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TMI Blog2023 (4) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. Addition on account of determination of cost of goods sold - CIT(A) deleted addition - HELD THAT:- We agree to his submission that the Ld. CIT (A) has accepted a newer submission of assessee that the impugned expenditure @ Rs. 110/- per square feet was in the nature of land filling expenditure whereas the assessee himself claimed the same as brokerage expenditure before AO. We find weightage in the submission of Ld. DR that the CIT (A) has accepted this newer submission of assessee without calling any remand-report from Ld. AO. Going further, we agree to Ld. DR s submission that the CIT (A) has not made any working or calculation to arrive at a finding that claiming higher expenditure in the current year, would reduce the claim of assessee in later years and thereby the exercise would become revenue-neutral. Thorough working of the closing stock / cost of goods sold is required to be made/verified by Ld. CIT (A) and the Ld. AO must be given an opportunity of hearing on this issue. Hence, it would be most appropriate to remand this issue back to the file of Ld. CIT (A) to decide afresh. Disallowance u/s 40A(3) - payments in cash violating prescribed limit - CIT(A) deleted addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating value of stock it had taken brokerage expenses too. (iii) The Ld. CIT (A) erred in considering the brokerage expenses as leveling expenses of land merely relying on the submissions of assessee that too in absence of any plausible documentary evidence. (iv) The Ld.CIT (A) erred in deciding above issue without giving any opportunity for verification/comments to AO, as new contention was made by assessee during appellate proceedings. 3.(a) The Ld. CIT (A) erred in deleting the addition made under section 40A(3) of the I.T. Act, 1961 of Rs. 40,00,000/- despite the fact that assessee had committed default within the purview of section 40A(3) of the I.T. Act, 1961 by making cash payment in excess of Rs. 20,000/-. (b) The Ld. CIT (A) erred in ignoring the fact that the seller Shri Jineshwar Lallulalji Jain was well known to the assessee and the seller was maintaining regular bank account. (c) The Ld. CIT (A) erred in ignoring the decision of Hon'ble Kolkata Tribunal in case of ITO v. Kenaram Saha Subhash Saha [2009] 116 ITD 1 (Kol.-Trib.) (SB) regarding applicability of Rule 6DD(g) of Income Tax Rules, 1962. (d) The Ld. CIT (A) erred in relying only on the submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses 11,21,680 - Total 1,57,51,980 1,46,303 Ld. AO further observed that no details/bills/confirmations/ledger accounts have been produced; moreover in respect of Others and Other direct expenses shown in the above table, even the names of the parties have not been supplied. He further observed that although the assessee has submitted challan of deposing TDS, but no TDS return had been filed. Accordingly, he concluded that the claim of development expenses is not verifiable. Regarding labour charges , he observed that the assessee claimed to have paid these charges to labourers and labour supervisors but no details/ ledgers/labour sheets were filed, hence the claim is not verifiable. Finally, Ld. AO disallowed 10% of the total expenditure amounting to Rs. 23,36,323/- and also made a reference to TDS wing of the department for non-filing of TDS returns. 7. During first-appeal, Ld. CIT (A) reduced the quantum of disallowance to Rs. 8,63,293/- by observing and holding thus: 4.1 Ground No. 1: Through this ground of appeal, the appellant has challenged the addition Rs. 23,26,323/- on account of disallowance out of expenses. The AO made the disallowance @ 10% out of the development expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent on the basis of deliberation of facts gathered. I find that both the AO and appellant were not correct in so far as appellant offered loss of Rs. 9,05,177/- from the total receipt of Rs 3,56,28,160/- which is only net loss and on the other hand AO estimated a much higher net income from contract at Rs 1,50,51,327/- which comes to a whopping 47.10% of net profit from total receipt. Considering both of the net profits as unjustified and incorrect, it will be appropriate to estimate the net profit of appellant after allowing the expenses on which the appellant has deducted the TDS. The appellant has deducted TDS in respect of following payments:- Name of the Party Gross Amount TDS Ashish Traders 1,23,000/- 1,230/- Zakir Khan 80,98,538/- 80,985/- Others 64,08,762/- 64,087/- Total 1,46,30,300/- 4.1.2 Therefore, the AO is not justified in making disallowance of 10% out of Rs. 1,46,30,300/- As a result out of the total addition of Rs. 23,26,323, an addition of Rs. 14,63,030/- (Rs 1,46,30,300/- (*) 0.10) is Deleted and the appellant will get the relief of Rs. 14,63,030/- Therefore the addition made by the AO amounting to Rs. 8,63,293/- (Rs.23,26,323 (-) Rs 14,63,030) is Confirmed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Rs. 1,46,30,000/- for which the assessee has supplied party wise details and also deducted TDS. Thus, there is nothing wrong in the part-relief granted by Ld. CIT(A). We approve his action. This ground of revenue is, thus, dismissed. Ground No. 2 (including sub-grounds thereof): 10. In this ground, the revenue claims that the CIT (A) has erred in deleting the addition of Rs. 96,30,181/- made by AO on account of determination of cost of goods sold. The revenue has raised this grievance on several counts as mentioned in different sub-grounds. 11. During assessment-proceeding, the Ld. AO interrogated the assessee qua the valuation of closing stock. When the assessee filed working of closing stock, the AO found certain anomalies in the closing stock as well as its counter-part cost of goods sold . Finally, Ld. AO made an addition of Rs. 96,30,181/- by observing as follows: 7.2.3 It can be seen that the assessee has included various expenses while calculating cost of goods sold which have not been incurred during the year. Despite repeated queries it has failed to produce any background material/or basis to justify such claim of expenses which have not actually been incurred exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed this addition by observing and holding thus: 4.2 Ground No. 2: Through this ground of appeal the appellant has challenged the addition Rs. 96,30,181/- out of difference in valuation of cost of goods sold. The AO has made addition of Rs. 96,30,181/- in the appellant's income, on account of undervaluation of closing stock. The addition was made mainly on account of two items, viz (a) Addition @110 per Sq Ft on the area sold during the year: (b) Adhoc disallowance of 20% of the cost of development. 