9911796707
TMI Blog2013 (9) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsequent years also requires to be considered. The Assessing Officer in the assessment order accepts the fact that the method of accounting followed by the assessee is not questioned. The Commissioner of Income-tax (Appeals) has also not given any basis for estimating the undervaluation of closing stock at Rs.45 lakhs. There is nothing in the order of the Commissioner of Income tax (Appeals) to suggest why he has adopted the figure of Rs. 45 lakhs. The assessee however is required to substantiate with supporting evidence, which are the stocks lying with it, which are not considered for the purposes of valuation, and the reason for doing so. The assessee also had to explain the specific instances pointed out by the Commissioner of Income tax (Appeals), where the assessee has taken into consideration lesser number of books for valuation of closing stock from the current year's printing, when the assessee himself has adopted a formula, as per which the current year's printing is valued at 75 percent of the cost. The assessee is also required to reconcile the discrepancy between the number of copies considered for arriving at the closing stock figure of Rs. 4,23,61,003 as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has failed to bring any material on record to prove that the non-whole time directors have rendered any services which resulted in the improvement of business of the assessee, opined that the commission paid as a percentage of net profit is nothing but distribution of profit. The Assessing Officer holding that there being no material to show that the commission payment was wholly and exclusively for the purposes of business, disallowed the same, and added it to the income of the assessee. The assessee challenged the addition by filing appeal before the Commissioner of Income-tax (Appeals). Before the Commissioner of Income tax (Appeals), the assessee contended that the term "salary" under the Income-tax Act as well as the Companies Act includes commission. The payment of commission having been worked out as per the provisions of the Companies Act, 1956 and is authorised by the board and approved by the members cannot be disallowed. The assessee contended that the board of directors take crucial decisions collectively and are collectively responsible for the growth of the company, and therefore, it is not for the Assessing Officer to evaluate their services for the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me director. The assessee has not produced any evidence before the lower authorities, to show that the commission was paid for rendering any service, which resulted in enhancing the profitability of the company. The learned authorised representative for the assessee apart from submitting that commission was paid as per the collective decision of the board, and in terms with the provisions of the Companies Act, 1956, has not produced any evidence to prove that the non-whole time directors have rendered any service, for which commission was paid. Payment of commission cannot be allowed as expenditure simply because, it is approved by the board and it is in accordance with the provisions of the Companies Act, 1956. An expenditure which falls within the ambit of section 37 of the Act can be allowed, if it is incurred wholly and exclusively for the purpose of business. In the present case, the assessee has failed to prove that the expenditure incurred was wholly and exclusively for the purpose of business. In the aforesaid view of the matter, we are not inclined to interfere with the view taken by the lower authorities, which is accordingly sustained, and the grounds of the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation of the assessee. As the assessee did not furnish the details with the titles, which were considered by the assessee as redundant and as to how they were valued. The Assessing Officer was of the view that the valuation done by the assessee is purely provisional and based on contingent event like anticipating competition from competitors, change in syllabi, political uncertainty, etc. the realisable value has been arrived at by the assessee, by heavily banking on the uncertain contingent event in general term. The Assessing Officer came to a conclusion that the closing stock has been valued at a lesser value proceeded, to make a fresh valuation of the closing stock by adopting his own method, as below "1. Opening stock valued at 4.28 is considered as still lying with him comprising major portion of closing stock. 2. The remaining closing stock is out of current year s production and is valued at cost. (Rs.) Books produced during the year 81,42,926 Sales during the year 65,95,709 Current year books included in the closing stock 15,47,217 Value at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd includes/pertains to the stock printed over two years but less than three years, the stock pertaining to over two years will be valued at 15 percent of the previous year's printing. (4) In addition, proportionate direct expenses pertaining to the full salaries of our production personnel and fifty percent of the salaries of our editorial personnel are taken into account while arriving at the valuation of our stock." It was submitted by the assessee that a rider to the formula adopted for valuation of stock is that the stock quantity of each title is restricted to sales quantity for that title in the year. If, in case of a particular title, the stock quantity is more than the year sales quantity, then the stock quantity of that title is restricted to the sales quantity of that title in the year. In support of the contention, the assessee submitted before the Commissioner of Income-tax (Appeals) a consolidated stock valuation statement as on March 31, 2005. The Commissioner of Income-tax (Appeals) after considering the submission of the assessee and examining the materials on record found that the assessee has advanced an altogether different argument before him, while clarify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) held that the valuation of closing stock made by the assessee cannot be accepted, and to arrive at the value of the closing stock, estimation has to be made. The Commissioner of Income-tax (Appeals) further did not consider the method adopted by the Assessing Officer to value the closing stock to be proper, since the Assessing Officer has presumed that the opening stock of goods, are still lying with the assessee and the remaining closing stock alone is out of the current year's production. The Commissioner of Income-tax (Appeals) also held that the Assessing Officer was not justified in adopting the average price of Rs. 4.28 in respect of opening stock and average price of Rs. 6.13 in respect of the closing stock when the stock with the assessee comprises of titles having different prices. The Commissioner of Income-tax (Appeals) finally estimated the undervaluation of closing stock at Rs. 45 lakhs, and directed the Assessing Officer to restrict the addition made by him on this account to this figure. Aggrieved by the relief granted by the Commissioner of Income-tax (Appeals), the Revenue raised grounds on this issue in its appeal, whereas the assessee is in appeal not sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to more than two years back is valued at 15 percent of the cost. The assessee has prescribed further rider that stock quantity of different titles is restricted to sale quantity of that title in the year. It is also a fact that before the Assessing Officer, the assessee has stated the valuation of 63,28,674 copies at Rs. 4,23,61,003, whereas in the consolidated stock statement, the assessee has shown 26,18,572 copies for valuation of closing stock at the same figure of Rs. 4,23,61,003. The Commissioner of Income-tax (Appeals) has also referred to specific instances of titles, which though were printed during the current year, while valuing the closing stock, the assessee has taken lesser number of books than what is actually available in stock. In the case of the title "A Magic Place Teacher's Book", though the entire stock was printed during the current previous year, while valuing the closing stock, the assessee has not considered even a single piece. This is in contradiction to the formula devised by the assessee himself for the valuation of closing stock. The aforesaid facts cast a doubt on the valuation of closing stock made by the assessee. Further, the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax (Appeals), as noted above, and in accordance with law. In the result, the assessee's appeal is partly allowed for statistical purposes. The Revenue's appeal I. T. A. No. 595/Hyd/2009 The only grievance of the Revenue in this appeal, as already noted above, relates to the relief granted by the Commissioner of Income-tax (Appeals) in the matter of the addition made by the Assessing Officer on account of the valuation of closing stock. In view of our decision on this very issue while dealing with the grounds of the assessee in relation to this very issue, whereby we have set aside the issue to the file of the Assessing Officer for fresh adjudication in accordance with law, after giving a reasonable opportunity of hearing to the assessee, the grounds of the Revenue in this appeal need no separate adjudication, and they are also treated as allowed for statistical purposes. In the result, the Revenue's appeal is allowed for statistical purposes. To sum up, while the assessee's appeal, I. T. A. No. 529/Hyd/2009, is partly allowed for statistical purposes, the Revenue's appeal, I. T. A. No.595/Hyd/2009, is allowed for statistical purposes. The ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
