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2022 (9) TMI 1245 - AT - Income TaxRejection of books of accounts - estimation of gross profit - HELD THAT - CIT(A) noted that there is force in the arguments of the assessee that there is no fall in the GP of the post survey period. Assessee has shown overall GP of 17.14% as per tax audit report during the year under consideration and even otherwise, if the GP re-worked by the Assessing Officer is considered after adding the disclosure income which is business income in nature, and the GP ratio shall be Rs. 14.23% and the same is reasonable and in lines with average GP of succeeding years. Hence, ld CIT(A) considering these facts deleted the addition of Rs.3,51,57,284/- on account of low gross profit. We do not find any error in the above conclusion reached by ld CIT(A), hence we concur with findings of ld CIT(A) and dismiss the ground raised by the Revenue. Under valuation of excess stock found during the course of survey - HELD THAT - CIT(A) observed that survey team has made a detailed working of valuation quality wise which was confronted to the assessee and on the basis of such efforts by the survey team, the declaration could be made. AO cannot be expected to brush aside the valuation done by survey team to enhance the valuation without pointing out any defect in the valuation done by survey team. CIT(A) held that there is force in the argument of the assessee that the issue of valuation is revenue neutral in as much the value of closing stock on the date of survey becomes the opening stock of the post survey period and the same is captured either in Sales with profit margin or in closing stock at same value and hence there is no effect on the profit and loss account per se - CIT(A) deleted the addition correctly - dismiss the ground raised by the Revenue. Addition on account of under valuation of chemical stock - HELD THAT - AO cannot dictate the assessee to follow a particular method of valuation of closing stock without citing any cogent reason to do so. The assessee is consistently following the method of valuation in subsequent years also and the closing stock of colour and chemicals shall become the opening stock of the next year and hence there is no incentive for the assessee to choose a particular method. Hence, based on this factual position, ld CIT(A) deleted the addition - We note that ld CIT(A) has passed a reasoned and speaking order therefore we do not find any infirmity in the conclusion reached by him, hence we confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. Addition on account of unaccounted purchase - CIT-A deleted the addition - HELD THAT - CIT(A) observed that there is no mismatch as worked out by the AOr. AO has also not given any other evidence which proves that assessee has made any unaccounted purchases - CIT(A) deleted the addition Correctly. Based on the factual position stated above, we confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. Unexplained cash credit - CIT-A deleted the addition - HELD THAT - Unsecured loans from all the lenders as cash credit based on wrong appreciation of facts and law, hence ld CIT(A) has rightly deleted the addition - We confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. Nature of expenses - repair and maintenance of building - Unexplained capital expenditure - HELD THAT - We note that assessee submitted various vouchers and bills relating to bajri, retti and cement expenses and we note that these expenses are incurred by the assessee for the purpose of current repairs and maintenance, hence such expenditure does not fall in the domain of capital expenditure, therefore we direct the Assessing Officer to treat it as revenue expenditure. Addition on account of late payment of PF and ESIC - HELD THAT - We are of the view that the issue may be remitted back to the file of the Ld. CIT(A) to decide the matter after taking into account the judgment of the Hon'ble Supreme Court as and when will be passed by the Hon'ble Supreme Court. Therefore, this appeal at this stage is dismissed. However, if the Supreme Court reverses the judgment in the case of the Hon ble Gujarat High Court in the case of CIT vs. GSRTC 2014 (1) TMI 502 - GUJARAT HIGH COURT it would be open for the assessees to revive this appeal by filing an application for such purpose within three months from the date of the judgment.
Issues Involved:
1. Deletion of addition on account of estimation of gross profit. 2. Deletion of addition on account of under-valuation of excess stock found during the survey. 3. Deletion of addition on account of under-valuation of chemical stock. 4. Deletion of addition on account of unaccounted purchase. 5. Deletion of addition on account of unexplained cash credit. 6. Sustaining the addition of unaccounted investment in finished stock. 7. Sustaining the addition of unexplained capital expenditure. 8. Sustaining the addition of late payment of PF and ESIC. Detailed Analysis: Issue 1: Deletion of Addition on Account of Estimation of Gross Profit The Assessing Officer (AO) rejected the books of accounts under section 145(3) of the Income Tax Act, 1961, due to discrepancies in gross profit (G.P.) ratios and added Rs. 3,51,57,284/- based on the difference in G.P. ratios between the current and previous years. The CIT(A) deleted this addition, noting that the AO's comparison was flawed due to significant changes in business operations, including a 300% increase in turnover and the first full year of manufacturing activities. The CIT(A) also highlighted that the AO did not point out any specific defects in the books of accounts. Various judicial precedents were cited to support that a mere decline in G.P. ratio does not justify the rejection of books of accounts. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's rejection of the books was not supported by substantial evidence. Issue 2: Deletion of Addition on Account of Under-Valuation of Excess Stock Found During the Survey The AO observed a discrepancy in the valuation of stock per meter at different premises and added Rs. 26,94,870/- based on a higher valuation rate. The CIT(A) deleted this addition, noting that the valuation done by the survey team was detailed and should not be disregarded without pointing out specific defects. The Tribunal agreed with the CIT(A), emphasizing that the valuation discrepancy was revenue-neutral as the value of closing stock becomes the opening stock of the subsequent period. Issue 3: Deletion of Addition on Account of Under-Valuation of Chemical Stock The AO added Rs. 24,63,328/- based on the difference between the FIFO method and the weighted average method (WAM) used by the assessee for valuing closing stock. The CIT(A) deleted this addition, noting that WAM is a recognized method under AS-2 issued by ICAI, and the AO did not provide a cogent reason for insisting on FIFO. The Tribunal upheld the CIT(A)'s decision, emphasizing the consistency in the method of valuation used by the assessee. Issue 4: Deletion of Addition on Account of Unaccounted Purchase The AO added Rs. 22,05,138/- based on a discrepancy in the purchase quantity reported in the audit report and the purchase register. The CIT(A) deleted this addition, noting that the discrepancy was due to purchase returns, which were not accounted for separately in the audit report. The Tribunal upheld the CIT(A)'s decision, confirming that there was no mismatch in the purchase records. Issue 5: Deletion of Addition on Account of Unexplained Cash Credit The AO added Rs. 8,88,000/- as unexplained cash credit, citing the lack of proof for the creditworthiness and genuineness of the lenders. The CIT(A) deleted this addition, noting that the assessee provided sufficient documentation, including account confirmations, bank statements, and tax returns of the lenders. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not conduct any independent inquiry to disprove the assessee's claims. Issue 6: Sustaining the Addition of Unaccounted Investment in Finished Stock The assessee did not press this ground during the hearing, and it was dismissed as not pressed. Issue 7: Sustaining the Addition of Unexplained Capital Expenditure The AO treated Rs. 2,85,174/- incurred for repair and maintenance of the building as capital expenditure. The CIT(A) confirmed this decision. However, the Tribunal directed the AO to treat these expenses as revenue expenditure, noting that they were incurred for current repairs and maintenance. Issue 8: Sustaining the Addition of Late Payment of PF and ESIC The Tribunal noted that the issue of late payment of PF and ESIC is covered by the judgment of the Gujarat High Court in the case of GSRTC, which disallows such claims. However, since the SLP against this judgment is pending before the Supreme Court, the Tribunal remitted the issue back to the CIT(A) to decide based on the Supreme Court's decision. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, remitting the issue of late payment of PF and ESIC back to the CIT(A) and directing the AO to treat the repair and maintenance expenses as revenue expenditure.
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