DEVKINANDAN J GUPTA, MUMBAI V. ACIT 17(1), MUMBAI

CO 136/MUM/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9443 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 04-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Assessee Lawyers: DR K SHAVARAM
• Keywords: Additional evidence; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 4165/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) ASST. CIT-17(1), 1 ST FLOOR, R. NO. 113, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI VS. DEVIKANANDAN J. GUPTA 131, KASARA STREET, DARUKHANA, MAZGAON, MUMBAI-400 010 ! ' ./PAN/GIR NO. ADOPG 1847 J ( # /REVENUE ) : ( $%&'( / ASSESSEE ) & )* ./CROSS OBJECTION NO. 136/MUM/2013 (ARISING OUT OF ITA NO.4165/MUM/2012) ( / ASSESSMENT YEAR: 2008-09) DEVIKANANDAN J. GUPTA 131, KASARA STREET, DARUKHANA, MAZGAON, MUMBAI-400 010 VS. ASST. CIT-17(1), 1 ST FLOOR, R. NO. 113, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI ! ' ./PAN/GIR NO. ADOPG 1847 J ( $%&'( / ASSESSEE ) : ( # /REVENUE ) #+, / REVENUE BY : SHRI B. P. K. PANDA $%&'(+, / ASSESSEE BY : DR. K. SHAVARAM & SHRI RAHUL HAKANI - #.+(/ / DATE OF HEARING : 10.02.2014 012+(/ / DATE OF PRONOUNCEMENT : 19.02.2014 2 ITA NO.4165/MUM/2012 & CO NO.136/MUM/2013 (A.Y. 08- 09) DEVIKANANDAN J. GUPTA 3 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AND CROSS OBJECTIO N BY THE ASSESSEE AGITATING THE DECISION BY THE COMMISSIONER OF INCOME TAX (APP EALS)-34, MUMBAI (CIT(A) FOR SHORT) VIDE HIS ORDER DATED 29.03.2012, PARTLY ALLO WING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 19 61 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2008-09 VIDE ORDER DATED 21. 12.2010. 2. WE SHALL TAKE UP THE REVENUES APPEAL FIRST, WHI CH RAISES TWO ISSUES. THE FIRST, RAISED PER ITS GROUNDS 1, 2 & 4, RELATES TO THE ADD ITION ON ACCOUNT OF UNDER-VALUATION OF THE CLOSING STOCK AS AT THE YEAR-END. THE ASSESSING OFFICER (A.O.), IN THE ASSESSMENT PROCEEDINGS, SEEKING TO VERIFY THE ASSESSEES, A DE ALER IN IRON AND STEEL, STATED METHOD OF VALUATION, I.E., AT LOWER OF COST OR NET REALIZABLE VALUE, FOUND THE COST TO BE HIGHER BY THE IMPUGNED SUM OF RS.403.80 LACS, I.E., APPLYING THE FIRST IN FIRST OUT (FIFO) METHOD FOR ARRIVING AT THE RELEVANT PURCHASE COST. THE ASSESSE E REPORTING A PROFIT, THERE WAS NO QUESTION OF NET REALIZABLE VALUE BEING LOWER THAN C OST. ACCORDINGLY, THE ADDITION IN THE SAID SUM WAS MADE; THE QUANTITY OF THE CLOSING STOC K, WHICH EXTENDED TO THREE ITEMS, BEING SPECIFIED PER THE TAX AUDIT REPORT FOR THE RE LEVANT YEAR ITSELF. IN APPEAL, IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAD BEEN CONSISTENTLY FOLLOWING THE WEIGHTED AVERAGE COST METHOD, SO THAT THERE WAS NO REASON FOR THE A.O. TO DISTURB THE SAME BY INVOKING THE FIFO METHOD. THE ASSESSEE DEAL S IN SCRAP, WITH THE LATER (IN TIME) CONSIGNMENTS IN FACT BEING PILED OVER THE EARLIER O NES, SO THAT IT IS IN FACT THE LATER ONES WHICH GET