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TMI Blog2018 (9) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to balance sheet of assessee for year under consideration, assessee had sufficient funds of its own, and therefore presumption by Ld.AO without any supportive documents/evidences is unacceptable. Referring ratio held by Hon’ble Supreme Court in case of Hero Cycles Pvt.Ltd Vs.CIT [2015 (11) TMI 1314 - SUPREME COURT OF INDIA], we do not find any infirmity in the decision of Ld. CIT (A). However at this juncture we direct Ld.AO to allow the netting of interest. Accordingly, this ground raised by revenue stands dismissed. Disallowance on account of under valuation of closing stock - Held that:- CIT(A) categorically observed mistake in valuation of closing stock adopted by AO by using FIFO method. It is observed that Ld.AO has not granted adjustment of opening stock and slow moving items, which has been held to be unjustified by plethora of decisions. On the basis of the above detailed observations by Ld. CIT (A), we do not find any infirmity in deleting addition made by Ld.AO. Ld.AO is directed to value closing stock after eliminating opening stock for the year, slow moving & obsolete items at cost price or market price whichever is lower. - Decided against revenue - ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of appeal proceedings. PRAYER: It is prayed that the closing stock of ₹ 5,37,04,497/- as assessed by the AO for A.Y.2011-12 be treated as opening stock for the A.Y.2012-13 and necessary relief allowed. ITA No.3209/Del/16 A.Y. 2011-12 (revenue s appeal) 1. That the directions of the learned CIT(Appeals) are erroneous contrary to facts law . 2. That on the facts in the circumstances of the case in law, the Ld. CIT (A) is erred in deleting the disallowance made on account of Personal Unvouched expenses of ₹ 4,89,587/-. 3. That on the facts in the circumstances of the case in law, the Ld.CIT(A) is erred in restricting the disallowance made on account of Disallowance u/s 36(1)(iii) to ₹ 10,47,260/-. 4. That on the facts in the circumstances of the case in law, the Ld.CIT(A) is erred in deleting the disallowance made on account of Under valuation of closing stock ₹ 2,25,40,280/-. 5. That the order of the Ld.CIT(A) is erroneous and is not tenable on facts and in law . 6. That the grounds of appeal are without prejudice to each other, 7. That the appellant craves leave to add, alter, amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Aggrieved by the order of Ld. CIT (A) revenue as well as assessee are in appeal before us. 3. Assessment year 2011-12 ITA No. 3209/Del/2016 (Revenue s appeal) Ground No. 1 is general in nature and therefore do not require any adjudication. 3.1. Ground No. 2 in revenue s appeal is in respect of deleting the addition made by Ld.A.O. on account of personal and unverifiable expenses of ₹ 4,89,587/-. Ld. DR submitted that assessee has not maintained any logbook for vehicles and no details regarding telephone expenses has been maintained phone number wise. He submitted that regarding tour and travel expenses, proper supporting evidences were not available to prove expenses being incurred exclusively for the purposes of business. It has been submitted by Ld.DR that under these circumstances Assessing Officer could not verify expenses fully and disallowance has been rightly made. He submitted that assessee failed to establish nexus between expenditure incurred and business activity. He placed reliance upon observations of Ld. AO. 3.2. On the contrary Ld.AR submitted that bills and vouchers were produced before Assessing Officer and ad hoc disallowance at 20% of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 3.7. Before us, Ld. DR has not been able to establish anything contrary to what has been observed by Ld.CIT (A). Further Ld.AR placed reliance upon assessment order for assessment year 2013-14 and 2014-15, wherein no disallowance has been made in respect of such expenses claimed by assessee. 3.8. Considering totality of facts and keeping in view that Ld. DR has not been able to prove anything contrary to observations of Ld. CIT (A), by way of any documentations or evidences, we are of considered opinion that no fault can be found with the view taken by Ld.CIT (A). 3.9. Accordingly this ground raised by revenue stands dismissed. 