TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 240
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....erred in deleting the addition of Rs. 30,60,000/- made by the Assessing Officer on account of unexplained investment as difference between cost of shares shown by the assessee and market value of the shares of M/s Goel Infracon Pvt. Ltd.. 4. That on the facts and in the circumstances of the case, Ld. CIT (A) has erred in deleting the addition of Rs. 2,01,675,/- made by the Assessing Officer on account of disallowance u/s 14A of the Act. 5. That the order of Ld. CIT (A) deserves to be set aside and the assessment order passed by the A.O. be restored. 6. That the appellant craves to add, modify , revise or amend any one or more of the grounds of the appeal as stated above as and when need for doing so may arise." 2. Apropos Ground No.1, it is noticed that during the course of assessment proceedings, Assessing Officer has noticed from the details of purchases of timber of different grades and varieties and having noted the difference in valuation of different varieties of timber, the Assessing Officer has made an addition of Rs. 10,15,162/- on account of under valuation of stock. The assessee has preferred an appeal before the CIT(A) with the submission that though the Asse....
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.... or the closing stock as on 31.03.2011, which have been valued by the assessor on weighted average rate. There is no finding of the AO that the quantitative details of stock of timber at the time of search on 11.03.2011 as per actual inventory differed from the stock as per books of accounts. The AO has only adopted a new method of valuing the stock on prorata basis of stock of timber in the ratio of purchases from Forest Corporation and private parties. The AO has also failed to take note of provisions of section VISA of the Act applicable from assessment year 2010-2011 which lay down as under- 145A. Notwithstanding anything to the contrary contained in section 145,- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be- (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Exp....
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....tended that the assessee has been following consistently weighted average rate methods for valuing the stock and the same was accepted by the Revenue in earlier years therefore, there is no justification to dispute method of valuation by the Assessing Officer. 4. Having carefully examined the order of the lower authorities in the light of the rival submission, we find that undisputedly the assessee has been following the weighted average rates method in valuing the stock and same was accepted by the Revenue in earlier years. Therefore, there is no justification in rejecting the method of valuation made by the Assessing Officer. Moreover, the Assessing Officer has not furnished the reasonable explanation of the reasons for rejecting mode of valuation adopted by the assessee. We have carefully examined the order of the CIT(A) and find that the CIT(A) has adjudicated the issue in a right perceptive. Since no infirmity in the order of the CIT(A) has been pointed out by the Ld. DR, we confirm his order. 5. Apropos Ground No.2, during the course of assessment proceeding, Assessing Officer has noted that on physical verification, the stock of ply board, mica, granite, concept marble, st....
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....ce of acquisition of assets or expenditure' are not explained or not explained satisfactorily The expression "nature and source" used in this section should be understood to mean requirement of identification of source and its genuineness. To explain "Nature" it would require the assessee to explain what is description of investment or expenditure, period and the manner in which it was done. To explain the source it would require the assessee to explain the corpus or fund from where investment or expenditure has been met and also the head under which the investment or expenditure would fall such js whether investment/expenditure pertains to business or relates to acquisition of capital asset or to other source or to agriculture. Where the assessee is able to explain nature and source of investment/expenditure and also if they are recorded in the books of account then such investment/expenditure will not be treated as deemed income but where investment /expenditure is not recorded in the books of account and/or their nature and source is not explained or not satisfactory explained, deeming provision under these four sections can be invoked by the AO and investment/expenditure....
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....d. In our considered view when assessee is found to have shortage in stock and which are treated as sales outside the books then the books cannot be relied upon and can be rejected and profit can be estimated under section 145(3). in view of this, total sales of the assessee 4 should be worked out and profit thereon should be estimated. The shortage in stock would odd to the sales and reasonable GP rate should be applied to work out the profits. Again, Hon'ble ITAT, Indore in the case of ACIT Vs Surajbhan Agrawal in ITA No. 352/lnd/2013 Dated 26.8.2013 held that- We are also in agreement with the finding of the learned CIT(A) that so far as the shortage in gold ornaments is concerned, only profit embedded in the sale can be taken as income of the assessee. 5(11) In view of discussion above I find that the entire shortage of stock of Rs. 53,78,792/-cannot be treated as income of the assessee by making an addition for sales outside books of accounts. Only profit embedded in the sale can be taken as income of the assessee. Accordingly, the addition of Rs. 53,78,792/- is deleted. I find that the appellant has shown gross profit rate of 10.12% in the year under consideratio....
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....tion 69 and Section 69A of the Act are also not attracted as there was proper recording books of accounts with regard to investment in his share. The CIT(A) reexamined the issue in the light of various judicial pronouncement and being convinced with it he deleted the addition. The relevant observation of the CIT(A) is extracted hereunder for the sake of reference:- "6(4) I have examined the facts and circumstances of the case. I have considered the findings of the Assessing Officer in the assessment order and the submissions of the appellant. I have also considered the remand report submitted by the AO and the comments of the appellant thereon. The appellant purchased 3,40,000 shares of M/S Goel Infracon (P) Ltd (earlier known as M/S Suraj Amusement Parks Ltd.) as per details below - Date of Payment Date of Share Transfer Transferor Mode of Payment 07.04.2010 15.04.2010 Bharat Bearings Ltd. cheque number 334140 of Oriental Bank of Commerce, A/c no. 042740100000170 07.04.2010 15.04.2010 Shankar Telecom Ltd. cheque number 334139 of Oriental Bank of Commerce, A/c no.042740100000170 The face value of shares issued by M/S Goel Infracon (P) Ltd was Rs. 10/- for ea....
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....dealers and close relatives at cost price ^nd there was no evidence that the assessee had received more than the declared value, directly or indirectly, section 52 of the Act, dealing with consideration for transfer in case of understatement, was not applicable and that the assessment of deemed capital gain was not valid. In CIT v. Smt. Nilofer I. Singh 309 ITR 233 (Del), it has been held, inter alia, that full value of consideration does not refer to market value but only to consideration specified in the sale deed. In the present case, even otherwise, the Department has not been able to show any purchase price over and above that stated in the registered sale deed, as having been paid by the assessee. In Dev Kumar Jam v. ITO & Another 309 ITR 240 (Del), it was held that where there was no evidence that the assessee received consideration in excess of that shown in the agreement to sell, there was no necessity to compute the fair market value for capital gains and that the full value of the sale consideration was to be taken into account. A similar issue came up for consideration by a Division Bench of Hon'bie Madras High Court in Sundaram Industries Private Ltd. Vs CIT [1969]....
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....not require 'o be estimated, as such value cannot be deemed to be the income of the assessee and it is, therefore, that the provisions of section 69 to section 69B of the Act cannot be invoked in such a case particularly because the face value of shares cannot be substituted for the fair market value of shares. Face Value of share refers to the value at which the Company issues its shares to initial subscribers and in case of companies limited by shares, face value is the maximum liability on a share held by a shareholder. Whereas the fair market value of share is the price at which the share would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Since the provisions of section 56(2) of the Act are not applicable to the appellant's case, the prescribed method of working out the fair market value as per Rule 11UA is also not applicable. In such a situation the fair market value is the agreed consideration of the share of the Company by the buyer and seller. 6(9) In view of discussion above I find that the addition of Rs. 30,60,0007 made by the AO is not t....
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....me for example agricultural income}. In other words, Section 14A of the Act deals with expenses incurred by an assessee to earn on exempt income. Such expenses are not deductible from one's gross total income and are disallowed. As per Section 14A of the Act, expenditure which has a bearing on exempt income should not be considered in the computation of total income as otherwise this would result in double advantage to the assessee. The assessee has shown dividend income of Rs. 17,000/- and therefore the AO is justified in taking recourse to section 14 A of the Act. 7(4) Having said that the issue now is the amount of disallowance to be made under section 14A of the Act. Sub-sections (2) and (3) were inserted in section 14A of the Act by the Finance Act 2006, with effect from 01.04.2007. Sub section 2 of Section 14A of the Act makes it clear that the Assessing Officer shall determine the amount of expenditure with respect to the exempted income if he is not satisfied with the correctness of the claim. He shall do the same by the method prescribed after having regard to the accounts of the assessee. Sub section 3 provides that the provisions of sub-section (2) shall also appl....
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.... on 31 03.2010 and Rs. 387.38 Lakhs as on 31.03.2011 for making the investments in shares and no part of borrowed funds was utilized in making investments. 7(5)(ii) The AO cannot straight away resort to Rule 8D. Sub-Section 2 of Section 14A of the Act and Rule 8D(1), both require the AO to first consider the books of accounts of the assessee before resorting to Rule 80. The AO must arrive at an objective satisfaction that the Assessee's claim is incorrect. In the case of Auchtei Products Ltd it was held by the Tribunal in Para IS that disallowance under section 14A of the Act is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D. Such satisfaction can be reached and recorded only when the claim of the assessee is verified. If the assessee proves before the AO that it incurred a particular-expenditure in respect of earning the exempt income and the AO gets satisfied, then there is no requirement to still proceed with the com....