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TMI Blog2022 (9) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... fforts by the survey team, the declaration could be made. AO cannot be expected to brush aside the valuation done by survey team to enhance the valuation without pointing out any defect in the valuation done by survey team. CIT(A) held that there is force in the argument of the assessee that the issue of valuation is revenue neutral in as much the value of closing stock on the date of survey becomes the opening stock of the post survey period and the same is captured either in Sales with profit margin or in closing stock at same value and hence there is no effect on the profit and loss account per se - CIT(A) deleted the addition correctly - dismiss the ground raised by the Revenue. Addition on account of under valuation of chemical stock - HELD THAT:- AO cannot dictate the assessee to follow a particular method of valuation of closing stock without citing any cogent reason to do so. The assessee is consistently following the method of valuation in subsequent years also and the closing stock of colour and chemicals shall become the opening stock of the next year and hence there is no incentive for the assessee to choose a particular method. Hence, based on this factual positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue and Cross Objection filed by the assessee, pertaining to Assessment Year (AY) 2012-13, are directed against the common order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short the ld. CIT(A) ] in Appeal No. CIT(A)-3/10942/2015-16, dated 04.02.2020, which in turn arise out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dated 30.03.2015. 2. First, we shall take Revenue`s appeal in ITA No. 129/SRT/2020. The Grounds of appeal raised by the Revenue are as follows: 1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs.3,51,57,284/- made on account of estimation of gross profit after rejecting the books of accounts u/s 145(3) of the Act when in fact, the assessee has not maintained stock register as well as assessee was unable to explain various discrepancies pointed out by the A.O during the assessment proceedings? 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking of current year and preceding year which shows G.P. ratio at 22.41% in the current year, as against 23.52% in the preceding year. However, in clause 32 of audit report, Form 3CD, pertaining to accounting ratio's, the assessee has shown G.P. @ 17.14% only on turnover of Rs.69,90,06,565/-which was inclusive of income of Rs.2,29,04,948/-. Therefore, assessing officer noted that at different time, that assessee is adopting different ways of computing its G.P. Thus, it is clear that assessee has not maintained proper method. Therefore, assessing officer observed that no reliance can be placed on the assessee's book of accounts. It was further noted that the assessee has not included the wages and salaries of Rs.7,01,76,245/- in the working of G.P. which would have resulted in further drastic fall in G.P margins in the year. In respect of fall in G.P. margin the assessee has stated that during the year under consideration the assessee had carried out manufacturing activity for the whole year, whereas in the preceding year the same was carried out for two months only and requested to accept the G.P margin shown. Therefore, the assessing officer has issued show cause letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of G.P. If it includes in both years, then the G.P for the year under consideration should be 11.16% against 16.86% of the preceding year. Accordingly, as per AO, there was fall in G.P. of 5.20%. It was also noticed by AO that, assessee was adopting different ways of computing its G.P. therefore, it is clear that assessee has not maintained books of accounts properly, hence the books of accounts of the assessee are unreliable and the book result cannot be accepted. Therefore, AO has rejected the book result of the assessee u/s 145(3) of the Act due to the reasons mentioned above and made addition on account of fall in GP rate, Therefore, ld DR contended that addition made by the assessing officer may be upheld. 9. On the other hand, Shri Mehul Shah, Learned Counsel for the assessee, argued that there is no defect in the books of accounts maintained by the assessee and in fact the discrepancy in the books of account, if any, till the date of survey is taken care of by the disclosure of income of Rs.2,02,13,906/- by assessee, which were incorporated in the books of accounts and the AO has also not pointed out any valid defects in books of accounts. Various decisions in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer was 11.82% in the said year. On perusal of assessment order, the ld CIT(A) noted that Assessing Officer has rejected the books of accounts majorly for the reason of low gross profit compared to last year and disproportionate expenses compared to last year. 11. The ld CIT(A) observed that findings of the assessing officer is wrong, in as much as, his comparison of the current AY 2012-13 with previous AY 2011-12 is concerned. The ld CIT(A) noticed the following defects in the findings of the Assessing Officer, which is given below: i. The turnover in the current year has increased from Rs.22,27,67,170/- to Rs.67,61,01,617/-, which is about 300% more than previous year. ii. This is the first full year of manufacturing activities as the plant was commissioned in November 2010 of last year. iii. In preceding year, a major fire broke out so it can be said to be an abnormal year and not fit as comparable. The Ld CIT(A) noted that Assessing Officer in the show cause notice has stated that the job work receipts have increased by more than 30 times from 16,14,100/- in the preceding year to 5,15,38,821/- which shows that assessee has claimed disproportionate expenses du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record and held that accounts did not reflect correct picture -He, therefore, made estimations and added sum of Rs.1.55 crores to total income of assessee after rejecting book results - Commissioner (Appeals), however, took into account various factors and held that this was not a case of low yield and addition was wrongly made - Tribunal observed that assessee had maintained proper records of production and consumption in accordance with excise regulations - He noted that during search at assessee s premises minor difference in stock was observed which was due to various explainable factors - He further held that Assessing Officer had not brought any material on record to dispute correctness of books of account and further no evidence had been brought on record to substantiate allegation of unrecorded sales - He thus by a well-reasoned order, deleted addition - Whether Commissioner (Appeals) and Tribunal were correct in holding that there was no case for making addition on basis of gross profit rate - Held, yes [Para 4] [In favour of assessee]. (2) PCIT vs. Purshottam B. Pitroda [2017] 82 taxmann.com 18 (Gujarat) wherein it was held that: Section 145 of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decline of only 1.04 per cent in rate of gross profit in relevant year for which assessee had given detailed explanation but Assessing Officer did not consider same - Whether in aforesaid circumstances, there were no legally sustainable reasons to disturb GP rate shown by assessee and, thus, impugned addition was to be deleted - Held, yes [Paras 5 and 8] [In favour of assessee]. (5) ITO vs. Sai International [2013] 31 taxmann.com 346 (Delhi - Trib.) wherein it was held that: Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income [GP Rate] - Assessment year 2007-08 - Assessee was manufacturing and supplying footwears to retailers - It had shown gross profit ratio at 18.49 per cent and net profit ratio at 0.71 per cent - Assessing Officer held that such gross profit ratio and net profit ratio were very low and determined income by adopting net profit ratio of 5 per cent on net sales - Whether when Assessing Officer could not point out any defect in details filed by assessee, addition made on account of low gross profit ratio could be sustained - Held, no [Para 13] [In favour of assessee.] 14. Based on these facts and applicable case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch and in spite of slight decline in the GP rate in the post search period compared to the last year, the CIT(A) found that proportionate increase in the cost of raw material was more than the proportionate increase in the sale price, and therefore, slight decline was justified. In the absence of any material being brought on record before us, to controvert the above findings of the learned CIT(A), we do not find any good reason to interfere with the order of the learned CIT(A). Therefore, this ground of the appeal of the Revenue is dismissed. (2) Ashok Kumar B. Modi Vs. ACIT [I.T.A. No.1060/Ahd/2008] where in it was held that: All the deficiency regarding non-maintenance of stock register and deficiency in sale price etc. are taken care of by the disclosure in the course of survey because the impact of profit by applying GP rate is much less than the disclosure made by the assessee. We, therefore, hold that for the pre survey period book results of the assessee should be accepted. 16. During the appellate proceedings, the assessee has submitted the Chart of GP of subsequent years, which is reproduced below: A.Y. Turnover(in Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal valuation of Rs.2,90,34,466/- and after reducing the stock as per books amounting to Rs.1,05,85,981/- and the difference in the finished stock comes to Rs.1,84,48,484/- The assessee's line of argument is that the valuation of Rs.2,90,34,466/- is arrived at by the survey team which comprises of around 14 different varieties of finished stock each valuing at different rate and then added the quantity of second sarees to arrive at the value of Rs.2,90,34,466/-. Hence there is no difference, therefore ld CIT(A) has rightly deleted the addition. 22. We have heard both the parties. We note that ld CIT(A) has examined the assessee`s paper book and on perusal of paper Book Pg. No 15-41, the ld CIT(A) observed that survey team has made a detailed working of valuation quality wise which was confronted to the assessee and on the basis of such efforts by the survey team, the declaration of Rs.2,02,13,906/- could be made. The Assessing Officer cannot be expected to brush aside the valuation done by survey team to enhance the valuation without pointing out any defect in the valuation done by survey team. Therefore, ld CIT(A) held that there is force in the argument of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot dictate the assessee to follow a particular method of valuation of closing stock without citing any cogent reason to do so. The assessee is consistently following the method of valuation in subsequent years also and the closing stock of colour and chemicals shall become the opening stock of the next year and hence there is no incentive for the assessee to choose a particular method. Hence, based on this factual position, ld CIT(A) deleted the addition of Rs.3,54,178/-. We note that ld CIT(A) has passed a reasoned and speaking order therefore we do not find any infirmity in the conclusion reached by him, hence we confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. 28. Grounds no.4 raised by the Revenue relates to deletion of addition of Rs.22,05,138/- made by AO on account of unaccounted purchase. 29. Brief facts qua the issue are that during the assessment proceedings, the assessing officer observed that the figure of 1,66,59,433.25 mtr @ 18.81/- per meters of grey valued at Rs.31,34,32,347/- is gross purchase quantity and on comparison with the figure of 1,65,42,201 mtr @ 18.81/- per metres valued at Rs.31,11,58,800/- as per audit report, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, ld CIT(A) deleted the addition. Based on the factual position stated above, we confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. 33. Ground no.4 raised by the Revenue relates to deletion of addition of Rs.8,88,000/- made by the Assessing Officer on account of unexplained cash credit. 34. Succinct facts are that assessee had received unsecured loan through account payee cheque. However, assessing officer observed that assessee has not proved the creditworthiness and genuineness of the transaction, therefore AO made addition of Rs.8,88,000/-. 34. On appeal, the ld. CIT(A) deleted the addition made by the Assessing Officer, therefore Revenue is in appeal before us. Learned DR for the Revenue submitted during the year under consideration, as found from assessment order out of unsecured loan of Rs.64,50,000/- received from six parties, unsecured loan amounting to Rs.8,88,000/- was found to be not genuine. On verification of the banks statement of lenders, it was found that before issuing every cheque to the assessee, there would be some immediate cash deposits. The assessee has failed to establish the nature of these cash deposits before the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion shows that lenders have owned up the cash deposit and they are already assessed to tax and their returns are accepted u/s 143(1). Further, ld CIT(A) noted that AO has not conducted any independent inquiry which can prove that the amount taken as loan represents any unaccounted income of the assessee. The assessee had filed all details during the assessment proceedings. Further, ld CIT(A) observed that that all the loans taken during the year has been repaid in subsequent years. The assessee has relied on various judgements including CIT vs Ayachi Chandrashekhar Narsangji [42 taxmann.com 251 (Guj)] wherein it was held that: Where the Department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. Therefore, we note that AO has considered the unsecured loans from all the lenders as cash credit based on wrong appreciation of facts and law, hence ld CIT(A) has rightly deleted the addition of Rs.8,88,000/-. We confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. 37. In the result, appeal filed by the Revenue in ITA No.129/SRT/2020, is dismissed. 38. Now, we shall take Cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce totaling to Rs.2,85,174/-, hence these expenses should be treated as Revenue expenditure. To support his arguments, ld. Counsel took us through paper book page no.229 of assessee`s paper book wherein various vouchers and bills relating to bajri, cement and ratty etc. are attached, therefore Ld. Counsel has stated that Rs.2,85,174/- relates to repairs and renovation expenditure, hence it should not be treated capital expenses. 44. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 45. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee. We note that assessee submitted various vouchers and bills relating to bajri, retti and cement expenses and we note that these expenses are incurred by the assessee for the purpose of current repairs and maintenance, hence such expenditure does not fall in the domain of capital expenditure, therefore we direct the Assessing Officer to treat Rs.2,85,174/- as revenue expenditure. 46. In the result, ground no.2 raised by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to carry this in appeal before the Supreme Court. He, therefore, suggested that the benefit of this judgment of the Supreme Court may be made available to the assessee; as and when rendered and in case, the judgment of the High Court is reversed. Two clear ways are possible to enable the assessee assessee to get benefit of the judgment of the Supreme Court, in case the High Court judgment is reversed. One is to dismiss this appeal and allow the assessee to approach the Supreme Court; like some other assesses would have. The other way is to make some arrangement under which without filing the appeal, the assessee would also be able to claim the benefit of the judgment. Looking to the smallness of the disputed amount, we adopt the latter option by providing as under : This appeal at this stage is dismissed. However, if the Supreme Court reverses the judgment in the case of CIT vs. GSRTC [Supra], it would be open for the assessee to revive this appeal by filing an application for such purpose within three months from the date of the judgment. 14. Since against the order of the Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation(supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporation collected a sum being provident fund contribution from its employees - However, it had deposited lesser sum in provident fund account -Assessing Officer disallowed same under section 43B - However, Commissioner (Appeals) deleted disallowance on ground that employees contribution was deposited before filing return - Whether since assessee had not deposited said contribution in respective fund account on date as prescribed in Explanation to section 36(1)(va), disallowance made by Assessing Officer was just and proper - Held, yes [Para 8] [In favour of revenue] 15. In the meanwhile, it is noticed that on this issue appeal is pending before the Hon'ble Supreme Court and recently Hon'ble Gujarat High Court in Tax Appeal No. 1186 of 2018 has held that two clear ways are possible to enable the assesseeassessee to get benefit of the judgment of the Supreme Court, in case the High Court Judgment is reversed by the Hon'ble Supreme Court and relevant part of the said order of the High Court is reproduced: This Appeal is filed by the assessee to challenge the judgment of the Income Tax Appellate Tribunal, Ahmedabad { Tribunal for short} dated 22nd March 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Gujarat High Court as aforesaid therefore this matter may be restored to the file of the ld.CIT(A). 17. In view of the above and order passed by the Hon'ble Gujarat High Court, we set aside the matter to the file of the ld.CIT(A) to decide the matter after taking into account order of the Supreme Court as and when will be passed by the Hon'ble Supreme Court. Accordingly will decide the matter. 18. We note that Learned Counsel has argued a lot, stating that disallowance of employees PF and ESI is highly debatable issue which cannot be a subject matter of section 143(1)(a) of the Act, nevertheless, we have to follow the judgment of the Hon'ble jurisdictional High Court, in the case of Gujarat State Road Transport Corporation, which is a direct judgment on the issue of employees PF and ESI. 19. We note that Hon`ble Bombay High Court in the case of Thana Electricity Supply Ltd. 206 ITR 0727, held that the decisions of the High Court are binding on the subordinate Courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. The detailed findings of the Hon`ble Court is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, at best, have only a persuasive effect. By no amount of stretching of the doctrine of stare dicisis judgments of one High Court can be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate Courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all Courts in the country by virtue of Art. 141 of the Constitution. 18. It is abundantly clear from the judgment of the Hon`ble Bombay High Court in the case of Thana Electricity Supply Ltd (Supra), that decisions of the High Court are binding on the subordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon`ble Gujarat High Court should be followed by the Surat Income Tax Appellate Tribunal. 21. We have already noted that against the order of the Hon'ble Gujarat High Court, in the case of Gujarat State Road Transport Corporation (supra), the SLP has been filed by the assessee, which has not been adjudicated yet therefore we are of the view that the issue may be remitted back to the file of the Ld. CIT(A) to decide the matter after taking into account the judgment of the Hon'ble Supreme Court as and when will be passed by the Hon'ble Supreme Court. Therefore these appeals at this stage are dismissed. However, if the Supreme Court reverses the judgment in the case of the Hon`ble Gujarat High Court in the case of CIT vs. GSRTC [Supra], it would be open for the assessees to revive these appeals by filing an application for such purpose within three months from the date of the judgment. 22. In the result, all appeals filed by the assessee, are allowed for statistical purposes. 49. We have both the parties and noted that against the order of the Hon'ble Gujarat High Court, in the case of Gujarat State Road Transport Corporation (supra), the SLP has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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