4. Ground No. 3 is in respect of disallowance being restricted by Ld. CIT (A) to ₹ 10,47,260/- under section 36 (1) (iii) of the Act, as against ₹ 16,37,392/-, made by Ld.AO. 4.1. Ld. DR submitted that assessee made certain investments in capital asset which had not been put to use during the year under consideration. It was submitted that these assets had no nexus with business activity carried on by assessee, and therefore said expense did not fall within the ambit of section 36 (1) (iii) of the Act. Ld.DR submitted that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in CIT v. Dalmia Cement (P.) Ltd. [2002] 121 Taxman 706 wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 4.5. On the basis of the above discussion and ratio held by Hon ble Supreme Court in case of Hero Cycles Pvt.Ltd Vs.CIT, we do not find any infirmity in the decision of Ld. CIT (A). However at this juncture we direct Ld.AO to allow the netting of interest. 4.6. Accordingly, this ground raised by revenue stands dismissed. 5. Ground No. 4 is in respect of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring on the balance sheet date i.e. 31.03.2011 of ₹ 41,04,889/-. It is found from the said summary that the finished goods in pieces and sets and raw material in meters and kgs were valued at 20% of the cost and the net effect of such an exercise was that stocks at a cost price of ₹ 12,28,242/- appeared in the balance sheet at ₹ 2,45,648/-, thereby having an overall impact of ₹ 9,82,594/-. 9.5.2 On the issue of change in the methods of accounting regularly followed by the appellant company the AR submits that there is no such change. I have also perused the significant accounting policies and notes to accounts appearing in the financial statements for the FYs 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 wherein the stocks are stated to be valued at cost price or market price whichever is lower. Moreover, it is noticed that the AO has based her decision in making the impugned addition to the closing stock on section 145(2) and AS 2 issued by ICAI as per which, according to her, the stock should have been maintained under First In First Out (FIFO) which have not been followed. I have perused AS 2 available at pages 76 to 82 of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the slow moving items, without any justification or show cause notice, amounts to changing the method of valuation regularly followed. This action on the part of the AO has been held to be unjustified by several High Courts such as the Madras High Court in the case of CIT vs. Anandha Metal Corporation and C. Jayantilal, Allahabad High Court in the case of Shivraj Tobacco Co. (P) Ltd., Rajasthan High Court in the case of Wolkem -India Ltd. and P H High Court in the case of Sant Ram Mangat Ram in the decisions cited supra. The Hon'ble Supreme court in the case of CIT vs. Dynavision Ltd. (348 ITR 380) has held that when an assessee has been consistently following the method of valuation of closing stock at cost or market price, whichever is lower, any addition on account of under valuation of closing stock was unjustified more so when the AO revalued the closing stock without making any adjustment to the opening stock. In this decision, the SC relied on its earlier decision in the case of Chainrup Sampatram wherein it had been held that the valuation of the unsold stock at the close of the accounting period was a necessary part of the process of determining the trading results of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nored by authorities below. Ld.AR submitted that Ld.AO made addition on entire closing stock, as per value worked out on FIFO method which has amounted to double addition based on different goods. 7.3. Ld.DR on the contrary placing reliance upon orders of Ld. CIT (A) submitted that valuation of slow-moving items at 20% of cost leads to a situation, wherein profits for year under consideration becomes distorted. He submitted that there was a difference in the closing stock in balance sheet that was submitted before the bank and closing stock as per books of accounts and financial statements, to an extent of ₹ 9,82,594/-, for which no explanation has been offered by assessee. He thus submitted that addition of difference in closing stock in both balance sheets has been rightly made by Ld. AO as confirmed by Ld. CIT (A). 7.4. We have perused the submissions advanced by both the sides in the light of the records placed before us. 7.5. Assessee in paper book has placed details of slow-moving items which has been valued at ₹ 41,04,889/- at pages 225-254 of paper book. Summary of dead stocks valued at 20% of cost has been placed at page 255 of paper book and report pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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