TaxTMI 
TaxTMI 
2019 (5) TMI 1997
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....r erred in law as well as on the facts of the case in confirming the addition made on account of the alleged under-valuation of closing stock by showing finished goods of readymade garments as rejection. 2.2 Rs. 2,03,36,304/-: The ld. CIT(A) further erred in law as well as on the facts of the case in confirming the addition made on account of the alleged under-valuation of closing stock by showing finished goods of readymade garments as stock lying with job units. 3. The AO further erred in law as well as on the facts of the case in charging interest u/s 234A, 234B, 234C & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The assessee totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full. 4. The assessee prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing." 2. In this appeal, the assessee has also taken additional grounds, which reads as under: "1.1. The very action taken u/ s 147 r.w.s 148 is bad in law without jur....
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....the A.O. for initiation of proceedings U/s 147 as well as merit of the addition so made by the A.O. Against the order of the ld. CIT(A), the assessee is in further appeal before the ITAT. 6. It was argued by the ld AR that the AO has wrongly assumed jurisdiction u/s 147 of the Act and the proceedings initiated there under are absolutely illegal & arbitrary in as much as there did not exist any reason at all much less reason to believe as contemplated under the law and in the light of judicial pronouncements cited at bar. As per the ld. AR, the reopening of the concluded assessments after the lapse of various years, has been seen by the Hon'ble Courts as a serious invasion over the rights of a citizen, which is having the effect of unsettling the issues which already stood settled long back between the parties. Some of the inbuilt safeguards so as to prevent the arbitrary exercise of the powers by the AO to fiddle with the completed assessment are provided in the Act viz. Recording of reasons, mandatory service of a notice u/s 148 of the Act, prior approval of the superior authority before issuing such notice and issuance of notice within the prescribed time limit. The Courts the....
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....rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied.---" 9. The ld AR also argued that with regard to the valuation of finished goods, the only reason or/ justification provided to form an opinion as to income escaping assessment is that the assessee-company has undervalued the closing stock of raw material by applying average rate per meter @ Rs.89.62 as against the valuation by assessee-company @ Rs.70.43 per meter while valuing its closing stock "at cost" and hence, income to the extent of Rs.2,35,82,030/- is alleged to have escaped assessment. 10. It was further contended that a bare perusal of the above reasons, clearly reveals that the AO had proceeded on mere suspicion, surmises and conjectures rather than having any tangible material in his possession. The law is well settled that there must really exist at least some prima facie material so as to justify the formation of belief as alleged by the respondent to have a reason to believe. It should not be a mere pretence or alle....
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....r party in the market except the said clients. Thus, the value of such rejected goods, was virtually nothing/nil so far as the assessee-manufacturer-supplier was concerned for the obvious reasons that in the light of this agreement and in view of these facts why even the said customer should buy the rejected/damaged goods. Thus, for the assessee-company it was a dump/wastage having no realizable value at all. Even then the assessee-company to be on a very fair side valued such rejected goods @ of Rs.25 per piece though was not at all required. 14. It was the further contention of the ld AR that the AO did not at all dealt with the above objections by merely observing that they are the subject matter of the assessment and shall be examined at that point of time. The AO completely failed to appreciate that the requirement of the law that there must be some material so as to invest the AO to have a prima facie reason to believe as to escaped assessment of income but in the light of the above objection it is evidentiary clearly that there was no material at all that even prima facie or remotely one could not have formed any formation of opinion. The AO completely failed to appreciat....
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....uine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of s. 151(2). What that provision requires is that he must give reasons for issuing a notice under s. 148. In other words he must have some prima facie grounds before him for taking action under s. 148. Further his report mentions: "Hence proper investigation regarding these loans is necessary." In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under s. 148. Before issuing a notice under s. 148, the ITO must have either reasons to believe that ---------------income chargeable to tax has escaped assessment for that year or ----- the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. ------------ We are not satisfied that the ITO had any material before him which could satisfy the requirements of either cl. (a) or cl. (b) of s. 147. Therefore, he could not have issued a notice under s. 148.------....
