M/s. Forge & Forge Pvt. Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-1, RAJKOT-GUJARAT

CO 57/RJT/2011

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3627 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 26-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: USHA N SHROTE
• Assessee Lawyers: DM RINDANI
• Keywords: Cost of acquisition; Fair market value
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] D CIT, CIRCLE - 1, RAJKOT (APPELLANT /RESPONDENT ) VS FORGE & FORGE PVT. LTD. AHMEDABAD ROAD, RAJKOT P AN: AAACF3979L (RESPONDENT /CROSS O BJECTOR ) REVENUE BY: S MT. USHA N SHROTE , SR. D.R. ASSESSEE BY: SHRI D.M. RINDANI , A.R. DATE OF HEARING : 12 - 01 - 2018 DATE OF PRONOUNCEMENT : 01 - 03 - 2018 P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL & ASSESSEE S CROSS OBJECTION FOR A.Y. 2007 - 08 , AR ISE FROM ORDER OF THE CIT(A) - I, RAJKOT DATED 31 - 05 - 2010 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.9,80,421/ - MADE U/S.40A(2)(B)(II) OF THE IT ACT. IT A 1100 /RJT/20 10 & CO 57/RJT/2011 ASSESSMENT YEAR 200 7 - 08 I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 2 2) THE LEARNED CIT(A) - L, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.3,31,559/ - MADE ON ACCOUNT DISALLOWANCE OF FOREIGN TRAVELING EXPENSES. 3) THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.70,67,675/ - MADE AS UNDISCLOSED INCO ME U/S.69B OF THE IT ACT. 3. IN THIS CASE, ASSESSME NT U/S. 143(3) WAS FINALIZED BY THE ASSESSING OFFICER ON 14 TH DECEMBER, 2009. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING FORGING AND IRON STEEL PRODUCTS AS PER THE SPECIFICATION P ROVIDED BY THE CU STOMERS. THE BRIEF FACTS OF THE CASE ARE DISCUSSED UNDER DIFFERENT GROUNDS OF APPEAL AS FOLLOWS. ADDITION OF RS.9,80,421/ - MADE U/S.40A(2)(B)(II) OF THE IT ACT . 4 . DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS INCURRED TOTAL INTERES T EXPENDITURE OF RS . 49 , 02 , 106/ - IN RESPECT OF SPECIFIED PERSONS COVERED U/S. 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER HAS FURTHER NOTICED THAT ASSESSEE PAID INTEREST @ 15% TO T HE PARTIES COVERED U/S. 40A ( 2 )(B) OF THE ACT AS AGAINST THE LOAN RATE OFFERED BY THE BANK TO THE ASSESSEE @ 10.5%. IN THIS RESPECT, THE ASSESSEE HAS EXPLAINED THAT BORROWING RATE OF BANK IN RESPECT OF SECURED LOAN CANNOT BE COMPARED WITH THE INTEREST RATE OF 15% PAID BY THE ASSESSEE IN RESPECT OF UNSEC URED LOAN AND THE BANK LOAN S ARE SECURED BY A CHARGE OF ALL ASSETS OF THE ASSESSEE COMPANY AND FURTHER BY T H E PERSONAL GUARANTEE OF THE DIRECTOR . THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT THE REASONABLE RATE OF INTEREST ON UNSECURED LOAN TO BE TAKEN AT 12% THEREFORE , THE DIFFERENCE OF 3% AMOUNTI NG TO RS. 9,80,421/ - WAS DISALLOWED