2020 (9) TMI 281 - AT - Income Tax

Disallowance of interest - Valuation of inventory - as per CIT-A assessee should have taken into consideration the interest attributable to bringing the inventory to its present location and condition in accordance with explanation to section 145A(A) - HELD THAT - Valuation of inventory should be in accordance with the method of accounting regularly employed by the assessee and is to be further adjusted to include the amount of any tax duty cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation and as per the explanation it is provided that for this purpose any tax duty shares or fee by whatever name called under any law for the time being in force and it shall include all such payments notwithstanding any right arising as a consequence to such payment. There is no such provision in this section to include interest cost in the value of inventory. Tribunal order cited of DLF Ltd., . 2016 (12) TMI 1295 - DELHI HIGH COURT supports the case of the assessee and therefore respectfully following this Tribunal order and in view of the above discussion we decide this issue in favour of the assessee. Non genuine payment - Addition of payments were otherwise than by an account payee cheque - disallowance was made by the AO on this basis that the AO issued notices to verify these transactions under section 133(6) of the Act and these notices were sent by the AO by Speed Post Acknowledgement Due (SPAD) to the 10 entities out of 28 entities on a Test Check Basis but these notices has been returned unserved - HELD THAT - W e set aside the order of CIT(A) on this issue and restore this matter back to the file of AO for a fresh decision with the direction that the assessee should furnish the comparison of quantity of opening stock purchase and closing stock sales and if there is no difference in such two quantities and difference if any is explained/reconciled then quantity of purchase should be accepted and in case of unexplained difference in such two quantities only such unexplained difference in quantity should held to be bogus claim. Regarding the pricing part also the assessee should bring on record necessary details and evidences in support of the price paid by the assessee. The AO should also examine the reasonableness of such pricing and then pass necessary order - Ground allowed for statistical purposes. Disallowance of commission payment - CIT-A deleted the addition - HELD THAT - There is no finding of the CIT(A) that the documents and evidences required by the AO as noted by him in the assessment order were submitted before the AO or before CIT(A). In the absence of required details and documents regarding receipt of services from the agents it is not proper to delete the disallowance of commission payment. No such document was brought on record even by way of additional evidence and therefore on this issue we reverse the order of learned CIT(A) and restore that of the AO. - Decided in favour of revenue. Addition u/s 40A - CIT-A deleted the addition accepting additional evidence - HELD THAT - In view of these details available in the Paper Book filed by the assessee containing 103 pages it is seen that details are made available as per which it is made clear that all these payments are made by account payee cheques and as per the certificate given in the Paper Book all these documents were made available by the assessee before both AO and learned CIT(A) and therefore there is no violation of Rule 46A of the Income Tax Rules 1962 also as alleged by Revenue in ground of this appeal.

Summary

Issues Involved:

1. Disallowance of interest amounting to ?92,82,222.
2. Disallowance of expenses amounting to ?1,11,77,323.
3. Relief on commission paid in foreign currency.
4. Addition of ?1,51,67,569 on coffee purchases made in cash.

Detailed Analysis:

1. Disallowance of Interest Amounting to ?92,82,222:

The assessee contested the disallowance of interest, arguing that the interest was on loans borrowed for business purposes and not related to the purchase of coffee in the closing stock. The Tribunal considered the provisions of section 145A(a) of the Income Tax Act, 1961, which mandates that the valuation of inventory should include any tax, duty, cess, or fee incurred to bring the goods to their present location and condition. The Tribunal noted that there is no provision to include interest cost in the value of inventory. Citing the Tribunal order in the case of DLF Ltd., the Tribunal ruled in favor of the assessee, allowing ground Nos. 1 to 3.

2. Disallowance of Expenses Amounting to ?1,11,77,323:

The assessee challenged the disallowance made by the AO on the basis that notices sent to verify transactions were returned unserved, leading to the conclusion that the transactions were not genuine. The Tribunal suggested a quantitative reconciliation between the opening stock plus purchases and the closing stock plus sales. The Tribunal directed the AO to accept the quantity of purchases if the reconciliation showed no difference, and to disallow only the unexplained difference in quantity. The assessee was instructed to provide necessary details and evidence regarding pricing. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for a fresh decision, allowing ground Nos. 4 to 8 for statistical purposes.

3. Relief on Commission Paid in Foreign Currency:

The Revenue's appeal contested the CIT(A)'s decision to allow relief on the commission paid in foreign currency, arguing that the assessee failed to provide evidence of services rendered by the alleged payees. The Tribunal noted that the assessee did not furnish the required documents and evidence during the assessment proceedings or before the CIT(A). In the absence of such evidence, the Tribunal reversed the CIT(A)'s order and restored the AO's disallowance of commission payment, allowing ground No. 2 of the Revenue's appeal.

4. Addition of ?1,51,67,569 on Coffee Purchases Made in Cash:

The Revenue's appeal also challenged the deletion of the disallowance under section 40A(3) of the Act. The assessee provided a detailed chart and supporting documents, including invoices and bank statements, demonstrating that all payments were made by account payee cheques. The Tribunal found that the assessee had provided sufficient evidence to show compliance with section 40A(3) and that there was no violation of Rule 46A of the Income Tax Rules, 1962. The Tribunal upheld the CIT(A)'s order, rejecting ground Nos. 3 and 4 of the Revenue's appeal.

Conclusion:

The assessee's appeal was allowed in part, with the Tribunal ruling in favor of the assessee on the disallowance of interest and setting aside the disallowance of expenses for a fresh decision. The Revenue's appeal was partly allowed, with the Tribunal reversing the CIT(A)'s relief on the commission paid in foreign currency but upholding the CIT(A)'s decision on the coffee purchases made in cash.