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TMI Blog2020 (7) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by Ld AO and Ld CIT-A becomes bad in law on basis of settled doctrine that no order can be passed in name of non existing person ; Covered Matter: Addition made on basis of mere auditor comments having no bearing on income determination under the Act and wrongful invocation of section 145 2. That on the facts and in the circumstances of the case and in law, Ld. CIT-A erred in sustaining addition of Rs. 146,76,345 made by Ld. AO on basis of perverse findings recorded in perfunctory manner without appreciating objectively the arguments and contentions of assessee taken before Ld. AO and Ld. CIT-A where it was highlighted with reference to case records that no case is made out for invocation of section 145 of the Act and merely on inchoate comments of statutory auditor and on incorrect deficiencies in valuation, impugned addition is made which stands already jettisoned in order of Hon'ble Delhi IT AT in similar facts in AY 2010-11 & AY 2011-12 (order of B bench in IT A 2291/ & 2292/Del/2015 order dated 29/12/2017) which squarely covers the present issue in favor of assessee; Consistent stock valuation method: Duly accepted by revenue in initial and later years in same fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings before Ld AO and Ld CIT-A are conducted and no where valid show cause notice as mandated in law is issued to assessee. Consequential benefit u/s 80IC 7. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in not allowing corresponding enhanced deduction u/s 80IC qua Unit 1 and finding in para 6.3 of Ld CIT-A order is plainly contradictory to CBDT circular no 37/2016 dated 2/11/2016." 3. Brief facts of the case shows that the assessee is a company engaged in the business of manufacturing and sale of processed foods like sauces, mayonnaise, spreads and dips, mustards, milk shake mixes, egg less cake mixes, peanut butter and culinary powders. 4. It filed its return of income for Assessment Year 2012-13 on 28.09.2012 at Rs. 3,58,00,490/-. The case of the assessee was selected for scrutiny. The ld AO found that the gross profit ratio of the assessee from Assessment Year 2010-11 was of 21.49% , it has gone down to 17.20% for this year, AO asked the assessee to show the reasons for decline. The assessee submitted that there is increase in raw material cost from 59.50% on turnover to 61.78% for this year, the ld AO was not satisfied with the expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails submitted by the assessee along with letter dated 11.02.2015. The ld AO further noted that assessee is not able to justify the qualification of the auditor. Therefore, in view of discrepancy noticed in closing stock, non-production of books and the comments of the statutory auditor, ld AO held that he did not have any option but to invoke the provision of section 145(3) of the Act. To estimate the profit, he took the net profit ratio of 10.72% for Assessment Year 2010-11, which was adopted for making an addition in Assessment Year 2011-12 and made the differential addition Rs. 1,46,76,245/-. Consequently assessment u/s 143(3) of the Act was passed on 13.02.2015 determining total income at Rs. 5,04,76,835/- against the returned of income of Rs. 3,58,00,490/-. 6. The assessee aggrieved with the order of the ld AO preferred an appeal before the ld CIT (A). The ld CIT (A) considered arguments of the assessee as per para No. 4 of his order. He further upheld the order of the ld AO and confirmed the addition. As per para No. 5.8 at Sl No. 8 of the table the assessee submitted before him the order of the coordinate bench for AY 2010-11 and 2011-12 and claimed that it covers the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report. He therefore, submitted that the issue is squarely covered in favour of the assessee. He further submitted that the ld CIT (A) despite the order of the ITAT has confirmed the addition. 11. The ld DR submitted that there are factual difference in the order passed by the coordinate bench in earlier years in case of the assessee on three counts:- a. The assessee has not produced books of account and vouchers before the ld AO. b. In para No. 2 and 2.1 the ld AO has pointed out the difference in quantitative details and c. The certificate produced by the assessee on 20.02.2013 has mentioned para 2.2.2 of the order was itself qualified. 12. Therefore, there cannot be any infirmity in the order of the ld AO. He submitted that the ld CIT (A) has also held that the order of ITAT cannot apply, as it was a factual matter. However, he insisted that there are material difference in the facts of the case compared to the earlier years order of the coordinate bench therefore same cannot be applied as claimed by the ld Authorized Representative. 13. In rejoinder, the ld AR vehemently submitted that accounts of the assessee are audited and the assessee has produced the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in finished goods valuation. He further referred to his submission dated 15.07.2014 placed at page No. 103 to 125 of the paper book to support his contention. He further stated that complete valuation details are available with the Assessing Officer. He also referred to the tax audit report to show that complete quantitative details are maintained by the assessee and the auditor has certified that inventories are valued at lower of cost or net realizable value whichever is less and includes all the cost incurred to bring them to their present location. With respect to the manufactured goods he submitted that they are valued on the retail method wherein, from the selling price gross margin is reduced so that valuation of the inventory is determined. He further referred to the audit report and referred to the audit note and submitted that looking to the nature of the business of the assessee it is not possible to maintain product wise costing and certain overheads are required to be absorbed and therefore, assessee is using the retail method. He submitted that the above method is permitted by the accounting standard 2 on valuation of inventory. He further submitted that va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dard 2 valuation of inventory, retail method can be used as a valuation technique only when it approximates the actual cost of production for the goods manufactures by the company. However, in absence of adequate product wise cost records having been made available to us, we are unable to comment on the appropriateness of the usage of the retail method for valuation of manufactured finished goods by the company. As a result, we are unable to comment o the accuracy of valuation of inventories of manufactured finished gods as at year end and at the end of the previous year, increase/ decrease in stock and its resultant impact on the profit for the year, reserves and surplus and the related disclosures forming part of the financial statement. Further, the company has not made available detailed records regarding consumption of raw material and packing materials, used in the manufacture of finished goods. We were also not made available the computation of consumption, which could have been arrived on the basis of bill of materials of the finished goods produced during the year. In absence of the above mentioned details/ records, we are unable to comment on the accuracy of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned that technique for the measurement of cost of the inventories such as the standard cost method or retail method may be used for convenience if the results approximates the cost. In para No. 22 it is stated that retail method is often used in retail industry where, large numbers of rapidly changing items with similar margins for which it is im-practicable to use other costing methods. In such circumstances the cost of the inventory is determined by reducing the sales value of the inventory by the appropriate percentage of the gross margin. An average percentage for each retail department is often used. Therefore, looking at the accounting standard for inventory valuation we do not find any infirmity in the method of techniques of measurement of cost as well as cost formula used by the assessee. The assessee in fact has followed the accounting standard only. In view of this, we find that provision of section 145(3) of the Act are incorrectly invoked by the ld Assessing Officer and confirmed by the ld CIT(A) because the valuation method is correct and therefore, it does not impact the correctness or completeness of the account of the assessee. In fact it makes the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there any other defect being pointed out by the AO for invoking the provisions of Section 145 (3) of the act. Before us, both the parties who are privy to this information i.e. the assessment orders for earlier years, did not produce the same. Therefore, in absence of verification of the assessment orders in those years with respect to the production of books of accounts as well as any other defect, it is impossible to decide whether the facts of the case in assessment year 2010 - 11 and 2011 - 12 are identical or not. Therefore, we proceeded to examine the record available with the ITA T with respect to those years. 18. The assessment year 2010 - 11 was assessed by the assessing officer on 11 March 2013. The addition of Rs. 1,56,06,861 was made on account of the qualification of the auditors. On page number three of the assessment order the learned assessing officer proceeded to make the assessment as Under:- "on the basis of the above qualification by the statutory auditors of the assessee company, and further, there is a decline in the gross profit to sales by 6.83% (28.33% - 21.50%) and net profit to sales ratio by 4.47 %( 15.19% -10.72%), the basis of which has not been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rically emphasized by the assessing officer as well as by the learned CIT - A. 19. Similarly for assessment year 2011 - 12, the assessment order was passed u/s 143 (3) of the income tax act on 31st of March 2014 wherein the learned assessing officer has made the addition of Rs. 20,227,358/- on identical facts and giving the identical reasons. The finding of the learned assessing officer is available at page number [7-8] of the assessment order. Therefore, for the similar reasons the facts in appeal before us are distinguishable with respect to the nonproduction of the books of accounts as well as defects pointed out by the learned assessing officer in quantitative details furnished by the assessee. 20. In the impugned order in this appeal, as the assessee did not produce the books of account and vouchers before the ld AO, which is specifically mentioned by the ld AO and the ld CIT(A). This issue is harped upon vehemently by the ld DR, but disputed by the assessee. Therefore, a. on the basis of the findings of the assessment orders for assessment year 2010 - 11 and 11 - 12, which did not make any reference to the production of the books of accounts by the assessee and further di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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