U/S. 40A( 2 )(B) . I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 3 5 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) H AS ALLOWED THE APPEAL OF THE AS SESSEE ON THIS ISSUE BY OBSERVING S UNDER: - 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND HAVE ALSO GONE THROUGH THE VARIOUS PAPERS ETC. SUBMITTED IN THE PAPER BOOK. I FIND THAT THE A.O. HAS COMPARED THE RATE OF INTEREST CHARGED ON UNSECURED LOANS WITH THE RATE OF SECURED LOANS FROM BANKS, WHICH IS GIVEN AT A RATE LOWER THAN THAT OF UNSECURED LOANS, BECAUSE SUCH SECURED LOANS ARE GIVEN AGAINST A CHARGE &.SECURITY OF THE ASSETS OF THE ASSESSEE AND BACKED BY PERSONAL GUARANTEE OF THE DIRECTORS AND THE REFORE THE RISK FACTOR INVOLVED IN THE LENDING PROCESS IS ADEQUATELY C OVERED. THIS APART SECURED LOA NS FROM BANKS HAVE RECOVERY MECHANISMS PRESCRIBED BY THE LEGISLATURE AND THEREFORE THE RISK FACTORS OF THESE TWO LOANS ARE VASTLY DIFFERENT IN CHARACTER. THE UNSECURED LOANS ARE USUALLY TAKEN FROM FRIENDS AND RELATIVES WHERE THE ELEMENT OF FLEXIBILITY IN REPAYMENT AND INTEREST TERMS IS HIGH AND THE RATE OF INTEREST IS ALSO COMMERCIALLY BOUND TO BE DIFFERENT THAN BANK LOANS ON ACCOUNT OF THE DIFFERING CHARACTER OF THESE LOANS. THIS APART , THESE LOANS HAVE BEEN IN THE BOOKS OF THE ASSESSEE SINCE EARLIER YEARS WHEREIN ALSO THE ASSESSEE HAD PAID INTEREST AT RATES THAT WERE HIGHER THAN THE SECURED LOANS FROM BANKS AND NO DISALLOWANCE WAS MADE BY THE AO IN AY 2004 - 05 AND THIS INTEREST PAID ON UNSECURED LOANS WAS CONSIDERED AS BEING REASONABLE. HENCE, IT IS NOT KNOWN AS TO HOW FOR THIS YEAR THE INTEREST PAYMENT WAS FOUND TO BE EXCESSIVE IN THE YEAR UNDER CONSIDERATION. IT IS FURTHER TO BE POINTED O UT THAT THE APPELLANT COMPANY HAS ALSO TAKEN UNSECURED LOANS FROM THE VARIOUS OTHER SHARE HOLDERS AS WELL AS IT WAS REQUIRING FUNDS FOR ITS BUSINESS NEEDS AND EVEN TO THEM, INTEREST HAS BEEN PAID @15%, WHICH HAS BEEN ALLOWED BY THE A.O. AND THESE SH ARE HOLDERS ARE NOT PERSONS COVERED U/S 40A(2)(B). THUS, IF LIKES ARE COMPARED, IT IS SEEN THAT THERE IS NO DIFFERENCE IN RATE OF INTEREST ON LOANS TAKEN FROM VARIOUS NON RELATED SHARE HOLDERS AND PERSONS COVERED U/S 40A(2)(B) , BECAUSE BOTH CA TEGORIES HAVE BEEN PAID INTEREST @15%. THIS APA RT WHAT IS ALSO IMPERATIVE IS THAT U/S 40A(2)(B) THE AO IS EXPECTED TO APPLY HIS MIND AND ESTABLISH WHAT HE CONSIDERS TO BE A FAIR AND REASONABLE CHARGE OR EXPENSE. HE CANNOT MAKE A FLEETING STATEMENT AS HE HA S SO DONE IN THE CASE OF THE ASSESSEE AND SIMPLY SUBSTITUTE HIS RATE OF INTEREST WITH WHAT HAS BEEN COMMERCIALLY INCURRED BY THE ASSESSEE. THE AO HAS ALSO FAILED TO OBSERVE THAT EVERY BORROWING HAS SEVERAL COMMERCIAL PARAMETERS AND BY THE STROKE OF A PEN H E CANNOT PRONOUNCE HIS RATE OF INTEREST TO BE FAIR