DCIT, BHILWARA V. M/s. Sona Textile Pvt. Ltd., BHILWARA

ITA 378/JODH/2013

• Counselvise Citation: 37823314 RSA 2013
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Unexplained investment; Diversion of income; Corroborative evidences; Avoidance of tax; Onus to prove
• Section: 69

Judgement Text

1 IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.378/JODH/2013 (A.Y. 2009-10) DCIT, CIRCLE, VS. M/S. SONA TEXTILE PVT. LTD., BHILWARA. G-62, RIICO INDUSTRIAL AREA, BHILWARA. PAN NO. AACCS 0249 N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 22/04/2014. DATE OF PRONOUNCEMENT : 13/06/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAIN ST THE ORDER DATED 25/03/2013 OF LD. CIT(A), AJMER. THE FOLLOWING GRO UNDS HAVE BEEN RAISED IN THIS APPEAL: THE LD. CIT (A), AJMER IN THE PRESENT FACTS AND CIR CUMSTANCES OF THE CASE HAS E RRED IN:- 1. DELETING THE ADDITION OF RS. 21,19,668/- AS MADE BY THE AO U/S. 40A(2)(B) OF THE IT. ACT, 1961 ON A/C OF EXCESSIVE PAYMENT OF WEAVING CHARGES, WITHOUT APPRECIATING PROPERLY THE MATERIAL AS 2 BROUGHT BY THE AO TO INDICATE THAT PAYMENT APPEARS TO BE EXCESSIVE AND THE FACT THAT THE AO MADE THE DISALLO WANCE AFTER HAVING CONSIDERED 5 YEARS AGREEMENT. 2. DELETING THE ADDITION OF RS. 17,40,812/- AS MADE BY THE AO ON A/C OF EXCESSIVE PAYMENT OF PROCESSING CHARGES, WITHOUT AP PRECIATING PROPERLY THE MATERIAL AS BROUGHT BY THE AO ON RECOR DS TO INDICATE THAT PAYMENT APPEARS TO BE EXCESSIVE; 3. DELETING THE ADDITION OF RS. 1,71,812/- AS MADE BY THE AO ON A/C OF EXCESSIVE PAYMENT OF INTEREST WHEN THE ASSESSEE CHA RGED INTEREST @ 12% FROM DEBTORS BUT PAID INTEREST @18% TO OTHER CREDITORS AND THE ASSESSEE FAILED TO GIVE COGENT EV IDENCE TO PROVE THAT LOANS WAS SINCE 2001 AND ON LONG TERM BA SIS TO ANIL KUMAR BOONILA (LND.& HUF). 4. DELETING THE ADDITION OF RS. 75,000/- MADE BY THE A O ON A/C OF UNEXPLAINED INVESTMENT IN STOCK WHEN THERE IS DISCR EPANCY IN THE STOCK STATEMENT GIVEN TO BANK AND THAT DECLARED IN ACCOUNTS AND THE AO'S VIEW FINDS SUPPORT FROM VARIOUS JUDICIAL P RONOUNCEMENTS; 5. DELETING THE ADDITION OF RS. 62,678/- MADE BY THE A O U/S 40(A)(IA) WHEN THE ASSESSEE FAILED TO DISCHARGE ITS ONUS TO PROVE WITH COGENT EVIDENCE THAT FORM 15G WAS OBTAINED FRO M THE RECIPIENT OF THE INCOME WELL WITHIN THE TIME AND WA S SUBMITTED TO THE APPROPRIATE AUTHORITY WITHIN TIME; 6. DELETING THE ADDITION OF RS. 26,83,299/- MADE BY THE AO ON A/C OF UNDERVALUATION OF CLOSING STOCK, WHEN THE ASSESSEE DID NOT MAINTAIN DAY TO DAY QUANTITATIVE TALLY OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK; 7. THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELET E OR MODIFY THE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING.' 2 FIRST ISSUE IN THIS APPEAL VIDE GROUND NO. 1 RELAT ES TO THE DELETION OF ADDITION OF RS. 21,19,668/- MADE BY THE ASSESSIN G OFFICER U/S 40A(2)(B) OF THE I.T. ACT, 1961 (HEREINAFTER REFERR ED TO AS THE ACT IN SHORT) ON ACCOUNT OF EXCESSIVE PAYMENT OF WEAVING C HARGES AND VIDE 3 GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 17,40,812/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS IVE PAYMENT OF PROCESSING CHARGES. 3. FACTS RELATING TO THESE ISSUES, IN BRIEF, ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLIN G OF GREY AND FINISHED FABRIC. THE ASSESSING OFFICER DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD PAID WEA VING CHARGES OF RS. 1,90,77,011/- TO M/S. SWASTIKA TEXTILES LTD. A SISTER CONCERN OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD LONG TERM CONTRACT FOR 5 YEARS WITH THE ABOVE PARTY AND THE A GREEMENT BINDS THE SISTER CONCERN NOT TO UNDERTAKE WEAVING WORK OF OTH ER PARTIES, THEY HAVE TO WEAVE ANY LENGTH OF BEAM AND ANY TYPE OF DE SIGN AS DESIRED BY THE ASSESSEE. IT WAS FURTHER STATED THAT ALL THEIR LOOMS HAVE FOUR FEEDERS IN WHICH ANY TYPE OF DESIGN COULD BE DEVELO PED. THE ASSESSING OFFICER OBTAINED THE COMPARATIVE CHART OF JOB WEAVI NG CHARGES PAID TO SISTER CONCERN AND OUTSIDE PARTIES DURING 1 ST WEEK OF EVERY MONTH AND CONCLUDED THAT HIGHER PRICE HAD BEEN PAID TO ASSESS EES SISTER CONCERN AS COMPARED TO THE OUTSIDE PARTIES PARTICULARLY IN THE MONTH OF SEPTEMBER 2008 TO JANUARY 2009. THE ASSESSING OFFI CER NOTED THAT THE ASSESSEE HAD PAID THE RATE OF RS. 0.18 PER PICK TO SISTER CONCERN WHILE RS. 0.14 PER PICK HAD BEEN PAID TO M/S. M.R. WEAVIN G PVT. LTD. AND M/S. 4 SELECTION SYNTHETICS PVT. LTD. ACCORDINGLY, THE AS SESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE, HELD THAT RA TE OF RS. 0.16 PER PICK WAS JUSTIFIED AND REASONABLE. HE, THEREFORE, MADE THE ADDITION OF RS. 21,19,668/-. THE ASSESSING OFFICER ALSO EXAMINED TH E PROCESSING CHARGES PAID TO THE SISTER CONCERN AND OUTSIDE PART IES DURING FIRST WEEK OF EVERY MONTH. THE ASSESSEE FURNISHED THE CHART O F VARIOUS PROCESS HOUSES FOR PROCESSING VARIOUS QUALITIES OF GRAY CLO TH AND STATED THAT ASSESSEES SISTER CONCERN WAS HAVING LOWER RATE AS COMPARED TO OTHERS AND THAT THE PROCESSING CHARGES DEPEND ON THE WEIGH T OF THE FABRIC AND SPECIAL TREATMENT OF PROCESSING AS PER INSTRUCTIONS OF THE ASSESSEE. THE ASSESSEE EXPLAINED THAT IT HAD PAID LOWER CHARGES T O M/S. SWASTIKA SUITINGS LTD. I.E. RS. 9.50/6.30 PER METER AS COMPA RED TO OTHER PROCESSORS WHERE PAYMENT WAS RS. 10.30/6.50 PER MET ER OF THE SUITING AND SHIRTING. THE ASSESSING OFFICER REJECTED THE E XPLANATION OF THE ASSESSEE AND OBSERVED THAT ON VARIOUS OCCASIONS HIG HER PRICE HAD BEEN PAID TO THE SISTER CONCERN AND POINTED OUT THAT THE RATES OF RS. 11.40/11.52 ON 05/09/2011 WERE PAID TO ITS SIST ER CONCERN AS COMPARED TO RS. 11/- PAID TO M/S. JANKI CORPORATION LTD. THE ASSESSING OFFICER ALSO NOTED THAT SHRINKAGE HAD INCREASED DUR ING THE YEAR TO 7.17% FROM 6.92% IN THE EARLIER YEAR. ACCORDINGLY, 1% OF TOTAL PROCESSING CHARGES PAID TO SISTER CONCERN AMOUNTING TO RS. 17, 40,812/- WAS DISALLOWED. 5 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'A) DISALLOWANCE U/S 40A(2)(B): RS. 38,60,480/ - 'THAT THE APPELLANT COMPANY MADE THE PAYMENT OF JOB WEAVING CHARGES TO M/S SWASTIKA TEXTILES BHILWARA AMOUNTING TO RS. 90,77,011/- AND JOB PROCESSING CHARGES TO M/S. SWASTIKA SUITINGS LTD BH ILWARA AMOUNTING TO RS. 7,40,81,241/-. THE LEARNED A.O. TREATING BOTH M /S SWASTIKA TEXTILES AND M/S. SWASTIKA SUITINGS LTD, AS SISTER CONCERN A PPLIED THE PROVISO TO SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 AND M ADE THE DISALLOWANCES OUT OF THE EXPENSES CLAIMED IN JOB WEAVING CHARGES RS. 1,90,77,011/- AND PROCESSING CHARGES RS. 17,40,81,241/- AS UNDER: I) JOB WEAVING CHARGES 16PAISA AS AGAINST 18 PAISA RS. 21,19,668/- II) PROCESSING CHARGES 1% OF 17,40,81,241/- RS 17,40,812/- SIR IT IS SUBMITTED THAT THE OBJECT OF INDUCTING TH E PROVISIONS OF SECTION 40A(2)(B) IN THE ACT, W.E.F. 1.4.1968 WERE TO PREVE NT THE DIVERSION OF INCOME I.E. AN ASSESSEE WHO HAS LARGE INCOME AND IS LIABLE TO PAY TAX AT THE HIGHEST RATE PRESCRIBED UNDER THE ACT OFTEN SEE K TO TRANSFER A PART OF HIS INCOME TO RELATED PERSON, WHO IS NOT LIABLE TO PAY TAX AT ALL OR LIABLE TO PAY TAX AT A RATE LOWER THAN THE RATE AT WHICH THE ASSESSEE PAYS THE TAX. IT IS ALSO SUBMITTED THAT CLAUSE (B) OF SECTION 40A (2) GIVES THE LIST OF RELATED PERSONS. IT IS ONLY WHERE THE PAYMENT IS MA DE BY THE ASSESSEE TO THE RELATED PERSONS, THEN A.O. GETS JURISDICTION TO DISALLOW THE EXPENDITURE OR A PART OF THE EXPENDITURE WHICH HE C ONSIDER EXCESSIVE OR UNREASONABLE. THAT THE LEARNED A.O. IN THE CASE OF ASSESSEE ALSO APPLIED THE PROVISO OF SECTION 40A(2)(B) TREATING BOTH THE PARTIES TO WHOM PAYMENTS WERE MADE BY THE ASSESSEE FOR JOB WEAVING & PROCESSING CHARGE S AS RELATED PERSON, AND ACCORDINGLY DISALLOWED A PART OF EXPENSES CLAIM ED SIR IT IS SUBMITTED THAT WHILE MAKING THE DISALLOWA NCES THE LEARNED A.O. DID NOT CONSIDER THE FACT THAT BOTH THE PARTIES ONE IS A PARTNERSHIP FIRM AND OTHER IS COMPANY ARE PAYING THAT TAX AT THE HIGHEST RATE OF 30% AT WHICH THE ASSESSEE IS PAYING THE TAX, AND THUS THERE IS N O SCOPE OF AVOIDING ANY TAX OR PAYING TAX AT LOWER RATE, AND AS SUCH THE DI SALLOWANCES MADE, OUT OF JOB WEAVING CHARGES (RS. 21,19,668/-) AND PROCES SING CHARGES RS. 17,40,812/-) DESERVES TO BE DELETED OUT OF THE ASSE SSED INCOME AS HAS BEEN HELD IN THE CASE OF COMMISSIONER OF INCOME TAX VS V S DEMPO & CO. (P) LTD(2011) 244 CTR (BOMB) 102 (2011) 336 ITR 209(201 1)196 TAXMAN 193WITH REFERENCE TO CIRCULAR NO. 6P, DT. 6 TH JULY,1968. (COPY OF ITR OF BOTH THE ASSESSES AND COPY OF CIRCULAR NO. 6P ENCLOSED) IT IS ALSO SUBMITTED THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS IT WAS SUBMITTED THAT THE PAYMENTS TO M/S SWASTIKA TEX TILES WERE ,MADE UNDER AN AGREEMENT FOR 5 YEARS, AND BIND THEM NOT T O PERMIT OUTSIDER IN THEIR FACTORY PREMISES AND NOT TO ENTERTAIN/UNDERTA KE OUTSIDER JOB WEAVING WORK TILL THE TERM OF AGREEMENT. FURTHER TH EY ARE ALSO BOUND TO 6 WEAVE ANY LENGTH OF BEAM AND ANY TYPE OF DESIGN OF FABRICS WITH STANDARD WASTAGE OF 2%. ALL THE ABOVE FACTORS REQUIRED TO PA Y HIGHER PAYMENT TO THE JOB WEAVER AS COMPARED TO OTHERS TO WHOM ASSESS EE PROVIDE JOB WORK ON REQUIREMENT BASIS AND NOT ON REGULAR BASIS WHICH RATES GOVERNED BY MARKET FORCE. FURTHER WE WISH TO SUBMIT THAT WEAVIN G RATE PER PICK IS ALSO VARY DUE TO MAINTAIN SECRECY OF DESIGNS, FEEDBACK O F DESIGNS BY SINGLE, DOUBLE, TRIPLE AND FOUR FEEDER. M/S SWASTIKA TEXTIL ES HAVE ALL LOOMS ARE FOUR FEEDER IN WHICH ANY TYPE OF DESIGN CAN BE DEVE LOP AND ASSESSEE SEND THE JOB TO M/S SWASTIKA TEXTILES OF VARY DIFFERENT DESIGN FABRICS WHICH IS SALABLE TO READYMADE GARMENT MANUFACTURER, AND THE LEARNED A.O. HAS ALSO DISCUSSED THIS FACT IN THE ASSESSMENT ORDER. AND IN THE SAME MANNER THE PROCESSING CHARGES PAID TO M/S SWASTIKA SUITINGS LTD ARE ALSO NOT ON HIGHER SIDE AS COMPARE D TO OTHER PROCESSORS FOR THE SAME WORK & HAVE SUBMITTED COMPARATIVE RATE CHA RT WITH PRICE LIST OF VARIOUS PROCESS HOUSES AT THE STAGE OF ASSESSMENT. AS THESE RATES DIFFER FROM QUALITY TO QUALITY., FOR YOUR READY REFERENCE WE ARE ENCLOSING HEREWITH PROCESSING CHARGES BILL OF SWASTIKA SUITIN GS LTD AND OTHER PROCESSORS WHICH SHOWING HIGHER CHARGES CHARGED BY THE OTHER PROCESSORS OF THE SAME QUALITY. UNDER THESE CIRCUMSTANCES NARR ATED AS ABOVE YOUR HONOUR IS REQUESTED TO KINDLY DELETE THE DISALLOWAN CES MADE OUT OF THE TOTAL INCOME ASSESSED AND OBLIGE. ' IT WAS FURTHER SUBMITTED AS UNDER:- THAT THE LEARNED AO DISALLOWED A SUM OF RS. 21,19, 668/- ON ACCOUNT OF WEAVING JOB CHARGES PAID TO ONE M/S SWASTIKA TEXTIL ES TREATING THE EXCESS PAYMENT AS COMPARED TO OTHER UNIT TO WHOM JOB WEAVI NG CHARGES PAID FROM 12 PAISA, 16 PAISA PER PICK. SIR IT IS SUBMITT ED THAT THE JOB CHARGES PAID TO M/S SWASTIKA TEXTILES IS CONCERNED IT WEAVE D DESIGNED FABRICS AND IN THE SAME MANNER THE APPELLANT PAID TO THE FOLLOW ING UNITS JOB WAVING CHARGES OVER 16 PAISA PER PICK: THEREFORE, THE DISALLOWANCES MADE ON THIS ACCOUNT D ESERVES TO BE DELETED. THE BILLS FOR JOB CHARGES PAID TO ABOVE PARTIES ARE READY FOR YOUR KIND INSPECTION. ' S.NO. NAME OF PARTY RATE PER PICK 1. M/S SATISH SIZING WORKS BHIWADI 18 PAISA 2. M/S SIJO FABRICS PVT LTD BHIWADI 19 PAISA 3. M/S NISTHA TEXTILES BHIWADI 18 PAISA 4. M/S AASITHA POLY COT, BHIWADI 17 PAISA 5. M/S VENUS FASHIONS, BHIWADI 17 PAISA 7 FURTHER, ASSESSEE SUBMITTED THE RATE OF PROCESSING CHARGES CHARGED ON DIFFERENT QUALITIES OF THE CLOTH PAID TO SISTER CON CERN AND OTHER PARTIES AS UNDER: 5. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, DELETED THE IMPUGNED ADDITIONS BY OBSERVI NG IN PARA 3.3 OF THE IMPUGNED ORDER WHICH READ AS UNDER:- I. IT IS SEEN THAT AS REGARDING THE WEAVING CHARG ES DISALLOWED @2 PAISA PER PICK AMOUNTING TO RS. 21,19,668 FOR THE PAYMENT MAD E TO M/S SWASTIKA TEXTILES LTD., BHIWLARA AND PROCESSING CHARGES DISA LLOWED @1% AMOUNTING TO RS. 17,40,812 PAID TO M/S SWASTIKA SUITINGS LTD. , SISTER CONCERNS OF THE ASSESSEE. IT HAS BEEN POINTED OUT THAT SEC. 40A(2)( B) WAS INTRODUCED W.E.F. 01.04.1968 TO PREVENT DIVERSION OF INCOME TO THE SI STER CONCERN. THE ASSESSEE HAS FILED THE COPY OF CIRCULAR NO. 6P DATE D 06.07.1968 AS PER WHICH IT HAS BEEN MENTIONED AS UNDER IN PARA 74 IN THE EXPLANATORY NOTES: 'IT SHOULD BE BORNE IN MIND THAT PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELAT IVES AND ASSOCIATE CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHIC H WILL CAUSE HARDSHIP IN BONAFIDE CASES. FROM ABOVE CIRCULAR, IT IS APPARENT THAT THIS SECTI ON WAS BROUGHT IN WITH SPECIFIC OBJECT IN MIND I.E. TO PREVENT DIVERSION O F INCOME. THE ASSESSEE HAS POINTED OUT THAT M/S SWASTIKA TEXTILES LTD AND M/S SWASTIKA SUITING LTD THE BOTH THE CONCERNS TO WHOM THE PAYMENTS WERE MAD E, WERE IN THE HIGHEST TAX OF 30% AS IS THE CASE OF THE ASSESSEE. SO, THERE IS NO SCOPE OF ANY AVOIDANCE OF TAX ON THIS ACCOUNT. SANA TEXTILES PVT LTD. 1 DETAIL OF PROCESSING CHARGES PAID TO VARIOUS PARTY FOR THE YEAR 2008 - 09 PARTICULARS WEIGHT SSLTD JANKI SULZER KANCHAN SONA PROCESS F.D. 5.5 7.5 6 PIECE DYED UPTO 0.250 CMS 9.5 10 10 9.5 10.25 251 TO 275 CMS 9.8 10.25 10.3 9.9 10.55 276 TO 300 CMS 10.1 10.5 10.6 10.3 10.85 301 TO 325 CMS 10.4 10.75 10.9 10.7 11.15 326 TO 350 CMS 10.7 11 11.2 11.1 11.45 351 TO 375 CMS 11 11.25 11.5 11.5 11.75 3 76 TO 400 CMS 11.3 11.75 11.8 11.9 14.05 401 TO 425 CMS 11.8 12.25 12.2 12.3 426 TO 450 CMS 12.3 12.75 12.6 12.7 451 TO 475 CMS 12.8 13.25 13 13.1 476 TO 500 GMS 13.3 13.75 13.4 13.5 - 501 TO 525 GMS 13.8 14.25 13.8 13.9 SHIRTINGS 5.5 6.75 6.5 8 FURTHER, IT HAS BEEN EXPLAINED THAT ASSESSEE HAD EN TERED INTO A 5 YEAR AGREEMENT WITH M/S SWASTIKA TEXTILES LTD FOR WEAVIN G JOB WORK AND AS PER THIS AGREEMENT THEY WERE NOT ALLOWED TO UNDERTA KE WEAVING WORK FROM OTHER PARTIES. SO, THERE WAS RESTRICTIVE CLAUSE IN THE SAID AGREEMENT. MOREOVER, THEY WERE BOUND TO BE ANY LENGTH OF THE B EAM AND TYPE OF DESIGN REQUIRED BY THE ASSESSEE DUE TO WHICH HIGHER PAYMENTS ARE TO BE MADE EVEN IN THE MARKET. THIS AGREEMENT WAS ENTERED INTO WITH THE SAID CONCERN TO MAINTAIN THE SECRECY OF THE DESIGN AND T O DEVELOP THE ABOVE DESIGNS, THE ABOVE CONCERN HAD TO PROVIDE FOR FOUR FEEDERS LOOMS FROM WHICH ANY TYPE OF DESIGN CAN BE DEVELOPED. IN VIEW OF ABOVE FACTORS, IT IS APPARENT THAT THE PAYMENT MADE TO THE ASSESSEE'S SI STER CONCERN, M/S SWASTIKA TEXTILES LTD FOR WEAVING JOB CANNOT BE SAI D TO BE UNREASONABLE OR EXCESSIVE. THE ABOVE CONTENTIONS OF THE APPELLANT HAVE NOT BEEN CONTROVERTED BY THE AO. ACCORDINGLY, THE A DDITION OF RS. 21,19,668 IS DELETED. II. IN ADDITION TO ASSESSEE'S CONTENTION THAT THERE WAS NO DIVERSION OF INCOME TO M/S SWASTIKA SUITINGS LTD. FOR PROCESSING JOB WORK AS THIS CONCERN IS ALSO PAYING THE TAX AT THE HIGHEST SLAB, IT HAS BEEN POINTED OUT BY THE APPELLANT THAT THE PROCESSING CHARGES ARE PA ID AS PER THE QUALITY OF THE CLOTH PROCESSED. AS PER THE CHART REPRODUCED BY THE AO ALSO, ON 05.09.2011 PAYMENT TO M/S JANKI CORP. HAS BEEN MADE @ RS. 11. HOWEVER, ON THE SAME DATE, PAYMENT @ RS. 15.83 HAS ALSO BEEN MADE TO M/S KANCHAN PROCESSOR PVT LTD. WHICH IS HIGHER THAN THE RATE PAID TO THE ASSESSEE'S SISTER CONCERN OF @ RS. 11.52. SO, THE R ATES DIFFER AS PER THE QUALITY OF THE CLOTH WHICH IS TO BE PROCESSED. THE ASSESSEE HAD GIVEN THE COMPARATIVE RATE CHART BEFORE THE AO FOR PROCESSING RATES TO SHOW THAT PAYMENT TO THE SISTER CONCERN IS NOT ON HIGHER SIDE WHICH HAS NOT BEEN CONTROVERTED. THE ASSESSEE SUBMITTED THE QUALITY WI SE RATE CHART OF THE PROCESSING CHARGES WHICH HAS BEEN REPRODUCED IN THE ASSESSEE'S SUBMISSIONS AS PER WHICH IT HAS BEEN POINTED OUT TH AT FOR FABRIC DYED, PIECE DYED AND SHIRTINGS, DIFFERENT PROCESSING RATE S AS PER THE QUALITY OF THE CLOTH (DEPENDING ON THE WEIGHT) ARE CHARGED AND ASSESSEE'S SISTER CONCERN RATES AS PER ABOVE CHART ARE LOWER THAN OTH ER CONCERN I.E. JANKI, SULZER, KANCHAN ETC. IT IS APPARENT THAT PROCESSING RATE DEPEND ON THE QUALITY OF THE CLOTH DYED. IN VIEW OF ABOVE DISCUSS ION, IT CANNOT BE SAID THAT PROCESSING CHARGES PAID TO THE SISTER CONCERN WERE UNREASONABLE OR EXCESSIVE AND ADDITION MADE OF RS. 17,40,812 IS DEL ETED. NOW THE DEPARTMENT IS IN APPEAL. 6 . LEARNED D.R. REITERATED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 26/12/2011. 9 7 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A) AND STRONGLY SUPPORTED THE IMPUGNED ORDER. 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE SISTER CONCERN TO MAINTAIN THE SECRECY OF THE DESIG N AND TO DEVELOP THE DESIGNS. FOR THAT PURPOSE, THE SISTER CONCERN WAS REQUIRED TO PROVIDE FOUR FEEDER LOOMS FROM WHICH ANY TYPE OF DESIGN COU LD BE DEVELOPED, THEREFORE, WEAVING JOB CHARGES COULD NOT HAVE BEEN SAID TO BE UNREASONABLE OR EXCESSIVE. SIMILARLY, THE PROCESSI NG CHARGES PAID BY THE ASSESSEE TO THE SISTER CONCERN WERE NOT ON HIGH ER SIDE AS PER THE CHART FURNISHED BEFORE THE ASSESSING OFFICER. THIS FACT HAS BEEN CATEGORICALLY ANALYZED BY THE LD. CIT(A), WHO POINT ED OUT THAT THE CHART REVEALED ON 05/09/2011 THAT PAYMENT TO M/S. JANKI C ORPORATION HAD BEEN MADE @ RS. 11. HOWEVER, ON THE SAME DATE, THE PAYMENT @ RS. 15.83 HAD ALSO BEEN MADE TO M/S. KANCHAN PROCESSOR PVT. LTD. WHICH WAS HIGHER THAN THE RATE PAID TO THE ASSESSEES SIS TER CONCERN @ 11.52. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACT S, ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE I MPUGNED ADDITIONS. 10 ACCORDINGLY, GROUNDS NO. 1 & 2 OF THE DEPARTMENTAL APPEAL ARE DISMISSED. 9 . VIDE GROUND NO. 3, THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE DELETION OF ADDITION OF RS. 1,71,812 /- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESSIVE PAYMENT OF INTEREST. 10 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID INTEREST TO THE TWO PARTIES NAMELY SHRI AN IL KUMAR BOONLIYA AND SHRI ANIL KUMAR BOONLIYA (HUF) @15% AND TO OTHE R TRADE CREDITORS MORE THAN 12%. THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE RECEIVED INTEREST @12% ONLY FROM VARIOUS FREIGHT DEBTORS. A CCORDINGLY, THE INTEREST PAID ABOVE THE 12% WAS TREATED TO BE ON HI GHER SIDE AND DISALLOWANCE OF RS. 1,71,714/- WAS MADE IN RESPECT OF VARIOUS PARTIES, DETAILS OF WHICH HAD BEEN MENTIONED AT PAGE NO. 23 OF THE ASSESSMENT ORDER. 11 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'IT IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDE RATION THE ASSESSEE PAID INTEREST TO DEPOSITORS, AND CREDITORS (GOODS) @12%, 15%(DEPOSITS) AND 18% TO CREDITORS. IN THE CASE OF DEPOSIT FROM SHRI ANIL BOOLIA INDIVIDUAL AND HUF WHOSE AMOUNT IS LYING SINCE 2001 AND IT IS FOR LONG PERIOD HENCE INTEREST WAS PAID @15% ON WHICH TDS HAS BEEN DEDUCT ED AND IN BOTH THE CAPACITIES INCOME IS ASSESSED TO TAX (COPIES OF COM PUTATION SHEETS ARE 11 ENCLOSED) UNDER THE CIRCUMSTANCES IT WILL BE DOUBLE TAXATION ON THE SAME INCOME. THEREFORE PRAYED THAT THE DISALLOWANCE SO M ADE DESERVES TO BE DELETED. THE LEARNED ASSESSING OFFICER BEFORE DISALLOWING IN TEREST, SHOULD HAVE DECIDED THAT WHETHER THE BORROWING IS FOR THE PURPO SE OF BUSINESS, USED FOR THE BUSINESS, INTEREST IS ACTUAL PAID, TDS DEDUCTED , INSTEAD OF DECIDING ON RATE OF INTEREST. SECTION 36(1) (IN) OF INCOME TAX ACT SPECIFICALLY P ROVIDE THAT FOR THE PURPOSE OF ALLOWANCE OF INTEREST, (I) IT SHOULD BE PAID, (II) PAYMENT SHOULD BE FOR CAPITAL BORROWED AND (III) THE BORROWINGS SH OULD BE FOR THE PURPOSE OF BUSINESS. AS REGARDS THE INTEREST PAID TO TRADE CREDITORS IS CONCERNED NONE OF THE PARTIES IS RELATED TO THE ASSESSEE, AND YARN PARTIE S CHARGE THE INTEREST AS PER THEIR TERMS WHICH IS EVIDENT FROM THEIR BILLS A ND DEBIT NOTE (ENCLOSED) IN WHICH RATE 24% MENTIONED AND DEBIT NOTES RAISED BY THEM FOR THAT. THE ASSESSEE HAS DEDUCTED THE TAX OUT OF INTEREST CREDI TED/PAID AND MOST OF THE PARTIES ARE COMPANIES AND ARE ASSESSED TO TAX. THUS THE DISALLOWANCES OUT OF THE INTEREST CLAIMED BY ASSESSEE WILL BE DOU BLE TAXATION AS SUCH PRAYED THAT THE DISALLOWANCE MADE FOR RS. 1,71,714/ - BE DELETED AND OBLIGE.' 12. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, OBSERVED THAT SHRI ANIL BOONLIYA INDIVIDU AL AND HUF HAD GIVEN THE DEPOSIT IN 2001 AND IT WAS LONG TERM DEPOSIT, H ENCE, INTEREST WAS BEING PAID @ 15% ON WHICH TDS HAD BEEN DEDUCTED. T HE SAID PAYMENT WAS ALSO ASSESSABLE TO TAX. THE LD. CIT(A) ALSO OB SERVED THAT IT HAD NOT BEEN SHOWN THAT THE INTEREST @12% WAS PREVAILING MA RKET INTEREST RATE ON THE SIMILAR LOAN ON SIMILAR TERMS. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. AS REGARDS TO T HE INTEREST PAID @ 18% TO TRADE CREDITORS, THE LD. CIT(A) OBSERVED THA T NONE OF THE PARTY WAS RELATED TO THE ASSESSEE AND MOST OF THEM WERE Y ARN SUPPLIERS WHO SOLD THE GOOD ON THEIR OWN TERMS AND THEY ISSUED TH E DEBIT NOTES FOR THE INTEREST CHARGED DEPENDING ON THE TIME TAKEN BY THE ASSESSEE TO 12 MAKE PAYMENTS FOR PURCHASE OF YARN FROM THEM AND TH OSE PAYMENTS WERE DULY ACCOUNTED. THE LD. CIT(A) ALSO POINTED O UT THAT IN THE BILLS OF THE RAW MATERIAL SUPPLIERS, THE INTEREST RATE CH ARGEABLE ON THE LATE PAYMENT WAS 24% WHILE ASSESSEE HAD SETTLED THE AMOU NT AT LESS THAN THIS RATE. AS REGARDS TO THE CHARGING OF INTEREST FROM DEBITORS @12%, THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD TO INCREASE ITS SALES, SO AS TO ACCOMMODATE THE DEBTORS BY CHARGING LOWER INT EREST. LD. CIT(A) HELD THAT THE INTEREST RATE PAID BY THE ASSESSEE WA S JUSTIFIED. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFF ICER WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN OUR OPINION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS WITHOUT ANY BASIS PARTICULARLY WHEN HE HAD NOT BROUGHT ANY MATERIAL O N RECORD TO SUBSTANTIATE THAT INTEREST @12% WAS PREVAILING MARK ET INTEREST RATE ON THE SIMILAR LOAN ON SIMILAR TERMS AND CONDITIONS. THE ASSESSEE ALSO PAID INTEREST TO THE TRADE CREDITORS AS PER THE TERMS & CONDITIONS AND THE PAYMENT WAS MADE FOR THE BUSINESS PURPOSES. THEREFO RE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AND RIGHTLY DELETED BY THE LD. CIT(A). 13 14 THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO THE DE LETION OF ADDITION OF RS. 75,000/- MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 15 FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE D THAT THE ASSESSEE HAD SHOWN STOCK OF RS. 1584.92 LAC TO THE BANK IN T HE STOCK STATEMENT WHILE AS PER THE BALANCE SHEET, THE FIGUR E OF CLOSING STOCK WAS RS. 1584.17 LAC. THE EXPLANATION OF THE ASSESSEE W AS THAT THE STOCK WAS VALUED ON THE TENTATIVE BASIS IN THE STOCK STAT EMENT SUBMITTED TO THE BANK, HOWEVER, THE ASSESSING OFFICER MADE THE A DDITION OF RS. 75,000/- BEING THE DIFFERENCE BETWEEN THE AMOUNT SH OWN TO THE BANK AND IN THE BALANCE SHEET OF THE ASSESSEE, TREATING IT TO BE AS UNRECORDED INVESTMENT BY THE ASSESSEE U/S 69 OF THE ACT. 16 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED AS UNDER:- IT IS SUBMITTED THE ASSESSEE AVAIL CASH CREDIT FAC ILITY AGAINST HYPOTHECATION OF STOCK AND FOR THAT THE ASSESSEE HA S TO FILE STOCK POSITION AT THE END OF EACH MONTH BY XTH OF THE NEXT MONTH, IN FILING THESE INFORMATION TO BANK ASSESSEE'S CONCERN PERSON DOES NOT BOTHER M UCH, AND THERE ARE CHANCES OF MINOR DIFFERENCE WHICH DOES NOT MEAN THA T THE STOCK STATEMENT SUBMITTED IS EXACTLY CORRECT. YOUR HONOU R WILL APPRECIATE THAT STOCK VALUE OF RS. 1584.75 LACS IN SUCH A LARGE VOL UME OF INVENTORIES THE VARIATION OF RS. 75000/- IS NOT SUBSTANTIAL, WHICH IS LESS THAN 0.01% OF THE TOTAL STOCK AND EVERY PRECAUTION IS TAKEN TO GIVE T HE VALUATION TO BANK AT THE CORRECT VALUE, BUT WHILE DETERMINING VALUE OF S TOCK AT CLOSE OF YEAR, FOR 14 BOOKS, LITTLE EXTRA CARE IS TAKEN AND IT PASSES ONE MORE SCRUTINY THAT IS AUDIT. THE VALUATION FOR THE PURPOSE OF ACCOUNTS IS TAKEN AT THE COST OR MARKET PRICE WHICHEVER IS LOWER AND IT IS SUBJECT T O AUDIT AND THEREAFTER THE AUDITED FIGURES ARE TAKEN IN THE BOOKS. AND AS SUCH PRAYED THAT THE ADDITION SO MADE FOR RS. 75000/- BE DELETED, AS HAS BEEN HELD IN THE CASE INDIA MOTOR PARTS & ACCESSORIES (P) LTD VS CIT (196 6) 60ITR 531 (MAD). THERE IS NO QUANTITY WISE DIFFERENCE BUT ONLY VALUA TION SHOWN DIFFERENCES HENCE CASE LAW NARRATED BY LEARNED A.O. IS NOT APPL ICABLE, WHICH CAN BE VERIFIED FROM ENCLOSED BANK STOCK STATEMENT WHICH S HOWING SAME QUANTITY AS DISCLOSED IN AUDITED BALANCE SHEET. ' 17 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, OBSERVED THAT THERE WAS NO QUANTITY-WISE DIFFERENCE BETWEEN THE STOCK STATEMENT GIVEN TO THE BANK AND AS PER TH E BOOKS OF ACCOUNTS AND ONLY THE VALUATION DIFFERENCE WAS THERE. HE, F URTHER OBSERVED THAT IN THE RETURN OF INCOME, THE VALUATION OF THE STOCK HAS BEEN DONE AS PER THE COST OR MARKET PRICE WHICHEVER WAS LOWER AND TH E BOOKS HAD BEEN AUDITED WHILE THE TENTATIVE FIGURE WAS GIVEN TO THE BANK LEADING TO MINOR DIFFERENCE OF LESS THAN 0.01% IN THE VALUE OF TOTAL STOCK. HE, THEREFORE, DELETED THE ADDITION MADE BY THE ASSESSI NG OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 18 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED ADDITION BECAUSE THE ASSESSING OFFICER DID NOT FIND ANY DIFFERENCE IN THE QUANTITY IN THE STOCK STATEMENT SUBMITTED TO TH E BANK AND THE STOCK SHOWN IN THE BOOKS OF ACCOUNTS. HE HAS ALSO NOT DISPUTED THIS FACT 15 THAT THE FIGURES FURNISHED TO THE BANK WERE TENTATI VE WHILE VALUATION OF THE STOCK SHOWN IN THE BALANCE SHEET AND FURNISHED ALONG WITH THE RETURN OF INCOME WAS IN ACCORDANCE WITH THE BOOKS O F ACCOUNTS WHICH WERE DULY AUDITED AND THE VALUATION WAS DONE ON COS T OR MARKET VALUE WHICHEVER WAS LESS. WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 19 VIDE GROUND NO. 5, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 62,678/- MADE BY THE AS SESSING OFFICER U/S 40(A)(IA) OF THE ACT. 20 FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT T HE ASSESSEE HAD SHOWN LOAN OF RS. 1,94,656/- FROM SMT. LAD KANWAR J AGATIA AND INTEREST OF RS. 62,678/- HAD BEEN CREDITED WITHOUT DEDUCTION OF TAX AT SOURCE. THE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSIN G OFFICER WAS THAT THE SAID PARTY HAD FURNISHED FORM NO. 15G, THEREFOR E, TDS WAS NOT DEDUCTED. THE ASSESSING OFFICER, HOWEVER, REJECTE D THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THERE WAS NO PROOF W HETHER THE LETTER ADDRESSED TO CIT AJMER HAD BEEN SENT TO CIT AJMER A ND RECEIVED IN HIS OFFICE. THE ASSESSING OFFICER, ACCORDINGLY, MADE TH E ADDITION OF RS. 62,678/-. 