TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 292
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.... Tax (Appeals) has erred on facts and in law in confirming ad hoc disallowance of Rs. 1 lacs out of Rs. 43,36,130/- made by the A.O. on account of commission paid. 2. The first ground of revenue's appeal is against deleting the addition of Rs. 2,11,29,247/- made by the Assessing Officer on account of under valuation of closing stock. The Ld. Assessing Officer observed that the assessee company is engaged in business of manufacturing and trading of Marble, slabs and blocks. It filed its return of income declaring total income of Rs. 49,26,810/- on 29/09/2009 alongwith audit report. This case was scrutinized U/s 143(3) of the Act. He further observed that the assessee had declared undervalue of the closing stock as no identification was maintained for defective goods, which was also not reflected in the sales bill. Further on transfer of goods from one unit to another, no details of defective goods transferred was mentioned on it. The assessee had adopted this practice to reduce the tax liability, therefore, he gave the reasonable opportunity of being heard on this issue. The assessee has admitted that it followed weighted average for valuation of closing stock in the year under....
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....r stock) was being consistently followed since last many years. However, the Hon'ble Jaipur Tribunal vide its order in ITA No. 32/JP/2009 dated 24/04/2009 held that this method of valuation of stock was consistently followed by the assessee and it could not be rejected in the absence of any specific defect. He reproduced the order of the Hon'ble ITAT on page No. 7-8 of its order wherein the ITAT has confirmed the order of the CIT(A) and deleted the addition made by the Assessing Officer. The ld CIT(A) further observed that there is no material change in the facts and circumstances relating to the current year. In his opinion, the Assessing Officer could not have changed the method of valuation of closing stock, which has been consistently followed by the assessee company since last many years. The ld Assessing Officer had valued the closing stock at cost by adopting the FIFO method (First In and First Out). However, this method could not have been applied in the present case due to peculiar nature of marble business. In this line of business, the customers always purchased the goods on selective basis and the best lot was always sold first. The unsold goods got accumulated ....
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....if any. Further the cost of production is considered according to the extent of manufacturing process as per estimate." In this business goods are sold on selective basis and therefore the best quality goods are sold first and the remaining goods gets accumulated. Such accumulated stock has a lower realizable value and therefore stock of such goods are valued at lower than cost. Normally, considering the past experience, the assessee in respect of certain items like marble blocks/tiles/slab etc treat 50% of the stock as fresh and 50% as defective. The fresh stock is valued at weighted average cost and defective goods are valued at 25% of the weighted average cost. 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 adopted by the assessee since last number of years. In earlier years, such method of valuation of stock has been accepted. 3. The AO has valued the closing stock at cost by adopting FIFO method. This is not justified. He ignored the fact that due to peculiar nature of the marble trade, the goods are sold on selective basis. From the total lot of productio....
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....ive stock is done on estimation basis. However, he has not made any addition in respect of the valuation of the stock. The AO has made the addition on the basis of the power consumption on the ground that the average power consumption for the preceding two years was 0.11 sq. meter of production per unit as compared to 0.074 sq. meter of production per unit in the year under consideration. Accordingly, he has estimated the suppressed production in making the addition. In doing so, the Ld. AO has ignored the fact that the method of valuation of the closing stock is the same as in earlier years and it is consistently followed. No adverse inference on the valuation is drawn by the AO in framing the assessment. On these facts, it is held that section 145(3) has been wrongly invoked by the Ld. AO. Further, in respect of the power consumption, the Ld. AO has not appreciated the claim of the assessee that in the year 2002-03, the production was totally of white marble of Andhi mines whereas the production during the year is totally of color marble of Bidasar mines, which is more hard, resulting into more power consumption. In support of this, the technical data of Andhi marble and Bidasar ....