AND THE RATE CHARGED BY THE ASSESSEE TO BE EXCESSIVE. AS IS SO CLEARLY STATED IN CIRCULAR NO. 6P DATED 1.4.1968 WHICH CIRCULAR EXPLAINS THE REASONS WHY SECTION 40A WAS INTRODUCED IN THE STATUTE THAT THE SAID SECTION IS MEANT TO CHECK EVASION OF TAXES THROUGH EXCESSIVE AND UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE CONCERNS AND THE AO IS EXPECTED TO EXERCISE HIS JUDGEMENT IN A REASONABLE AND FAIR MANNER AND THE SAID SECTION IS NOT TO B E USED TO CAUSE HARDSHIP IN BONAFIDE CASES. AS FAR AS THE FACTS RELATED TO THE ASSESSEE ARE CONCERNED I FIND THAT THE AO HAS NOT ADVANCED ANY JUSTIFICATION AS TO WHY THE RATE OF INTEREST CHARGED BY THE ASSESSEE IS UNFAIR OR EXCESSIVE. HE HAS MERELY SUBSTIT UTED HIS RATE OF INTEREST. AS HAS BEEN SO HELD BY THE HON. ITAT BANG/ORE IN S.K. ENGINEERING VS J.C.I.T. 103 ITD 97 (BANGALORE) THAT REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE, THE - LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION AND THE BENEFIT DERIVED BY THE TAX PAYER FROM THE EXPENDITURE. REASONABLENESS OF ANY EXPENDITURE IS TO BE SEEN FROM THE VIEWPOINT OF THE BUSINESSMAN AND NOT FROM THE VIEWPOINT OF REVENUE AUTHORITIES. THE ONUS LIES UPON THE A.O. TO SHOW THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE. IN VIEW OF THESE AND FOR THE FACT THAT IN SIMILAR CIRCUMSTANCES, CLAIM OF ASSESSEE WAS BEING ACCEPTED IN PAST, THE ADDI TION OF RS.9,80,421/ - IS DELETED. I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 4 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT T HE RISK FACTOR INVOLVED IN THE SECURED LOAN FROM THE BANK IS COVERED WITH SECURITY AND GUARANTEE WHEREAS IN RESPECT OF UNSECURE D LOAN GENERALLY THERE USE D T O BE NO SUCH KIND OF SECURITY AND COVERAGE. THE ASSESSE HAS BROUGHT THE ABOVE FACTOR INTO THE NOTICE OF THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH WAS NOT DISPROVED BY THE ASSESSING OFFICER AND CON CLUDED ON GENERAL PERCEPTION THAT REASONABLE RATE OF INTEREST ON UNSECURED LOAN TO BE TAKEN AT 12%. CONSIDERING THE ABOVE FACTS, WE JUSTIFY THE DECISION OF THE LD. CIT(A), THEREFORE, THE APPEAL OF THE REVENUE ON THIS ISSUE IS DISMISSED. A DDITION OF R S.3,31,559/ - MADE ON ACCOUNT DISALLOWANCE OF FOREIGN TRAVELING EXPENSES. 7 . DURING T HE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED FOREIGN TRAVELLING EXPENSES INCURRED BY THE SRI NAVINBHAI PATEL, DIRECTOR FOR HIS VISIT TO THE USA. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD NOT HAVING ANY DIRECT BUSINESS LINK WITH ANY CONCERN IN USA , T HEREFORE, THE AFORESAID EXPENDITURE ON FOREIGN TRAVELLING TO USA WAS DISALLOWED. 8 . AGGRIEVED ASSESSEE FILED APPEAL B EFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - 11. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. I FIND THAT THIS DISALLOWANCE WAS MADE IN A VERY ROUTINE MANNER AND WITHOUT ADVANCING ANY RATIONAL WHATSO EVER. IN THESE DAYS OF GLOBAL INTEGRATION, ALL BUSINESS ENTITIES AND ESPECIALLY COMPANIES ENGAGED IN ENGINEERING PRODUCTS NEED TO TRAVEL ABROAD FOR VARIOUS REASONS TO OBSERVE TECHNOLOGICAL ADVANCEMENTS DEVELOPING MARKET TRENDS ETC. WHAT THE A.O. HAS FAILED TO APPRECIATE IS THAT AN ASSESSEE NEEDS TO TRAVEL FIRST BEFORE ANY BUSINESS CONNECTIONS CAN BE ESTABLISHED AND SINCE THESE EXPENSE ARE ROUTINE TRAVELING EXPENSES INCURRED FOR ONGOING BUSINESS OF THE ASSESSEE, THE SAME IS DIRECTED TO BE ALLOWED AS SUCH. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT THE TURN OVER OF THE ASSESSEE AND EVEN THE NET TAXABLE IS IN CRORES COMPARED TO WHICH AND CONSIDERING THE FACT THAT THE ASSESSEE IS EN - GAGED IN I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 5 FORGING OF ENGINEERING PRODUCTS, THE SAID EXPENSES IS DIRECTED TO BE ALLOWED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED IN FAVOR OF THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. CIT(A) HAS DELETED THE ADDITION BY STATING THAT THE TURNOVER AND NET PROFIT OF THE ASSESSEE C OMPANY WAS ON HIGHER SIDE. WE OBSERVED THAT THE ASSESSE HAS NOT SUBSTANTIATED WITH ANY RELEVANT MATERIAL/INFORMATION THAT THE AFORESAID EXPENSES ON TRAVELLING TO USA WERE INCURRED FOR THE BUSINESS PURPOSE. IN VIEW OF THE ABOVE, WE OBSERVE THAT THE ASSESS EE HAD FAILED TO SUBSTANTIATE THAT THE FOREIGN TRAVELLING EXPENSES OF USA WERE INCURRED FOR BUSINESS PURPOSES, THEREFORE, WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY THE APPEAL OF REVENUE ON THIS GROUND IS ALLOWED. A DDITION OF RS.70,67,675/ - MADE AS UNDISCLOSED INCOME U/S.69B OF THE IT ACT. 10. IN THIS CASE, SURVEY U/S. 133A OF THE AC T WAS CARRIED OUT ON 23 RD NOV, 2006. DURING THE COURSE OF SURVEY PROCEEDINGS, THE DIRECTOR OF THE COMPANY HAS ADMITTED EXCESS ST OCK OF RS. 70 , 67 , 675/ - AS THE UNDISCLOSED INCOME OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS NOT INCLUDED IMPUGNED UNDISCLOSED INCOME IN THE PROFIT AND LOSS A/C OR IN THE COMPUTATION OF INC OME ACCOMPANIED WITH THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007 - 08. IN THIS CONNECTION, THE ASSESSING OFFICER HAS ISSUED SHOW CAUSE NOTICE TO THE ASSESSSEE STATING THAT VALUE OF PHYSICA L L Y AVAILABLE STOCK DURING THE COURSE OF SURVEY WAS WORK ED OUT AT RS. 2 , 46 , 42 , 587/ - H OWEVER, THE VALUE OF STOCK (WIP) AS PER BOOKS OF ACCOUNTS ON DATE OF SURVEY WAS SHOWN AT RS. 1 , 75 , 74 , 912/ - . HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN WHY INCOME DISCLOSED DURING THE COURSE OF SURVEY I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 6 SHOULD NOT BE ASSESSED AS INCOME WITHIN THE MEANING OF SECTION 69B OF THE ACT. THE ASSESSEE EXPLAINED THAT NO STOCK DIFFERENCE IN QUANTITY TERMS WAS FOUND DURING THE COURSE OF SURVEY. IT WAS ALSO STATED THAT THE STOCK EXISTING IN TERM OF VALUE ONLY IMPACT THE P & L A/C AT THE END OF THE FINANCIAL YEAR WHEN THE BOOKS OF ACCOUNTS ARE CLOSED. IT WAS FURTHER STATED THAT THE VALUATION IN WORK IN PROGRESS HAS ARISEN INTER ALIA ON ACCOUNT OF HIGHER ALLOCATION OF COST ATTRIBUTED BY THE OFFICER AT THE TIME OF SURVEY ACTION IN CONTRAS T TO THE COST ALLOCAT ED THE ASSESSEE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE. HE STATED THAT DIRECTOR OF THE COMPANY DURING THE COURSE OF SURVEY HAS CATEGORICALLY ACCEPTED THE FACT THAT VALUATION OF THE STOCK DURING THE COURSE OF SURVEY WAS DONE ON ACTUAL BASIS W HEREAS THE ASSESSEE HAS VALUED STOCK AT AVERAGE COST BASIS IN ITS BOOKS OF ACCOUNT. CONSEQUENTLY, THE ASSESSING OFFICER HAS ADDED BACK THE EXCESS VALUE OF STOCK ADMITTED DURING THE COURSE OF SURVEY TO THE TOTAL INCOME OF THE ASSESSEE WITHIN THE MEANING OF SECTION 69B OF THE ACT. 11 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) . THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY STATING AS UNDER: - 17. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE A.O. AND THE SUBMISSIONS OF THE ASSESSEE. IT IS NOBODY'S CASE THAT DURING COURSE OF THE SURVEY EXCESS STOCK IN QUANTITY TERMS WAS FOUND. THE SOLE ISSUE AT HAND CONCERNS ITSELF WITH THE VALUATION OF THE SAID PHYSICAL STOCK OF WORK IN PROGRESS FOUND. ACCORDING TO ACCOUNTING PRINCIPLES, STOCK IS VALUED AT THE CLOSURE OF THE ACCOUNTS EVERY YEAR AND IT IS ONLY THIS VALUATION WHICH IS DONE AT THE CLOSE OF EVERY ACCOUNTING YEAR THAT HAS AN IMPACT ON PROFIT OR LOSS FOR THE YEAR UNDER CONSIDER ATION SINCE THE CREDIT OF THE CLOSING STOCK AND THE CORRESPONDING DEBIT OF THE OPENING STOCK FALL IN TWO DIFFERENT ACCOUNTING PERIODS. THE A.O. HAS NOT DEALT WITH THE ASPECT OF THE NEUTRALIZING IMPACT ON THE PROFIT & LOSS ACCOUNT WHEN THE CLOSING STOCK OF 22/11/2006 BECOMES THE OPENING STOCK OF 23/11/2006 WHICH IS BY OPERATION OF ACCOUNTING PRINCIPLES AND AS PER DECISION OF SUPREME COURT IN THE CASE OF V.KJ. BUILDERS AND CONSTRUCTIONS PVT. LTD. VS. CIT REPORTED IN 318 ITR PAGE 204. I AM IN AGREEMENT WITH TH E FUNDAMENTAL ACCOUNTING CONTENTION OF THE ASSESSEE THAT ANY STOCK VALUATION EXERCISE DONE IN THE MIDST OF ANY ACCOUNTING PERIOD WOULD ESSENTIALLY BECOME REVENUE NEUTRAL SINCE THE CLOSING STOCK OF THE PREVIOUS DAY WOULD BECOME THE OPENING STOCK OF TIE FOLL OWING DAY AND THE CREDIT AND DEBIT WOULD NEUTRALIZE EACH OTHER. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE' HAS UNDERSTATED ITS PURCHASE COST OR ANY EXPENDITURE I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 7 IN RELATION TO THE WORK IN PROGRESS. THE QUESTION, PURE AND SIMPLE IS THE CORRECT A LLOCATION OF SUCH COSTS TO THE WORK IN PROGRESS AND ITS PROPER VALUATION. AS FAR AS THE CLOSING STOCK VALUATION DONE BY THE ASSESSEE AS AT THE YEAR END IS CONCERNED, THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO ENHANCEMENT HAS BEEN DONE IN THE SAME. AS FAR AS THE QUESTION OF INVOKING SEC - 69B IS CONCERNED, THE SAME IN MY VIEW CAN BE INVOKED ONLY WHEN INVENTORY IN PHYSICAL TERMS IS FOUND WHICH HAS NOT BEEN ACCOUNTED FOR OR IT IS BROUGHT ON RECORD THAT THE EXPENDITURE INCURRED IS NOT FULLY ACCOUNTED FOR. AS FAR AS THE EXPENSES UNDER CONSIDERATION ARE' CONCERNED, THE QUESTION RELATES TO PROPER ALLOCATION OF ACCOUNTED AND DISCLOSED COSTS AND THE VALUATION OF WORK IN PROGRESS. I AGREE WITH THE CONTENTION OF THE A.R. OF THE ASSESSEE THAT AS FAR AS THE WORK IN PROGRESS IS CONCERNED, IT IS NOT POSSIBLE TO ALLOCATE THE EXACT VALUATION DURING THE COURSE OF AN ONGOING, ACCOUNTING YEAR BECAUSE THE WORK IN PROGRESS IS CONSTANTLY CHANGING ITS CHARACTER AND MAY FINALLY END UP EIT HER AS BEING AN ACCEPTABLE FINISHED PRODUCT OR COULD BE SUBJECTED TO REPROCESSING OR MAY END UP BEING SCRAP. IT IS ONLY AT THE YEAR END WHEN THE EXACT PHYSICAL STOCK IS TAKEN AND PROPER CHARACTER OF THE WORK IN PROGRESS IS IDENTIFIED; THAT A PROPER VALUATI ON CAN BE DONE AND AS FAR AS THIS VALUATION OF WORK IN PROGRESS AS AT THE YEAR END IS CONCERNED, THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. I AM ALSO NOT IN AGREEMENT WITH THE RELIANCE PLACED BY THE A.O. ON THE DECISION OF HON'BLE GUJARAT HIGH COU RT IN CASE OF FAKIR MOHAMMED HAJI HASAN (SUPRA)(247 ITR 290) IN AS MUCH IN THAT CASE THE ASSESSEE WAS FOUND IN THE POSSESSION OF THE GOLD WHICH HE HAD NOT ACCOUNTED FOR AT ALL IN HIS BOOKS OF ACCOUNTS. IT WAS IN SUCH CIRCUMSTANCES THAT THE HO N'BLE GUJARAT HIGH COURT HAD HELD THAT SUCH INCOME COULD BE BROUGHT TO TAKE U/S 69, 69A, 69B, 69C. AS FAR THE FACTS RELATED TO THE ASSESSEE ARE CONCERNED AS SO STATED ABOVE, IT IS NOBODY'S CASE THAT INVENTORY PHYSICALLY FOUND WAS NOT ACCOUNTED FOR IN THE B OOKS OF ACCOUNTS. THE HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMAPTRAM V/S CIT (24 ITR 481 SC) HAS HELD THAT 'IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT ARISES OUT OF THE VALUATION OF THE CLOSING STOCK , I AM IN AGREEMENT WITH THE CONTE NTION OF THE A.R. OF THE ASSESSEE THAT A MERE MID YEAR VALUATION EXERCISE AS FAR AS STOCK OF WORK IN PROGRESS IS CONCERNED WOULD BE REVENUE NEUTRAL SINCE THE CLOSING AND THE OPENING STOCK WOULD ESSENTIALLY FALL IN THE SAME ACCOUNTING PERIOD. I, THEREFORE , HOLD THAT A MERE VALUATION DIFFERENCE IN THE MIDST OF THE ACCOUNTING YEAR WIT - BOUT BRINGING ON RECORD UNDISCLOSED PURCHASES PERSE CANNOT BE CONSIDERED AS UNDISCLOSED INCOME U/S 69B AND I THEREFORE DIRECT THAT THIS ADDITION OF RS. 7057675/ - SO MADE BY THE A.O. BE DELETED. THIS GROUND OF APPEAL IS ALLOWED IN FAVOR OF THE ASSESSEE. 12 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT LD. CIT(A) HAS INCORRECTLY DELETED THE ADDITION MADE BY THE ASSE SSING OFFICER IN RESPECT OF DISCLOSURE MADE DURING THE COURSE OF SURVEY ON ACCOUNT OF UNDER VALUATION OF WORK IN PROGRESS. ON THE OTHER HAND, LD. COUNSEL HAS SUPPORTED THE ORDER OF LD. CIT(A) AND ALSO FURNISHED PAPER BO OK CONTAINING SUBMISSION MADE BE FORE THE LD. CIT(A) AND STATEMENT OF INVENTORY RECO RDED DURING THE COURSE OF SURVEY ETC. I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 8 1 3 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL S ON RECORD CAREFULLY . A SUR VEY ACTION 133A WAS CONDUC T ED IN T H E CAS E OF THE ASSESSEE ON 22/11/2006. DUR ING THE COURSE OF SURVEY, INVENTORY OF THE STOCK (WIP) AVAILABLE WAS PREPARED AFTER PHYSICAL VERIFICATION. T H E VALUE OF THE STOCK PHYSICALLY AVAILABLE WAS WORKED OUT AT RS . 2,46,42,587/ - , HOWEVER, THE VALUE OF THE STOCK (WIP) AS PER BOOKS OF ACCOUNT AS ON DATE OF SURVEY WAS FOUND TO THE VALUE OF RS. 1 , 75 , 74 , 912/ - . CONSEQUENTLY, THE ASSESSEE ADMITTED THE EXCESS VALUE OF STOCK OF RS . 70,67 , 675/ - AS UNDISCLOSED INCOME . THE ASSESSING OFFICER HAS ASSESSED THE EXCESS VALUE OF STOCK U/S. 69B OF THE ACT. WE OBS ERVE THAT LD. CIT(A) HAD DELETED THE AFORESAID ADDITION ON THE BASIS OF GENERAL OBSERVATION BRIEFLY STATED AS UNDER: - (I) AS FAR AS THE QUESTION OF INVOKING OF SECTION 69B IS CONCERNED THE SAME CAN BE INVOLVED WHEN THE INVENTORY IN PHYSICAL TERM IS FOUND. (II) ST OCK IS VALUED AT THE CLOS U R E OF THE ACCOUNTS EVERY YEAR AND IT IS ONLY THIS VALUATION WHICH HAS IMPACT ON PROFIT AND LOSS A/C. (III) ANY STOCK VALUATION EXERCISE DONE IN T HE MID ST OF ANY ACCOUNTING PERIOD WOULD BECOME REVENUE NEUTRAL SINCE THE CLOSING STOCK OF T HE PREVIOUS DAY WOULD BECOME THE OPENING STOCK OF THE FOLLOWING DAY. (IV) IT IS NOT POSSIBLE TO ALLOCATE THE EXACT VALUATION DURING THE COURSE OF ACCOUNTING YEAR IN RESPECT OF WORK IN PROGRESS. WE NOTICE THAT T HIS IS UNDISPUTED FACT THAT ASSESSEE HAS ADMITTED IN HIS STATEMENT THAT VALUE OF STOCK (WIP) IN BOOKS OF ACCOUNT WAS MADE ON THE BASIS OF AVERAGE RATE, HOWEVER, DURING THE COURSE OF SURVEY, THE VALUATION WAS MADE ON THE BASIS OF ACTUAL PRICE OF STOCK ITEMS. WE HAVE ALSO NOTICED THAT PAGE NUMBER 89 TO 110 OF THE PAPER BOOK I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 9 SUBMITTED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS DEMONSTRA T E T HAT COMPLETE DETAILS LIKE DESCRIPTION OF ITEMS, WEIGHT/QUANTITY, RATE, AMOUNT ETC. HAVE BEEN APPLIED FOR VALUATION OF STOCK DURING THE COURSE OF SURVEY . NO TWITHSTANDING