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TMI Blog2020 (7) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of AO to examine it, therefore, in the interest of justice, we set aside the whole issue back to the file of the ld AO with a direction to the assessee to produce books of accounts and vouchers before him for examination. AO is also directed to examine it and then decide the issue, following the order of the Hon'ble Delhi High Court as far as it relates to valuation, and decide the issue on merits with respect to the other grounds. Assessee is directed to produce the books of account before the AO within 120 days from the date of this order by taking prior appointment of the ld AO. - Appeal of assessee is partly allowed. - ITA No. 6138/Del/2018 - - - Dated:- 23-7-2020 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Kapil Goel, Adv For the Revenue : Shri Mrtunjay Barnwal, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the VRB Foods Pvt. Ltd (through Dr. Oetker India Pvt. Ltd, Successor Company) [ The Assessee or Appellant] against the order of The Commissioner of Income Tax ( Appeals) -23 , New Delhi [ The Ld CIT (A)] dated 25.07.2018 for Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistent manner which completely rules out any adverse scope of interference u/s 145 of the Act to arbitrarily reject trading results; Incoherent action u/s 145 and absurd /preposterous estimation of profits 4. That on the facts and in the circumstances of the case and in law, Ld. CIT-A erred in sustaining addition of ₹ 146,76,345 made by Ld. AO by wrongly holding that action of Ld AO u/s 145 is correct where as no where it is categorically established by Ld AO/CIT-A that it is impossible to compute taxable income from available books/records and even no trading outside the books in form of any surreptitious /clandestine transaction is detected which exposes the fallacy in action of Ld AO/Ld CIT-A and so addition made deserves to be deleted; 5. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining addition of ₹ 14676345 made by ld AO by wrongly holding that best judgment assessment made on basis of net profit of AY 2010-2011 is correct, which is seriously repudiated being sans merits as firstly no trading outside the books is detected and secondly mere mechanical rejection of books u/s 145 cannot cloth the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t report and stated that impact on the profitability cannot be ascertained. Therefore, the ld AO took up the same and noted that there is no suitable alternative source to obtain comparable quotations to check the value of purchase and sale with related parties with the fair market value of goods. The ld AO also noted that in the last assessment year also additions were made therefore, why it should not be repeated. Assessee furnished its reply. The main contention of the assessee was that the auditor is repeating its qualification mechanically year after year. It was further stated that for Assessment Year 2008-09 and 2009-10 despite identical audit observation, no additions have been made. It is also the claimed that assessee applies Accounting Standard-2 for Valuation of Inventories. It was further stated that additions were made Assessment Year 2010-11 on identical basis but that cannot be basis for the addition in this year. The assessee submits that Assessment Year 2010-11 and 2011-12 are in appeal. 5. The ld AO considered the explanation of the assessee and held that the assessee company has not produced books of accounts and vouchers during the assessment proceedings des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee and M/s. Fun Foods Pvt Ltd merged with Dr. Oetker India Pvt Ltd as per the order u/s 394 of the Companies Act, 1956 of Hon'ble Delhi High Court w.e.f 01.04.2013. The order of the Hon'ble High Court approving above scheme of amalgamation was passed on 12.05.2014. The ground of the assessee is that on the date of passing of the order by the ld AO, VRB Pvt. Ltd (appellant) was not in existence and therefore, the order passed by the ld AO is invalid. 9. After details arguments of the ld AR citing several judicial precedents including the decision of Honorable supreme court in Pr. Commissioner of Income Tax, New Delhi Versus Maruti Suzuki India Limited in Civil Appeal No 5409 of 2019 (Arising out of SLP(C) No 4298 of 2019) dated 25/07/2019 , the ld DR vehemently contested the arguments of the ld AR on various issues such as intimation to the ld AO, filing of appeal etc. Thereafter ld AR did not press this ground of appeal. Accordingly, ground No. 1 of the appeal is dismissed. 10. With respect to ground No. 2, the ld AR submitted that identical issue for Assessment Year 2010-11 and 2011-12 is decided by the coordinate bench in ITA No. 229 and 2292/Del/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is stated in the letter that the assessee has produced the books of account before the ld AO, the assessee does not have any reservation in producing the books of account and vouchers before the ld AO. Therefore, he offered that the assessee can produce the books of account before any authority. 14. We have carefully considered the rival contentions. The addition was made for precisely three reasons:- a. Non production of books of account and vouchers b. The difference in the quantitative details between the letter dated 24.02.2015 and tax audit report c. On the aspect of valuation as per report of auditor. 