2016 (1) TMI 408 - AT - Income Tax

Addition made towards difference in valuation of closing stock - Held that - The method of valuation of closing stock adopted by the Learned AO in this assessment year should be adopted for valuation of opening stock for the assessment year under appeal. Hence we deem it fit and appropriate to set aside this issue to the file of the Learned AO to follow the aforesaid direction in respect of valuation of opening and closing stock of goods. - Decided in favour of assessee for statistical purposes. Addition made towards cash found during the course of survey - Held that - AO had not rejected the books of accounts produced by the assessee. The cash was found and the business was allowed to be continued by the survey team. Hence there could be a situation that certain business receipts and payments could not have been properly entered on the day of survey itself. However, the cash book has been prepared and final balance sheet is prepared later on and presented before the Learned AO which are not rejected by the Learned AO. Hence in these facts and circumstances , we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned AO to decide this issue afresh in accordance with law. The assessee is at liberty to file additional evidences and documents to explain the cash found during the course of survey with reference to its cash book of various divisions before the Learned AO. - Decided in favour of assessee for statistical purposes. Applicability of provisions of sec.40(ia) - whether applicable only to amounts of expenditure which are payable as on 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during previous year without deduction of TDS as held by CIT(A) - Held that - We find that the provisions of section 40(a)(ia) of the Act have been held to be applicable even for amounts paid before the end of the previous year by the decision of the Jurisdictional High Court in the case of CIT vs Crescent Export Syndicate (2013 (5) TMI 510 - CALCUTTA HIGH COURT ). Accordingly the ground raised by the revenue stands allowed. However, the alternative argument of the Learned AR that the second proviso to section 40(a)(ia) inserted with effect from 1.4.2013 in the statute wherein if the payee has included the relevant receipts in his books and filed returns thereon, then the assessee should not be invited with disallowance u/s 40(a)(ia) of the Act contains lot of force. This amendment has been held to retrospective in nature by the decision of the Hon ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd reported in (2015 (9) TMI 79 - DELHI HIGH COURT ) - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Addition towards difference in valuation of closing stock.
2. Addition towards cash found during the course of survey.
3. Applicability of provisions of section 40(a)(ia) for amounts paid before the end of the previous year without deduction of TDS.

Issue-wise Detailed Analysis:

1. Addition towards difference in valuation of closing stock:

The primary issue was whether an addition of Rs. 2,27,246/- towards the difference in valuation of closing stock was justified. The assessee, a partnership firm engaged in various trades, had consistently valued its closing stock at the lower of cost or market price without including direct expenses. The Assessing Officer (AO) included direct expenses in the valuation, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the method of valuation had been consistent and that the AO's assertion of agreement to disallowances was erroneous. The Tribunal agreed with the assessee, stating that the valuation method should include direct expenses but must be consistent for both opening and closing stock to reflect true profits. The case was set aside to the AO to ensure the valuation method was applied consistently, referencing the Bombay High Court decision in CIT vs. Mahalaxmi Glass Works (P) Ltd.

2. Addition towards cash found during the course of survey:

The second issue was regarding an addition of Rs. 7,82,442/- towards cash found during a survey. The assessee could not reconcile the cash found with its books during the assessment, leading to an addition under section 68 of the Act. The CIT(A) upheld this addition. The assessee contended that the cash was business receipts and the business continued during the survey. The Tribunal found that section 68 was incorrectly invoked and noted that the AO did not reject the books of accounts. It was plausible that the cash found was not fully recorded due to ongoing business activities. The issue was remanded to the AO for a fresh decision, allowing the assessee to submit additional evidence.

3. Applicability of provisions of section 40(a)(ia):

The revenue's appeal concerned the applicability of section 40(a)(ia) for amounts paid before the year-end without TDS deduction. The CIT(A) had ruled that section 40(a)(ia) applied only to amounts payable as of March 31. However, the Tribunal referenced the Jurisdictional High Court's decision in CIT vs. Crescent Export Syndicate, which held that section 40(a)(ia) applies to amounts paid during the year as well. The Tribunal also considered the second proviso to section 40(a)(ia), which states that if the payee has included the receipts in their books and filed returns, the disallowance should not apply. This proviso was deemed retrospective by the Delhi High Court in CIT vs. Ansal Land Mark Township (P) Ltd. The issue was remanded to the AO to apply this retrospective proviso, ensuring the assessee received a fair hearing.

Conclusion:

The appeals were allowed for statistical purposes, with directions for the AO to re-evaluate the issues based on the Tribunal's findings and relevant High Court decisions. The Tribunal emphasized the need for consistent application of valuation methods and proper consideration of retrospective provisions in tax laws.