M/s Krishna Rice Mills, Kurukshetra V. Addl. CIT, Kurukshetra

ITA 959/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8232 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Rule of consistency; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 48

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 959/CHD/2016 ASSESSMENT YEAR: 2008-09 M/S KRISHAN RICE MILLS, VS. THE ADDL. CIT, KURUKSHETRA KURUKSHETRA RANGE, KURUKSHETRA PAN NO. AAEFK9472A (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH. RAKESH JAIN / GURJEET SINGH RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 01.03.2017 DATE OF PRONOUNCEMENT : 15.03.2017 ORDER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAI NST THE ORDER OF LD. CIT(A), KARNAL DATED 17.6.2016 FOR ASSESSMENT YEAR 2008-09. 2. I HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. 3. ON GROUND NO.1, ASSESSEE HAS CHALLENGED THE ADDI TION OF RS. 4,29,548/- IGNORING THE CONSISTENCY OF WEIGHTED AVE RAGE METHOD OF VALUATION U/S 145 OF THE INCOME-TAX ACT, 1961. THE LD. CIT(A) NOTED THAT THE ASSESSING OFFICER OBSERVED THAT VALUATION OF ST OCK UNDER THE HEAD PADDY D. BASMATI HAD BEEN ERRONEOUSLY VALUED BY THE ASSESSEE AND AFTER 2 CONSIDERING THAT THERE WERE NO MILLING AFTER JULY 2 007 AND THERE WAS SALE ONLY IN THE MONTH OF NOVEMBER 2007 AND FEBRUARY 20 08, THE ASSESSING OFFICER COMPUTED THE VALUATION OF CLOSING STOCK AF TER ELABORATE DISCUSSION AS NOTED FROM PARA 3 TO 7 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT IN VIEW OF THIS SPECIFI C SITUATION OF THE ASSESSEE, THE METHOD APPLIED BY THE ASSESSEE FOR AR RIVING AT THE CLOSING STOCK WAS NOT CORRECT AND AFTER CONSIDERING VARIOUS FACTORS UNIQUE TO THE ASSESSEE, THE DIFFERENCE IN STOCK WAS ARRIVED AT R S. 4,29,548/- AND ADDITION WAS ACCORDINGLY MADE. 4. THE ASSESSEE RAISED VARIOUS SUBMISSIONS BEFORE L D. CIT(A) WHICH HAVE BEEN SUMMARIZED BY THE LD. CIT(A) IN WHICH THE ASSESSEE ARGUED THAT ASSESSEE HAS RIGHTLY CALCULATED THE CLOSING STOCK B Y FOLLOWING WEIGHTED AVERAGE COST FORMULA AS PER ACCOUNTING STANDARD AS2 . A REPORT HAD BEEN SOUGHT FROM THE ASSESSING OFFICER AND AS PER REPORT OF THE ASSESSING OFFICER DATED 29.5.2012 THE ASSESSING OFFICER REITE RATED THE FACTS STATED IN THE ASSESSMENT ORDER. THE ASSESSEE FURTHER EXPLAINE D THAT THE ASSESSING OFFICER ERRED IN MAKING THE ADDITION ON ACCOUNT OF ALLEGED UNDER VALUATION OF THE CLOSING STOCK OF PADDY D. BASMATI. IN THE PR ESENT CASE, THERE IS NO DISPUTE THAT THE DULY CERTIFIED AUDITORS REPORT WA S PLACED BEFORE THE ASSESSING OFFICER CLEARLY JUSTIFY THE VALUATION OF CLOSING STOCK. THERE IS NO DISPUTE THAT ASSESSEE IS ENTITLED TO VALUATION OF C LOSING STOCK AT MARKET VALUE OR AT COST WHICHEVER IS LOWER. IT IS ALSO N OT IN DISPUTE THAT THE VALUATION OF THE CLOSING STOCK HAS BEEN TAKEN AS VA LUE OF THE OPENING STOCK IN SUBSEQUENT YEAR. THE ASSESSEE HAS RIGHTLY CALCUL ATED THE CLOSING STOCK BY FOLLOWING THE WEIGHTED AVERAGE COST FORMULA AS PERM ISSIBLE UNDER INDIAN 3 ACCOUNTING STANDARDS. THE ASSESSING OFFICER HAD NOT DOUBTED THE CORRECTNESS OF THE AUDITORS CERTIFICATE CERTIFYING THE VALUATION OF THE CLOSING STOCK. THE ASSESSING OFFICER IN AN ARBITRAR Y MANNER DISTURBED THE CLOSING STOCK WITHOUT POINTING OUT ANY INFIRMITY IN THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE. SINCE THE ASSESSEE HAD FOL LOWED A CONSISTENT PRACTICE OF VALUATION OF CLOSING STOCK BY FOLLOWING THE WEIGHTED AVERAGE COST FORMULA, THEREFORE, ADDITION IS WHOLLY UNJUSTI FIED. THE LD. CIT(A) HOWEVER, CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS CALCULATED CLOSING STOCK BY F OLLOWING WEIGHTED AVERAGE COST FORMULA WHICH THE ASSESSEE HAD BEEN CO NSISTENTLY FOLLOWING IN PAST AS WELL AS IN SUBSEQUENT ASSESSMENT YEARS. COPY OF THE ASSESSMENT ORDER FOR PRECEDING ASSESSMENT YEAR 2006-07 U/S 143 (3) OF THE ACT DATED 21.11.2008 HAS BEEN FILED IN WHICH ASSESSING OFFICE R DID NOT MAKE SIMILAR ADDITION. HE HAS ALSO SUBMITTED THAT EVEN IN THE S UBSEQUENT ASSESSMENT YEAR THE ASSESSEE ADOPTED THE SAME METHOD FOR VALUI NG THE CLOSING STOCK WHICH HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELO W. THERE IS NO REBUTTAL TO THESE SUBMISSIONS OF THE ASSESSEE. IT IS WELL S ETTLED LAW THAT ASSESSEE IS ENTITLED TO VALUATION OF STOCK AT MARKET VALUE OR A T COST WHICHEVER IS LOWER. THE ASSESSEE HAD BEEN FOLLOWING CONSISTENT PRACTIC E OF VALUATION OF CLOSING STOCK BY FOLLOWING WEIGHTED AVERAGE COST FO RMULA WHICH IS PERMISSIBLE AS PER AS-2. THE ASSESSEE HAD ADOPTED THE VALUE OF CLOSING STOCK OF THE PRECEDING YEAR AS OPENING STOCK IN THE ASSESSMENT YEAR UNDER APPEAL, IN WHICH NO SPECIFIC INFIRMITY HAVE BEEN PO INTED OUT BY THE 4 AUTHORITIES BELOW. THE ASSESSEE PLEADED BEFORE THE ASSESSING OFFICER THAT GROSS PROFIT RATE OF THE YEAR IS BETTER THAN THE LA ST YEAR. THEREFORE, THERE WERE NO REASONS FOR THE ASSESSEE TO ADOPT LOWER VAL UE OF THE CLOSING STOCK IN THE YEAR UNDER CONSIDERATION. PB - 27 IS DETAIL OF CLOSING STOCK OF PADDY D. BASMATI BY WEIGHTED AVERAGE FORMULA IN WHICH NO INFIRMITY HAS BEEN POINTED OUT. THE ASSESSING OFFICER HAS MADE ADDITIO N ON ACCOUNT OF UNDERVALUATION OF THE CLOSING STOCK, THEREFORE, THE OPENING STOCK OF THE NEXT YEAR SHOULD HAVE BEEN ENHANCED BY THE SAME AMO UNT, HOWEVER, NO SUCH BENEFIT HAVE BEEN GIVEN TO THE ASSESSEE, THERE FORE, IT WOULD AMOUNT TO DOUBLE ADDITION. IN THIS REGARD, THE AUTHORITIES BE LOW SHOULD ALSO HAVE DISTURBED THE CLOSING STOCK AS WELL AS OPENING ST OCK OF THE PRECEDING YEAR WHICH EXERCISE HAVE ALSO NOT BEEN DONE BY THE AUTHO RITIES BELOW. RATHER THE LD. COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT EVEN IN THE PRECEDING YEAR, THE REVENUE HAS ACCEPTED THE SAME METHOD OF V ALUATION OF CLOSING STOCK, THEREFORE, ON PRINCIPLE OF CONSISTENCY ALSO, THE AUTHORITIES BELOW SHOULD NOT DISTURB THE VALUATION OF CLOSING TOCK IN ARBITRARY MANNER. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES AND HISTORY OF THE ASSESSEE IN WHICH ON THE SAME METHOD, VALUATION OF CLOSING STOCK ADOPTED BY THE REVENUE, I AM OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. I ACCOR DING SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE AD DITION. 6. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ACC ORDING ALLOWED. 7. ON GROUND NO.2 THE ASSESSEE HAS CHALLENGED THE A DDITION OF RS. 50,000/- TOWARDS LABOUR AND WAGES. THE ASSESSING OF FICER HAS DISCUSSED THIS ISSUE IN PARA 8 OF THE ASSESSMENT ORDER AND NO TED THAT ON THE BASIS OF 5 EXAMINATION OF VOUCHERS AND WAGE REGISTER THERE WER E CERTAIN DISCREPANCIES IN THESE DOCUMENTS RELATING TO SHRI VINOD TIWARI, S HRI RAM KIRPAL TIWARI AND SHRI RAM BILAS. THE ASSESSING OFFICER OBSERVED THAT AMOUNT OF RS. 24,45,288/- HAS BEEN CLAIMED ON THIS ISSUE BUT RS. 1 LAC WAS BEING DISALLOWED OUT OF LABOUR AND WAGES EXPENSES. THE AS SESSEE SUBMITTED BEFORE LD. CIT(A) THAT IT IS WELL KNOWN FACT THAT R ICE SHELLER INDUSTRY IS EMPLOYING HUGE LABOUR AND MOSTLY THE SAME ARE UNEDU CATED AND UNSKILLED. THE ASSESSEE IS MAINTAINING COMPLETE VOUCHERS FOR A LL EXPENSES WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER. REGARDING T HE SIGNATURES OF RAM BILAS AND RAM BILA YADAV, THE ASSESSING OFFICER HAS MISREAD THE NAMES TO BE OF ONE PERSON ONLY, WHEREAS THE SAME ARE TWO DIF FERENT PERSONS. SAME IS THE CASE OF RAM SEWAK AND RAM SEWAK RAI WHICH HA S BEEN CONSIDERED AS A SAME PERSON. REGARDING THE SIGNATURES OF VINO D TIWARI AND RAM KRIPAL TIWARI, THEY WERE CONSIDERED AS THE SAME PER SONS; THEREFORE, WHOLE ADDITION IS UNJUSTIFIED. ALL THE EXPENSES ARE PROPE RLY VOUCHED AND VERIFIABLE. THE LD. CIT(A) AFTER GOING THROUGH THE FACTS OF THE CASE AND IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE NOTED THAT THERE ARE CERTAIN ERRORS IN THE VOUCHERS AND ACCORDINGLY RESTRICTED T HE ADDITION TO RS. 50,000/-. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT ADHOC ADDITION IS NOT JUSTIFIED. WHATEVER OBJECTIONS WERE RAISED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER REGARDING NON VERIF IABLE SIGNATURE ON THE VOUCHERS OF DIFFERENT PERSONS, THE ASSESSEE EXPLAIN ED THE SAME BEFORE THE LD. CIT(A). THE LD. CIT(A) WAS SATISFIED WITH THE E XPLANATION OF THE ASSESSEE AND ONLY ON THIS REASON REDUCED THE ADDITI ON FROM RS. 1 LAKH TO 6 RS. 50,000/-. HOWEVER, NO BASIS WERE SHOWN IN THE APPELLATE ORDER AS TO WHY ADDITION IS RESTRICTED TO RS. 50,000/-. IT APP EARS TO BE AN ADHOC ADDITION; THEREFORE, IT CANNOT BE SUSTAINED. I ACCO RDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION OF RS. 50,000/-. 9. ON GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 2 LAC ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S 68 OF THE I.T. ACT. 10. THE ASSESSING OFFICER MADE THE ADDITION OF RS. 2 LAC ON ACCOUNT OF UNEXPLAINED CREDIT OF SMT. NEELAM GARG. THE ASSESSI NG OFFICER OBSERVED THAT AN AMOUNT OF RS. 2 LAC HAVE BEEN RECEIVED FROM SMT. NELAM GARG. THE EXPLANATION OF THE ASSESSEE THAT THE AMOUNT OF RS. 2 LAC IN THE BANK ACCOUNT OF SMT. NEELAM GARG WAS ON ACCOUNT OF HER PROFESSIO N AS A HARDWARE CONSULTANT WAS NOT ACCEPTED. THE ASSESSING OFFICER HIGHLIGHTED THAT THE CREDITWORTHINESS OF SMT. NEELAM GARG WAS NOT PROVED ; ACCORDINGLY THE ADDITION OF RS. 2 LACS WAS MADE. THE ASSESSEE SUBMI TTED BEFORE THE LD. CIT(A) THAT ASSESSEE EXPLAINED THE RECEIPT OF RS. 2 LAC FROM SMT. NEELAM GARG THROUGH CASH FLOW STATEMENT AND SHE IS ASSESSE D TO TAX. SHE HAS ADEQUATE BALANCE AVAILABLE IN HER BANK ACCOUNT AND NOTHING IS BROUGHT ON RECORD TO DISPROVE HER CREDITWORTHINESS. THE LD. CI T(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND NOTED THAT THE ASSES SEE HAS NOT ESTABLISHED THE CREDITWORTHINESS OF THE CREDITOR, ACCORDINGLY C ONFIRMED THE ADDITION. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM O F THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE ASSESSING OFFI CER MADE THE ADDITION OF RS. 2 LAC IN RESPECT OF THE UNEXPLAINED CREDIT RECE IVED BY ASSESSEE FROM 7 SMT. NEELAM GARG BECAUSE ASSESSEE FAILS TO PROVE TH E CREDIT WORTHINESS OF THE CREDITOR. THUS, THE IDENTITY OF THE CREDITOR HA S NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PB-45 WHICH IS ACKNOWLEDGEMENT OF RETURN OF INCOME FILED BY SMT. NEELAM GARG FOR ASSESSMENT YEAR 2008-09 DECLARING INCOME OF RS. 1,56,872/-. PB-46 IS CASH FLOW STATEMENT OF SMT. NEELAM GARG FOR ASSESSM ENT YEAR UNDER APPEAL SHOWING THAT PRIOR TO GIVING A LOAN OF RS. 2 LAC ON 20.3.2008 TO THE ASSESSEE, THE SAME CREDITOR HAD ADVANCED A SUM OF R S. 20,000/- AND 25,000/- TO THE ASSESSEE THROUGH CHEQUE ON 4.8.2007 AND 25.2.2008, WHICH IS SUPPORTED BY THE COPY OF THE BANK STATEMENT FILE D AT PAGES 47 AND 48 OF THE PAPER BOOK. THE CREDITOR HAS SUFFICIENT CASH IN HAND AS PER CASH FLOW STATEMENT AS WELL AS DIVIDEND INCOME AND INCOME FRO M OTHER SOURCES. THE ASSESSING OFFICER ALSO NOTED THAT THERE IS A ADDITI ON OF RS. 2,45,000/- IN THE NAME OF SMT. NEELAM GARG AS UNSECURED LOANS TAKEN B Y THE ASSESSEE FROM HER. HOWEVER, ASSESSING OFFICER DID NOT DOUBT THE G ENUINENESS OF THE LOAN RECEIVED FROM THE SAME CREDITOR IN THE ASSESSMENT Y EAR UNDER APPEAL FOR RS. 45,000/-. THE COPY OF THE BANK STATEMENT OF CRE DITOR SHOWS THAT ON THE SAME PATTERN THE LOAN OF RS. 20,000/- AND RS. 25,00 0/- HAVE BEEN GIVEN BY SMT. NEELAM GARG TO THE ASSESSEE, THERE ARE TRANSFE R ENTRIES IN HER BANK ACCOUNT BEFORE GIVING LOAN TO THE ASSESSEE. THE AS SESSING OFFICER NOTED THAT PRIOR TO GIVING LOAN OF RS. 2 LAKH TO THE ASSE SSEE, THERE IS A DEPOSIT OF RS. 2 LAC BY BHIM. THE ASSESSING OFFICER FORGOT TO NOTE THAT PRIOR TO GIVEN LOANS OF RS. 45,000/- AS NOTED ABOVE, THERE WERE SO ME TRANSFER ENTRIES IN THE BANK ACCOUNT OF THE CREDITOR. THESE FACTS, THER EFORE, WOULD SHOW THAT CREDITOR WAS HAVING SUFFICIENT AMOUNT TO GIVE LOANS TO THE ASSESSEE AS IS REFLECTED IN THE CASH FLOW STATEMENT. ON THE LOANS SO GIVEN TO THE ASSESSEE, 8 THE INTEREST IS ALSO CREDITED ON WHICH TDS IS ALSO DEDUCTED. THESE FACTS AND CIRCUMSTANCES AND MATERIAL ON RECORD WOULD SUPPORT THE EXPLANATION OF THE ASSESSEE THAT ASSESSEE HAS EXPLAINED THE CREDITWORT HINESS OF THE CREDITOR, THEREFORE, THERE IS NO JUSTIFICATION FOR THE AUTHOR ITIES BELOW IN MAKING AND CONFIRMING THE ADDITION OF RS. 2 LAC ON ACCOUNT OF UNEXPLAINED CREDIT. ADDITION IS WHOLLY UNJUSTIFIED. I, ACCORDINGLY, SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 15 MARCH, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR