Income Tax Appellate Tribunal - Ahmedabad
M/S. Kamal Oil Industries,, Mehsana vs The Jt.Cit, Patan Range,, Patan on 19 September, 2019
Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 1 आयकर अपील य अ धकरण, अहमदाबाद "C" यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ''C''BENCH, AHMEDABAD BEFORE SHRI O. P MEENA, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER आ.अ.स/ं .I.T.A No.2158/AHD/2014 िनधारणवष/Assessment Year:2010-11 M/s. Kamal Oil Industries, बनाम Joint Commissioner of Budasan Kadi Kalol Road, Vs. Income-Tax, Range Kadi 382 715 District- Patan, Mehsana Mehsana PAN: AABFK 8786 C अपीलाथ Appellant यथ /Respondent िनधा रतीक ओरसे /Assessee by Shri D. K. Parikh , CA, A.R. राज वक ओरसे /Revenue by Shri L. P. Jain, Sr. D.R. सनु वाईक तारीख/ Date of hearing: 18.09.2019 उ ोषणाक तारीख/Pronouncement on 19.09.2019 आदेश /O R D E R PER O. P. MEENA,AM:
1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-
Gandhinagar;Ahmedabad (in short "the CIT (A)") dated 28.05.2014 for the Assessment Year 2010-11.
2. Ground No.1 to 4 relates to confirmation of addition of Rs. 79,93,072 on account of under valuation of closing stock by taking rate of Guar Seeds @19.53 per kg. as against the value taken by Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 2 the assessee @ 9.49 per kg. as on 31.03.2010. Ground No. 5 is without prejudice to above grounds that if the closing stock is valued higher than shown by the assessee then Ld. CIT (A) ought to have given direction to the AO to adopt opening stock of subsequent year at the same figure as valued as on 31.03.2010 by the AO.
3. Since Ground No. 1 to 5 are inter connected, same are being considered together. Briefly, stated the facts of the case are that the AO noted that the assessee has shown opening stock at Rs. 2,23,54,322 of 11,67,323.75 Kg of Guar Seed valued at Rs. 19.15 per kg. The assessee has made purchases of 17510 kg. stock during year @ 22.11 per kg. The assessee has sold 3,57,070 Kg. stock during year of which average rate comes to Rs. 17.45 Kg. Thus, the closing stock as on 31.03.2010 has remained at 8, 27,767.5Kg. However, the assessee has valued the said stock @ 9.49 per kg. as against valuation of opening stock @ 19.15 per kg. including new purchase made @ 22.11 per kg. This valuation has resulted trading loss in Guar Seeds stock, which has been set off against profit for other business. The AO therefore, asked to explain as to why it was valued at low rate. It was explained that the goods were purchase before 7 years, which Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 3 were got wet during monsoon season and got black and became low quality. The assessee follows valuation based on market price or cost whichever is lower therefore, the goods were valued @ 9.49 per kg being market value. Further, the assessee has shown said closing stock as opening stock for subsequent assessment year, which has been accepted by the Department. However, the AO has was of the view that the assessee has not adhered the policy of valuation of closing stock as declared in column 12(a) of audit report filed along with return of income, as the stock is neither valued at market value nor cost value. The AO ascertained market value as on 31.03.2010 from APMC, Kadi that were at Rs. 21.60 per kg. Whereas rate as per NCDEX were at Rs. 22.80 per kg., whereas the assessee has valued closing stock @ 9.49 per kg. With regard to cost, the AO noted that the rainy season has ended by September 2009, whereas last recorded sale bill was issued by the assessee @ 19.50 per kg. on 15.12.2009. Further, the assessee has purchased guar seeds @ 22.11 per kg. Therefore, the theory of goods become wet and lost quality is totally incorrect. Further, guar seeds were sold in April 2011 @19.53 per kg. In the light of these facts, the AO adopted cost price @19.15 per kg. presuming that goods purchased on 30.07.2009 @ Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 4 22.11 per kg. have been sold out and goods out of opening stock were remained in closing stock. In view of these facts and circumstances, the AO made addition of Rs.79,93,072 by taking cost price @ 19.15 per kg. of closing stock of 8,27,767.5 kg. The AO still allowed loss at Rs. 5,87,328 as against claim of loss at Rs.85,80,400.
4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, CIT (A) observed that no correspondence has been submitted that issue of water seeping was taken with warehouse owner nor any claim of insurance was filed. The appellant is silent on the reason as to why huge stock was kept lying in godown from A.Y. 2005-06 to A.Y. 2009-10 and which was not inspected by the owner of the stock. The plea of the Appellant that goods were pledged with bank and therefore, seeds cannot be inspected was not found acceptable as goods were perishable nature and could be inspected after obtaining keys from bank authorities. In view of this matter, the CIT (A) held that the AO has rightly taken valuation @ 19.15 per kg. Therefore, action of the AO was confirmed.
5. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee referring to audit report submitted that the assessee has been valuing closing stock as Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 5 per market value or cost price whichever is lower. The goods were become wet due to rain hence, these were become low quality hence, cost price of the same were low. The learned counsel for the assessee contended that goods were very old which were kept from A.Y. 2005-06. The learned counsel for the assessee referred balance sheet as on 31.03.2007 (PB-42) and submitted same goods were lying with the assessee for A.Y. 2007-08. The learned counsel for the assessee contended that goods were sold during year were of 3,57,070 Kilograms of which average realization value was at Rs. 17.65 per kg. which were even after mixing the goods purchased @ 22.11 per kg. during year. The learned counsel for the assessee referred APMC rate and NCDEX as per Exhibit B and C respectively which showed that when the assessee has sold goods @ 19.53 per kg. in April 2011, these rates were ranging between 25.50 per kg. to 28.20 per kg. in addition, even 30 to 31.01 per kg. This proves that goods seeds could only be realized @ 19.53 per kg. as they were not of good quality. The learned counsel for the assessee placed reliance in the case of DCIT v. Loil Health Foods Ltd. [2017] 82 taxmann.com 324 (Chandigarh-Trib) and Alfa Laval India Ltd. v. DCIT [2003] 133 Taxman 740 (Bombay)/ 266 ITR 418 (Bombay) in support of his claim. Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 6
6. Au contraire, the ld. Sr. D.R. supported the order of the lower authorities. The ld. Sr. D.R. submitted that the AO has applied LIFO method of valuation and has arrived at correct finding. The assessee has not been able to substantiate that goods were become wet or lower quality as same goods were sold in April next year on higher rate.
7. We have heard the rival submissions and perused the relevant material on record. We find that no correspondence has been adduced in support of water seeping or any claim of insurance to support that goods were deteriorated. However, it is also facts that goods were lying in godown from A.Y. 2005-06 to A.Y. 2009-10 as same quantity of goods were shown in balance sheet as on 31.03.2007. The AO adopted cost price @19.15 per kg. presuming that goods purchased on 30.07.2009 @ 22.11 per kg. have been sold out and goods out of opening stock were remained in closing stock. However, it may be noted that average price yielded from sale of goods is 17.65 per kg. because due to mixture of purchased goods @ 22.11 per kg. during year under consideration with opening stock. We also noticed that sale rate in April 2011 is at Rs. 19.53 per kg. whereas the assessee has valued the closing stock @ 9.49 per kg. as Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 7 against valuation of opening stock @ 19.15 per kg. The learned counsel for the assessee has relied in the case of DCIT v. Loil Health Foods Ltd. [2017] 82 taxmann.com 324 (Chandigarh-Trib) to contend that where cotton seeds oil and mustard seed oil are perishable items in nature and the assessee explained properly the reason in decrease in closing stock, no addition should be made in closing stock. Similarly, in the case of Alfa Laval India Ltd. v. DCIT [2003] 133 Taxman 740 (Bombay)/ 266 ITR 418 (Bombay) it was held that the obsolete items were sold in subsequent year at a price less than 10 percent of cost the valuation made arbitrarily not justified. Considering the totality of facts and case laws and nature of goods, we are of the considered view that it would be reasonable and justifiable if average rate were applied for valuation of closing stock. We find that rate of opening stock was at Rs. 19.15 per kg. whereas closing stock was at Rs. 9.49 per kg. The average realization value is at Rs. 17.75 per kg. therefore, it would meet end of justice if average of 19.15+9.49+ 17.15= 46.14/3 = 15.83 per kg. may be adopted for valuation of closing stock as on 31.03.2010. Accordingly, the AO is directed to recalculate the closing stock by taking rate of Rs. 15.83 per kg. Thus, the Ground No. 1to 4 are partly allowed. So Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 8 far, Ground No. 5 is concerned, since the closing stock is opening stock for next year. Therefore, as a corollary to increase in closing stock would lead to increase in opening stock of next year, therefore, the AO would take opening stock as on 1st April of next financial year as worked out on the basis of average rate as per our observation given herein above. Accordingly, this ground is allowed.
8. Ground No. 6 is against the disallowance of salary payment in respect of person specified under section 40A(2)(b) of the Act.
9. The AO noticed that the assessee has not debited any expenditure on wages payment in last financial year whereas in the current year, it has debited a sum of Rs. 17,80,200 which inter-alia included payment of Rs.5.80 Lakh each to Smt. Shilpaben Kiranbhai Patel, and Smt. Darshnaben Alpeshbhai Patel (wives of partners of the assessee firm). The AO examined and observed that the assessee has failed to adduce any evidence of the performance of work done by them. Accordingly, concluded that payments made at Rs. 11,60,000 to above two women is excessive. However, considering the increase in turnover by 62% from last year, these women might have been rendered some help to the assessee firm in respect of business activity. In view of this matter, the AO treated payment of Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 9 Rs. 10,000 per month as reasonable to above person and accordingly, considered payment at Rs. 2,40,000 as reasonable and disallowed balance amount of Rs. 9,20,000 [ 11,60,000- 2,40,000] under the provisions of section 40A(2)(b) of the Act.
10. Being dissatisfied, the assessee preferred an appeal before the CIT (A). However, without any success.
11. Being, dissatisfied the assessee has filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the Assessing Officer has failed to appreciate that the assessee has furnished detail of qualification and nature of service rendered by them. The AO has also accepted this fact as he allowed part remuneration as reasonable. The learned counsel for the assessee argued that both the lady members are assessed to maximum marginal rate ( Copy of acknowledgement of return of income for A.Y. 2010-11, filed showing assessed at maximum marginal rate by both ladies) hence, in the light of ratio laid down by the Hon'ble Gujarat High Court in the case of Pr. CIT -2 v. Gujarat Financial Services Ltd. [Tax Appeal No. 428 & 431 of 2015 dated 07.07.2015] in which it was considering the CBDT dated 06.07.1968 it was held that where the payer and recipient are assessed at maximum marginal Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 10 rate, and payment may be treated as bonafide, hence, no disallowance under section 40A(2)(b) of the Act be made. The learned counsel for the assessee further placed reliance on the decision of Co-ordinate Bench of Ahmedabad tribunal in the case of H.C. Sons v. ACIT Circle -12 Ahmedabad [I.T.A. No. 2713/Ahd/2013/A.Y. 2009-10 dated 25.01.2017] wherein following the ratio laid down by the Hon'ble Gujarat High Court in the case of PWS Engineers Limited v. DCIT [Tax Appeal No. 209 of 2015 dated 06.06.2016] wherein their Lordship have inter-alia held as long as the amount paid by the assessee to specific persons are taxed in the hands of specific persons at the same rate , disallowance under section 40A(2)(b) will be meaningless inasmuch as "permitting the Revenue to tax the same income again at the same rate in the hand of principal payer would amount to double taxation". Therefore, following same the matter was remitted back to the AO to verify whether payment has been brought to tax in the hands of recipient at the same rate. if that is so, disallowance will stand deleted.
12. Per contra, the ld. Sr. D.R. relied on lower authorities.
13. We have heard the rival submissions and perused the relevant material on record. We find that the recipient of remuneration are Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 11 have requisite qualification and rendered service for handling of banking services, moreover, as the AO has accepted part payment reasonable, meaning thereby that they have rendered some services. If that is so, then, no disallowance under section 40A (2) (b) could be made as the recipient and payer are assessed to tax at same rate, hence, there is no evasion of tax. The copy of acknowledgement of return of income filed showed that both the person specified under section 40A (2) (b) of the Act are assessed at maximum marginal rate. Therefore, the issue is covered by the decision of Tribunal in the case of H.C. Sons v. ACIT Circle -12 Ahmedabad [I.T.A. No. 2713/Ahd/2013/A.Y. 2009-10 dated 25.01.2017] wherein following the ratio laid down by the Hon'ble Gujarat High Court in the case of PWS Engineers Limited v. DCIT [Tax Appeal No. 209 of 2015 dated 06.06.2016] wherein their Lordship have inter-alia held as long as the amount paid by the assessee to specific persons are taxed in the hands of specific persons at the same rate , disallowance under section 40A(2)(b) will be meaningless inasmuch as "permitting the Revenue to tax the same income again at the same rate in the hand of principal payer would amount to double taxation". Similarly the Hon'ble Gujarat High Court in the case of Pr. CIT -2 v. Gujarat Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 12 Financial Services Ltd. [Tax Appeal No. 428 & 431 of 2015 dated 07.07.2015] after considering the CBDT Circular 06.07.1968 held that where the payer and recipient are assessed at maximum marginal rate, then the payment may be treated as bonafide, hence, no disallowance under section 40A(2)(b) of the Act be made. In the light of above facts and circumstances, we are of the considered opinion that disallowance made under section 40A(2)(b) of the Act are not justified. Hence, same are directed to be deleted. This grounds of appeal is accordingly, allowed.
14. In the result, the appeal of the assessee is partly allowed.
15. The order pronounced in the open Court on 19.09.2019.
Sd/- Sd/-
(MADHUMITA ROY) (O.P.MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
TRUE COPY
Ahmedabad: Dated: 19th September, 2019/opm
Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.
By order Assistant Registrar, Ahmedabad