REMOVED FIRST. IT IS THIS THAT HAD LED TO THE ADOPTION OF THE METHOD BEING FOLLOWED. FURTHER, THE A.O. HAD TAKEN ONLY THE LOCA L PURCHASES (OF MAHARASHTRA), IGNORING THE IMPORTS. THE LD. CIT(A) FOUND THE ASSESSEE TO H AVE SATISFACTORILY EXPLAINED EACH OF THE SEVERAL ASPECTS OF THE VALUATION AT COST REFERR ED TO AND DEALT WITH BY THE A.O. ACCORDINGLY, NO CASE FOR ANY ADDITION, DISTURBING T HE ASSESSEES REGULAR METHOD OF VALUATION, IS CALLED FOR. AGGRIEVED, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3 ITA NO.4165/MUM/2012 & CO NO.136/MUM/2013 (A.Y. 08- 09) DEVIKANANDAN J. GUPTA WITHOUT DOUBT, THERE IS NO WARRANT TO CHANGE THE AS SESSEES METHOD OF VALUATION OF COST FROM THE REGULARLY FOLLOWED WEIGHTED AVERAGE C OST TO THE COST PER THE FIFO METHOD. RATHER, AS WE OBSERVE; THE ASSESSMENT ORDER BEING S ILENT THEREON, THE A.O. DID NOT SEEK TO CHANGE THE ASSESSEES REGULAR METHOD OF VALUATION, BUT PROCEEDED TO VALUE THE CLOSING STOCK, IN VERIFICATION OF THE ASSESSEES CLAIM, APP LYING THE FIFO METHOD BY PRESUMING THE SAME TO HAVE BEEN FOLLOWED. THE ASSESSEE HAS ALSO N OT BEEN ABLE TO SHOW US ANY COMMUNICATION OR DISCLOSURE BY IT WITH REGARD TO TH E WEIGHTED AVERAGE COST BEFORE THE A.O. BE THAT AS IT MAY, THE LD. CIT(A) HAS CONFIRME D THE ASSESSEES VALUATION TO BE IN ORDER, I.E., IN TERMS OF ITS REGULARLY FOLLOWED MET HOD. SO, HOWEVER, WE OBSERVE THAT THE VALUATION BY THE ASSESSEE DOES NOT ADMITTEDLY INCLU DE VALUE ADDED TAX (VAT). THE ASSESSEE SEEKS TO JUSTIFY THE SAME ON THE BASIS OF VALUING ITS STOCK CONSISTENTLY WITHOUT INCLUDING THE SAME. FURTHER, AN INCLUSION OF VAT IN THE CLOSING STOCK WOULD NECESSARILY REQUIRE A LIKEWISE VALUATION OF THE OPENING STOCK, ADVERTING TO THE DECISION IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. [2008] 297 ITR 77 (DEL) . THE LD. CIT(A) HAS NOT ISSUED ANY DEFINITE FINDING IN THE MATTER, PRESUMABLY ON T HE BASIS THAT THE VAT ON BOTH THE OPENING AND THE CLOSING STOCK WOULD CANCEL EACH OTH ER, TO BE THEREFORE TO NO CONSEQUENCE. WE FIND THIS AS PRESUMPTUOUS AND, IN A NY CASE, INCONSISTENT WITH LAW. WHETHER THE TWO WOULD IN FACT NULLIFY EACH OTHER, O R MAY LEAD TO AN INCREASE OR DECREASE IN THE PROFIT FOR THE YEAR, IS UNCERTAIN AND WOULD BECOME KNOWN ONLY ON ACTUALLY APPLYING THE SAME. THE SAME IS THUS IRRELEVANT AND SECONDARY INASMUCH AS THE LAW, PER THE NON OBSTANTE PROVISION OF S. 145A, MANDATES ALL THE COMPONENTS OF THE TRADING ACCOUNT TO BE VALUED AT INCLUSIVE OF ALL TAXES, CESS, ETC. INCIDE NT THEREON. THE ARGUMENT THAT THE SAME HAS NEVER BEEN ADDED WOULD BE TO NO CONSEQUENCE, I. E., IN LAW, BOTH IN VIEW OF SECTION 145A, AS WELL AS THE LAW AND EXPLAINED BY THE APEX COURT, AS IN THE CASE OF S.N. NAMASIVAYAM CHETTIAR VS. CIT [1960] 38 ITR 579 (SC) AND CIT VS. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC), ETC. THE LD. AUTHORIZED REPRESENTATIVE (AR) WOULD CONTE ND THAT THE NON-INCLUSION OF VAT IS NOT AN ISSUE BEING AGITATED BY THE REVENUE P ER ITS GROUNDS BEFORE US. WE ARE UNABLE TO AGREE. WE HAVE ALREADY NOTED THAT THE VAL UATION BY THE A.O. TOUCHED VARIOUS 4 ITA NO.4165/MUM/2012 & CO NO.136/MUM/2013 (A.Y. 08- 09) DEVIKANANDAN J. GUPTA ASPECTS OF COST, EACH OF WHICH STOOD EXPLAINED BY T HE ASSESSEE BEFORE THE LD. CIT(A), AND WHICH LED TO HIS DELETING THE ENTIRE ADDITION ON AC COUNT OF UNDER-VALUATION, THAT WITH REFERENCE TO FIFO METHOD BEING ONLY A PART. TO THE EXTENT, THEREFORE, THE REVENUE IMPUGNS THE ENTIRE AMOUNT, THE SAME WOULD INCLUDE A LL THE ELEMENTS OF COST DECIDED UPON AND COVERED BY THE IMPUGNED ORDER. THE REVENUES GR OUND NO. 2 ALSO REFERS TO THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORI TY, AND WHICH THUS INCLUDE THOSE IN RESPECT OF VAT AS WELL. FURTHER, VIDE ITS GROUND NO . 4 THE REVENUE MAKES A SPECIFIC PRAYER FOR A SET ASIDE OF ALL THE ISSUES QUA UNDER-VALUATION OF THE CLOSING STOCK BACK TO THE FILE OF THE A.O., SO THAT THE ISSUE BEFORE US HAS T O BE CONSIDERED IN A BROAD, WHOLESOME MANNER OF UNDER-VALUATION. COULD WE, FOR EXAMPLE, E XCLUDE THE ASSESSEES ARGUMENT OF VALUATION OF OPENING STOCK ALSO LIKEWISE ON THE BAS IS THAT THAT WAS NOT A SUBJECT MATTER OF THE A.O.S WORKING/ORDER, WHICH IT IMPUGNS. SURELY NOT, THE PROPER VALUATION OF CLOSING STOCK BEING ONLY TOWARD DETERMINATION OF CORRECT IN COME FOR THE YEAR, WITH IT BEING AXIOMATIC THAT ONLY A PROPER VALUATION OF INVENTORI ES - BOTH AT THE BEGINNING AND END OF THE ACCOUNTING PERIOD, WOULD LEAD TO DETERMINATION OF CORRECT PROFIT FOR THE SAID PERIOD. THE TRIBUNAL IN HERCULES PIGMENT INDUSTRY VS. ITO [2013] 93 DTR 49 (MUM) FOUND THAT, APART FROM BEING MANDATORY, IT WAS NOT POSSIBLE TO CONTEND TAX NEUTRALITY WITHOUT ACTUALLY OBSERVING THE RULE OF SECTION 145A. THE ASSESSEE MA Y NOT ALTER ITS METHOD OF VALUATION IN ACCOUNTS, BUT THE INCOME FOR THE PURPOSE OF ASSESSM ENT OF INCOME WOULD HAVE TO BE NECESSARILY COMPUTED BY CASTING ITS TRADING ACCOUNT SCRUPULOUSLY IN ACCORDANCE WITH S. 145A. WE, ACCORDINGLY, MODIFY THE IMPUGNED ORDER TO THE E XTENT THAT THE INCOME FOR THE YEAR SHALL BE COMPUTED BY VALUING BOTH THE OPENING AS WELL AS THE CLOSING STOCK AT INCLUSIVE OF VAT. WE DECIDE ACCORDINGLY. 4. VIDE ITS GROUNDS 3 AND 4, THE REVENUE AGITATES T HE DELETION OF THE DISALLOWANCE IN THE SUM OF RS.38.42 LACS MADE BY THE A.O. U/S. 36(1 )(III) OF THE ACT. THE A.O. FOUND THE ASSESSEE TO HAVE MADE ADVANCES TO FOUR CONCERNS, CH ARGING THEM EITHER NO INTEREST OR AT A CONCESSIONAL RATE, I.E., AT 9%, AS AGAINST THE RATE OF 12% INCURRED ON ITS BANK BORROWINGS. EVEN WHERE (THREE PARTIES) THE ASSESSEE HAD OSTENSI BLY CHARGED THE SAID RATE, I.E., 12% 5 ITA NO.4165/MUM/2012 & CO NO.136/MUM/2013 (A.Y. 08- 09) DEVIKANANDAN J. GUPTA P.A., THE SAME WAS FOUND TO HAVE BEEN NOT WORKED OU T CORRECTLY, LEADING TO A SHORT FALL IN THE INTEREST CHARGED, SO AS TO WARRANT A CORRESPOND ING DISALLOWANCE FOR THE DIFFERENCE. IN APPEAL, IT WAS EXPLAINED THAT THE ASSESSEE HAD CORR ESPONDINGLY A HUGE RESERVE OF OWN FUNDS AS WELL, AS WELL AS THE INTEREST-FREE BORROWI NGS. THE LD. CIT(A) SUBJECTED THE ASSESSEES EXPLANATIONS TO VERIFICATION, FINDING TH E SAME TO BE PARTLY CORRECT, AND ALLOWED PART RELIEF. AGGRIEVED, THE REVENUE IS IN APPEAL, C LAIMING THAT THE ASSESSEE HAD ADDUCED ADDITIONAL EVIDENCES BEFORE THE LD. CIT(A), AND WHI CH STOOD RELIED UPON BY HIM WITHOUT, FIRSTLY, STATING HIS REASONS FOR ADMISSION AND, SEC ONDLY, WITHOUT ALLOWING OPPORTUNITY TO THE A.O. TO EXAMINE THE SAME. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WITHOUT DOUBT, EVEN AS ADMITTED BY THE LD. AR BEFORE US, THE ASSES SEE HAS FURNISHED THE WORKING OF THE INTEREST RELATABLE TO VARIOUS PARTIES, AND ON THE B ASIS OF WHICH THE LD. CIT(A) HAS ARRIVED AT HIS DECISION IN RESPECT OF INTEREST, IF ANY, THA T IS TO BE DISALLOWED, I.E., WHERE AND TO THE EXTENT THE SAME IS FINANCED BY INTEREST BEARING BOR ROWINGS, VIZ. PB PG.38-39, 41-42, ETC. HOWEVER, IN OUR VIEW, THE SAME WOULD NOT STAND TO B E COVERED BY RULE 46A. WE SAY SO AS THE RELEVANT CLAIMS STOOD MADE BEFORE THE A.O., AND THE WORKING AS SUBMITTED BEFORE THE LD. CIT(A) IS ONLY IN SUPPORT THEREOF, DIRECTLY ARI SING OUT OF THE ASSESSEES ACCOUNTS. THE FURNISHING OF LEDGER ACCOUNTS, BANK ACCOUNTS, ETC. BY THE ASSESSEE COULD NOT UNDER THE CIRCUMSTANCES BE SAID TO BE RELIANCE ON ADDITIONAL EVIDENCES. THE LD. CIT(A) HAD ONLY APPLIED HIMSELF TO THE MATTER TO ARRIVE AT THE CONC LUSION. THOUGH, OF COURSE, HE MAY HAVE GOT THE SAME EXAMINED BY THE A.O., AND INDEED WAS P REFERABLE, HE ENJOYING COTERMINOUS POWERS, HAVING NOT DONE SO, HIS ORDER COULD NOT BE IMPUGNED ON THAT SCORE. THE LD. DR COULD NOT BRING TO OUR NOTICE ANY INFIRM ITY IN THE IMPUGNED ORDER ON THIS SCORE; NEITHER COULD HE SPECIFY ANY ISSUE WHIC H STANDS NOT CONSIDERED BY THE LD. CIT(A), FOR US TO CONSIDER RECOURSE TO RESTORATION THEREON BACK TO HIS FILE OR THAT OF THE ASSESSING AUTHORITY. WE HAVE ALREADY EXPLAINED THE REVENUES CASE TO BE LIMITED TO PRINCIPALLY THE VIOLATION OF RULE 46A. UNDER THE CI RCUMSTANCES, WE, IN VIEW OF THE FOREGOING, DECLINE INTERFERENCE. WE DECIDE ACCORDIN GLY. 6 ITA NO.4165/MUM/2012 & CO NO.136/MUM/2013 (A.Y. 08- 09) DEVIKANANDAN J. GUPTA 9. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. 10. THE ASSESSEE, THROUGH THE LD. AR, OPTED NOT TO PRESS ITS CROSS OBJECTION AT THE TIME OF HEARING, DECLARING SO. THE SAME IS ACCORDINGLY D ISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 19, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER - 4. MUMBAI; 5 DATED : 19.02.2014 #$ ROSHANI , SR. PS !' # $%&' (!'% COPY OF THE ORDER FORWARDED TO : 1. !6 / THE APPELLANT 2. )*!6 / THE RESPONDENT 3. - 7( 8 9 / THE CIT(A) 4. - 7( / CIT CONCERNED 5. :#;<)$($=% /=%2 - 4. / DR, ITAT, MUMBAI 6. <&>. GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , - 4. / ITAT, MUMBAI