M/S KHETAN TIMES PVT. LTD., Jaipur V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, Jaipur

ITA 1523/JPR/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1427 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 28-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 143(1); 13

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 1523/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2015-16 M/S KHETAN TILES PVT. LTD. C-59, ROAD NO. 5, V.K.I. AREA, JAIPUR. CUKE VS. THE DCIT, CRICLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCK 0431 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C.PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI K.C.GUPTA (JCIT) A LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/01/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 09/03/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A), AJMER DATED 23.11.2018 FOR ASSESSMENT YEAR 2015-16 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APP EAL:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 48,27,278/- ON ACCOUNT OF ALLEGED U NDERVALUATION OF CLOSING STOCK. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 2,974/- U/S 14A READ WITH RULE 8D. ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 2 2. DURING THE COURSE OF HEARING, THE LD AR SUBMITTE D THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING, TRADI NG AND EXPORT OF MARBLE TILES & SLABS. IT VALUED ITS STOCK AT COST O R NET REALIZABLE VALUE ESTIMATED ON THE BASIS OF QUALITY/DEFECTS OF STOCK, WHICHEVER IS LOWER. DURING THE YEAR, OUT OF CLOSING STOCK OF 6013.682 M T OF MARBLE BLOCK, IT CONSIDERED 50% OF THE STOCK AS DEFECTIVE AND VALUED IT AT 55% OF THE COST. ALL OTHER STOCK WAS VALUED AT ACTUAL COST. AC CORDINGLY, OUT OF 6013.682 MT OF MARBLE BLOCK, 3006.841 MT WAS VALUED AT COST OF RS.3567.62 PER MT I.E. AT RS.1,07,27,284/- AND THE REMAINING 3006.841 MT WAS VALUED AT RS.1962.19 MT I.E. RS.59,00,006/-. THIS RESULTED IN REDUCTION IN THE VALUE OF THE STOCK OF MARBLE BLOCK BY RS.48,27,278/-. 3. IT WAS SUBMITTED THAT DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS CLAIMED DEFECTIVE CLOSING STOCK AT 50% OF THE TOTAL QUANTITY OF CLOSING STOCK AND VALU ED THE SAME AT 55% OF THE COST. IT IS NOT AN ACCOUNTING POLICY OF THE ASSESSEE. THERE IS NO BASIS OF VALUING STOCK AS DEFECTIVE STOCK ON LUMPSU M BASIS OR ON ESTIMATED BASIS. THE ASSESSEE HAS BEEN SHOWING DEFE CTIVE STOCK YEAR AFTER YEAR RANGING FROM 25% TO 75% AND VALUING THE SAME AT 25% TO 50%. ON EXAMINATION OF THE BOOKS, IT IS FOUND THAT NONE OF THE STOCK HAS BEEN SOLD AT LOWER RATE. SELLING RATES OF ALL T HE STOCK ARE ALMOST AT STATIC PRICE. IT MEANS THAT THE ASSESSEE IS NOT SEL LING DEFECTIVE STOCK. IN STOCK REGISTER, NO STOCK IS MENTIONED AS DEFECTIVE. MARBLE BLOCKS ARE PURCHASED AFTER PROPER VERIFICATION AND RATES ARE D ECIDED ACCORDINGLY. EVEN IMPORTED MARBLE BLOCKS ARE SHOWN AS DEFECTIVE WHICH CANT BE BELIEVED. FURTHER WHEN ALL THE DEFECTIVE STOCK WAS SOLD IN THE PRECEDING YEAR ENDED ON 31-03-2014, THAN HOW IT IS POSSIBLE T HAT 50% OF THE STOCK ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 3 BECOME DEFECTIVE WITHIN THE YEAR. ACCORDINGLY, THE AO MADE ADDITION OF RS.48,27,278/- BY TREATING THE DEFECTIVE STOCK AS N ON-DEFECTIVE. HE FURTHER DID NOT GIVEN DIRECTION TO INCREASE THE VAL UE OF THE OPENING STOCK OF THE NEXT YEAR. 