Where opening and closing balance found, ITAT deleted addition made by AO
Where opening and closing balance found, ITAT deleted addition made by AO
AO denied assessee’s claim on ground that neither the opening nor closing stock included the element of excise duty. He held that profits had been understated and added the amount in assessee’s income. CIT(A) upheld AO’s order. Allowing assessee’s appeal ITAT held that there was opening and closing balance and assessee’s transactions with a particular company cannot be treated as deemed dividend u/s 2(22)(e) (of Income Tax Act, 1961), and overturned AO's order.-500086
1. The A.O. denied assessee’s claim with the observation that neither the closing stock as on 31/3/1998 nor the opening stock as on 31/3/1999 as per the books of account included the element of excise duty. The A.O. observed that the assessee took the value of excise duty on the opening stock as on 01/4/1998 at Rs. 5,33,354/- whereas the value of closing stock as on 31/3/1998 did not include the said value of excise duty of Rs. 5,33,354/. The A.O. was of the view that if the expenditure did not form part of closing stock in the immediately preceding year, how it can form part of opening stock of assessment year 1999-2000. The A.O. accordingly held that the method of valuation with the excise duty element on opening stock for assessment year 1999- 2000 adopted by the assessee is not in accordance with the provisions of law. He accordingly held that the profits shown for assessment year 1999-2000 has been understated by Rs. 5,33,354/- and added this amount in the income of the assessee.
2. The ld CIT(A) has upheld the finding of the A.O..
3. In appeal the ITAT held as under:
The Coordinate Bench had set aside this issue to the Assessing Officer to verify the nature of transaction between the assessee company and M/s Chrome International Co. Ltd. The ld Assessing Officer had not given any finding on transaction but summarily rejected the submission made by the assessee. The ld CIT(A) also considered the title of the account for deciding the issue of deemed dividend U/s 2(22)(e) (of Income Tax Act, 1961). The copy of account filed itself shows that the assessee has number of transactions related to goods purchased and sale, job work charges, paid and received rent and interest. In opening, there was a debit balance in the books of assessee and on closing it was a credit balance. The balance after every transaction changed the position some time it becomes credit and some time debit. Therefore, we hold that transactions made by M/s Chrome International Co. ltd. with assessee are business transactions during the ordinary course of business, which cannot be treated as deemed dividend U/s 2(22)(e) (of Income Tax Act, 1961). The case laws referred by the assessee are squarely applicable. Therefore, we reverse the order of the ld CIT(A) and allow the assessee's appeal.
4. In the result, both the assessee's appeal are allowed.
Case Reference- BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM ITA Nos. 234 & 235/JP/2014 Assessment Years : 1999-2000 & 2005-06 M/s K.G. Petrochem Ltd., Vs. Assistant Commissioner of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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