Gandevi Tube Industries Pvt.Ltd., ... vs Department Of Income Tax

Dy. Commissioner of GandevinTube Industries Income-tax, Navsari Pvt. Ltd, Circle, Navsari Vs Vijay Baug, Gandevi, Tal. (Appellant) Gandevi, Navsari, PAN: AAACG 8561 H (Respondent)

Revenue by: Smt. Sonia Kumar, Sr. D.R. Assessee by: Shri. M.K. Patel, AR

Date of hearing : 29-01-2015 Date of pronouncement : 13-02-2015

आदे श/ORDER

PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:-

This appeal is filed by the assessee against the order of CIT(A)- Valsad, Gujarat dated 26-11-2010 for A.Y. 2007-08.

I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 2 DCIT vs. GandevinTube Industries Pvt. Ltd

2. The facts as culled out from the material on record are as under.

3. Assessee is a company who electronically filed its return of income for A.Y. 2007-08 on 31-10-2007 declaring total income at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) on 30-10-2009 and the total loss was determined at Rs. 62,11,700/-. Aggrieved by the order of AO, Assessee carried the mater before Ld. CIT(A) who vide order dated 26-11-2010 partly allowed the appeal of the assessee. Aggrieved by the aforesaid order of Ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds:-

"1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in deleting the addition of Rs. 3,80,000/- made on account of disallowance of unexplained cash credit u/s. 68 of the I.T. Act.

2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in deleting the addition of Rs. 5,27,334/- made on account of not having proper check over the closing stock value."

4. First ground is with respect to deletion of Rs. 3,80,000 u/s. 68 of the Act.

5. During the course of assessment proceedings and on perusing the tax audit report, AO noticed that assessee has stated to have received fresh loan of Rs. 3,80,000/- from Surjeet Singh Ghura. Assessee was asked to produce confirmation, contra-account, copy of bank account of the depositors to which assessee inter alia submitted that it has not taken loan or deposit during the year under consideration and therefore the furnishing of confirmation of accounts does not arise. The submission of I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 3 DCIT vs. GandevinTube Industries Pvt. Ltd

the assessee was not found acceptable to the AO as he was of the view that asessee is required to prove prime facie the transactions which resulted in cash credit. In the absence of any confirmation, AO concluded that assessee has failed to establish the genuineness of cash credits and accordingly added to Rs. 3,80,000/- to the income u/s. 68 of the Act. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A) who deleted the addition by holding as under:-

"SUBMISSION OF THE A.R. :-

The AR submitted that the appellant has taken interest-free loan during the year from one of the directors of the company. It is further submitted that affidavit of the depositors, account confirmation and copy of bank statement to prove the genuineness of the transaction , identity of the depositor and sources of deposit were given during the course of assessment proceedings. The depositor has given such advance out of receipt from NABARD on redemption of NABARD Capital Gain Bonds, the copy of which is produced for verification.

3 CONCLUSION :-

I have considered the observation of the AO in the assessment order as well as the contentions raised by the AR of the appellant in the written submission. The appellant company has taken loan from one of its director and also produced the source of the income by providing confirmation, bank statement, contra account. Thus, the appellant proved the genuineness of creditworthiness and identity of the depositor. Considering the facts of the case, this ground of appeal is allowed."

6. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 4 DCIT vs. GandevinTube Industries Pvt. Ltd

7. Before us, Ld. DR submitted that assessee did not file any confirmation as called for by the AO and further all the details were submitted before Ld. CIT(A) who did not call for remand report from the AO. He therefore submitted that addition made by the AO be upheld. Ld. AR on the other hand fairly conceded that additional evidence was furnished before Ld. CIT(A) but no remand report was called by CIT(A) from AO. He therefore submitted that the matter may be remitted to the file of Ld. CIT(A).

