TaxTMI 
TaxTMI 
2011 (10) TMI 523
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....ng the assessment proceedings, the Assessing Officer noticed that closing stock has been valued using average FIFO method. However, during the recording of statement by the Assessing Officer, the director of the company Shri B. L. Gupta stated that stock was valued by using average cost method. From this, the Assessing Officer inferred that it is clear that assessee has not followed the widely accepted FIFO method. In this back ground the Assessing Officer adopted the average cost of all purchases during the year and added the average cost of direct expenses to arrive at "true average cost at Rs. 269.92 and used this to arrive at the value of closing stock at Rs. 1,46,52,183 as against Rs. 95,88,146 shown in the books. In this manner an addition of Rs. 50,64,037 was made on account of alleged under valuation of closing stock. The Assessing Officer placed reliance on the decision of CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) and in the case of Mc Dowell & Co. It was objected by the assessee to include all expenses in determining the direct cost, because the direct expenses, which included expenses that related to sale of goods, have already been included, as part of the....
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....to their present location and condition". In this view of things, in my opinion there is merit in claim of the assessee that direct selling costs should not have been included for the purposes of "true average cost". The Assessing Officer also failed to give reasons for ignoring observations in the tax audit report to the effect that there was no change in the method of accounting applied in the earlier years and that in this year too the closing stock valued at "cost or market value whichever is lower", as certified by the management (Item 12(a) of Form 3CD). The Assessing Officer also failed to elaborate reasons for not following the method of valuation of closing stock consistently followed in the earlier years, in particular in backdrop of section 145A of the Income-tax Act, 1961. In his report dated March 10, 2010, the Assessing Officer stated, "the assessee is wrong to say that two stock registers were produced before the Assessing Officer many times. On the last hearing, the assessee produced only one stock register which had simple details of stock at the year-end with no day to day production and breakage details. Anything else being produced in appeal is the addi....
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....ppeals). The Assessing Officer has disturbed the valuation of closing stock without assigning any cogent reason. The assessee has maintained complete books of account. All the purchases have been entered in the purchase register and sales have also been entered in the sales register. At the end of the year on physical verification, the valuation of closing stock has been made on the basis of the method adopted in the past which has been accepted by the Department itself. Therefore, in our considered view, there was no reasoning to disturb the valuation of closing stock by the Assessing Officer. Neither the Assessing Officer has given effect to the method of valuation on the opening stock at the beginning of the year nor any effect has been given in the subsequent year. Therefore, for this reason also the Assessing Officer was not justified in disturbing the method of valuation of closing stock adopted by the assessee. Accordingly, we hold that the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition, more especially as the finding of the learned Commissioner of Income-tax (Appeals) remained uncontroverted. This ground of the Department fails. The sec....
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.... to conclusion of the Assessing Officer that goods exported this year were of inferior quality and breakage claim should have been lower. It was explained that average sale price was lower because the appellant had operated at lower margin due to severe competition in the export market." Thereafter, the learned Commissioner of Income-tax (Appeals) deleted the addition by observing as under : "It is seen that the decision of the Assessing Officer is based on stock phases such as breakage was 'much more than normally expected breakage trade'. He did not explain 'how much more ?' and with reference to what ? His use of the expression 'export trade' indicates that he possibly overlooked that in this year the appellant had commenced in-house processing, a fact that rendered his comparison with previous year as 'inappropriate'. Except for benchmarking against breakage claimed in the previous year, the Assessing Officer did not give any other justification to support his decision to restrict the breakage claim to 7.94 percent His decision is also based on a rather simplistic and superficial conclusion that just because average sale price was lower this year, the quality of goods exporte....
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....ent rates It was explained that as a routine, the available truck was utilised for transporting the goods. it was only coincidences that in the same year some trucks were used more than once, resulting in total payments exceeding Rs. 50,000 to truck in one year. To begin with, there is no evidence that the assessee had entered into a contract with any of the five truck owners to carry its goods throughout the year. Further, there is merit in contention of the assessee that use of available truck was dictated by commercial expediency. The advisory of the Assessing Officer that "a professionally managed company should make such big payments only to such persons for whom they are able to deduct TDS" is misplaced, for the business decisions are a prerogative of the business person, and it can in no way be the basis for disallowance. The learned Commissioner of Income-tax (Appeals) was in agreement with the above submissions of the assessee. Accordingly, he deleted the disallowance made by the Assessing Officer. After considering the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals) on which reliance has been placed by respective parties, we....
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....ereafter the learned Commissioner of Income-tax (Appeals) by observing as under deleted the disallowance made by the Assessing Officer : "To sum up, in my view, the Assessing Officer has failed to appreciate, the difference in two types of payments made to the clearing agents, one for the services rendered to the appellant, and second in the nature of reimbursement of sundry expenses incurred on behalf of the appellant. There is no basis for his assumption that reimbursement of sundry expenses was done, 'as if there was a contract between the assessee-company and the agent to get the works done' on its behalf. The law, in my view, does not recognise, 'as if there was a contract'. In the given facts and circumstances, decision of the Assessing Officer to invoke section 40(a)(ia) of the Income-tax Act, 1961 to disallow Rs. 22,92,664 paid for clearing and forwarding charges is not confirmed. Ground No. 6 of the appeal is accepted." After considering the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals), again we find no infirmity in the findings of the learned Commissioner of Income-tax (Appeals). The payments made by the assessee were on account ....
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....shipping company. Thereafter, the learned Commissioner of Income-tax (Appeals) after considering the order of the Assessing Officer and contention of the assessee observed and held as under : "A perusal of the assessment order shows that the Assessing Officer had indeed ignored the fact that payment of Rs. 4,04,041 pertained to SCI, on which no TDS was required. The certificates from four shipping agents, copies of which were also made available to the Assessing Officer in the course of assessment proceedings, show that in such certificates Sai Shipping Services, Chinubhai Kalidass & Bros. and other, had categorically stated that they acted as agents or respective non-resident shipping companies, from whom the commission was recovered. in the assessment order, the Assessing Officer did not give any reasons for ignoring this evidence. The letter dated March 10, 2010, submitted before the Assessing Officer asserted that in case of house bill of lading 'shipper...... simply handover this work to his agent who decided which shipping line at which price to be used', and claimed that because it was a house bill of lading, the agent who issued the house bill of lading was agent ....