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.... closing stock though not specifically stated in original assessment order). Had he been of such opinion/belief, he himself could have a sought permission of his superior i.e. the Add. CIT in the light of the CBDT instruction no. 7/2014 dated 26.09.2014 for expanding the scope of scrutiny assessment. The clear direction given by the Add. CIT (though not mentioning the provisions of S.147), was otherwise visible, apparent and could be understood by any sensible person of a reasonable prudence in as much as the discretion given to take any action to the AO, could have permitted him either to proceed u/s 154-Rectification proceedings (which was not legally possible in the present case) or else to initiate proceedings u/s 147. Thus, in these circumstances, the Add. CIT directed the AO (to take action u/s 147) in which, the AO had no role to apply his mind. This clearly goes to suggest the AO merely acted at the behest of the clear direction of his superior officer and that there was no independent application of mind by the AO and therefore, it was a case of borrowed satisfaction. The AO had no reason to belief of his own but he was directed to take necessary action. The discussion mad....
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....circumstance that the reopening was bad in law. (Paras 11 to 13)" Also in Madanlal Jindal vs. ITO & ORS. (1973) 92 ITR 0546 (Cal. HC), it was held as under: "Reassessment under s. 147(a)-ITO could not reopen the assessment of assessee merely acting on the basis of a letter from another ITO who happened to assess assessee's wife conveying that she was a benami partner in a firm xxxxxxx There was no express statement of the ITO that he was forwarding the reopening proposal of the CIT on the ground of the letter from the ITO, "J" Ward, but from the facts and circumstances and from the fact that there is no specific statement indicating the source on which the ITO in the instant case had formed the belief as to the escapement of income and as to the omission or failure on the part of the assessee, it is apparent that he also acted merely on the letter of the ITO, "J" Ward. It is true that the letter of the ITO, "J" Ward, could have been a source of information upon which the ITO in this case could have independently formed his own belief. But it is not clear as to whether the ITO made any effort to form any independent belief but had merely acted on the suggesti....
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....received directions from the CIT to submit a proposal under s. 147 and in obedience to the aforesaid direction, he submitted a proposal for initiating the proceedings under s. 147. Therefore, it cannot be doubted that the concerned ITO never formed the requisite belief that there had been escapement of income or that income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment for that year." CIT vs. Abdul Kadar Ahamed (2006) 156 Taxman 206 (Ker), wherein it was held that reassessment proceeding at the instance of superior authority dictating the subordinate officer to act in particular manner thereby taking away the discretion vested in the subordinate. In the case of DCIT vs. Dharampal Satyapal Ltd., [2017] 82 taxmann.com 322 (Delhi - Trib.) (DPB 53-60) on this aspect it was held: 33. In the light of the facts and circumstances discussed above, we can see that only based on the "recommendation" of the ADIT (Inv.) dated 24.03.2011, the AO has initiated report for sanction u/s 151 and issued notice, which is nothing but "borrowed belief". It has been held by the Hon'b....
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.... recorded even remotely. When the AO has formed a reason to believe keeping in mind some facts and the information available before him, he could not have completely changed the nature of the additions. No doubt, the escapement of income conceived in the reasons recorded may not be there but at least the very basis for the grounds inspiring him to form a reasonable belief as to escapement must be present while making the addition in the assessment order. Hence, it can be said that the no additions were made on the issues on which re-opening was made and therefore, the AO cannot make any additions other than the one stated in the reasons. 20. In support of above proposition, reliance was placed on the decision of CIT v/s Jet Airways (I) Limited (2011) 52 DTR 71/331 ITR 236 (Mum HC) (DPB 23-30), the High Court interpreted the phrase "and also" as being conjunctive and cumulative and not being in the alternative. Thus, having held that the scope of S.148 includes not only such income for which the assessment was reopened but also any other income which comes to the notice of the AO subsequently in the course of reassessment proceedings. But the Hon'ble High Court held that if t....
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....held that the Tribunal was right in holding that the AO had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not so justified when the reasons for initiation of those proceedings ceased to survive. The observations of the Hon'ble High Court on pages 147 and 148 of in 336 ITR 136 are worth noting. 21. Reliance was also placed on the decision of Hon'ble Gujarat High Court in the case of CIT v/s Mohmed Juned Dadani (2013) 85 DTR 12/355 ITR 172 (Guj HC): Headnote: Reopening of Assessment - Jurisdiction of AO - Reasons for reopening - Notice was issued u/s 148 on grounds of wrong computation by assessee u/s 80HHC - Subsequently, no additions was made by AO on ground based upon which the assessment was reopened but rather additions were made on some other grounds which did not form part of the reasons recorded by AO - Assessee claimed that the AO had no jurisdiction to travel beyond the reasons for reopening the assessment - CIT(A) rejected claim of assessee - ITAT allowed assessee's appeal holding the action of AO without jurisdiction - Held: S. 147 gives vide power to the AO for reopening an assessm....
