by the assessee is not looked into by authorities below nor the authorities below looked into as to how the assessee adjusted said discrepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the appellate order dated 30.11.2015 passed by learned Commissioner of Income-tax (Appeals)-50, Mumbai (hereinafter called the CIT(A) ), the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 26.03.2013 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ). Both the Revenue and the assessee are aggrieved by the appellate order dated 30.11.2015 passed by learned CIT(A), hence these cross appeals before the Income-Tax Appellate Tribunal, Mumbai. 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA no. 1138/Mum/2016 for AY 2010-11, read as under:- (1) On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition of ₹ 3,35,68,481/- on account of low GP without appreciating the fact that the assessee has only submitted a general reply with regard to the low GP during the year in comparison with the GP of the earlier years and not substantiated the same with facts and figures and therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern itself with the additions made by the AO owing to low gross profits earned by the assessee during the previous year relevant to the impugned assessment year vis-a-vis preceding years, which additions as were made by the AO stood deleted by learned CIT(A). 4.4. The solitary issue arising in assessee‟s appeal concern itself with disallowance of payments made to Hanifa School which is being run by a Trust namely M/s. Aisha Bai Hazi Abdul Latif Charitable Trust situated at Borsad, where the assessee factory is stated to be situated. Revenues Appeal in ITA no. 1138/Mum/2016-AY 2010-11 5.1 During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the turnover in relevant previous year of the assessee has increased while the assessee has reported losses. The AO asked the assessee to submit comparative GP Ratio of preceding three years and justify the fall in GP ratio over the last three years. The assessee has earned GP ratio for the last three years as detailed hereunder:- Assessment year Total Turn Over (Rs.) Gross Profit (%) Net Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration based on declared GP ratio of 16.09% for AY 2009-10 and additions to the tune of ₹ 3,35,68,481/- were accordingly made to the income of the assessee being differential GP ratio declared by the assessee of 7.92% and assessed GP ratio of 16% for impugned assessment year 2010-11, vide assessment order dated 26-03-2013 passed u/s 143(3) of the 1961 Act. 6.1 Aggrieved by the assessment order dated 26.03.2013 passed by AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A). 6.2 The assessee submitted before learned CIT(A) that AO has not pointed out any flaw in the valuation of the closing stock or in the books of accounts maintained by the assessee. It was submitted that the additions were made arbitrarily by the AO. It was submitted that the prices of the raw materials have come down drastically which resulted in low GP ratio. It was submitted that accepted principles for valuation of inventory i.e. lower of cost or market price was followed and the said method of valuation is in sync with accounting standard AS-2 prescribed by ICAI. The assessee in order to justify that correct method of valuation was followed by it, relied upon the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that no details/evidences were submitted by assessee before the authorities below as to any damage to the stock held by the assessee or as to low prices prevailing of tobacco due to bumper crop. 8. We have considered rival contentions and have perused the material on records including orders of the authorities below and case laws cited before us. We have observed that the assessee is in the business of manufacturing trading of tobacco products and raw tobacco. The assessee has reflected following sales and GP ratio in the three years since AY 200809 to 2010-11, detailed of which are as hereunder:- Assessment year Total Turn Over (Rs.) Gross Profit (%) Net Profit 2008-09 18,33,19,831 24.61 5.68 2009-10 30,74,57,182 16.09 3.65 2010-11 41,08,01,086 7.92 N.A. As could be seen from above details of turnover and GP ratio of three years, the turnover of the assessee has increased from ₹ 18.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luing raw material, packing material on weighted average basis which is valued at cost, while the assessee is claiming that it is valuing raw material at cost or market value which ever is lower which is in contrast to what is certified by tax-auditor of the assessee as certified in clause 12(a) of tax audit report. The assessee is however valuing finished/traded goods at cost or net realisable value which ever is lower. Perusal of the audited financial statements reveal that the assessee hold substantial inventory of Raw Material ( including tradable Raw Material ) to the tune of ₹ 11.61 crores (Preceding Year ₹ 14.72 crores) as at 31-03-2010 out of total inventory of ₹ 12.32 crores( Preceding Year ₹ 15.88 crores). This discrepancy in method of valuation of raw material as adopted by the assessee and as reported by tax-auditor as well bonfide of the change in method of valuation of raw material has not been explained by the assessee. It has also not been looked into by the authorities below. The assessee did not presented any cogent evidences to corroborate its contention as to bumper crop of tobacco and its prices crashing owing to bumper crop. None of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of inventory and its bonafide was not seen by any of the authorities below. We have also observed that in the immediately preceding year i.e. AY 2009-10, the assessment was framed by Revenue u/s 143(3) r.w.s. 153A vide assessment orders dated 31.12.2010 pursuant to search conducted by Revenue on 29.04.2008 against the assessee u/s 132(1) of the 1961 Act, wherein additions have been made towards discrepancies in the stock wherein at different locations/ premises belonging to the assessee excess physical stock was found to the tune of ₹ 13.01 lacs while at the same time, in some of the locations/premises belonging to the assessee, excess book stock to the tune of ₹ 55.76 lacs was found. The rollover impact of such addition made by the AO in assessment of the AY 2009-10 to the year under consideration as was done by the assessee is not looked into by authorities below nor the authorities below looked into as to how the assessee adjusted said discrepancies in stock in its books of accounts which found itself manifested in AO making additions for said discrepancies in stock while framing assessment u/s 143(3) r.w.s. 153A. Thus, keeping in view totality of facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up by the assessee has already been rejected by the both the authorities below. The AO rejected these expenses on the grounds that the assessee failed to prove that the Hanifa‟ School is only used for education of employees children. The AO also observed that the assessee failed to prove that no outsider are admitted in the school and that no fee is collected from the above activities. 10. The assessee filed first appeal with learned CIT(A) who also dismissed appeal by holding that these payments do not constitute expenditure incurred for business of the assessee. The learned CIT(A) held that the school is run by a trust and the expenses were incurred by Trust and not by the assessee. The learned CIT(A) held that assessee has made donations to the Trust and governing section is Section 80G of the 1961 Act. The learned CIT(A) held that these deductions are prohibited by Section 40A(9) of the 1961 Act read with Section 40A(1) of the 1961 Act. 11 Aggrieved by the dismissal of the appeal by learned CIT(A), the assessee filed second appeal before the tribunal. Before us arguments have been advanced by Ld. Senior Counsel for the assessee in support of the contention while L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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