Rejecting All Books Without Justification Due to Stock Valuation Error: ITAT Surat
Fact and issue of the case
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (In short ‘NFAC’), Delhi, dated 04.10.2022, which in turn arises 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 05.12.2019.
The grounds of appeal raised by the assessee are as follows:
(1) The learned CIT(A) was not justified in re-estimating addition to the value of closing stock particularly when the AO had not rejected books.
(2) On the facts and circumstances of the case, the learned CIT(A) ought to have deleted the addition altogether.
(3) The assessee craves to add, alter or vary any of the grounds of appeal.”
At the outset, Ld. Counsel for the assessee, informs the Bench that assessee does not wish to press ground no.2; therefore we dismiss ground no.2 raised by assessee as not pressed.
We note that appeal filed by the assessee for assessment year (AY).2017-18, is barred by limitation by one hundred three (103) days. The Learned Counsel for the assessee moved a petition/affidavit, requesting the Bench to condone the delay. The contents of the affidavit filed by the assessee for condonation of delay, are reproduced below:
1) I, Vitthalbhai Karamshibhi Gabani, aged 61 years of 13, Gurunagar Society, Opp. Baroda Prestige, Varachha Road, Surat-395006, state on solemn affirmation as under.
2) I say that I am one of the partners of Keshri Exports having PAN ABKPG0905D.
3) During the Income-tax assessment year 2017-18, Keshri Exports has filed appeal before the Income-tax Appellate Tribunal, Surat with a delay of 103 days stated as under.
(4) Primarily, delay occurred in filing the appeal is on account of the unit of Keshri Exports totally closed down with entire manufacturing activity suspended since 2016. Keshri Exports sold its manufacturing unit in March, 2016 as it could not survive the financial crunch.
(5) As a result, there was no administrative set up for looking after filing the appeal; the accountant Chintan Raval also left the organisation in 2017. Further, partner of Keshri Exports Shri Valjibhai Gabani, who was primarily responsible for looking after the accounts, administration and legal matters passed away on 10-12-2021.
(6) With the other partners after taking appropriate legal advice, eventually filed the appeal before the Tribunal was field on 16-3-2023.
(7) Keshri Exports confirms that in past, there has never been any delay in such filing or any compliance.
(8) This affidavit is done to assert the above facts.
(9) For this affidavit, e-stamp bearing e-certificate been used.”
Based on the reasons mentioned in the above affidavit, the ld Counsel contended that delay in filing the appeal may be condoned.
On the other hand, ld DR for the Revenue argued that reasons mentioned in the affidavit, are not sufficient reasons to condone such huge delay. The assessee needs to explain each day of delay which the assessee has failed to do so, hence delay may not be condoned.
We heard both the parties on this preliminary issue. We note that primarily, delay occurred in filing the appeal is on account of that the unit of Keshri Exports totally closed down with entire manufacturing activity suspended since 2016. Keshri Exports sold its manufacturing unit in March, 2016, as it could not survive the financial crunch and as a result, there was no administrative set up for looking after filing the appeal. The accountant also left the organisation in 2017. Further, partner of Keshri Exports Shri Valjibhai Gabani, who was primarily responsible for looking after the accounts, administration and legal matters passed away on 10.12.2021. The exercise of discretion in condonation of delay in matters of limitation, has to be carried out [within the meaning of “Sufficient Cause” as envisaged in Section 5 of Limitation Act. Hence, the general rule of law of limitation is that an extension shall not be granted under Section 5 if there is no sufficient cause or cogent ground for the condonation of delay, the onus of proving which lies on the assessee as clearly laid down in the judicial pronouncements by the Highest Courts of Law.
Observation of the court
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We also considered the various decisions relied by ld. counsel for assessee. We find some merit in the tested proposition canvassed by ld DR for the Revenue that for each mistake it is not necessary for the assessing officer to reject the books of accounts of the assessee. A heavy onus is on the assessing officer to reject the audited books of accounts, if there is any mistake in the audited books of accounts or any bills, vouchers, documents or in any evidences, the assessing officer may reject such bills, vouchers, documents, and evidences and may make line by line addition, without having rejected books of accounts. While scrutinizing the expenditure u/s 143(3) of the Act, or valuation of any item, if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the assessing officer and item-wise the assessing officer could have disallowed the expenses. Hence, we find merit in the submission of ld DR that it is not necessary for the assessing officer to reject the books of accounts of the assessee, when the assessing officer thinks that if the expenses claimed by assessee are not having any nexus to the business of the assessee or if there is deficiency in the vouchers, valuation method, etc. in these circumstances, the assessing officer may make addition for that particular item without rejecting books of accounts.
We note that ld CIT(A) has considered the submission of the assessee in respect of rejection of books of accounts of the assessee. The ld CIT(A) observed that the assessee has not submitted the Annexure in prescribed Format as laid down in Column No. 14(b) of Tax Audit Report (3CD Report). It was further noticed from the Tax Audit Report (3CD report) that the quantitative details of principal items of goods traded are required to be given. However, in the Tax Audit Report (3CD report), it was mentioned that ‘As per Annexure – Q’. However, Annexure-Q was not enclosed to the Tax Audit Report (3CD report) submitted by the assessee. In view of the above, the Assessing Officer had not estimated the addition but systematically computed the addition taking into consideration the quantum of closing stock as per books of account and the difference in rate per ct adopted by the assessee in respect of opening stock and closing stock. Therefore, we note that it was not necessary to reject the books of accounts of the assessee. Hence assessing officer was right in not rejecting the books of accounts. However, the assessing officer noticed that some details were not filed or annexed with tax audit report, as noted by ld CIT(A), therefore assessing officer made addition.
We have gone through the above findings of the ld CIT(A) and observed that ld CIT(A) after taking into account correct valuation methodology and policy as per accounting standards, ICDS and prevailing accounting customs, has deleted almost 50% addition made by the assessing officer. We note that there is no any purchase by the assessee during the year, and the sale made by the assessee is out of opening stock only. In the closing stock, only the opening stock items were there, hence assessing officer has rightly caught the mistake of the assessee for under valuation of closing stock. We note that ld CIT(A) made the computation of closing stock by adopting average rate per carat, which is a superior approach as compared to the approach adopted by assessing officer. We accept the above approach adopted by ld CIT(A). However, we do not find any further superior approach, than the approach so adopted by ld CIT(A), because ld CIT(A), by following accounting standards, ICDS and accounting principles, granted the partial relief to the assessee. Thus, in our opinion, the assessee does not deserve further relief on the basis of the plea that assessing officer ought to have rejected books of accounts to make addition on account of under valuation of closing stock. On a careful reading of the order of Ld.CIT(A) the findings thereon, we do not find any valid reason to interfere with the decision and findings of the Ld.CIT(A), hence we dismiss the appeal of the assessee. The ratio of decisions relied by ld. counsel for the assessee not applicable on the facts of present case. In our view, the rejection of entire books of account was not warranted, when the assessing Officer find fault in the valuation of stock only.
In the result, appeal filed by the assessee is dismissed.
Order pronounced on 11/09/2023 in the open court
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereKeshri-Export-Vs-ITO-ITAT-Surat-2