M/s. Niehoff of India P. Ltd, Hyderabad V. The DCIT Circle 16(1), Hyderabad

CO 5/HYD/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7183 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: SARANG SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1454/HYD/2010 : ASSESSMENT YEAR 2007-08 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD V/S M/S. NIE HOFF OF INDIA LTD., HYDERABAD ( PAN - AABCN 0947 R ) (APPELLANT) (RESPONDENT) C.O. NO.05/HYD/2011 (IN ITA NO.1454/HYD/2010) : ASSESSMENT YEAR 2007-0 8 M/S. NIEHOFF OF INDIA LTD., HYDERABAD ( PAN - AABCN 0947 R ) V/S DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD (CROSS - OBJECTOR) (APPELLANT - IN - APPEAL) DEPARTMENT BY : SHRI V.SRINIVAS CIT-DR ASSESSEE BY : SHRI SARANG SHAH DATE OF HEARING 10.5.2012 DATE OF PRONOUNCEMENT 25.5.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE AND THE CROSS-OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( A)-V, HYDERABAD DATED 2.9.2010 FOR THE ASSESSMENT YEAR 2007-08. ITA NO.1454/HYD/2010 : ASSESSMENT YEAR 2007-08 2. EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEAL READ AS FOLLOWS- ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 2 1. WHETHER THE APPRECIATION OF FACTS WOULD BE CORR ECT, IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED THAT THE MAC HINERY LYING IN CLOSING STOCK IS THE ONE SOLD ON 29.10.07 TO M/S. F INOLEX CABLES LTD. AND NOT THE ONE SOLD TO M/S.SALZER CABLES PVT. LTD. ON 08.04.2007. 2. WHETHER CIT(A) IS CORRECT IN HOLDING THAT THE ADDIT ION ON ACCOUNT OF VARIATION OF CLOSING STOCK VALUE IS RS.11,92,736 /- AND NOT RS.98,41,022/- GIVEN THE FACTS OF THE CASE. 3. IF THERE IS VARIATION IN VALUE OF CLOSING STOCK AS HELD BY CIT(A), THE EXPLANATION GIVEN BY THE ASSESSEE TO SUBSTANTIATE I TS VALUE WOULD BE INCORRECT. IN SUCH CIRCUMSTANCES, DOES IT NOT A MOUNT TO ACCEPTANCE THAT ASSESSEE HAS NOT GIVEN THE CORRECT PICTURE IN REGARD TO CLOSING STOCK, AND THEREFORE THE ADDITION MADE BY THE A.O. HAS TO BE UPHELD. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WIRE DR AWING MACHINES AND CABLE MAKING MACHINES. DURING THE COURSE OF ASSESSM ENT FOR ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER NOTICED THAT T HE VALUE OF STOCK OF FINISHED GOODS UNDER SCHEDULE 12 TO THE PROFIT AND LOSS ACCOUNT WAS SHOWN AT RS.13,32,448. IN THE NOTES TO THE ACCOUNT , IT WAS MENTIONED THAT THE TOTAL NUMBER OF WIRE DRAWING MACHINES MANU FACTURED DURING THE YEAR WERE 24 OUT OF WHICH 22 WERE SOLD FOR RS.22,33 ,90,325. THE ASSESSING OFFICER WORKED OUT THE AVERAGE PRICE OF E ACH MACHINE SOLD AT RS.1,01,54,106. REDUCING THE EXCISE DUTY AND SALES TAX AND THE GROSS PROFIT OF 17.8%, HE WORKED OUT THE COST OF THE MACH INES IN STOCK AT RS.1,11,73,470 AND ADDED THE DIFFERENCE OF RS.98,41 ,022 ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 4. ON APPEAL BEFORE THE CIT(A), ASSESSEE CONTENDE D THAT AVERAGE PRICE OF THE MACHINES COULD NOT BE TAKEN BECAUSE TH E ASSESSEE PRODUCES MANY KINDS OF MACHINES AND THE SALE PRICE OF SOME O F ITS MACHINES IS AS LOW AS RS.5,00,000. THE ASSESSEE ALSO SUBMITTED DET AILS OF ALL THE 24 MACHINES MANUFACTURED AND OF THE PRICING OF THE 22 MACHINES SOLD. THE CIT(A) FOUND MERIT IN THIS CONTENTION OF THE ASSESS EE AND AFTER EXAMINING THE VALUE OF THE MACHINES SOLD AND IN STOCK, AND SU STAINED ONLY AN ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 3 ADDITION OF RS.11,92,736 WHICH IS THE DIFFERENCE B ETWEEN THE VALUE OF CLOSING STOCK OF RS.25,25,184 AND THE VALUE OF CLO SING STOCK AS SHOWN BY THE ASSESSEE AT RS.13,32,448. 5. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. SHRI SHRINIVAS, LEARNED DEPARTMENTAL REPRESENTA TIVE FOR THE REVENUE ARGUED VEHEMENTLY STATING THAT THIS IS A CA SE WHERE THE CIT(A) PREMATURELY SHIFTED THE ONUS TO THE ASSESSING OFFIC ER WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO FURNISH THE D ETAILS OF THE EXACT STOCK OF FINISHED PRODUCT AND THE WORK IN PROGRESS LINKE D TO THE SALES MADE AFTER 1.4.2007. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, REITERATI NG THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, STR ONGLY SUPPORTED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE METHOD ADOPTED BY THE ASSESSING OFFICER FOR WORKING OUT THE VALUE OF THE MACHINES IN CLOSING STOCK, BY AVERAGING THE VALUES OF THE MACHINES MANU FACTURED BY THE ASSESSEE DURING THE UNDER CONSIDERATION IS NOT CORR ECT. IT IS SUBMITTED THAT IT IS NOT POSSIBLE FOR THE ASSESSEE TO SUBSTIT UTE OR INTERCHANGE, VALUATION OF THE MACHINES SUPPLIED TO THE COMPANIES . HE SUBMITTED THAT THERE IS NO NEED FOR THE ASSESSEE TO SUBSTITUTE MAC HINES, AS THE VALUATIONS SHOWN BY THE COMPANY FOR MACHINES EITHER FINISHED GOODS (FINOLEX) OR SALZER(WIP) ARE ALREADY IN THE VALUATI ON OF CLOSING STOCK/INVENTORY AND CREDITED TO PROFIT AND LOSS ACC OUNT. HE FURTHER SUBMITTED THAT OUTSOURCED PURCHASES OF SALZER MACHI NE RECEIVED BY ASSESSEE IN FIRST WEEK OF APRIL, 2007 AND DEBITED T O PURCHASE IN NEXT FINANCIAL YEAR IS SOUGHT TO BE TAXED IN THE CURRENT YEAR WHICH IS TOTALLY UNJUSTIFIED. HE SUBMITTED THAT THE METHOD OF VAL UATION OF CLOSING STOCK FOLLOWED BY THE ASSESSEE IS CONSISTENT AND ACCORDIN G TO ACCOUNTING STANDARD AS 2. HE FURTHER SUBMITTED THAT THE CLOSI NG STOCK OF THIS YEAR IS ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 4 TO BE TAKEN AS THE OPENING STOCK OF NEXT YEAR AND T HEREFORE, THERE IS NO BENEFIT WHICH CAN BE SAID TO ENTAIL TO THE COMPANY SINCE VALUATION OF CLOSING STOCK IS ON CONSISTENT METHOD. 8. WE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AND THE INFORMATION FILED BEFORE US. SO FAR AS THE ADDITION OF RS.11,92,736 SUSTAINED BY THE CIT(A) IS CONCERNED, IT IS A WEL L CLARIFIED ISSUE THAT THE FINISHED PRODUCT WAS VALUED BY THE ASSESSEE AT RS.1 3,32,448, AS PER THE DETAILS AVAILABLE AT PAGE 38 OF THE PAPER-BOOK. THE SE REFER TO THE SINGLE SPOOLERS TYPE S 631 -2 NOS. WHICH ARE THE SUBJECT M ATTER OF SALE ON 29.10.2007 FOR A SUM OF RS.30,72,000, BEFORE THE DE TECTION OF DIFFERENCES LATER ON. IN THIS REGARD, WE PERUSED THE ORDER OF THE CIT(A) IN GENERAL AND PARA 8.4 AND 8.5 IN PARTICULAR, WHERE THE CIT( A) HAS GIVEN PROPER REASONING WHILE RESTRICTING THE ADDITION TO RS.11,9 2,731. THE SAID PARAGRAPHS ARE REPRODUCED FOR THE SAKE OF COMPLETE NESS OF THIS ORDER- 8.4 DURING APPEAL PROCEEDINGS, THE APPELLANT WAS THEN ASKED TO PROVIDE EXACT DETAILS OF THE TWO MACHINES LYING IN STOCKS SO THAT THEIR PRICE CAN BE DETERMINED IN RELATION T O THE SALE PRICES GIVEN ABOVE AND THE EXACT VALUATION OF STOCKS CAN B E MADE. THE APPELLANT PROVIDED DETAILS OF THE TWO MACHINES IN STOCK AND THEIR INVOICES PERTAINING TO APRIL 2007, WHEREBY THESE MA CHINES WERE DELIVERED TO M/S. FINOLEX CABLES LIMITED AT SALE I NVOICE OF RS.30,72,000. THIS INFORMATION WAS ALSO PROVIDED TO THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS. HOWEVER, T HE ASSESSING OFFICER STATED THAT THE M ACHINES LYING IN STOCK WERE DIFFERENT THAN THE ONES SUPPLIED TO M/S. FINOLEX CABLES LIMITED. H OWEVER, THE ASSESSING OFFICER DID NOT PROVIDE ANY EVIDENCE IN S UPPORT OF ITS CONTENTIONS. I ALSO FIND THAT THE ASSESSING OFFICE R ALSO DID NOT PROVIDE ANY DETAILS REGARDING EXACT NATURE OF THE MACHINES WHICH WERE LYING IN THE STOCK. IN CASE, THE EXPLANATION OF THE APPELLANT, DULY SUPPORTED BY TECHNICAL DETAILS AND BILLS WAS T O BE REJECTED, THE ONUS LIES SQUARELY ON THE ASSESSING OFFICER TO PROVIDE EVIDENCE FOR REJECTING THE EXPLANATION AND ALSO TO SHOW AS T O WHICH WERE THE MACHINES ACTUALLY LYING IN STOCK. THIS ONUS HA S NOT BEEN DULY DISCHARGED BY THE ASSESSING OFFICER. 8.5 I FIND THAT THERE IS NO REASON TO DISPUTE THE F ACT THAT THE MACHINES LYING IN STOCK WERE SOLD TO M/S. FINOLEX C ABLES LIMITED FOR RS.30,72,000/-. ACCORDINGLY, THE ASSESSING OFF ICER IS DIRECTED TO REDUCE GROSS PROFIT OF RS.17.8% FROM THE SALE PR ICE OF THE MACHINES AMOUNTING TO RS.30,72,000/-. THE DIFFEREN CE BETWEEN THIS VALUE OF RS.25,25,184/- AND THE VALUE OF CLOSI NG STOCK SHOWN BY THE APPELLANT AT RS.13,32,448/- I.E. RS.11,92,73 6/- IS ADDED TO ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 5 THE TOTAL INCOME ON ACCOUNT OF UNDER VALUATION OF C LOSING STOCK. THE APPELLANT GETS RELIEF ACCORDINGLY. THUS, THE SINGLE SPOOLERS TYPE S 631 -2 NUMBERS, WHICH ARE PART OF THE FINISHED GOODS VALUED AT RS.13,32,448, WHOSE DETAIL S ARE AVAILABLE AT PAGE 38 OF THE PAPER-BOOK, WERE SOLD TO FINOLEX CAB LES LTD., VIDE SALE INVOICE BEARING RS.30,72,000 IN THE MONTH OF OCTOB ER, 2007 AND NOT IN THE MONTH OF APRIL, 2007. CONSIDERING THE G.P. RATE OF 17.8% IN RESPECT OF THE SAID MACHINES AND ALSO CONSIDERING THE SALE PRI CE OF RS.30,72,000, THE FINISHED PRODUCT VALUED AT RS.13,32,448 IS CERT AINLY A CASE OF UNDER VALUATION. THEREFORE, IN OUR OPINION, THE SAID ORDE R OF THE CIT(A) IS REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENC E. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. CO NO. 05/HYD/2011 10. AT THE OUTSET, THE LEARNED COUNSEL MENTIONED T HAT GROUND NOS.3 TO 5 ARE LINKED TO THE GROUNDS RAISED IN REVE NUES APPEAL, WHICH HAVE ALREADY BEEN ADJUDICATED IN THE APPEAL, ITA NO .1454/HYD/2010. CONSEQUENTLY, THESE GROUNDS DO NOT CALL FOR ANY SEP ARATE ADJUDICATION. WE ACCORDINGLY DISMISS THESE THREE GROUNDS AS BEING ONLY OF ACADEMIC NATURE. 11. AS FOR GROUND NO.2, LEARNED COUNSEL FOR THE AS SESSEE MENTIONED THAT THE SAME IS NOT PRESSED. IT IS ACCO RDINGLY DISMISSED AS NOT PRESSED. 12. THAT LEAVES FOR CONSIDERATION ONLY GROUND NO. 1 FOR ADJUDICATION AND THE SAME READS AS FOLLOWS- ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 6 THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HA S ERRED IN NOT ALLOWING CLAIM FOR EMPLOYEES CONTRIBUTION TO PROVI DENT FUND OF RS.35,977. IN THIS REGARD, LEARNED COUNSEL REFERRED TO PARA 6 OF THE IMPUGNED ORDER OF THE CIT(A), WHICH READS AS FOLLOWS- 6. THE FIRST ISSUE NOW PERTAINS TO THE DISALLOWANC E OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AMOUNT ING TO RS.35,977/-. I FIND THAT THE CONTRIBUTION MADE BY THE APPELLANT WAS LATE. DURING APPEAL PROCEEDINGS, THESE FACTS HA VE NOT BEEN DISPUTED. THEREFORE, I SEE NO REASON TO INTERFERE W ITH THE ADDITION MADE ON THIS ACCOUNT. 13. REFERRING TO THE ABOVE ORDER OF THE LEARNED CIT(A), THE LEARNED COUNSEL MENTIONED THAT THE SAID DECISION OF THE CIT(A) REQUIRES TO BE REEXAMINED IN THE LIGHT OF THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT V/S. ALOM EXTRUSIONS LTD. (319 ITR 306). HE ACCORDINGLY MENTIONED THAT THIS ISSUE MAY BE SENT B ACK TO THE FILE THE CIT(A) FOR FRESH EXAMINATION IN THE LIGHT OF THE J UDGMENT OF THE APEX COURT NOTED ABOVE, FOR WHICH THERE IS CONCURRENCE FROM THE LEARNED DEPARTMENTAL REPRESENTATIVE. 14. IN VIEW OF THE MUTUALLY AGREED POSITION ON T HIS ISSUE, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE CIT(A) WITH A DIRECTION TO ADJUDICATE THE SAME AFRESH, CON SIDERING THE RECENT DECISION OF THE APEX COURT IN THE CASE OF ALOM EXTR USIONS LTD. (319 ITR 306). THE CIT(A) SHALL ACCORDINGLY ADJUDICATE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE. 15. IN THE RESULT, CROSS-OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1454/HYD/2010 & CO THERE IN M/S. NIEHOFF OF INDIA LTD., HYDERABAD 7 16. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 25.5.2012 SD/- SD/- (SAKTIJIT DEY) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 25TH MAY, 2012 COPY FORWARDED TO: 1. 2. M/S. NI E HOFF OF INDIA LTD., HITECH CITY PLOT NO.186 TO 194 , PHASE 13, PASHAMYLARAM, HYDERABAD DY. COMMISSIONER OF INCOME-TAX CIRCLE 16(1), HYDERA BAD COMMISSIONER OF INCOME-TAX(APPEALS) V, HYDERABAD 4. COMMISSIONER OF INCOME - TAX I V , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.