8. We have heard the rival submissions and perused the material available on record. We find that AO while making the addition has noted that assessee did not furnish the copy of the account confirmation and the other details called for by him to prove the genuineness of the transaction. We further find that before Ld. CIT(A) the details were furnished by AO and on the basis of the aforesaid details furnished by the assessee, the addition was deleted. Rule 46A of the I.T. Rules stipulates that CIT(A) for the reasons to be recorded, can admit the evidence produced by the Assessee in the appeal. However the evidence produced by the assessee under Rule 46(A)(1) cannot be considered on merits under Rule 46A(3) unless the AO is given an opportunity to examine the evidence or document produced by the assessee. In the present case, we find that on the additional evidence submitted by assessee before CIT(A) no remand report or comments of the AO were obtained by CIT(A). We are therefore of the view that in the interest of justice, the AO should have been given an opportunity to examine the evidence that were furnished for the first time before Ld. CIT(A). We therefore restore the issue back to the file of CIT(A) to decide the issue afresh in accordance with law and after calling remand I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 5 DCIT vs. GandevinTube Industries Pvt. Ltd

report from the AO. In the result this ground of Revenue is allowed for statistical purpose.

9. Ground No. 2 is with respect to deleting the addition of Rs. 5,27,334/-

10. During the course of assessment proceedings, AO noticed that the auditor, with respect to closing stock, has made a remark about the non availability of quantative details of stock and he had further commented that the information given in the accounts were not verifiable and were taken as prepared by the management. In view of the comment of the auditor, AO considered 10% of the value of the closing stock to be without proper check and therefore made adhoc addition of 10% of the value of closing stock. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A) who deleted the addition by holding as under:-

"7.3 I have considered the observations made by the AO in the assessment order as well as the contentions raised by the AR of the appellant in the written submission. The AO failed to establish that the appellant has done everything wrong. There is no adverse finding or evidence on records found by the A.O. during the course of assessment proceedings. Considering the facts of the case, the disallowance made by the AO is deleted. Thus, this ground of appeal is allowed."

11. Aggrieved by the aforesaid order of Ld. CIT(A), Revenue is now in appeal before us.

12. Before us, Ld. DR submitted that in view of the qualification of the auditor, and in the absence of proper control with respect to stock, the AO was justified in making disallowance of 10%. She further submitted that in I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 6 DCIT vs. GandevinTube Industries Pvt. Ltd

such circumstances the order of AO should have been upheld by Ld. CIT(A). She thus supported the order of AO. Ld. AR on the other hand submitted that the additions have been made by AO on adhoc basis without pointing any specific discrepancy and therefore, the addition was not justified. He thus supported the order of Ld. CIT(A).

13. We have heard the rival submissions and perused the material available on record. We find that while making the disallowance, AO had relied on the comment of the auditor wherein the auditor had observed about the absence of full quantitative details of stock. We further find that Ld. CIT(A) has deleted the addition only for the reason that no adverse finding or evidence has been found by the AO. Before us, Assessee has not brought any material on record to explain the methodology adopted for valuation of closing stock nor has produced any quantitative re-conciliation. We are therefore of the view that matter needs to be re-examined at the end of Ld. CIT(A) in the light of the qualification of the auditor and the methodology adopted by the Assessee to value the stock. CIT(A) shall also give a clear finding about the same. We therefore remit the issue to the file of Ld. CIT(A) for a fresh decision. Needless to state that Ld. CIT(A) shall grant adequate opportunity of hearing to both the parties. Assessee is also directed to produce necessary records about the stock and any other details called for by the authorities. In case the assessee is fails to furnish the required details, the Revenue shall be free to decide the issue on the basis of material available on record. In the result, this ground of Revenue is allowed for statistical purposes.

I.T.A No. 433/Ahd/2011 A.Y. 2007-08 Page No 7 DCIT vs. GandevinTube Industries Pvt. Ltd

14. In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in open court on the date mentioned hereinabove at caption page

Sd/- Sd/-

(MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 13/02/2015 ak

आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद.