TaxTMI 
TaxTMI 
2026 (9) TMI 1519
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....ort of NRV of guar gum adopted by the assessee, in absence of which correct picture and true profits of assessee firm could not be ascertained from books of accounts 2. Whether in the facts and circumstances of the case, Id. CIT(A) is justified in deleting the addition of Rs. 3,36,49,500/- made u/s 69A on account of unexplained cash deposits during demonetization period by ignoring the fact that assessee failed to explain the rationale behind depositing the cash at Mumbai bank branches in multiple shots which was claimed to be generated from cash sales effected during the pre- demonetization period at Phalodi situated nearly 1100 away when assessee has its ICICI Bank account at Phalodi itself. 3. That the tax effect involved in this case is above the limit" 3. The department has challenged that the Ld. CIT(A) was not justified in deleting the addition of Rs. 2,79,03,981/- made by the AO by invoking provisions of Section 145(3) of the Act on account of valuation by rejecting NRV of stock of guar gum. 4. Briefly the facts of the case are that the appellant assessee is a firm which is engaged in the trading and manufacturing of agricultural products and food it....
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....eady credited in P&L account. In the present case of the appellant, the sum so deposited in the bank account has already been recorded in the books of accounts as cash sales in respect of which the appellant submitted the sale bills, delivery challans, sale register and stock register before A.O. When the sum has been credited in the books of accounts maintained by the appellant, the A.O. cannot resort to making addition u/s 69A of the Act. Hence it is held that cash sales which is shown as income and is duly entered in the regular books of accounts cannot be taxed under section 69A. As a result, ground no 2 is allowed. 2. Ground No. 3 raised is against the addition u/s 28 of the Act on net profit from business & profession Rs. 2,79,03,981. The assessing officer held that the assessee failed to submit documentary evidence in support of valuation of guar gum. The assessee neither submitted any evidence in support of NRV nor produce the bills of purchase in support of cost price though this office specifically asked for the same. In view of the above, the assessee failed to substantiate the valuation so adopted for the stock of guar gum and as per show cause issued The NRV v....
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....cted the AO to accept the value of closing work in progress declared by the assessee and delete the consequential addition made. The Bombay High Court in the case of Indian Rare Earths Ltd (2015) 375 ITR 276 (Bombay) considered the issue of non-moving stores and spares which corroded over a period of time due to wear and tear, written off in the subject year and held that where assessee's non moving stores and spares were corroded over a period of time due to wear and tear, assessee would be entitled to write off same in profit and loss account the Income Tax Act. High Court of Karnataka in IBM India Ltd (2015) 230 Taxman 544 (Karnataka) and High Court of Kerala in Hindustan Newsprint Ltd (ITA no 174 of 2014) has allowed similar devaluation of obsolete stock and spares following Accounting Standard- 2 issued by the Institute of Chartered Accountants of India. 2.1.2 Moreover, the power to reject books of accounts is to be exercised only when the books are found incorrect or incomplete for determining the true and correct profits earned by the assessee. In the present case, the only basis for rejecting the books of accounts is wrong details in the stock register. No othe....
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....erioration of stock of guar gum. The DR contended that assessee had failed completly to submit documentary evidence in support of valuation of guar gum. The assessee neither submitted any evidence in support of NRV nor produces the bills of purchase in support of cost price though the AO has specifically asked for the same. She pleaded that the findings of the AO may be sustained. 7. Ld. Counsel in defence vehemently supported the order of the Ld. CIT(A) by referring various documents enclosed with the paper book comprises with 1181 pages. 8. The Ld. AR has submitted that opening stock of the guar gum for the year under consideration was Rs. 3,24,12,781/- for 5,89,323.29 kgs, (quantity) as there was no sales of guar gum. Thus, the quantity of guar gum at the beginning of the year and at the end of the year remained the same i.e. the stock level was being maintained at Rs. 5,89,323.29 kgs. The Ld. AR submitted that the appellant assessee has been maintaining complete records of stock movement and duly submitted the same before AO during the course of assessment proceedings. The AR further submitted that due to unavoidable circumstances, the appellant's bank account at Phalodi ....
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....quent years. Further, the AO was not justified in method of valuation of stock when the appellant has duly disclosed in the tax audit report regarding following the principles of Accounting Standard 2 conventional method of valuation of inventories at 'cost or net realisable value, whichever is lower' for the year under consideration. Accordingly, he argued that under the given facts and circumstances, the stock of guar gum got damaged and could not be sold at the rate prevailing in the market for damaged guar gum stock. The appellant after some processing could convert the damaged stock into Churi/Korma and could realise the saleable value of Churi/Korma only. He pleaded to delete addition by relying on the judgment of Mumbai Tribunal in the case of Sequent Scientific Ltd, Thane Vs. Asst. CIT Rg 3(3), Mumbai bearing ITA Nos. 4902 & 5263/Mum/2013 wherein it was held as follows: "We are of the considered view that the CIT(A) while arriving at the aforesaid view had lost sight of the fact that the assessee who is engaged in the business of manufacturing of bulk drugs, speciality chemicals and formulations, had specifically explained the reason for having written off the said....
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....and perused the material on record, written submissions and case law cited before us. Admittedly, the appellant is a manufacturer and trader of agricultural products mainly the guar gum and the by-products generated from the manufacturing activity i.e. Churi and Korma. It is seen that during the year under consideration, the factory and the raw material of stock was seized by the bank authorities and the stock of guar gum got damaged due to carelessness of bank officials who took charge over the possession of factory premises and consequently the same was no longer remained in the condition to be sold at NRV in the market. It is further seen that the AO has observed that the value of closing stock was incorrect by alleging that assessee has failed to submit documentary evidence in support of NRV of guar gum adopted by the assessee by ignoring the valuation method adopted by the assessee on inventory as per Accounting Standard - 2 (AS-2) adopted by the assessee as per the ICAI mandate that the inventory should be lower or cost or net realisable value, whichever is lower. 10. The Ld. CIT(A) has observed that appellant has adopted conventional method of inventory as per the Account....
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....tiple shots which was claimed to be generated from cash sales effected during the pre-demonetization period at Phalodi situated nearly 1100 km away when assessee has its ICICI Bank account at Phalodi itself she has supported the assessment order. 15. Ld. Counsel for the assessee has placed reliance on the decision of the Ld. CIT(A). The AR submitted that the cash deposit in the appellant's bank account has been made out of cash sales duly accounted for in the cash book maintained as per audited books of accounts. The Ld. AO has rejected the claim of the assessee merely on the ground that the said cash was deposited in Mumbai branch instead of the place of business i.e. Phalodi. 16. The AR argued that since the bank account of the assessee at Phalodi turned into a NPA (Non performing assets), due to bad market conditions and decreased rate of guar gum in the year 2015. Consequently, the bank took over the appellant's factory premises and house premises on 29.09.2016 under changed circumstances, the appellant had left with no place of residence and he along with his family shifted to Mumbai. The Ld. AR argued that the bank account at Phalodi being a NPA, the appellant was unabl....