DCIT, Circle-1(1), Cuttack V. Shri Dilip Kumar Ghashyamdas Tebrewal, Cuttack

ITA 16/CTK/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2451 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 17-03-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 250; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE AND ARUN KHODPIA, ACCOUNTANT MEMBER DCIT, Circle- Cuttack (Appellant DCIT, Circle- Cuttack (Appellant Per Bench IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI GEORGE MATHAN, JUDICIAL AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.15/CTK/2021 Assessment Year : 2013-14 -1(1) Vs. Sri Ashok Kumar Ghanshyamdas Tebarewal, Prop. Bisandayal Jewellers, Naya Sarak, Cuttack PAN/GIR No. (Appellant) .. ( Respondent ITA No.16/CTK/2021 Assessment Year : 2013-14 -1(1) Vs. Sri Dilip Kumar Ghanshyamdas Tebarewal, Prop. Bisandayal Jewellers, Naya Sarak, Cuttack PAN/GIR No. (Appellant) .. ( Respondent Appellant by : Shri S.Shivanandan, CIT DR Respondent by : Shri S.K.Sarangi, CA Date of Hearing : 27 /9 Date of Pronouncement : 27/9 O R D E R Page1 | 9 IN THE INCOME TAX APPELLATE TRIBUNAL, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER Sri Ashok Kumar Ghanshyamdas Tebarewal, Prop. Bisandayal Jewellers, Naya Sarak, Cuttack PAN/GIR No.AAXPT 7747 E Respondent) Sri Dilip Kumar Ghanshyamdas Tebarewal, Prop. Bisandayal Jewellers, Naya Sarak, Cuttack PAN/GIR No.AAXPT 7748 E Respondent) S.Shivanandan, CIT DR S.K.Sarangi, CA 9/2022 9/2022 ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page2 | 9 These are appeals filed by the assessees against the separate orders of the ld CIT(A), Cuttack dated 6.3.2020 and in Appeal No.0084/2016-17 & No.0997/.2016-17 for the assessment year 2013-14. 2. Shri S.Shivanandan, ld CIT DR appeared for the revenue and Shri S.K.Sarangi, ld AR appeared for the assessee. 3. It was fairly agreed by both the sides that the facts in both the appeals are identical and the additions are made on the same issues. Consequently, these appeals are being disposed of by this common order. 4. It was submitted by ld CIT DR that in the appeals of the revenue, the revenue has raised three issues, which are as under: “1. On the facts and in the circumstances of the case, the ld CIT(A) is not justified in ignoring the facts that the assessee was not maintaining item wise stock register and also failed to produce documentary evidences of the basis of closing stock valuation. 2. On the facts and in the circumstances of the case, the ld CIT(A) is not justified in ignoring the facts that the AO has brought on record comparable cases before disallowing excess payments to relatives u/s.40A(2) of the Act. 3. On the facts and in the circumstances of the case, the ld CIT(A) is not justified in ignoring the facts that even if no dividend was earned from equity investment, the expenditure is otherwise disallowable under the Act.” 5. The appeals filed by the revenue are time barred by 250 days and 234 days. The revenue has filed condonation petitions in both the appeals stating the reasons that due to nation-wide lockdown for Covid-19 pandemic, offices were closed and subsequently worked with limited ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page3 | 9 officers/officials. Further, due to introduction of Vivad Se viswas Scheme, the officers/officials were engaged in implementation of the scheme. Therefore, there was delay of 250 and 234 days in the respective appeals. It was requested to condone the delay. Ld AR for the assessee did not oppose the condonation of delay. Consequently, we condone the delay of 250 and 234 days in filing the appeals by the revenue in the respective appeals and admit the appeals for hearing. 6. The first ground was against the action of the ld CIT(A) in deleting the addition made by the AO representing the revaluation of closing stock. 7. It was submitted by ld CIT DR that in the course of assessment proceedings, it was noticed that the assessee was not maintaining any stock register and the quantitative details were not available. It was further submitted that neither the item-wise details were available. It was the further submission that the assessee was admittedly following Last In First Out (LIFO) method of accounting in respect of valuation of closing stock. As the details of the stock were not provided by the assessee, the Assessing Officer applied “Weighted average cost” method. It was the submission that the ld CIT(A) deleted the addition holding that the valuation is also deeply flawed in the manner in which the average current prices have been taken by selecting rates at random from half a dozen jewelers of Cuttack. It was the submission that the “Weighted average cost” method was a scientific method and the same had rightly been applied by the Assessing ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page4 | 9 Officer. It was the prayer that the order of the ld CIT(A) is liable to reversed on this issue. 8. In reply, ld AR submitted that the assessee is following LIFO method of accounting in regard to valuation of closing stock. When the AO applied the “Weighted average cost” method in valuing the closing stock, the AO did not make same adjustment to the opening stock. It was the further submission that the method of accounting followed by the assessee is accepted by the revenue in the earlier assessment years and subsequent assessment years. For this proposition, he drew our attention to page 69 of PB, which was an assessment order passed u/s.143(3) of the Act for the assessment year 2012-13. No addition in respect of valuation of closing stock has been made there. He further drew our attention to pages 73 to 74 of PB, which was a copy of the assessment order passed u/s.143(3) for the assessment year 2017-18. It was the submission that no addition has been made in respect of valuation of closing stock for those years also. It was the submission that as the assessee is following a consistent method of accounting, in the absence of any valid reasons, such method should not have been tinkered with. It was the submission that in view of the decision of Hon’ble Supreme Court in the case of CIT vs Dyanavision ltd., (2012) 26 taxmann.com 40 (SC), as the assessee has been consistently following the LIFO method of valuation of closing stock and also considering the fact that the AO has not revalued the opening stock, applying the same method ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page5 | 9 as he has applied to the closing stock, no disturbance to the method of valuation as followed by the assessee was called for. It was the prayer that the order of the ld CIT(A) is liable to be upheld. 9. We have considered the rival submissions. A perusal of the assessment order clearly shows that the AO has disturbed the method of valuation as followed by the assessee in respect of valuation of closing stock. It is also noticed that the AO has not disturbed the valuation of opening stock. For the purpose of valuation of the closing stock by applying the “Weighted average cost” method, the AO has adopted the figure from various other jewelers in and around Cuttack. When for the purpose of valuation of closing stock, the figures are validly available from the accounts of the assessee, then, adopting the rate from other concerns is not an advisable method, as it would not be a scientific method. A perusal of the order of the ld CIT(A) clearly shows that the ld CIT(A) has recognized that the assessee is following a consistent method of valuation of closing stock. A perusal of the assessment orders for the earlier and subsequent assessment years shows that the AO has not tinkered with the valuation of closing stock for those years also. In fact, the assessment order for the assessment year 2017-18 has been passed on 30.12.2019 much after the assessment order passed for the impugned assessment year. Even here the AO has not tinkered with the valuation followed by the assessee. This being so, following the principles laid down by the Hon’ble Supreme Court in the ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page6 | 9 case of Dynavision ltd (supra), the findings of the ld CIT(A) in deleting the addition made by the AO representing the revaluation of closing stock by adopting Weighted average method stands confirmed. 10. The second ground was against the action of the ld CIT(A) in deleting the addition representing the disallowance out of salary paid to the assessee’s sons by applying the provisions of section 40A(2) of the Act. 11. It was the submission by ld CIT DR that it was noticed that the assessee was paying fancy salary of Rs.1,00,000/- and Rs.75,000/- to his sons whereas other staff were being paid an amount of Rs.18,000/-. It was the submission that consequently, the AO had invoked the provisions of section 40A(2) and adopted the figure of Rs.50,000/- per month in respect of Shri Ananda Ashok Tibarewal as against Rs.1,00,000/- and an amount of Rs.40,000/- in respect of Shri Aditya Tibarewal as against Rs.75,000/- claimed. It was the submission that the ld CIT(A) has deleted the addition by holding that the assessee was fully entitled to employ people and remunerate them as he deems fit and the AO cannot interfere with this prerogative. It was the submission that if this findings of the ld CIT(A) are confirmed, then it makes the provisions of section 40A(2) otiose. It was the submission that the order of the ld CIT(A) is liable to be reversed. 12. In reply, ld AR submitted that the sons of the assessee have higher responsibility role to play in the business of the assessee. It was the ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page7 | 9 submission that consequently, the sons have been paid higher salary. It was the submission that in the earlier years and also in subsequent assessment years, no disallowance in respect of such salary has been made. It was the prayer that the order of the ld CIT(A) be upheld. 13. We have considered the rival submissions. A perusal of the assessment orders of earlier year 2012-13 and also subsequent assessment year being 2017-18 passed u/s.143(3) clearly shows that no disallowance in respect of salaries paid to the sons of the assessee have been disallowed. Having found the salary paid to sons very reasonable in one year, it is not open to draw a conclusion that salary paid for another year is unreasonable. This being so, the findings of the ld CIT(A) in deleting the addition stands confirmed. 14. The 3 rd issue was against the action of the ld CIT(A) in deleting the disallowance made by the AO by invoking the provisions of section 14A r.w Rule 8D. 15. It was fairly agreed by both the sides that no exempt income has been earned by the assessee during the relevant assessment year. Ld A.R. relied upon the decision of Hon’ble Supreme Court in the case of Pr. CIT vs GVK Project & Technical Services Ltd. (2019) 106 taxmann.com 181 (SC), wherein, the Hon’ble Supreme Court has rejected the SLP against the appeal filed by the revenue challenging the findings of the Hon’ble Delhi ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page8 | 9 High Court, wherein, it has been held that in the absence of any exempt income reported by the assessee, the disallowance could not be made u/s.14A of the Act 16. We have considered the rival submissions. As it is noticed that the issue is squarely covered by the decision of Hon’ble Supreme Court in the case of GVK Project & Technical Services Ltd(supra) by rejection of SLP and as it has been recorded by the AO in the assessment order in para 3.1 that the assessee has not earned any exempt income in respect of the investments, the findings of the ld CIT(A) in deleting the addition made by the AO invoking the provisions of section 14A r.w. Rule 8D stands confirmed. 17. In the result, appeals filed by the revenue are dismissed. Order dictated and pronounced in the open court on 27/9/2022. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 27/9/2022 B.K.Parida, SPS (OS) ITA No.15/CTK/2021 ITA No.16/CTK/2021 Assessment Year : 2013-14 Page9 | 9 Copy of the Order forwarded to : By order Sr.Pvt.secretary ITAT, Cuttack 1. The Appellant : DCIT, Circle-1(1) Cuttack 2. The Respondent: Sri Ashok Kumar Ghanshyamdas Tebarewal/Shri Dilip Kumar Ghanshyamdas Tebarewal, Nayasarak, Cuttack 3. The CIT(A)-, Cuttack 4. Pr.CIT-, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//