2020 (4) TMI 25 - AT - Income Tax

Disallowance of transportation charges - assessee has not furnished all supporting evidence - entity of the parties as well as the genuineness of the transactions was not established - notices u/s 133(6) were not served upon the parties - assessee was engaged in the business of trading of mines and minerals - HELD THAT - In the business of trading of mines and minerals it incurred a high volume of transportation charges. Sometimes the assessee hired local transport for the transportation of goods. The ld. Counsel submitted that in the year under consideration the assessee incurred transportation charges amounting to ₹ 5,76,26,254/-, out of which it paid ₹ 8,82,059/- to M/s Shakti Transport during the F.Y. 2009-10. The assessee received bill and invoices from Shakti Transport and thereafter made the payment through account payee cheque. The ld. Counsel submitted that during the assessment stage the party called M/s Shakti Transport did not cooperate with the assessee,therefore, the assessee could not produce the said party before the ld. Assessing Officer, but assessee submitted the bill, ledger and relevant bank statement for the payment made. We note that there is merit in the submission of the ld. Counsel as the assessee produced bills, ledger copy, bank statement (transaction done through banking channel) to prove the bona fide of the transaction, therefore, we delete addition. Addition of share application money u/s 68 - HELD THAT - The company duly filed Form No.2 with the Registrars of Companies for the aforesaid shares issued. The quantity and value in respect of share application money has been properly accounted for in the books of accounts of the company and explained properly to the Assessing Officer. Further, the Ld AO added the share application money as unexplained cash credit as per section 68 of the Income Tax Act 1961 whereas the assessee is a company (not being a company in which the public are substantially interested), and shares were issued to the existing Directors/shareholders therefore identity of the share subscribers are not in doubt. The Assessing Officer made addition on the ground that quantity and value in respect of share application money is not matching. We note that assessee filed reconciliation and submission as noted above and there is no mismatching. Hence, we delete the addition. Undervaluation of closing stock - HELD THAT - total value of closing stock is ₹ 29,80,494/- of which ₹ 4,93,533/- comprises of Non iron Ore Fines Products and ₹ 24,86,961/- comprises of Iron Ore Fines Products. The said value includes cost of purchase, freight inwards and loading and unloading charges. The aforesaid method of valuation of closing stock is as per Accounting Standard-2 and the assessee has been applying the same method regularly. We note that the Assessing Officer allowed such valuation in all previous assessment years, therefore, based on the principal of consistency the assessee s claim should be allowed in this year also. As the assessee was applying the method of valuation of closing stock as per Accounting Standard-2 on a regular basis without any deviation, the addition sustained by ld. CIT(A) on account of undervaluation is directed to be deleted. - Assessee appeal allowed.

Issues Involved:
1. Disallowance of transportation charges amounting to ?8,82,059.
2. Addition of share application money of ?15,37,400.
3. Partial addition of ?12,22,515 on account of undervaluation of closing stock.

Detailed Analysis:

1. Disallowance of Transportation Charges:
The Assessing Officer (AO) made an addition of ?8,82,059 on account of transportation charges claimed by the assessee, as notices issued to two transporters were returned unserved, leading to doubts about the identity and genuineness of the transactions. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, noting that the assessee failed to substantiate the transactions with supporting evidence during appellate proceedings.

Upon appeal, the assessee argued that all necessary documents, including bills, ledgers, and bank statements, were provided to prove the legitimacy of the transactions. The Tribunal noted that the assessee had incurred substantial transportation charges in the business of trading mines and minerals and had paid ?8,82,059 to M/s Shakti Transport via account payee cheque, supported by bills and bank statements. The Tribunal found merit in the assessee's submissions and deleted the addition of ?8,82,059.

2. Addition of Share Application Money:
The AO added ?15,37,400 as unexplained cash credit under Section 68 of the Income Tax Act, citing the assessee's failure to establish the identity of share subscribers. The CIT(A) confirmed this addition, highlighting discrepancies in the quantity and value of share application money and the lack of supporting evidence to establish the identity and creditworthiness of the share applicants.

The Tribunal observed that the assessee had raised share capital and securities premium during the financial year and had duly filed Form No.2 with the Registrar of Companies for the shares issued. The Tribunal noted that the assessee provided reconciliation and submissions to address the AO's concerns about mismatching quantities and values. Given that the shares were issued to existing directors/shareholders, the Tribunal concluded that the identity of the share subscribers was not in doubt and deleted the addition of ?15,37,400.

3. Partial Addition on Account of Undervaluation of Closing Stock:
The AO made an addition of ?18,08,689 due to undervaluation of closing stock, asserting that the assessee had not correctly valued the stock of iron ore fines and had not included incidental costs. The CIT(A) partly upheld the AO's addition but reduced it to ?12,22,515 by estimating the rate at ?750 per MT instead of ?950 per MT as adopted by the AO.

The Tribunal noted that the assessee had valued the closing stock in accordance with Accounting Standard-2, which includes all costs of purchase, conversion, and other costs incurred in bringing the inventories to their present location and condition. The Tribunal highlighted that the assessee had consistently applied this method in previous years, and the AO had accepted it. Based on the principle of consistency, the Tribunal directed the deletion of the addition of ?12,22,515 sustained by the CIT(A).

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions of ?8,82,059 for transportation charges, ?15,37,400 for share application money, and ?12,22,515 for undervaluation of closing stock.

Order Pronounced:
The order was pronounced in the Court on 26.02.2020.

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