4. IT WAS FURTHER SUBMITTED THAT ON APPEAL, THE LD . CIT(A) HELD THAT ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE VALUATION OF 50% OF ITS STOCK AT 55% OF ITS VALUE. THERE IS ABSOLUTELY NO EVIDENCE T O SHOW THAT 50% OF STOCK OF ASSESSEE WAS DEFECTIVE. ALSO THERE IS NO J USTIFICATION FOR VALUING SUCH STOCK AT 55% OF ITS VALUE. ACCORDINGLY, HE CON FIRMED THE ADDITION MADE BY THE AO. HOWEVER, HE DIRECTED THE AO TO ADJU ST BOTH THE OPENING STOCK AS WELL AS CLOSING STOCK OF SUBSEQUEN T ASSESSMENT YEAR. 5. IN LIGHT OF ABOVE FACTUAL MATRIX, THE LD. AR SUB MITTED THAT DURING THE YEAR ONLY STOCK OF MARBLE BLOCK IS CONSIDERED DEFEC TIVE AND VALUED AT NET REALIZABLE VALUE. THE METHOD OF VALUATION OF THE MA RBLE BLOCK AS REFERRED IN NOTE 1 TO THE ACCOUNTS IS AS UNDER:- STOCK OF MARBLE BLOCK IS VALUED AT DIRECT COST (NE T OFF VAT AND CENVAT CREDIT AVAILABLE) OR REALISABLE VALUE ESTIMA TED ON THE BASIS OF THE QUALITY/DEFECTS OF STOCK, WHICHEVER IS LOWER . THUS IT IS INCORRECT ON THE PART OF AO TO STATE THA T IT HAS NO ACCOUNTING POLICY OF VALUATION OF THE DEFECTIVE STOCK AT REALI ZABLE VALUE. 6. IT WAS SUBMITTED BY THE LD AR THAT THE ASSESSEE HAS BEEN CONSISTENTLY VALUING ITS CLOSING STOCK AT COST OR R EALISABLE VALUE ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 4 WHICHEVER IS LOWER AFTER GIVING EFFECT OF DEFECTIVE GOODS. THIS IS DONE ON YEAR TO YEAR BASIS. THE PERCENTAGE OF DEFECTIVE STOCK AND ITS VALUATION IN DIFFERENT ASSESSMENT YEARS IS AS UNDER :- PARTICULARS NATURE AND VALUE AY 08- 09 AY 09- 10 AY 10-11 AY 11-12 AY 12- 13 AY 13- 14 AY 14- 15 AY 15- 16 MARBLE BLOCK DEFECTIVE % - - - - - - - 50 % VALUATION % - - - - - - - 55 % MARBLE SLABS DEFECTIVE % 50 50 50 50 50 25 - - VALUATION % 25 25 25 25 25 50 - - MARBLE SLABS IMPORTED DEFECTIVE % - - - 50 50 50 - VALUATION % - - - 50 50 50 - - POLISH TILES DEFECTIVE % 50 50 25 25 50 25 - VALUATION % 25 25 50 50 25 50 - - GANGSAW TILES DEFECTIVE % 50 50 50 50 50 25 - - VALUATION % 25 25 50 50 25 50 - - THE ASSESSEE ON THE BASIS OF PHYSICAL VERIFICATION ARRIVES AT DEFECTIVE STOCK AND THE SAME IS VALUED AT CERTAIN PERCENTAGE OF THE AVERAGE COST TO ARRIVE AT THE NET REALISABLE VALUE. THIS IS FOLL OWED CONSISTENTLY ON YEAR TO YEAR BASIS. 7. IT WAS FURTHER SUBMITTED THAT IN AY 2008-09 & 2 009-10, THE AO MADE ADDITION BY NOT ACCEPTING THE CLAIM OF DEFECTI VE STOCK AND REDUCTION IN ITS VALUE. THE LD. CIT(A) AFTER RELYIN G ON THE DECISION OF ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 5 ITAT IN ASSESSEES OWN CASE FOR AY 2005-06 DELETED THE ADDITION MADE BY THE AO. THE ORDER OF LD. CIT(A) WAS UPHELD BY HO NBLE ITAT. 8. IT WAS FURTHER SUBMITTED THAT IN AY 2013-14, THE AO AGAIN MADE THE ADDITION BY NOT ACCEPTING THE CLAIM OF DEFECTIV E STOCK IN ITS VALUATION AT THE REDUCED RATE AND THUS MADE AN ADDI TION OF RS.41,84,495/-. THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO. AGAINST THIS ORDER, THE DEPARTMENT PREFERRED AN APP EAL BEFORE THE ITAT WHO VIDE ORDER DATED 09-08-2017 SET ASIDE THIS ISSUE TO THE CIT(A) TO EXAMINE THE MATTER AFRESH. THE SET ASIDE PROCEEDING ARE STILL PENDING BEFORE THE LD. CIT(A). 9. IT WAS FURTHER SUBMITTED THAT IN AY 2014-15, ASS ESSEE HAS NOT CLAIMED ANY DEFECTIVE CLOSING STOCK AND VALUED THE ENTIRE STOCK AT COST. THIS ASSESSMENT WAS COMPLETED U/S 143(1) AND THEREF ORE, THE ADDITION OF RS.41,84,495/- MADE IN AY2013-14 IS NOT CONSIDER ED IN THE OPENING STOCK OF AY 2014-15 AND THEREBY INCOME FOR AY 2014- 15 WAS ASSESSED AT AN INCREASED AMOUNT TO THIS EXTENT. 