×Latest Case Laws on Income Tax by various High Courts of India
These are the latest case laws decided by various High Courts of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
06-12-2018, PATANJALI AYURVEDA, Section 145, 145A, 44AB, HIGH COURT OF DELHI
1. In this writ petition, the decision of the respondent income tax department (hereafter called “the revenue”) to initiate special audit of the petitioner/assessee for the assessment year (AY) 2010-2011 has been challenged. The assessee seeks quashing of the order of 28.03.2013.
2. The petitioner had filed its income tax returns on 09.07.2011. It was picked up for scrutiny and notices for assessments, seeking information and documents were issued by the Assessing Officer (AO). On 13.03.2013, the revenue issued a show cause notice asking it to respond why special audit, for the said AY should not be carried out, under Section 142 (2A). The petitioner resisted the show cause notice, in its reply dated 20.03.2013, contending that there were no complexities in its accounts, and that the proposal outlining the nine points on which special audit was proposed, had been adequately explained during course of the assessment proceedings; it is alleged that on 21.003.2013, the revenue issued another show cause notice, on identical grounds, which was again resisted. Ultimately, the impugned order of 28.03.2013, directing special audit, was issued.
3. The impugned order, directing special audit, inter alia, states as follows:
9.1 As per Para no 2 of Significant Accounting policies the inventory have been valued as under: -
a) Raw material, packing material is valued at cost price excluding allowable VAT based on FIFO method as per AS-2
b) Work in progress is valued at selling price of equivalent productions units calculated on the basis on % of completion reduced by cross profit margin and packing material cost
c) Finished goods (manufactured) is valued at sales value reduced by gross margin
d) Finished goods (Traded) is valued at purchase price or net realizable value whichever -is less. From the perusal of the above it may be observed that the assessee company is following AS-2 in respect of valuation of Raw material and Finished goods (traded). However, in case of Work in progress and Finished goods (manufactured) the assessee is not following AS -2. As such the method of valuation of the inventory valuation is not in accordance with statutory
guidelines. As such income shown by the assessee as per profit and loss account is not in accordance with section 145 and 145A of the Income Tax Act. As such special audit is required to determine the correct taxable income as per profit and gains from business and profession.
9.2 The assessee company valued Work in progress at selling price of equivalent productions units calculated on the basis on % of completion reduced by gross profit margin and packing material cost. The determination of equivalent production units as well as percentage of completion of work in progress for valuation involves complexity.
9.3 As per Para no 16 of the notes to the accounts Debtors and creditors Balances are as per books of accounts and as such the transaction entered into the books of accounts in respect of sale, purchase and expenses and creditors and debtors are subject to confirmation. In view of the above the income shown as per profit and loss account are not reliable. As such special auditor is required to determine the correct taxable income
9.4 The assessee company has entered into substantial amount of transaction with related parties / concerns which have significant influence in respect of sale, purchase, investment in The determination of arm’s length involves complexity, shares as well as expenses.
9.5 After examination of cash book, it was found that the assessee company is maintaining accounts of imp rest with various persons. On 28.C1.2013 the assessee company was asked to file the details of such imprest accounts and also to show cause that while maintaining the accounts on the mercantile, basis, why the imprest accounting (cash basis) was followed. The assessee submitted details of imprest accounts in the names of various persons on 11.02.2013 but could not justify the' maintenance of such a large number of imprest accounts. In this connection the assessee replied that the distance among all the three units from each other is 14-55 km. So, looking to the distances between the three units, it is necessary for the company maintain imprest account. However, the assessee failed to justify the effect of the various imprest-accounts on the method Of-accounting and the complexity in the accounts.