2015 (7) TMI 292 - AT - Income Tax

Addition on account of under valuation of closing stock - CIT(A) deleted the addition - Held that - The assessee had valued the closing stock consistently on the sale method as followed during the year i.e. 50% fresh material and 50% inferior material. In past, similar additions were made by the Assessing Officer, which has been deleted by the Coordinate Bench in A.Y. 2008-09 and 2005-06. The assessee has maintained quantitative details and no specific defects has been pointed out by the ld Assessing Officer. The ld. DR has also not controverted the finding given by the ld CIT(A). Being identical issue decided by the Coordinate Bench in preceding year, we have no reason to intervene in the order of ld. CIT(A). Accordingly, we uphold the order of the ld. CIT(A). - Decided against revenue. Disallowance of commission and dalali expenses - CIT(A) deleted part addition - Held that - The assessee has filed complete name, address, PAN and TDS deducted on the commission and also explained the nature of service rendered by them. It also filed copy of account of the old commission old agent and new commission agent before the Assessing Officer. The assessee made payment through account payee cheque and recipients had been disclosed these commissions in their respective returns. The ld AR explained the discrepancy mentioned by the ld. Assessing Officer on service rendered and commission payment to 25 parties and particular invoice number mentioned in assessment order in case of commission paid to Uma Agarwal. The AR argued that during the year sale through the commission agent has increased and direct sale has been decreased. The Ld. Assessing Officer had not provided the facts and figure of comparable case i.e. Agarwal Marble Pvt. Ltd. to the assessee. The case laws relied by the assessee squarely applicable in the case of the appellant. However, the assessee could not furnish the confirmation in case of commission payment of ₹ 95,707/- to Mahesh Kumar and ₹ 1,66,133/- paid to Naresh Bhawani before the lower authorities as well as before us. The ld. CIT(A) confirmed the addition of ₹ 1 lac on estimated basis when commission payments are specified amount, the CIT(A) should have confirmed the whole commission payment of ₹ 2,61,840/-. Therefore, in absence of proper evidence with the assessee for claiming the expenditure as incurred wholly and exclusively for the business purposes, we confirm the addition of ₹ 2,61,840/-. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition on account of undervaluation of closing stock.
2. Restriction of addition on account of disallowance of commission and dalali.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Undervaluation of Closing Stock:
The primary issue in the revenue's appeal was the deletion of an addition of Rs. 2,11,29,247/- made by the Assessing Officer (A.O.) due to alleged undervaluation of closing stock. The A.O. observed that the assessee, engaged in the manufacturing and trading of marble, slabs, and blocks, did not maintain identification for defective goods, which was not reflected in the sales bill or transfer details. The A.O. recalculated the closing stock based on extraction expenses, average purchase rates, etc., and made the addition.

Upon appeal, the CIT(A) noted that in previous assessment years (2008-09 and 2005-06), the assessee's method of valuing closing stock (50% as fresh and 50% as inferior stock) had been consistently followed and accepted. The CIT(A) referenced the ITAT's order which upheld this valuation method, emphasizing that the A.O. could not change the method without specific defects. The CIT(A) observed no material changes in the current year and found the A.O.'s valuation method (FIFO) inappropriate for the marble business due to its peculiar nature. The CIT(A) deleted the addition, relying on multiple case laws supporting the assessee's consistent accounting practices.

The ITAT upheld the CIT(A)'s decision, noting that the assessee maintained quantitative details and no specific defects were pointed out by the A.O. The ITAT found no reason to intervene, thus confirming the deletion of the addition.

2. Restriction of Addition on Account of Disallowance of Commission and Dalali:
The second issue involved the restriction of an addition from Rs. 43,36,130/- to Rs. 1,00,000/- made by the A.O. for disallowance of commission and dalali expenses. The A.O. disallowed the amount, alleging inflated or bogus expenses, and noted discrepancies such as non-mention of commission on certain invoices and payments to relatives under Section 40A(2)(b).

The CIT(A) observed that the assessee provided detailed confirmations, PANs, and TDS details for the commission payments. The CIT(A) found no material evidence from the A.O. to substantiate the allegations and restricted the addition to Rs. 1,00,000/- based on judicial precedents.

The ITAT reviewed the submissions and evidence, including confirmations and explanations for discrepancies. However, it noted that the assessee could not furnish confirmations for payments to Mahesh Kumar and Naresh Bhawani. Consequently, the ITAT confirmed the addition of Rs. 2,61,840/- for these specific payments, modifying the CIT(A)'s restriction.

Conclusion:
The ITAT upheld the CIT(A)'s deletion of the addition for undervaluation of closing stock, affirming the consistent valuation method used by the assessee. For the commission and dalali disallowance, the ITAT modified the CIT(A)'s restriction, confirming an addition of Rs. 2,61,840/- due to lack of proper evidence for specific payments. The revenue's appeal was partly allowed, and the assessee's cross-objection was dismissed.