10. IT WAS FURTHER SUBMITTED THAT DURING THE YEAR U NDER CONSIDERATION, THE CLOSING STOCK OF MARBLE BLOCK AT FACTORY IS 6013.682 MT. THE OPENING STOCK OF MARBLE BLOCK WAS AT 6144.5 6 MT. THE BLOCK EXTRACTED FROM MINES/PURCHASED DURING THE YEAR HAS BEEN CONSUMED/SOLD. THUS IT IS EVIDENT THAT THE MARBLE B LOCK IN CLOSING STOCK IS COMING FROM LAST YEAR. THIS IS BECAUSE THE BLOCK S WHICH ARE OF BETTER QUALITY IS EITHER SOLD OR CONSUMED IN PRODUCTION. T HEREFORE, IT IS EVIDENT THAT THE LEFTOVER STOCK CONTAINS THE DEFECTIVE STOC K ALSO. SO FAR AS ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 6 IMPORTED MARBLE BLOCKS ARE CONCERNED, NO DEFECTIVE STOCK HAS BEEN CLAIMED AND THUS, THE OBSERVATION OF AO IN THIS REG ARD IS INCORRECT. THE FACT THAT THE MARBLE BLOCK WHICH WAS PURCHASED MORE THAN ONE YEAR AGO REMAINED IN THE CLOSING STOCK ITSELF SHOWS THAT THESE MARBLE BLOCKS WERE DEFECTIVE. THE ASSESSEE ON PHYSICAL VERIFICATI ON HAS DETERMINED 50% OF THE SAME AS DEFECTIVE AND CONSIDERING ITS RE ALIZABLE VALUE HAS VALUED AT 55% OF THE COST. THE MARBLE BLOCKS DURING THE YEAR HAS BEEN SOLD AT A RATE RANGING FROM RS.300/- PER MT TO RS.1 0,174/- PER MT. IN AY 2016-17 MARBLE BLOCK HAS BEEN SOLD AT A LOWER RA TE RANGING FROM RS.250/- PER MT TO RS.1,500/- PER MT WHEREAS GOOD Q UALITY MARBLE BLOCK HAS BEEN SOLD AT A RANGE OF RS.10,000/- PER M T TO RS.26,586/- PER MT. THIS ITSELF SHOWS THAT CERTAIN MARBLE BLOCKS RE MAINED DEFECTIVE IN THE CLOSING STOCK HAVING A LOWER REALIZABLE VALUE. THUS, ASSESSEE HAS CORRECTLY VALUED THE CLOSING STOCK OF MARBLE BLOCK AS PER THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY IT AND THEREFORE, A DDITION OF RS.48,27,278/- MADE BY THE AO AND CONFIRMED BY LD. CIT(A) IS UNCALLED FOR. 11. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HA S DIRECTED THE AO TO INCREASE THE VALUE OF OPENING STOCK IN THE SUBSEQUE NT YEAR BUT HIS DIRECTION TO GIVE EFFECT ONLY IF THE ASSESSEE ACCEP TS THE ORDER OF LD. CIT(A) IS INCORRECT. HIS FURTHER DIRECTION THAT IF THE OPENING STOCK IN INCREASED, THEN CLOSING STOCK SHOULD ALSO BE ADJUST ED IN THE NEXT YEAR IS INCORRECT AS IN AY 2016-17 AO HAS AGAIN MADE ADDITI ON OF RS.74,01,921/- BY NOT ALLOWING THE CLAIM OF DEFECTI VE MARBLE STOCK IN THE CLOSING STOCK OF AY 2016-17. THIS HAS RESULTED INTO DOUBLE ADDITION AND THEREFORE, SUCH DIRECTION OF LD. CIT(A) BE EXPU NGED IN CASE THE ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 7 GROUND OF ASSESSEE IS NOT ALLOWED. IN VIEW OF ABOVE , ADDITION OF RS.48,27,278/- CONFIRMED BY LD. CIT(A) BE DIRECTED TO BE DELETED. 12. THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDI NGS OF THE LOWER AUTHORITIES. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD CIT(A) HAS RETURNED A F INDING THAT THERE IS NO EVIDENCE TO SHOW 50% OF STOCK OF MARBLE BLOCK IS DEFECTIVE AND ALSO THERE IS NO JUSTIFICATION FOR VALUING SUCH STOCK AT 55% OF ITS VALUE. IN RESPONSE, THE LD AR HAS SUBMITTED THAT THE ASSESSEE ON PHYSICAL VERIFICATION HAS DETERMINED 50% OF STOCK AS DEFECTI VE AND CONSIDERING ITS REALIZABLE VALUE HAS VALUED IT AT 55% OF COST. THE QUESTION IS HOW THE ASSESSEE DEMONSTRATES SUCH PHYSICAL VERIFICATIO N AND DETERMINATION OF