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TMI Blog2017 (3) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... n rejecting the books of accounts cannot be sustained. In light of above, the trading addition of ₹ 13,09,166/- as upheld by the Ld. CIT(A) on account of rejection of books of accounts is hereby deleted. In the result, ground no.1 of the assessee is allowed. Addition u/s 40(a)(ia) - Held that:- We hereby delete the disallowance under section 40(a)(ia) as no amount remained payable as on 31st March. In the result, the ground no. 2 of assessee is allowed. Interest free advances to two family members with whom the assessee did not have any business connection - Held that:- We have gone through the order of Ld. CIT(A) who has held that the assessee has given interest free advances to two family members with whom the assessee did not have any business connection. The assessee has not been able to controvert the said findings of the ld CIT(A). In light of above, the test of commercial expediency having not been satisfied, we confirm the order of Ld. CIT(A). In the result, ground taken by the assessee is dismissed. - ITA No. 276/JP/2015 - - - Dated:- 17-3-2017 - SHRI KUL BHARAT, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee: Shri G.L. Gupta (C.A.) For The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of closing stock is not correct since a large part of the closing stock has been valued as sub standard stock at prices below the cost price. The appellant stated that this part of the stock had been rejected and therefore, the assessee expected to sell it at a lower price. The appellant has stated that this stock was sold at a lower price in the next year. Out of the bills submitted by the appellant, I only find two bills of sale of sub standard stock. Also, the appellant has not given any details of the customer who had rejected the stock. The Assessing Officer has also stated that the stock of aluminum and DPC wire is under valued. The appellant has given a valuation chart for the above stock on FIFO basis. As per this valuation chart, the value of closing stock is close to the value of this valuation but not equal to this valuation, as should be the case. (b) The Assessing Officer has observed that the assessee has sold goods to two entities viz M/s. Keshav Electrical Pvt. Ltd. M/s. Rajasthan Transforms Switchgears at prices lower than the material cost. The Assessing Officer has also cited such instances in the assessment order. The appellant has not dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has not been able to fully explain the defects pointed out by the Assessing Officer. In view of the above discussion, the G.P. rate is estimated at 6% of the turnover of ₹ 10,48,03,179/-. The trading addition made by the Assessing Officer is restricted accordingly, to ₹ 13,09,166/- (= 6% of ₹ 10,48,03,179 ₹ 49,79,025). The balance addition is directed to be deleted. This ground is partly allowed. 3. In this regard, the Ld. AR has submitted that some material was manufactured on the demand of a customer at specific size and chemical composition but due to technical defect the material was rejected during inspection and the party denied to purchase. As the material was for a specific size and not for normal use, the assessee had to sell the same at lower rate and therefore, the valuation was made at expected selling rate. We are submitting herewith the chart of sale of sub-standard material vis-a-vis normal material during the F.Y. 2011-12 (A.Y. 2012-13): Normal Goods Bill No. Date Rate 37 11.05.2011 488 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h shows that copper wire rates were fluctuated between ₹ 337 per Kg. to ₹ 495/- per Kg. during the year. 5.2 Further, as per practice adopted by Vedanta (Sterlite Industries Ltd.) the supplies were made during the month as per provisional rates and final rates were decided at the end of the month for supplies made. We had enclosed copy of rates structure of July 2010 determined by Sterlite Industries Ltd. as example. 5.3 Due to fluctuation in copper rate and price fixation system adopted by suppliers, the assessee had to sale the goods at part in April 2010 and June 2010 and in other months at very low margin without recovering the manufacturing expenses which proves the above facts, we are enclosing herewith copy of purchase and sales register in support our submission. 6. It was further submitted that as regards the sales made to M/s Keshav Electricals (P) Ltd., the assessee had sold the goods amounting to ₹ 203.32 Lacs during the year under consideration. The sales were made at the rates to be decided on the basis of Vedanta/sterlite industries. The difference in prices charged/by issuing debit note to party. The assessee issued debit note on the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and sales are from registered dealers of VAT/CST and fully vouched. We are enclosing herewith copy of account of Pashupati Enterprises who is authorized dealer of Hindustan Copper Ltd. From whom purchases have been made ₹ 716.57 Lacs out of total purchases of ₹ 1009.89 Lacs. 7.2 The assessee is also Registered under VAT/CST Act, and is being regularly assessed by CTO circle Jaipur. We have already submitted the assessment order of VAT/CST act which shows the turnover(sales) of ₹ 103260960/- and is being again enclosed for ready reference. We have already explained the reasons of differences in sales of ₹ 32384/- in our letter dt. 14.10.2013. 7.3 The assessee is registered under Excise Act since long. All the records have been maintained and are being maintained regularly which have been checked by Excise authorities during their visit at factory. All the returns and audit have been conducted by Excise authorities and no discrepancy was noticed. 7.4 The assessee s product is Excisable commodity and excise is based on sale value and any undervaluation of sales directly affects the revenue of excise department, which excise authority would neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent chartered accountant. The assessing officer has not pointed out any discrepancy in the accounting of purchase/sale, has not pointed out any unrecorded transaction, has not pointed out any transaction which could not be verified from supporting documents. In absence of above, the accounts are correct and complete and assessing officer s action of applicability of section 145(3) is arbitrary and is bad in law. 7.11 As regards, valuation of stock, the Income Tax Act and Income Tax Rules does not prescribe any particular method of valuation of stock. The assessee may value its stock either at cost price or at market price whichever is lower. In this case also, the assessee has valued the stock of copper wire in two parts:- (a) Normal Stock: At cost Price. ITO has accepted the valuation and raised no objection. (b) Sub-standard Stock: At Realizable value for which the assessee has submitted the proof of actual realization in F.Y. 2011-12 (A.Y. 2012-13). 7.12 Assessment for ensuing years have also been completed u/s 143(3) and declared results were accepted as under:- A.Y. 2013-14 Sales/Job Work 82121707/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate per Kg. 170 18.07.2010 1087.300 355 171 19.07.2010 1143.200 355 Sales to others Name of Party B. No. Date Qty. Rate per Kg. Neelu Metals 11 13.04.2010 86.165 408 Maheshwari Electros (P) Ltd. 14 14.04.2010 199.745 422 Kalpana Industries 21 19.04.2010 10.940 415 Shri Balaji Enterprises 31 24.04.2010 190.755 418 Rajasthan Transformer Electricals 37 29.04.2010 235.330 418 Anupam Udyog 46 01.05.2010 321.740 403 Tantia Transformer El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign principals would not render the accounts of the assessee incomplete and would not give justification to the AO to reject them under s. 145(3) of the Act. Similarly, the explanation given by the assessee for the tour expenses not reconciling with tour itinerary having been accepted, both by CIT(A) as well as by the Tribunal, the accounts of the assessee cannot be said to be defective on this ground and, therefore, could not have been rejected. If any particular expense claimed by the assessee remained unverified, the AO could have disallowed that particular expense. But, that by itself cannot be a ground for rejection of accounts as a whole under s. 145(3) of the Act. The finding of fact recorded by the Tribunal has not been shown to be perverse, and hence cannot be interfered with by this court . From the above, your goodself will find that assessing officer s action is not based on facts and circumstances of the case. Further, enhancement of sales and estimation of G.P. rate is based on assumption, without any basis and therefore deserves to be deleted. 8. The ld DR is heard who has relied upon the order of the lower authorities. 9. We have heard the rival conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, it is noted that the assessee is in the same line of business over the years and is following the same method of accounting in respect of valuation of its stock as well as accounting for purchase and sales and its books of accounts have all along been accepted by the Revenue for the previous and the subsequent years. In light of above, we do not see a justifiable reason for rejection of books of accounts as maintained by the assessee. Hence, the action of the Ld. Assessing Officer in rejecting the books of accounts cannot be sustained. In light of above, the trading addition of ₹ 13,09,166/- as upheld by the Ld. CIT(A) on account of rejection of books of accounts is hereby deleted. In the result, ground no.1 of the assessee is allowed. 10. Regarding ground no. 2, briefly the facts of the case are that the assessee has paid interest amounting to ₹ 4,98,414/- to M/s. Reliance Capital Ltd. without deducting tax at source, as required by the provisions of section 194A. The appellant has relied upon the proviso to section 201 and 40(a)(ia). As per ld CIT(A), the second proviso to Sec 40(a)(ia) has been introduced by the Finance Act, 2012 and is effective from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the F.Y. 2010-11 i.e. as on 31.03.2011. We are enclosing herewith copy of account of Reliance Capital Ltd. which proves that payment has been made in monthly instalments during the financial year 2010-11 (A.Y. 2011-12) and no amount is payable as at the end of the year. 14. A similar issue has been dealt recently by the Coordinate Bench in Jaipur in case of Siyaram Export India (P) Ltd. vs. Addl. CIT, Range-6, Jaipur ITA No. 501/JP/14 dated 26/07/2016 wherein the issue around disallowance u/s 40a(ia) has been discussed in light of Special Bench decision in case of M/s Merilyn Shipping Transport and the conflicting decisions of various High Courts. The operative part of the decision is as under: 2.5 In the context of factual matrix and above legal developments, firstly, it would be relevant to refer to the decision of the Hon ble Andhra Pradesh High Court in case of Janapriya Engineers Syndicate (I.T.T.A No 352 of 2014 vide its order dated 24.06.2014) wherein the appeal for statistical purpose was admitted on the following substantial question of law: Whether the ld. Tribunal was justified in law on the facts and circumstances of this case in passing order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Considering the facts of the case and the clarification issued by the Hon ble Andhra Pradesh High court on 24.06. 2014 in the case of Janapriya Engineers Syndicate, we decide the effective ground of appeal in favour of the assessee and confirmed the order of the FAA. 2.7 In light of decision of Hon ble Andhra Pradesh High Court in case of Janapriya Engineers Syndicate (supra), it is thus clear that the decision of the Special Bench of the Tribunal in case of M/s Merilyn Shipping Transport (supra) continues to bind the Coordinate Benches till the time the same is not overruled by the Hon ble High Court. 2.8 Further, it is noted that the special Bench decision in case of M/s Merilyn Shipping Transport (supra) has been approved and referred by the Allahabad High Court in case of Vector Shipping Services (P) Ltd. At the same time, there are decisions of Calcutta High Court in case of Crescent Exports Syndicate and Gujarat High Court in case of Sikandarkhan N Tanvar where the High Courts have disagreed with the view of the Special Bench in case of M/s Merilyn Shipping Transport (supra). It is thus evident that the view of the Allahabad High Court and other two High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Smt. Sneh Lata Jain Opening Balance 3216365/- Paid during the year 04.10.2010 1000000/- 4216365/- Received back 1552600/- Closing Balance 2663765/- 2. Yash Doshi Opening Balance 319366/- Paid during the year 10.04.2010 75000/- Paid during the year 26.07.2010 500000/- 894366/- Received back 1900000/- Closing Balance 704366/- 18. It was submitted that during normal course of business, looking to the situation and relations with each other, amount was paid/received without interest for mee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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