15. With respect to the valuation aspect the issue is squarely covered in favour of the assessee by the order of the coordinate bench in assessee s own case for Assessment Year 2010-11 and 2011-12, which has been further upheld by the Hon'ble High Court. The coordinate bench held as under :- 4. The ld AR submitted that as per ground No. 2 and 3 the additions are challenged. The ground No. 4 is with respect to the deduction u/s 80IC on the addition sustained by the CIT (A). Therefore, his argument was that if ground no. 2 and 3 assessee succeeds the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that even otherwise the valuation of finished goods becomes the opening stock of the next year and the opening stock of the year is also required to be adjusted hence, it become tax neutral. He submitted that the ld CIT(A) has brushed aside all these arguments of the assessee. He submitted that the issue involved in the appeal is with respect to the addition to the gross profit based on the earlier years financial results. He stated that addition to the gross profit cannot be made if the AO is of the view that valuation of stock is not proper. Anyway he submitted that addition on account of gross profit cannot be made when complete quantitative details subject to verification by Excise Authorities and where there is no defects in the books of account. 5. The ld Departmental Representative vehemently referred to the orders of the lower authorities and supported them. 6. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The issue involved in this appeal is whether on the basis of qualification by the Auditor addition with respect to the gross profit can be made or not. It is necessary to go through the auditor s report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor s report, it is apparent that the Company s inventory are valued at lower of cost or net reliable value and includes all cost incurred in bringing the goods to their present location and conditions. There is no dispute about the valuation of raw material and packing material. The issue is with respect to the valuation of manufactured goods which are valued on the basis of retail method wherein, the assessee reduced the gross margin from the selling price of the goods to derive at the cost of goods produced. The auditor has stated that such method can be used when the actual cost of production is approximate. As the assessee is in the business of manufacturing and selling of processed foods like sauces, mayonnaise, spreads, dips, mustards, milk shake mixes, egg-less cake mixes, peanut butter and culinary powders. Therefore, it is apparent that in the nature of the business activities carried on by the assessee, it is not possible to keep the production cost of each and every finished products, therefore, in such type of industry certain cost are used on approximate basis and they are then spread over the goods produced. The another method which is called the retail method b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary that accounts of the assessee suffers from latent, patent and glaring errors. In the present case, we do not find any such finding by the ld AO. Further, the assessee has given detailed reason for the down fall in the gross profit also. Further, the details of valuation of closing stock of the manufactured goods as per retail method were also filed before the lower authorities and no infirmity was found in the same. In view of this, we do not find any reason to sustain the orders passed by the lower authorities with respect to the invocation of provisions of section 145(3) of the Act and consequently, making the addition of ₹ 15606861/- to the total income of assessee. In the result Ground No. 1 to 3 of the appeal are allowed. 16. Thus, that order was with specific rider where there was no error in the accounts of the assessee with respect to its correctness and its incompleteness. This fact is recorded para no 4 at page No. 3 of the order of the coordinate bench. On this basis, the coordinate bench noted at page 5 that the assessee has maintained complete quantitative details and further no defects have been pointed out by the ld AO in the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the estimate. It is a wellestablished law that the estimate must be honest and fair. There must be a reasonable nexus between material and estimate. The material available before the undersigned has been discussed in detail above and estimate is made on the basis of earlier years profit accepted by the Department u/s 143 (3). Thus I assesse net profit at the same rate of last year viz. 15.19% resulting in addition of income of ₹ 1,56,06,861 to the returned income. Thus for assessment year 2010 11, neither there is any defect in the quantitative details produced by the assessee and nor there is any observation about nonproduction of any detail by the assessee. The addition was made purely on the basis of decline in the gross profit and net profit ratio coupled with the observation of the auditor in the audit report. In fact the assessing officer at page number one has categorically mentioned that the assessee has furnished the details. Further, the combined order passed by the learned CIT A for the two the assessment years i.e. AY 2010 11 and 2011 12 on 3 February 2015 categorically deals with the argument of the assessee in para number [5] that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench in assessee s own case in earlier years. 21. As there is serious dispute between the parties whether books of account were produced before the ld AO or not, both the parties readily agreed that if the books of account are produced before the ld AO, issue may be looked at from the point of view of the decision of the Hon'ble High Court in assessee s own case provided the other facts or any defects are not found in those accounts. Needless to say that the issue is squarely covered in favour of the assessee if the addition has only legs to stand is the qualification of the auditor. Furthermore, the quantitative difference harped upon by the learned assessing officer is also with respect to the letter submitted by the assessee and the tax audit report. Therefore, to find out the quantitative difference also with respect to Raw materials and other materials it is necessary to examine the books of accounts of the assessee. In the present case, the whole addition is made by applying the provision of section 145(3) of the Act. The provisions of Section 145 (3) can only be applied if the assessing officer is not satisfied about the correctness or completeness of accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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