THAT W E OBSERVE THAT THE LD. CIT(A) HAS NOT SPECIFIED TH E DEFICIENCIES IN THE VALUATION OF STOCK CARRIED OUT DURING THE COURSE O F SURVEY . WE OBSERVE THAT LD. CIT(A) HAS NOT DISPROVED THAT THE VALUATION CARRIED OUT WAS INCORRECT. IT IS UND ISPUTED FACT THAT THERE IS NO DISPUTE REGARDING QUANTITY OF STOCK. THE DISPUTE IS ONLY REGARDING ACTUAL VALUATION OF THE STOCK. WE OBSERVE THAT THE LOWER AUTHORITIES HAVE NOT GIVEN ANY SPECIFIC FINDINGS ON THE CORRECTNESS OF THE ACTUAL RATE OF ITEMS APPL IED FOR VALUATION OF THE IMPUGNED STOCK . THE LD. CIT(A) HAS ALSO NOT CALLED ANY REMAND REPORT FROM THE ASSESSING OFFICER REGARDING ANY CLARIFICATION ON ANY DISCREPANCIES NOTICED IN T H E VALUATION OF THE STOCK BY THE SURVEY TEAM. W E OBSERVE THAT THERE IS DEF ICIENCY OF INFORMATION AND INCOMPLETE APPRAISAL OF MATERIAL FACTS IN THE FINDINGS OF THE LD. CIT(A). BECAUSE OF ABOVE INFIRMITIES IT APPEARS TO BE INFEASIBLE TO ADJUDICATE THE IMPUGNED ISSUE IN FAIR AND EQUITABLE MANNER. T HEREFORE , WE CONSIDER IT APPROPRIA TE TO RESTORE THIS CASE TO THE FILE OF THE LD. CIT(A) TO RE - ADJUDICATE IT DE - NOVO AFTE R REMOVING THE ABOVE ANOMALY AND PASS A SPEAKING ORDER AS PER LAW ON THE MATERIAL FACT REGARDING CORRECTNESS OF THE IMPUGNED VALUATION OF STOCK. THEREFORE , THE APPEAL O F THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ACCORDINGLY , WE RESTORE THIS ISSUE TO T HE FILE OF THE CIT(A) OFFICER TO DECIDE AFRESH AS DIRECTED ABOVE AFTER AFFORDING ADEQUATE OPPORTUNITIES TO THE AS SESSEE. CO NO. 57/RJT/2011 I.T.A NO. 1100 /RJT/ /20 10 & CO 57/RJT/2011 A.Y. 2007 - 08 PAGE NO DCIT VS. FORGE & FORGE PVT. LTD. 10 1 4 . THE ASSESSEE HAS R AISED FOLLOWING GROUND IN THE CROSS OBJECTION: - 1. THAT THE LEARNED CIT (A) - L, RAJKOT HAS GRIEVOUSLY ERRED IN NOT ADJUDICATING ON THE GROUND NO. 6 RAISED BY THE RESPONDENT THAT 'ALTERNATIVELY AND WITHOUT PREJUDICE TO OTHER GROUNDS, THE LEARNED A.O. HAS G RIEVOUSLY ERRED IN NOT CONSIDERING THE ENHANCEMENT IN THE VALUATION OF WORK IN PROGRESS OF RS. 70,67,675 AS OPENING STOCK OF THE SUBSEQUENT YEAR I.E. A.Y. 2008 - 09' WE OBSERVE THAT A S PER GROUND OF APPEAL NO.3 OF THE REVENUE THE RELATED ISSUE HAS BEEN RE STORED TO THE FILE OF THE LD.CIT(A) FOR RE - ADJUDICATE A DE - NOVO AS SUPRA, THEREFORE, THE CROSS OBJECTION OF THE ASSESSEE IS NOT REQUIRED ANY ADJUDICATION AT THIS STAGE. ACCORDINGLY CROSS OBJECTION IS DISMISSED. 15 . IN THE RESULT, THE GROUND NO. 1 OF THE APPEAL OF REVENUE IS DISMISSED, GROUND NO. 2 OF THE APPEAL OF REVENUE IS ALLOWED AND GROUND NO. 3 OF THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPE N C OURT ON 01 - 03 - 201 8 SD/ - SD/ - (RAJPAL YADAV ) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 01 /03 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT