Income Tax Appellate Tribunal - Chandigarh
M/S Krishna Rice Mills, Kurukshetra vs Addl. Cit, Kurukshetra on 15 March, 2017
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 against 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 addition of Rs. 4,29,548/- ignoring the consistency of weighted average 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 stock under the head Paddy D. Basmati had been erroneously valued by the assessee and after 2 considering that there were no milling after July 2007 and there was sale only in the month of November 2007 and February 2008, the Assessing officer computed the valuation of closing stock after 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 specific situation of the assessee, the method applied by the assessee for arriving at the closing stock was not correct and after considering various factors unique to the assessee, the difference in stock was arrived at Rs. 4,29,548/- and addition was accordingly made.
4. The assessee raised various submissions before Ld. CIT(A) which have been summarized by the Ld. CIT(A) in which the assessee argued that assessee has rightly calculated the closing stock by 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 reiterated the facts stated in the assessment order. The assessee further explained 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 present case, there is no dispute that the duly certified auditor's report was placed before the Assessing officer clearly justif y the valuation of closing stock. There is no dispute that assessee is entitled to valuation of closing stock at market value or at cost whichever is lower. It is also not in dispute that the valuation of the closing stock has been taken as value of the opening stock in subsequent year. The assessee has rightly calculated the closing stock by following the weighted average cost formula as permissible under Indian 3 Accounting Standards. The Assessing officer had not doubted the correctness of the auditor's certificate certif ying the valuation of the closing stock. The Assessing officer in an arbitrary manner disturbed the closing stock without pointing out any infirmity in the method of valuation adopted by the assessee. Since the assessee had followed a consistent practice of valuation of closing stock by following the Weighted Average Cost Formula, therefore, addition is wholly unjustified. 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 following Weighted Average Cost Formula which the assessee had been consistently 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 officer did not make similar addition. He has also submitted that even in the subsequent assessment year the assessee adopted the same method for valuing the closing stock which has not been disputed by the authorities below. There is no rebuttal to these submissions of the assessee. It is well settled law that assessee is entitled to valuation of stock at market value or at cost whichever is lower. The assessee had been following consistent practice of valuation of closing stock by following weighted average cost formula 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 pointed out by the 4 authorities below. The assessee pleaded before the Assessing officer that gross profit rate of the year is better than the last year. Therefore, there were no reasons for the assessee to adopt lower value 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 addition on account of undervaluation of the closing stock, therefore, the opening stock of the next year should have been enhanced by the same amount, however, no such benefit have been given to the assessee, therefore, it would amount to double addition. In this regard, the authorities below should also have disturbed the closing stock as well as opening stock of the preceding year which exercise have also not been done by the authorities below. Rather the Ld. Counsel for the assessee demonstrated that even in the preceding year, the Revenue has accepted the same method of valuation 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 according set aside the order of the authorities below and delete the entire addition.
6. Ground No.1 of the appeal of the assessee is according allowed.
7. On ground No.2 the assessee has challenged the addition of Rs. 50,000/- towards labour and wages. The Assessing officer has discussed this issue in para 8 of the assessment order and noted that on the basis of 5 examination of vouchers and wage register there were certain discrepancies in these documents relating to Shri Vinod Tiwari, Shri 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 assessee submitted before Ld. CIT(A) that it is well known fact that Rice Sheller industry is employing huge labour and mostly the same are uneducated and unskilled. The assessee is maintaining complete vouchers for all expenses which were produced before the Assessing officer. Regarding the 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 different persons. Same is the case of Ram Sewak and Ram Sewak Rai which has been considered as a same person. Regarding the signatures of Vinod Tiwari and Ram Kripal Tiwari, they were considered as the same persons; therefore, whole addition is unjustified. All the expenses are properly 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 the 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 verifiable signature on the vouchers of different persons, the assessee explained the same before the Ld. CIT(A). The Ld. CIT(A) was satisfied with the explanation of the assessee and only on this reason reduced the addition 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 appears to be an adhoc addition; therefore, it cannot be sustained. I accordingly set aside the orders of the authorities below and delete the addition 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 Assessing 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 profession 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 submitted 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 assessed to tax. She has adequate balance available in her bank account and nothing is brought on record to disprove her creditworthiness. The Ld. CIT(A) did not accept the contention of the assessee and noted that the assessee has not established the creditworthiness of the creditor, accordingly confirmed the addition.
11. After considering the rival submissions, I am of the view that the addition is wholly unjustified. The Assessing officer made the addition of Rs. 2 lac in respect of the unexplained credit received by assessee from 7 Smt. Neelam Garg because assessee fails to prove the credit worthiness of the creditor. Thus, the identity of the creditor has 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 assessment 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 Rs. 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 filed 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 from other sources. The Assessing officer also noted that there is a addition of Rs. 2,45,000/- in the name of Smt. Neelam Garg as unsecured loans taken by the assessee from her. However, Assessing officer did not doubt the genuineness of the loan received from the same creditor in the assessment year under appeal for Rs. 45,000/-. The copy of the bank statement of creditor shows that on the same pattern the loan of Rs. 20,000/- and Rs. 25,000/- have been given by Smt. Neelam Garg to the assessee, there are transfer entries in her bank account before giving loan to the assessee. The Assessing officer noted that prior to giving loan of Rs. 2 lakh to the assessee, 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 some transfer entries in the bank account of the creditor. These facts, therefore, 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 creditworthiness of the creditor, therefore, there is no justification for the authorities below in making and confirming the addition of Rs. 2 lac on account of unexplained credit. Addition is wholly unjustified. I, accordingly, set aside the orders of the authorities below and delete the entire addition. This ground of appeal of the assessee is allowed.
12. In the result, the appeal of the assessee is allowed.
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