2018 (6) TMI 548 - AT - Income Tax

Disallowance u/s 43B - Addition in respect of late payment of PF - Held that - Assessee had paid the PF beyond the grace period after the due date under the relevant Act but well before the due date for filing the return of income u/s 139(1) - the issue is covered in favor of assessee by the decision of the jurisdictional High Court in the case of CIT Vs Ghatge Patil Transport Ltd (2014 (10) TMI 402 - BOMBAY HIGH COURT) in which it has been held that the employers as well as the employees contribution were subject to the provisions of section 43B and the assessee was entitled to the deduction in respect thereof - hence we delete the disallowance made by AO - Decided in favor of assessee. Power of CIT(A) to enhance the assessment - Exercise of power u/s 251(2) - Held that - While enhancing the assessment learned Commissioner (Appeals) has acted strictly in accordance with the statutory mandate as provided u/s 251(1)(a) and (2) - hence contention of the assessee that the exercise of power of enhancement is without jurisdiction cannot be accepted - thus dismissed. Under valuation of closing stock of diamond jewellery - Held that - Assessee has not furnished any details to substantiate its claim that the purchases and sales shown in the stock statement include diamond jewellery set in gold and platinum and opening and closing stock consist of only lose diamond - thus to provide an opportunity to the assessee to justify the valuation of closing stock of diamond jewellery we restore the issue to the AO for fresh adjudication after due opportunity of being heard to the assessee - allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance under section 43B of the Income Tax Act, 1961.
2. Exercise of power under section 251(2) of the Income Tax Act by the Commissioner (Appeals) to enhance the income.
3. Addition representing under-valuation of closing stock of diamond jewellery.
4. Consequential effect to the opening stock of diamond jewellery of the subsequent year.

Issue-wise Detailed Analysis:

1. Disallowance under section 43B:
The assessee challenged the disallowance of ? 3,15,069 under section 43B of the Income Tax Act, 1961. During the assessment proceedings, the Assessing Officer found that the employees' contribution to ESIC and Provident Fund (PF) was not paid within the due date under the relevant Acts as per section 36(1)(va) of the Act. Though the assessee objected, the Assessing Officer disallowed the amount. The Commissioner (Appeals) upheld this disallowance. However, the Tribunal noted that the payments were made before the due date of filing the return of income under section 139(1) of the Act. Citing the decision in CIT v/s Ghatge Patil Transports Ltd., the Tribunal deleted the disallowance, allowing grounds no.1 and 2.

2. Exercise of power under section 251(2):
The assessee contested the Commissioner (Appeals)'s power to enhance the income. The Commissioner (Appeals) found discrepancies in the stock summary and proposed an enhancement. The Tribunal noted that section 251 empowers the Commissioner (Appeals) to enhance the assessment after giving the assessee a reasonable opportunity to show cause. Since the Commissioner (Appeals) followed due process by issuing a show cause notice and considering the assessee's reply, the Tribunal upheld the enhancement's validity, dismissing this ground.

3. Addition representing under-valuation of closing stock:
The Commissioner (Appeals) enhanced the assessee's income by ? 5,10,38,012, alleging under-valuation of closing stock of diamond jewellery. The assessee argued that the purchase value included loose diamonds, gold, platinum, and making charges, while the opening and closing stock consisted of loose diamonds only. The Tribunal found that the Commissioner (Appeals) assumed the entire purchase was part of the closing stock without considering the assessee's evidence. The Tribunal restored the issue to the Assessing Officer for fresh adjudication, allowing the assessee to furnish further evidence.

4. Consequential effect to the opening stock of the subsequent year:
The assessee claimed that if the enhancement in the closing stock value was upheld, the opening stock of the subsequent year should be adjusted accordingly. Given the Tribunal's decision to restore the issue of closing stock valuation to the Assessing Officer, this issue was also restored for reconsideration if warranted, based on the fresh adjudication. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, deleting the disallowance under section 43B, upholding the validity of the enhancement power exercised by the Commissioner (Appeals), and restoring the issues of closing stock valuation and consequential effect to the Assessing Officer for fresh adjudication.