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.... comprises of 41 type of items for which valuation is done. Out of it assessee has reduced the value of the stock on account of old, inferior or defective stock in 11 items only. The AO, however, made adjustment in stock valuation in seven items and has accepted the valuation in four items. No specific reason is given why the valuation is disturbed only in respect of few items. (ii) The AO has accepted that stock is to be valued as per cost or market value whichever is lower. However, he has not considered any of the stock in respect of these seven items lying with the assessee as dead/obsolete/defective which is inherent in the marble industry. (iii) Out of the seven items considered by the AO, in six items weighted average rate has been considered for valuation whereas in one items i.e. Marble Block at Factory only purchase cost during the year is considered for valuation. If the Marble block at factory is also valued at weighted average cost as done by the AO in other items, the value of Marble Block at Factory would work out at Rs. 1,20,07,625/- (6091.478*1971.217) as against value determined by the AO at Rs. 1,86,60,938/- (6091.478 * 3063.45). Thus the addition to the extent....
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....CIT Vs. Excel Industries Ltd. 358 ITR 295 has held that where in several A.Y.'s, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some A.Y.'s, the matter was taken in appeal before the High Court but without any success, the Revenue cannot be allowed to flipflop 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. There was, therefore, no need for the Revenue to continue with the litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. (vi) It may be noted that the Punjab & Haryana High Court in case of CIT Vs. Satish Estate Pvt. Ltd. (2014) 226 Taxman 11 where addition of Rs. 75 lakhs was made on account of undervaluation of closing stock of the land but the closing stock of land shown by the assessee is accepted by AO as....
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....sponse thereto, the assessee had filed confirmation of 40 parties out of 42. On verification of records, it is observed that the commission amount was also paid on the invoice which was not mentioned in the confirmation and not mentioned by the assessee to commission agent, for instance invoice No. 7A, 7B and 7C. He further observed that the Rajasthan is the biggest mandi of marble stone in the world. The buyer needs knowledge of availability of the stones in market. There is business culture that commission to be paid to the person who brings the buyer or introduce the buyer or giver assistance in sale of the product. The assessee has paid Rs. 34,52,200/- as commission to the persons covered U/s 40A(2)(b) of the Act. The details of which is reproduced at page No. 12 and 13 of the assessment order. He further observed that the assessee has only diverting his income by giving commission to his relatives who are covered U/s 40A(2)(b) of the Act, further these persons have been paid commission only on the last day of the financial year. During A.Y. 2008-09, the assessee himself has turnover of Rs. 9,57,56,350/- and paid a commission of Rs. 42,92,450/- while during the A.Y. 2009-10 on ....
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....red by the commission agents. He has also filed the statement of old commission agent as well as new commission agents. The assessee vide letter dated 18-11-2011 also filed the confirmation of 40 persons. The commission agents mainly introduce the customer or influence the customer to purchase the goods of the assessee. For such introduction/persuasion, there can't be any documentary evidences for establishing the services rendered. Hence the disallowance made by the AO for this reason is misconceived. 2. The explanation in respect of each commission payment is given at. From the same it can be noted that commission payment is fully verifiable and incurred for the purpose of the business. 3. The various observations made by the AO are incorrect or not relevant as explained here under:- (i) In respect of evidence of services rendered, the assessee has filed complete details of the persons linking with the sales. The AO himself on the basis of these information accepted the commission payment to 25 parties. Hence on the similar evidences, rendering of services can't be ignored in respect of 17 parties. (ii) The commission paid on the invoice no.7, 7A, 7B & 7C to Uma Agarw....
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....sion expenses of 5 parties due to non compliance of summon issued u/s 131. In this regard we may point out that out of these 5 parties Anil Sharda (HUF), Uma Agarwal, Smt Sarita Kant, Smt Samriddhi Agarwal have duly submitted the documents required by the AO in compliance to the summons issued to them. Thus they have complied the summons issued. If the AO has any doubt in his mind he should have enforced their personal attendance. In view of the above, the observations of the AO are not sufficient to make the disallowance of the commission. 4. The assessee could not file the confirmation of Mahesh Kumar & Naresh Kumar Bhagwani as they are out of station and not in touch with the assessee. However, the assessee has filed the details of the sales made through them. TDS has been deducted on the commission. Payment is made by cheque. Copy of their account in the books of assessee indicating complete details of commission and payment thereof. 5. Reliance is placed on the following cases:- (i) Syntexa vs. Asstt. CIT [2000] 111 Taxman 47 (Cal.) (Mag.) (Trib.) (ii) Dresser Valve India (P.) Ltd vs. Asstt. CIT [2009] 30 SOT 495 (Mum.) In view of the above, the CIT(A) has rightly held t....