4.2.1 During the course of assessment proceedings, the appellant had furnished the working of the closing stock before the Assessing Officer. In the examination of the working, the assessing officer was of the view that the brokerage charges of Rs. 110/- which has been estimated in the cost of development of area is a selling expenses and accordingly the same is not required to be added to the stock and addition of Rs. 50,10,500/- (45550 Sq. Ft. X Rs. 110 per Sq Ft) was made. The amount of expenses which has been termed as Brokerage was actually land-filling expenses which was inadvertently termed as brokerage. The working of closing stock was prepared and was furnished during the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Competent Authority for this purpose. The AO has not brought out any material on record which suggests that the appellant is doing any business other than reflected in the return of income. In the case of International Forest Co. vs. CIT (1975) 101.JTR 721 (J K) it is held that AO cannot proceed to make an arbitrary addition and base his conclusion purely on guess work. He ought to have related his estimate to some evidence or material on the record as it is now well settled that if the profits shown by the appellant in his return are not accepted it is for the taxing authorities to prove that the appellant has made more profits than returned. Here the AO failed to bring on record anything which shows that appellant has earned more profit than shown in the return of income. The AO has not made any enquiry and arbitrarily made the addition. The AO disallowed the expenses claimed by the appellant and simultaneously reduced the cost of closing stock. This is nothing but the double addition of the same amount. The expenses claimed have been already confirmed in the ground no. 1 (Supra) @ 10%. The AO is not justified to further make the addition on account of valuation of cost of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure in the current year, would reduce the claim of assessee in later years and thereby the exercise would become revenue-neutral. Therefore, in the situation, we are of the view that a thorough working of the closing stock / cost of goods sold is required to be made/verified by Ld. CIT (A) and the Ld. AO must be given an opportunity of hearing on this issue. Hence, it would be most appropriate to remand this issue back to the file of Ld. CIT (A) to decide afresh. Needless to add here that the Ld. CIT (A) would decide the issue afresh without being influenced by earlier decision and after giving fair opportunities to both sides. This ground is thus allowed for statistical purpose. Ground No. 3 (including sub-grounds thereof): 15. During assessment-proceeding, the AO found that the assessee has purchased a land for Rs. 40,00,000/- from Shri Jineshwar Lallulal Jain and made payments in cash violating the provisions of section 40A(3). Ld. AO show-caused the assessee as to why disallowance u/s 40A(3) may not be made. In response, the assessee filed following reply which is re-produced by AO in assessment-order: Regarding purchase of property in cash the said purchase comprise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 4.3.4 Similar view has been taken by ITAT Indore bench, Indore in the case of Vijay Kumar Jaiswal vs ACIT, 28 ITJ 289. In this case Hon'ble ITAT held that the payments were made at the direction of the department and the situation was not within the control of the appellant and ITAT deleted the said disallowances. 4.3.5 ITAT Indore bench Indore in the case of ITO Vs Jitendra Kumar Mandlecha, 23 ITJ 644 In this case the facts of the case was as under: Assessee made payment of business expenditure above Rs. 20000/- in cash, AO made disallowances of the same - ITAT Held that object behind the provisions is that persons are not allowed to show false expenditure for avoiding income tax and therefore, once the genuineness of payment and identity of the payee is established fully, the object is achieved and in such a situation, if the payment has been made looking to the necessity of settlement or difficulty of payee as payee was in need of money after banking hours. The same cannot be said to have been made in violation of object of the rules - Expenditure is therefore allowable in present case, as same is genuine and duly recorded and out of business exigencies. 4.3.6 Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee submitted to Ld. AO that the impugned cash-payment was made to the seller who does not maintain regular bank account. But when the AO tested the assessee to prove this claim, the assessee could not file any evidence to prove the same. Therefore, the Ld. AO resorted to disallowance. Then came the next stage of first-appeal before Ld. CIT(A). We observe that before Ld. CIT(A), the assessee took an altogether new and different stand i.e. the seller was not having long-term relationship with the assessee and the seller refused to accept payment by cheque, that is why the cash-payment had to be made due to business exigencies. Thus, the assessee has attempted to put forward different claims before the lower authorities and interestingly, not able to prove any of them. It is very apparent that the claim of assessee that the seller was a farmer and refused to receive payment by cheque, is a newer theory taken by assessee for the first time before Ld. CIT (A) just to take benefit of decided rulings when the assessee realized that its original claim before AO was not going to be successful. It is also noteworthy that the assessee has not produced any iota of evidence that the se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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