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....other issues was without jurisdiction. In Hotel Regal International & Anr. Vs. ITO (2010) 320 ITR 573 (CAL) wherein the Petitioner were called upon to file objection to the notice u/s. 148 proposing to reopen the assessment on ground that Rs. 73,219 had escaped asst. Now the authorities could not shift their stand and pass on order on other ground that valuation report received subsequent to passing of the order disposing the objection the Assessing officer must consider the material and pass speaking order. Assessment quashed. However, in the present case, as per the ld AR, this mandatory precondition has not been fully and properly satisfied, in as much as, the ld. Add. CIT while granting approval has recorded his satisfaction as under: "Yes, I satisfied as the reasons recorded by the AO that it is a fit case for issuance of notice u/s 148." Recording of the satisfaction in such manner is nothing but recording of the satisfaction using the words "Yes" or "it is a fit case" or "Yes I am satisfied" and nothing more than that. The ld. Add. CIT, has not at all whispered a single word further referring to the material/information discussed in the reasons put before him by ....
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....ng sanction to the reasons recorded by the Assessing Officer. 10. In the present case the letter which is placed on record shows that the Addl. Commissioner has simply sanctioned the proposal for initiating proceedings under s. 147 in group cases of beneficiaries of Mahasagar Securities P. Ltd. Nowhere the Addl. CIT has recorded his dissatisfaction. The Hon'ble Supreme Court in the case of Chhugamal Rajpal vs.S.P. Chaliha & Ors. (1971) 79 ITR 603 (SC) observed that the important safeguards provided in Sec. 147 and 151 were lightly treated by the ITO as well as the Commissioner. 11. In the light of the above mentioned reasons, in our considerate view, s. 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Sec. 151 guards that the sword of Sec.147 may not be used unless a superior officer is satisfied that the Assessing Officer has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are suffici....
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....non-fulfillment of the condition precedent as is envisaged under the of the proviso to s. 151(1) of the IT Act. The writ petition stands allowed only on this ground alone. 24. Further reliance was placed on the decision of CIT vs S. Goyanka Lime & Chemicals Ltd [2015] 56 taxmann.com 390 (MP), wherein it was held as under: "7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am satisfied". In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:- 'The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.'....
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....anted by the Commissioner u/s 151 is invalid and so, the notice of the AO dated 29.03.2011 is bad in law and has to be necessarily struck down." Hence the proceedings u/s 147 and the notice u/s 148 deserves to be quashed. 25. The ld AR further contended that the A.O. has wrongly invoked the provisions of Section 145(3) of the Act. The law u/s 145(3) provided three basis to invoke the same, viz (i) Where the AO is not satisfied about the correctness/completeness of the accounts (ii) where the method of accounting provided in Sub Sec. (1), is not followed or (iii) the Accounting Standards as notified u/s 145(2) have not been followed by the assessee. Hence, it is obligatory for the AO to have established all/any one of above conditions before invoking sec 145(3) and if he fails he would be acting without jurisdiction in making additions. In the present case however, there appears no dispute on any of the three conditions. In other words, the AO has completely failed to establish all/any of the grounds. On the contrary, his ground that the assessee has included the rejected goods and raw material (lying with job units) in Finished Goods as shown in the Balance Sheet, is not at a....
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....t in the books of account maintained by the assessee following a regular method of accounting and stock register was also maintained though not in the form expected by AO." In CIT v/s Jas Jack Elegance Exports (2010) 324 ITR 95 (Del.) "Accounts-Rejection-Non maintenance of stock register and GP rate-Tribunal noted that the AO had not found any defect in the books of accounts and maintenance of stock register was not feasible considering the nature of the business of the assessee since fabric was measured in metres and was thereafter stitched to make garments which had to be counted in pieces-As regards failure of the assessee to produce the persons to whom payments were made for fabrication, embroidery, dyeing, finishing etc., the AO was at liberty to summon all of them in case he wanted to verify the genuineness of the payments-Failure of the assessee to produce those persons could not have been a ground for rejecting accounts under s. 145-Both, the Tribunal as well as CIT(A) have accepted the explanation given by the assessee regarding fall in GP rate-No perversity is pointed out in the finding of the Tribunal-No substantial question of law arises" 27. The ld AR ha....
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....on merits no addition was warranted. The assessee is having 64,751 pieces of readymade garments which were classified as rejected and not carrying any realizable value as per the terms of the contract between the assessee exporter and importer. However, for accounting purpose these items were valued at a Nominal Rate of Rs.25/- per piece and accordingly Rs.16,18,775/- were shown under the head finished stock. 29. On the other hand, the ld CIT-DR has relied on the orders of the authorities below and contended that after completion of assessment U/s 143(3) of the Act, the A.O. found that the income of the assessee to the tune of Rs. 8,65,30,425/- has escaped assessment on account of under valuation of closing stock. Accordingly, after taking permission from the higher authorities, the assessment was reopened by issue of notice U/s 148 after recording reasons. As there was under valuation of closing stock in the form of rejected items included in the finished goods and the materials sent for job work, the A.O. has correctly reached to the conclusion that the income has escaped assessment and accordingly reopening was valid in terms of the reasons recorded and the approval given by ....
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....vide any documentary evidence for making valuation. Therefore, considering that these pcs consist of all variety of finished goods, he valued the same @ Rs.355/- per pcs (Rs.2,13,51,494/- / 60139 Pcs) and added Rs.2,13,67,830/- (Rs.2,29,86,605/- less Rs.16,18,775/- shown by the assessee) on account of the alleged under valuation of closing stock. The A.O. also alleged that the assessee has undervalued its stocks lying with job units being 1,41,987 pcs @ Rs. 211.77 instead of showing the same as finished goods of readymade garments and failed to submit any documentary evidence to prove the fact of stocks lying with job units and failed to provide any evidence for making valuation. Therefore, considering that these pcs consist of all variety of finished goods, the A.O. valued the same at Rs.355/- per pcs (Rs.2,13,51,494/- / 60139 Pcs) and added Rs.2,03,36,304/- (Rs.5,04,05,385/- estimated less Rs.3,00,69,081/- shown by the assessee) on account of the alleged under valuation of closing stock. Before us, the ld AR of the assessee has opposed the validity of reopening on the plea that there was no reason to believe nor any reason to suspect that there was under valuation of closing stoc....
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....Add. CIT, however, instead of dealing with the issue of refund for which, the AO sought permission, made a detailed discussion with regard to the valuation of the closing stock referring to the same audited final accounts and the tax audit report and on a second thought, substituted his opinion that there appears an undervaluation of the closing stock of the raw material to the extent of Rs. 2.35 crore and finished goods of Rs. 6.29 crore, totaling to Rs. 8.65 crore. In the entire body of the said letter, there was absolutely no reference/whisper of any other new information or new material (which was not available at the time of the making of the original assessment u/s 143(3) before the AO). Pertinently at the end of the said letter, the Add. CIT even directed the AO to examine the record and take suitable action. A bare perusal of the reasons so recorded after the said letter of the Add. CIT, it is evidently clear that the AO almost reproduced the contents thereof, more or less in verbatim, as if these were the reasons to believe as entertained by the AO. The AO however, has not at all spelt out as to how the information contained in the said letter, has provided him any cause o....
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....ich were classified as rejected and not carrying any realizable value as per the terms of the contract between the assessee exporter and importer. However, for accounting purpose these items were valued by the assessee at a Nominal Rate of Rs.25/- per piece and accordingly Rs.16,18,775/- were shown under the head finished stock. The AO made addition on following grounds: (i) The assessee was required to destroy the rejected items immediately and the assessee failed to submit any documentary evidence. (ii) The assessee failed to submit any documentary evidence regarding opening stock of 24,063/- rejection pieces. (iii) The assessee has not mentioned in final accounts/notes of accounts that finished goods also includes rejection. (iv) Assessee failed to provide any documentary evidence for making valuation of rejection @ Rs.25 per pcs. In the Remand Proceeding following additional grounds were taken by the AO. (i) The assessee failed to submit any proof regarding destruction of damaged goods. Not a single instance of such destruction has brought into the notice of the AO. (ii) Reported rejection is 2.16% of production whereas a....
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....ity. The rejection of the goods exported, is normally a matter of serious concern for all the exporter inasmuch as many a times, because of the rejection of only a few pieces, the whole/lot consignment is rejected and even the cost of taking such rejected goods back to India, costs so heavily that it not only eats up entire profit but rather could result into a heavy loss. It is not denied that the assessee has exported its goods i.e. stitched readymade garments to the countries like United States of America, United Kingdom which are all the more highly quality conscious and even a slightest defect in the garment may render the whole lot or rather some time the whole consignment as rejection or scrap. Therefore, to avoid any unpleasant situation of being delisted or black listed or to lose the export business the assessee was required to meticulously maintain the high standards and the product being supplied has to be strictly in accordance with the requirements made by the importer-buyer. Therefore, the possibility of generation of the rejection goods on account of the defect or lacking of the quality is not something abnormal which, AO is unwarrantedly doubting. From the record w....
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.... rejected items and provide the evidence to importer on request. Since no request was made by any importer hence the question of providing documentary evidence does not arise at all. In any case it was a matter to be solved by the assessee and the party placing import order. Merely because importer has not asked for any such certificate, cannot be made to reason to presume that such rejected goods had been sold in the market without bringing any positive materials on record. From the record we also found that while alleging that the assessee has shown its finished goods as rejections and under valued the same, the A.O. failed to bring any instance that the assessee is selling goods in the open market which has been classified as rejected. If the A.O. had any doubt he could have made enquiries directly from the importers as complete stock details alongwith style, colour, garment composition, brand name etc. were filed before the A.O.. As per our considered view, selling such rejected goods in the open market would have invited serious legal action against the assessee, but nothing like this is reported. Moreover, we found that the declared sales has been accepted by the commercial d....
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....s reasons that in the light of such export agreement and in view of these facts why even the said customer should buy the rejected/damaged goods. Thus, for the assessee it was a dump/wastage having no realizable value at all. Even then the assessee to be on a very fair side valued such rejected goods @ of Rs.25 per piece though was not at all required. Undisputedly, the assessee has no legal right to sell these rejected/destructed goods in the open market due to condition of agreement hence, the value of these goods was Nil for the assessee. To account for the rejected goods/destructed goods in the financial account and for the purpose of internal controls only these goods were valued on a symbolic value of Rs.25/- per piece. The allegation of the AO that no documentary evidences were submitted to support this price is completely wrong on the facts. The assessee filed Quality Control Audit Report mentioning complete details of Goods in defect along with description of defects. Having admitted the binding agreement, its legal effect could not be ignored. 34. We also found that the A.O. has alleged that percentage of rejection claimed by the assessee at 2.16% of total production w....
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....2592 25 0.96 2053516 KAP-7622 TQMWS 702 1950 1990 1971 19 0.95 515302/514986 641987 1850 1867 1858 9 0.48 1041099 CWA6AG 3200 3265 3249 16 0.49 P222657/62/59 9521720A/20E 5000 5068 5043 25 0.49 4500073850 KAP 7653 AQWWS00055 3950 3999 3980 19 0.48 24663 A0911406 1020 1041 1031 10 0.96 3289249 612806 4050 4141 4080 61 1.47 7671 B 0270 2000 2012 1993 19 0.94 7125553 ISHTC 3T 8500 8570 8486 84 0.98 7783 MW 606 RUS 2850 2853 2825 28 0.98 7788 AOYWS00213 7200 7209 7138 71 0.98 7797/7798 MW 606 RIUS 6800 6847 6775 67 0.98 7801 AOYWS00206 4950 4991 4942 49 0.98 7875 MW 606 RIUS 8250 8272 8191 81 0.98 1005868 402502 550 560 552 8 1.43 7139490 ISHTC3T 9250 9268 9177 91 0.98 228071/69/70/72 62030203A 4100 4145 4104 41 0.99 402540 9100 9158 9068 90 0.98 BL 7154523 ITR0PU4 2150 2166 2145 2....
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....view since the assessee has no right to sale these goods hence to minimize the losses reusable accessories (buttons, zips etc.) were extracted from these items. This extraction work is carried out in very rough and speedy manner and after this it is totally impossible to sale these items. After this operation they got converted into a scrap items (also known as Chindi) and this was sold on kilogram basis. The bills of Chindi items sold were also submitted before the lower authorities. The AO did not deny from this fact but merely suspected that it did not show the sale of chindi resulting from the rejection goods which however, was an impractical and almost impossible task. Further the regular labourer engaged by the assessee, was also engaged in the destruction of the rejection goods but to evidence such activity, was not humanly practical and possible. Hence there remains no doubt that the assessee had rejected items, which were not as such open for sale in the open market and to minimize the losses these were sold as Chindi. 38. In view of the above facts and circumstances, we hold that the A.O. was not justified in making addition on account of under valuation of rejected go....
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.... closing stock made by the AO. I find no infirmity or incorrectness in the working made by the AO, after analyzing all the evidences available with him. I am of the considered view that the AO had rightly valued the closing stock of 64,751/- pcs. Of rejection (finished stock) at Rs.2,29,86,605/- and valuation of 1,41,987/- pcs. lying with job units at Rs.5,04,05,385/-. Hence, the undervaluation of closing stock worked out by the AO at Rs.2,13,67,830/- (Rs.2,29,86,605 - Rs.16,18,775) and Rs.2,03,36,304/- (Rs.5,04,05,385-Rs.3,00,69,081) is held to be correct. Accordingly, the total addition of Rs.4,17,04,134/- (Rs.2,13,67,830+Rs.2,03,36,304) made by the AO on account of undervaluation of closing stock made by the assessee is hereby confirmed." 41. With regard to above addition we found from the record that the assessee is in the business of export of the readymade garments and its manufacturing unit is situated at Bangalore. As per the prevailing trade practice in the readymade garment business, some designs/work are to be outsourced in as much the assessee itself is not having all the facilities, which is got done from the different manufactures known as job units. In this proces....
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....ing stock valuation of Rs.3,00,69,081/-) towards 1,41,987 pieces along with the copies of exemplary invoices were submitted before the AO vide letter dated 06.10.2017. The A.O. has also observed this at page 4.1 of his order. In this regard we observe that the assessee sent 364.6 Meters of Fabric (Cotton Jqrd Sh-Reg 1650) by way of Challan dated 24.03.2014 to Job Units M/s Vinayak Garment costing Rs.72,920/-. The expected number of pieces to be produced out of this fabric were 432 (Fulton Men's Shorts). Hence Pieces lying with the Job Units were shown as 432 Units of Fulton Men's Shorts at Rs.72,920/- i.e. cost in meters. The assessee received these pieces from M/s Sri Vinayak Garments vide Invoices No.371 dated 07.04.2014 alongwith some other pieces and Job Charges were charged @ Rs.95 per piece. The AO asked for further details and documents related to job work in late hours of Saturday, 30.12.2017. The assessee's manufacturing unit is situated at Bangalore and production records are maintained there only hence it was not possible for the assessee to arrange these details in a very short span of time to be produced before the AO at Bhilwara, yet the assessee filed some further de....
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....er of pieces and not fabrics in meters. It is only a misconception of the AO that the records maintained by the assessee is verifiable only when the goods sent and received both, are recorded in same units. Once he is not an expert of the field, he must have accepted the prevailing industry practice and what the assessee has done, as correct or else should have obtained independent opinion. Mere change in measurement method does not mean addition/deletion in the quantity manufactured or that an additional product must have been produced. The conversion of fabric into pieces has been done for internal control purpose using a very simple method of conversion Meters to Pieces method. Hence addition on this ground is completely unjustified. 45. We also found that the AO has also alleged that by using such practice, the assessee purportedly made undervaluation of closing stock to avoid tax. However, such an allegation is very strange on the face of it. The allegation of the change in measurement unit is with respect to the raw fabric lying at the job units. After the work is done, the stitched garment has to be valued in terms of pieces only as against meters. However, in any case, w....
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....units so as to enhance the valuation from the mere cost of fabric to include some overheads. Admittedly no bills were raised by the job units up to the year-end so as to be taken into the account while valuing the closing stock. Therefore, such valuation was also highly imaginary without any evidence. 48. We found from the record that during the remand proceedings, the A.O. referred to an invoice no. 485 of dated 03.04.2014 and alleged that some other invoice bearing serial number 483 is dated 07.04.2014, which is contradictory. Since it was an invoice raised by some job unit and not by the assessee, it is difficult for the assessee to make any comment but if it was so, it was for the AO to have enquired from the concerned job unit and not to add it to the alleged defects. 49. Similarly, the AO in the remand report also alleged that one of the job units has invalid TIN No. Again, it was for the AO to have enquired from that particular job unit to show the correct position. But it will be pertinent to clarify here that the AO firstly, selected a wrong website and hence made this allegation but then, when asked, the assessee clarified and gave the correct website showing the sa....