16 21 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'IT IS SUBMITTED THAT THE ASSESSEE HAD A LOAN FROM SMT LAD KANWAR JAGETIA AND CREDITED A INTEREST OF RS. 62678/- AND NO TDS W AS DEDUCTED. IT WAS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS THAT THE DEPOSITOR HAVE NO TAXABLE INCOME HENCE SUB MITTED FORM NO. 15G AND THE SAME HAS BEEN FILED AND SENT TO THE OFFICE OF COMMISSIONER OF INCOME TAX AJMER VIDE REGISTERED POST ON 06/04/2009 AND THE PHOTOSTAT COPY OF THE SAME WAS FILED BEFORE THE LEARNED A. O. BUT AT THAT TIME PROOF OF FILING WITH CIT OFFICE COULD NOT BE PRODUCED AS IT COULD NOT BE TRACED OUT. THE PHOTO STAT COPY OF THE SAME IS NOW FILED HEREWITH B EFORE YOUR HONOUR WHICH MAY KINDLY BE CONSIDERED AND AS SUCH REQUESTED TO K INDLY DELETE THE ADDITION OF RS. 62678/- & OBLIGE. IT WAS FURTHER SUBMITTED AS UNDER:- THAT SO FAR EVIDENCE REGARDING RECEIPT OF FORM NO. 15G IN THE OFFICE OF CIT IS CONCERNED, THE POSTAL AUTHORITIES EXPRESSED THEIR INABILITY SINCE THE MATTER IS MORE THAN 18 MONTHS AND WE HAVE ALSO TRYI NG FROM CIT OFFICE IT IS AVAILABLE, THEN ONLY WE CAN SHOW. THE PHOTOCOPY OF LETTER GIVEN TO POSTAL DEPTT. IS ENCLOSED. IT IS CERTAIN THAT THE ASSESSE E POSTED BY SPEED POST. ' 22 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, OBSERVED THAT ONCE FORM NO. 15G HAD BEEN SUBMITTED TO THE ASSESSEE, THE TAX AT SOURCE CANNOT BE DEDUCTED AND THERE IS NO SEPARATE PENAL PROCEEDINGS FOR NON-SUBMISSION OF FORM NO. 15 G TO THE OFFICE OF THE CIT AS PER THE INCOME TAX ACT. HE, THEREFORE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 23. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT 17 CASE, IT APPEARS THAT THE ASSESSING OFFICER MADE TH IS DISALLOWANCE BY PRESUMING THAT FORM NO. 15G OBTAINED BY THE ASSESSE E WAS NOT FORWARDED TO THE OFFICE OF CIT AJMER, HOWEVER, HE C OULD NOT CONTROVERT THIS FACT THAT THE ASSESSEE RECEIVED FORM NO.15G FR OM SMT. LAD KANWAR JAGATIA TO WHOM INTEREST OF RS. 62,678/- HAD BEEN C REDITED. IN THE PRESENT CASE, WHEN THE ASSESSEE RECEIVED FORM NO. 1 5G FOR NOT DEDUCTING TDS, THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER WAS NOT JUSTIFIED. IN OUR OPINION, THE LD. CIT(A) WAS JUS TIFIED IN DELETING THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER. 24 . THE LAST ISSUE VIDE GROUND NO. 6 RELATES TO THE D ELETION OF ADDITION OF RS. 26,83,299/-MADE BY THE ASSESSING OF FICER ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 25 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD SHOWN CLOSING STOCK OF FINISHED CLOTHS AT RS. 1 ,62,48,798/- WHEREAS ON THE BASIS OF AVERAGE SALE PRICE OF THE FINISHED CLOTH, ITS VALUE CAME TO RS. 1,83,42,473/-. SIMILARLY, THE ASSESSEE HAD SHOWN CLOSING STOCK OF GREY CLOTH AT RS. 5,93,08,733/- WHEREAS ON THE BASI S OF AVERAGE SALE PRICE, THE VALUE SALE CAME TO RS. 5,98,98,357/-. T HE EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE CLOSING STOCK HAD 18 BEEN TAKEN AT COST OR REALIZABLE VALUE WHICHEVER WA S LESS AND THIS METHOD WAS REGULARLY FOLLOWED BY THE ASSESSEE. THE DETAILS OF THE QUALITY & QUANTITY AND VALUATION OF EACH AND EVERY QUALITY OF GREY & FINISHED FABRICS WERE FURNISHED BY THE ASSESSEE AND IT WAS SUBMITTED THAT THE CLOSING STOCK COULD NOT BE VALUED ON AVERA GE SALE PRICE BECAUSE MANY QUALITIES SOLD WERE NOT IN STOCK OR VICE VERSA . THE ASSESSING OFFICER, HOWEVER, REJECTED THE CONTENTION OF THE AS SESSEE AND OBSERVED THAT THE VALUE OF THE CLOSING STOCK OF FINISHED GOO DS & GREY CLOTH ON AVERAGE SALE PRICE WAS HIGHER THAN WHAT HAD BEEN SH OWN BY THE ASSESSEE AND THAT NO QUANTITATIVE AND QUALITATIVE R ECORDS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK WERE MAIN TAINED BY THE ASSESSEE. ACCORDINGLY, THE ADDITION OF RS. 26,83,2 99/- (RS. 20,93,675/- FOR FINISHED CLOTH + RS. 5,89,624/- FOR GREY CLOTH) WAS MADE. 26 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'THE LEARNED A O DURING COURSE OF ASSESSMENT PROCEE DINGS ISSUED A LETTER NO. 1495 DT.23.12.11 TO FURNISH EXPLANATION WITH RE GARD TO VALUATION OF CLOSING STOCK .THE ASSESSEE SUBMITTED VIDE LETTER D ATED 26.12.2011 THAT THE CLOSING STOCK HAS BEEN VALUED ON THE BASIS AT C OST OR REALIZABLE VALUE WHICH EVER IS LESS, AND ALSO SUBMITTED THAT THE MET HOD OF VALUATION OF STOCK IS REGULARLY FOLLOWED BY IT IN EARLIER YEAR ALSO AN D IN LETTER THE COMPLETE EXPLANATION WAS SUBMITTED IN PARA 1 TO 8 RESPECTIVE LY, WHICH EMPHASIZED THE ASSESSEE COMPANY IS REGULARLY VALUING ITS STOCK S ON PRINCIPLE GIVEN BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA I.E. CO ST OR MARKET PRICE WHICHEVER IS LOWER. THE STATEMENTS ARE AUDITED AND ACCEPTED BY THE AUDITORS AND THEREAFTER, THE VALUE OF STOCK IS DETE RMINED. THERE IS NO CHANGE IN METHOD OF VALUATION AND IT IS CONSISTENTL Y FOLLOWED 19 THE LEARNED A. O. SIMPLY BY MENTIONING IN THE ASSES SMENT ORDER THAT THE ASSESSEE HAS SHOWN CLOSING STOCK OF FINISHED STOCK AT RS 1,62,48,798/- WHEREAS ON THE BASIS OF AVERAGE SALE PRICE OF FINIS HED CLOTH DURING THE YEAR UNDER CONSIDERATION THE VALUE OF CLOSING STOCK COMES TO RS. 1,83,42,473/-SIMILARLY IN THE CASE OF GREY CLOT H, THE CLOSING STOCK SHOWN AT RS. 5,93,08,733/- WHEREAS ON THE BASIS OF AVERAGE S ALE PRICE OF STOCK OF GREY CLOTH COMES TO RS. 5,98,98,3 57/-.THE DIFFERENCE OF BOTH THE STOCK COMES TO RS. 26,83,299/- (RS. 20,93,675/- FINISHED CLOTH +5, 89,624/- GREY CLOTH.) THE LEARNED A.O. WITHOUT POINTING OUT ANY WRONG IN VALUING STOCK AT COST OR REALIZABLE VALUE, WHICH SYSTEM THE ASSESSEE REGU LARLY FOLLOWED ADOPTED THE AVERAGE SALE PRICE SYSTEM, WHICH IS ARBITRARY A ND NOT ACCORDING TO THE SYSTEM PRESCRIBED BY APEX BODY OF ACCOUNTANCY AND A S SUCH THE ADDITION SO MADE FOR RS. 26,83,299/- TO BE DELETED. ALTERNATIVELY THE LEARNED A.O. HAS VALUED THE CLOSI NG STOCK ON THE BASIS OF AVERAGE SALE PRICE, IF WE GIVE THE WEIGHT TO THE OP ENING STOCK, THE POSITION OF INCOME WILL BE IN LOSS.' FURTHER, ASSESSEE POINTED OUT THAT IF THE AVERAGE S ALE METHOD PRICE IS ADOPTED OPENING STOCK FOR A.Y. 2009-10 OF THE ASSES SEE WILL GET REDUCE SUBSTANTIALLY. THE ASSESSEE HAS FURTHER RELIED UPON THE DECISION IN CASE OF CIT VS. SEAWARD EXPORTS PVT LTD 150 TTJ (JP)(UO) 13 . 27. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, DELETED THE ADDITION MADE BY THE ASSESSIN G OFFICER BY OBSERVING IN PARA 8.3 OF THE IMPUGNED ORDER WHICH R EAD AS UNDER:- I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS ASSESSMENT ORDER. IT IS SEEN THAT ASSESSEE HAD CLAI MED THAT CLOSING STOCK HAS BEEN VALUED ON THE BASIS OF COST OR MARKE T PRICE, WHICHEVER IS LESS AND THIS METHOD OF ACCOUNTING IS BEING REGULARLY FOLLOWED IN THE EARLIER YEARS ALSO. THIS IS A RECOG NIZED METHOD OF VALUING THE CLOSING STOCK AND THE CLOSING STOCK STA TEMENT HAS BEEN PREPARED ON THE BASIS OF BOOKS OF ACCOUNTS AND SUPP ORTING BILLS AND VOUCHERS WHICH HAVE BEEN AUDITED. NO DEFECTS IN THE SAID STOCK STATEMENT GIVEN VIDE LETTER DATED 18.08.2011 HAVE B EEN POINTED OUT BY THE AO. IT IS NOT APPROPRIATE THAT STOCK SHOULD BE VALUED ON THE BASIS OF AVERAGE SALE PRICE AS MENTIONED BY THE AO INSTEAD OF REGULAR RECOGNIZED METHOD WHICH IS BEING FOLLOWED BY THE AS SESSEE FOR VALUING THE CLOSING STOCK UNLESS AND UNTIL SERIOUS DEFECTS ARE FOUND IN THE VALUATION OF THE CLOSING STOCK. THE VALUATION O F THE CLOSING STOCK CANNOT BE DISTURBED WITHOUT ASSIGNING ANY COGENT RE ASONS ESPECIALLY WHEN ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCO UNTS WITH THE SUPPORTING EVIDENCES. IN VIEW OF ABOVE, THE ADDITIO N MADE BY THE AO IS DELETED. 20 NOW THE DEPARTMENT IS IN APPEAL. 28 . LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSM ENT ORDER WHILE THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER. 29. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE FURNISHED THE DE TAILS OF THE CLOSING STOCK TO THE ASSESSING OFFICER, THE VALUATION WAS D ONE ON THE BASIS OF COST OR MARKET PRICE WHICHEVER WAS LESS. THIS METH OD WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND WAS NOT DOUBTED BY THE ASSESSING OFFICER. THE CLOSING STOCK AND THE STATEMENT HAD BEEN PREPAR ED BY THE ASSESSEE ON THE BASIS OF BOOKS OF ACCOUNTS, SUPPORTING BILLS AND VOUCHERS WHICH HAD BEEN AUDITED. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ADOPTING THE VALUE OF THE STOCK ON THE BASIS OF AVE RAGE SALE PRICE INSTEAD OF REGULAR RECOGNIZED METHOD, WHICH WAS BEI NG FOLLOWED BY THE ASSESSEE FOR VALUING THE CLOSING STOCK UNLESS AND U NTIL SERIOUS DEFECTS WERE FOUND IN THE SAID VALUATION. WE, THEREFORE, A RE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED ADDITION . IN 21 THAT VIEW OF THE MATTER, WE DO NOT SEE ANY INFIRMIT Y IN THE IMPUGNED ORDER ON THIS ISSUE. 30. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISS ED. (ORDER PRONOUNCED IN THE COURT ON 13 TH JUNE, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JUNE, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.