REALIZABLE VALUE. HOWEVER, THERE IS NOTHING ON RECORD WHICH CAN DEMONSTRATE THAT SUCH PHYSICAL VERIFICATION WAS CAR RIED OUT AND DEFECTIVE STOCK WAS IDENTIFIED AND CATEGORIZED AS S UCH. THE AO HAS RETURNED A FINDING THAT EVEN IN THE STOCK REGISTER, THE ASSESSEE HAS NOT MENTIONED ANY STOCK AS DEFECTIVE AND NO DIFFERENTIA TION OR MARKING WAS GIVEN IN THE STOCK REGISTER. THEREFORE, WE FIND THA T THE AO HAS CARRIED OUT THE NECESSARY VERIFICATION OF STOCK REGISTER AN D SUCH A FINDING OF THE AO HAS NOT BEEN REBUTTED BEFORE US AND THUS ATTAINS FINALITY. FURTHER, HOW THE ASSESSEE HAS ARRIVED AT NET REALIZABLE VALU E @ 55% OF COST IS NOT CLEAR. THE LD AR HAS REFERRED TO RANGE OF VALU E AT WHICH MARBLE BLOCKS WERE SOLD DURING THE YEAR AND IN THE SUBSEQU ENT FINANCIAL YEAR 2015-16, HOWEVER, WHAT IS THE PERCENTAGE OF REALIZA TION OR AT WHAT PROFIT/LOSS MARGINS, THE BLOCKS WERE SOLD HAS NOT B EEN SPECIFIED. IN ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 8 LIGHT OF THE SAME, WE ARE OF CONSIDERED VIEW THAT T HE ASSESSEE HAS FAILED TO JUSTIFY THE QUANTUM OF DEFECTIVE STOCK OF MARBLE BLOCKS AND ITS REALIZABLE VALUE, THEREBY THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY CONFIRMED. IN THE RESULT, THE GROUND OF APPE AL IS DISMISSED. 14. REGARDING GROUND NO. 2, THE LD AR SUBMITTED THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED T HAT ASSESSEE HAS MADE INVESTMENT IN EQUITY SHARES OF SBBJ OF RS.2,97 ,358/- WHICH WOULD GENERATE EXEMPT INCOME IN FORM OF DIVIDED AND ACCOR DINGLY HE DISALLOWED 1% OF SUCH INVESTMENT. I.E. RS. 2,974/-. THE LD. CIT(A) CONFIRMED THE ADDITION ON THE GROUND THAT ASSESSEE HAS NOT FILED ANY WRITTEN SUBMISSION ON THIS ISSUE. 15. IT WAS SUBMITTED BY THE LD AR THAT THE INVESTME NT IN THE SHARES OF SBBJ WAS MADE IN EARLIER YEARS, DIVIDEND ON THES E SHARES IS DIRECTLY CREDITED TO THE BANK ACCOUNT. THUS, NO EXPENDITURE IS INCURRED IN RELATION TO EARNING OF THE DIVIDEND. HENCE, DISALLO WANCE MADE U/S 14A IS NOT JUSTIFIED AND THE SAME BE DIRECTED TO BE DEL ETED. 16. THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDI NGS OF THE LOWER AUTHORITIES. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT INVESTMENT IN SHARES OF SBBJ HAS BEEN MADE IN THE EARLIER YEARS AS IS EVIDENT FROM T HE COMPUTATION DONE BY THE AO WHEREIN THERE IS NO CHANGE IN THE VALUE O F INVESTMENT AT THE BEGINNING OF THE YEAR AND AT THE CLOSE OF THE YEAR. IN AY 2013-14, THE ITA NO. 1523/JP/2018 M/S KHETAN TILES PVT. LTD. VS. DCIT 9 LD CIT(A) HAS GIVEN A FINDING THAT INTEREST FREE FU NDS WERE MORE THAN INVESTMENT MADE BY THE ASSESSEE AND DISALLOWANCE OF INTEREST WAS DELETED WHICH WAS SUBSEQUENTLY UPHELD BY THE COORDI NATE BENCH. HOWEVER, DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES WAS SUSTAINED AT RS 13,414. THEREFORE, FOLLOWING THE E ARLIER YEAR, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS 2,974 AS MADE BY THE AO IS UPHELD FOR THE IMPUGNED ASSESSMENT YEAR. IN THE RESULT, THE GROUND OF APPEAL IS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/03/2020. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09/03/2020. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S KHETAN TILES PVT. LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CIRCLE-4, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 1523/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR