DCIT, CIRCLE-21(1), NEW DELHI V. RALLISON ELECTRICALS P.LTD, NEW DELHI

ITA 5058/DEL/2018

AI Insights

The case involves appeals by the Deputy Commissioner of Income Tax against the orders of the Learned Commissioner of Income Tax (Appeals)-38, Delhi, which had deleted certain additions made by the AO for the Assessment Years 2013-14 and 2014-15. The main issues in the appeals were the valuation of closing stock of inventory, suppression of profit on sale of old stock, and the claim of bad debts. The Tribunal found that the CIT(A) had not adequately addressed the concerns raised by the Department regarding the valuation of stock and suppression of profit, leading to the restoration of these issues for further examination. However, the Tribunal agreed with the CIT(A)'s decision on bad debts, noting that the assessee had sufficiently demonstrated that the bad debts had been offered for tax in earlier years.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298902 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Other Referred Cases: CIT Vs. Hindustan Zinc Ltd, CIT Vs. Hotline Taletube & Components Ltd, Dhakeshwari Cotton Mills Ltd. Vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: SATISH GOEAL; JAI GARG
• Keywords: Opportunity of being heard; Additional evidence; Bad and doubtful debts; Corroborative evidences

Judgement Text

"आयकर अपीलीय अिधकरण, \u000eद\u0010ली पीठ ‘एफ’, \u0014यायपीठ, \u000eद\u0010ली \u0016ी िवकास अव\bथी, \u000bयाियक सद\bय एवं एवं एवं एवं \u0016ी मीठा लाल मीना, लेखा सद\u001eय, क े सम\u001f IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES ‘F’ DELHI BEFORE, SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER आयकर अपील सं आयकर अपील सं आयकर अपील सं आयकर अपील सं. / . / . / . / ITA Nos.5058 And 5059/DEL/2023 िनधा\"रण वष\" िनधा\"रण वष\" िनधा\"रण वष\" िनधा\"रण वष\" / / / /Assessment Years: 2013-14 And 2014-15 Deputy Commissioner of Income Tax, Circle-21(1), Room No.391, 3rd Floor, C.R. Building, I.P. Estate, New Delhi-110002 Vs. M/s Rallison Electricals Pvt. Ltd. 118, Phase-II, Mayapuri Industrial Area, New Delhi-110064 (राज\u001eव / / / /Revenue) (िनधा\"%रती / / / /Assessee) P.A. NUMBER : AAACR4510P (िनधा\"%रती क' ओर से/Assessee by Shri Satish Goeal, CA & Ms. Jai Shree Garg, CA राज\u001eव क' ओर से / Revenue by: Ms. Suman Malik, CIT-DR सुनवाई क' तार+ख / / / / Date of Hearing : 09.01.2025 घोषणा क' तार+ख / Date of Pronouncement : 22.01.2025 ORDER PER Dr. MITHA LAL MEENA, AM, These two captioned appeals filed by the Department are directed against the separate orders of the Learned Commissioner of Income Tax (Appeals)-38, Delhi, (in short ‘ld. CIT(A)’) both dated 30.03.2018 for Assessment Years 2013-14 & 2014-15 respectively. 2 ITA No.5058 & 5059/Del/2018 2. Since, the issues are common and connected, hence, the appeals were heard together and are being consolidated and disposed of by this common order for the sake of convenience. 3. The facts are discussed with reference to grounds of appeal raised in ITA No.5058/Del/2018, for Assessment Year 2013-14 as lead case, which reads as under:- 1. On the facts and circumstances of the case the Ld. CIT(A) was not justified in deleting the addition made by the Assessing Officer of Rs.36,00,07,180/- by enhancing the value of closing stock of inventory due to lack of supportive evidence, that was valued by the assessee at a figure lower than cost. 2. On facts and under circumstances of the case the LD. CIT(A) was not justified in deleting the addition made by the AO of Rs. 75,48,400/- for lower realization of sales and suppression of profit on sale of old stock during the year. 3. On facts and under circumstances of the case the LD. CIT(A) was not justified in deleting the addition made by the AO of Rs. 5,11,72,627/- on account of bad debts claim ignoring the fact that no supporting evidence or voucher were produced by the assessee to demonstrate that the amount written off as bad had been offered for income in the earlier years.” 4. In ground no.1, the Department has challenged deleting of addition made by the AO of Rs36,00,79,180/- by enhancing the value of closing stock of inventory due to lack of supportive evidence, that was valued by the assessee at a figure lower than the cost. 5. Brief facts of the case are that the AO is being not satisfied with the reply of the assessee regarding the valuation of aluminium scrap @ Rs.38.19 as against the value of opening stock of 120.40 and thereby claiming a written off of value of Rs.16,52,69,983/- during the year for the following reasons:- 3 ITA No.5058 & 5059/Del/2018 i) This action of the assessee is not supported by any documentary evidence. First of all the assessee has sold its stock even far less than the value of metal scrap which is the least value which a commodity can fetch. There is no justification for the sale of aluminium wire/scrap at the rate of 15.73 whereas the MCX rate of scrap of aluminium was Rs.112.50. This is not the case of the assessee that it was on account of finished goods where it was laborious to separate the different materials, even that would require at the most the labour cost for separation of different material. The scrap value of the materials will still remain there. On the contrary what we are talking about at this moment is pure raw material of Aluminium kept by the assessee for its consumption for production of cables and wires and devaluation of the same beyond the scrap value is far from imagination to accept. ii) Further taking it as a base to revalue its entire stock can by no stretch of imagination be accepted. It may happen that a small traction of stock for some reason or the other may be sold at a throw away price but that would not justify the valuation of entire stock at that very price. In this case the scrap value of the aluminum metal on that day could be the least value of metal and beyond that there is no justification for selling even the rejected material. The assessee has failed to provide any justification/details with evidence that the entire lot was damaged to the extent that it had to be revalued at the price adopted by the assessee. iii) Further the accepted norms of valuing raw material or the work in progress is at cost. Only the finished goods are valued at cost or market price whichever is lower. The same principal the assessee company had been following till the year. Keeping this accounting policy and the legal position in view as the material which has been sought to be devalued is the raw material, the assessee has to value it at cost.” 6. Aggrieved with the assessment order, the assessee went in appeal to the Ld. CIT(A). The Ld. CIT(A) granted relief to the assessee vide para 4.3 and 4.4 of the impugned order inter alia observing as under:- 4.3 The appellant company further submitted that it had subsequently sold part of its depreciated stock at a much lower price than cost. The appellant had submitted the above instances of subsequent sale to the Assessing Officer during the course of assessment proceedings as well. (copy of detail along with bills of subsequent sale are filed at page number 11-52 of the paper book submitted during the course of appellate proceedings). The appellant had submitted that these raw materials become unfit for use and had to be scrapped. The appellant further brought to my notice that the scrapped 4 ITA No.5058 & 5059/Del/2018 material had been sold to parties from whom payment has been received through bank and the valuation of rejected material had been cleared by Excise Authorities. The Excise Authorities have accepted the valuation of rejected material removed from the factory premises and also the parties to whom material has been sold are identifiable, have made payment for purchase of rejected/ scrap material through bank. 4.4 The appellant had been suffering from financial crisis and its sales drastically came down due to lack of working capital. It had incurred heavy losses and was in need of funds. The appellant company had to sell the rejected/miscellaneous/ scrap material at low price. There are a number of authorities including that of jurisdictional High court and Supreme Court in the case of CIT Vs. Hindustan Zinc Ltd 291 ITR 391 (SC) which judgment has been followed by Delhi High Court in the case of CIT Vs. Hotline Taletube & Components Ltd 12 DTR 3lwhich support the contention of the appellant that closing stock inventory deserve to be valued at net realizable value or cost whichever is lower. Respectfully concurring with the decision of Supreme Court in the case of CIT Vs. Hindustan Zinc Ltd 291 ITR 391/ (SC) and of Delhi High Court and in the case of CIT Vs. Hotline Taletube & Components Ltd 12 DTR 31, guidance note of the Institute of Chartered Accountants of India on valuation of inventories, AO is directed to delete the addition of Rs. 36,00,07,180/- in closing stock inventory. In the result these grounds of appeal are allowed.” 7. The ld. CIT-DR for the department has submitted that impugned order has been passed after considering the additional evidence placed before the Ld. CIT(A) without rebutting the contention of the assessee to the AO by way of calling remand report. Further the Ld. CIT(A) has not conducted any enquiry to examine the veracity of documentary evidence furnished before the Ld. CIT(A) to substantiate the claim of the issue on the issues challenged by the Department. She argued that the ld. CIT(A) has passed a non-speaking order in summary manner that the assessee has been suffering from financial crisis and sales drastically come down due to lack of working capital contemplated into suffering of heavy losses. She further contended that the citations referred by the Ld. CIT(A) are not 5 ITA No.5058 & 5059/Del/2018 applicable to the peculiar facts of the present case, where the remand report was required to be called from the AO for the admission of new material evidence while granting relief to the assessee. She pleaded that the issue may be restored back to the file of the Ld. CIT(A) to analyze the issue of valuation of stock with reference to the details discussion made by the AO in paras 3.2 to 3.5 of the assessment order and pass speaking order on merits of the case, after granting due opportunity to the AO regarding additional documentary evidence, if any, taken on record. 8. Per Contra, the ld. Counsel for the assessee has submitted that they have filed insurance policy and no additional evidence was filed and that all the material evidences have been furnished before the AO but he failed to furnish any evidence regarding furnishing of such material evidences claimed to be filed before the AO, which was furnished before the Ld. CIT(A) during the course of appellate proceedings. He placed reliance on the order of the Ld. CIT(A). 9. Having heard both the parties, perusal of the record, impugned orders and case law cited before us, we find that the Ld. CIT(A) has observed that the assessee has submitted the details regarding the raw material that became unfit for use and had to be scrapped. He further stated that the assessee has brought to his notice that the scrap material had been sold to parties from whom payment has been received through bank and the valuation of rejected material had been cleared by the Excise Authorities. The Excise Authorities have accepted the valuation of rejected material removed from the factory premises and also the parties to whom material has been sold are identifiable, who made payment for 6 ITA No.5058 & 5059/Del/2018 purchase of rejected/scrap material through bank. However, it is not coming out from the impugned order that what was the basis of this finding given by the Ld. CIT(A) that who are the parties to whom scrap material has been sold by the assessee, where the payment has been received through bank and that what was inventory of the rejected material with quantitative details and rate with comparables. that had been cleared by the Excise Authorities and that certification to the effect that valuation of rejected material removed from the factory premises and also the parties to whom, the material has been sold were identifiable as the payments have been made for the purchase of rejected/scraped material and that the payment have been made by the purchaser of the rejected/scraped material through bank have been accepted by the Excise Authorities. Considering the peculiar facts of the case, we deem it appropriate to restore the issue raised by the Department in ground no.1 of the appeal back to the file of the Ld. CIT(A) for denovo adjudication after calling for a remand report from the AO consider the facts as analyzed in the assessment order to pass a speaking order after affording reasonable opportunity of being heard to both the sides, in accordance with law. We further direct the assessee and the AO to respond the notices issued by the ld. CIT(A) without fail. Accordingly, this issue is set- aside and restored to the file of the Ld. CIT(A). 10. In ground no.2, the Department has challenged that the Ld. CIT(A) was not justified in deleting the addition made by the AO of Rs.75,48,400/- for lower realization of sales and suppression of profit and sale of old stock during the year. 7 ITA No.5058 & 5059/Del/2018 10.1. The AO has discussed in the assessment order that the assessee has claimed sale of rejected unused stock during the year under consideration at much lower rates as under:- 10.2. In view of the reasons mentioned in paragraph 3 above and the fact that the assessee has failed to justify as to why it had sold the raw material even less than the prevailing scrap value the 75% of the differential amount was not substantiated by the assessee. As per the above entries, there was suppression of profit by a margin of Rs. 7548400/- the same is being disallowed and added back to the taxable income of the assessee by the AO. 11. The Ld. CIT(A) has deleted the addition by observing vide paras 5.3 and 5.4, which are reproduced as under:- 5.3 The appellant had sold its scrapped raw material at Rs. 17,84,013/- in support of which copies of bills and quantitative detail of sale was furnished at page 4-13 of the paper book submitted during the course of appellate proceedings. The stock inventory sold during the year for Rs. 17,84,013/- was brought forward at a value of Rs. 1,18,48,547/-as opening stock as per documents submitted before me. The Assessing Officer made addition of Rs. 75.48 lakhs for suppression of sales being 75% of difference in value at which the material had been brought forward as opening stock and actual sale realization made during the year ending 31.03.2013. The appellant had also submitted the copy of insurance policy cover note (for the period 26.04.2012 to 25.04.2013) for stock insurance for three locations during the year for which premises the stock was insured for total value of Rs. 50 crores for fire and burglary. The appellant had further submitted that 8 ITA No.5058 & 5059/Del/2018 it was not eligible for claiming any damages for erosion in the price of the stock inventory. 5.4 The Assessing Officer has not brought on record any material or evidence to justify the addition or any instance of out of book transaction of sales. My attention was invited to the judgment of Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. Vs. CIT 26 ITR 775 wherein it was held that In making assessment [23(3) 143 (3)] under Income tax Act, the income tax officer is not fitternal by Technical rules of evidence and pleadings, and he is credited to act on material which may not be accepted as evidence on a court of law, but the income tax officer is not entitled to make a pure question and make assessment without reference any evidence of any material at all. There must be something more than mere suspicion to support the amount and section.\" Respectfully, following the well settled judicial precedents on the issue the addition of Rs. 75.48 lakhs made by the Assessing Officer to be deleted. Hence, the ground of appeal 7 is allowed.” 12. The Ld. CIT-DR has submitted that the ld. CIT(A) has admitted the additional evidence without calling for a remand report from the AO and thus denied the opportunity of being heard as per settled principles of natural justice. The Ld. CIT(A) even has not conducted any enquiry regarding the additional evidence taken on record while granting relief to the assessee to examine the veracity of the evidences to establish the claim of the assessee. She further pleaded that the ld. CIT(A) in casual and summary manner deleted the addition made by AO. She requested that the issue may be restored back to the file of the Ld. CIT(A) for adjudication. 13. On the other hand, the ld. Counsel for the assessee supported the impugned order and argued that the AO has no basis to doubt the evidences and made addition on presumption basis. 14. Having heard both the sides, perusal of the records, we find that the AO has given a detailed analysis of quantitative details, rates of 9 ITA No.5058 & 5059/Del/2018 opening stock and rates of sale and logically arrived at a conclusion that the assessee has failed to justify as to why it has sold the unused raw material even less than the prevailing scrap value of 75% of different amount. In our view, the assessee is required to substantiate his claim of valuation of the unused stock sold with the material evidence and rates of scrap value sold, based on comparables in pari materia. In view of the that matter, we hold that the Ld. CIT(A) has deleted the addition in casual manner without appreciating the true facts on record as discussed by the AO without either conducted any enquiry or calling for any remand report on the contentions made by the assessee before the ld. CIT(A) and the issues raised in the grounds of appeal during the course of appellate proceedings to justify its claim regarding valuation of low sale value of unused stock. Accordingly, this issue is restored back to the file of the Ld. CIT(A) to adjudicate the issue afresh after calling for report repot from the AO on granting due opportunity to both the sides as per mandate. 15. In ground no.3, the Department has challenged that the Ld. CIT(A) was not justified in deleting the addition made by the AO of Rs.5,11,72,627/- on account of bad debts claim ignoring the fact that the no supporting evidence or voucher were produced by the assessee to demonstrate that the amount written off as bad had been offered for income in the earlier years. 16. Having heard both the sides on the issue of bad debts, we find that the assessee has brought on record the copies of ledger account of the parties for which the balance have been written off to demonstrate that the amount has earlier been offered for income. The ld. CIT(A) has 10 ITA No.5058 & 5059/Del/2018 observed that the assessee has written off of bad debts of Rs.5,11,72,627/- which has been duly disclosed in the profit & loss account. The Ld. AR for the assessee also referred to paper book page-129 in this regard, wherein, the copy of profit & loss account evidencing that the bad debts written off of Rs.5,11,72,627/- is duly disclosed. It is settled law that the only requirement on the part of the assessee was to write off the said bad debts in the books of account and that the income has been offered to tax in earlier years. Thus, as regard to bad debts, we find no error in the order of the Ld. CIT(A). The Ld. CIT(A) was justified in deleting the addition made on account of bad debts by the AO by following the judgment in the case of TRF Limited 323 ITR 397. Accordingly, this ground of appeal of the Revenue is rejected. 17. Finally, ground no.1 and 2 are allowed for statistical purposes and ground no.3 is allowed. 18. The facts and issue in respect of ground no.1 and 2 of the appeal in ITA No.5059/Del/2018 are similar to the facts and issues involved in ITA No.5058/Del/2018, therefore, our finding and observation given in ITA No.5058/Del/2018 shall be applicable to the issues involved in ITA No.5259/Del/2018 in mutatis mutandis. Ordered accordingly. 19. In respect of ground no.3, the Ld. AR submitted that this ground has not been adjudicated by the Ld. CIT(A). We, therefore, direct the Ld. CIT(A) to decide this ground as per law. 11 ITA No.5058 & 5059/Del/2018 20. In the result, the appeal of the revenue is partly allowed for statistical purposes. Order pronounced in the open court on 22nd January, 2025. Sd/- Sd/- [VIKAS AWASTHY] [Dr. MITHA LAL MEENA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 22.01.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ आदेश क' /ितिल0प अ1े0षत आदेश क' /ितिल0प अ1े0षत आदेश क' /ितिल0प अ1े0षत आदेश क' /ितिल0प अ1े0षत/Copy of the Order forwarded to : 1. अपीलाथ3 / The Appellant 2. /4यथ3 / The Respondent. 3. आयकर आयु5(अपील) / The CIT(A)- 4. आयकर आयु5 / CIT 5. 0वभागीय /ितिनिध, आयकर अपीलीय अिधकरण, \u000eद\u0010ली / DR, ITAT, Delhi, 6. गाड\" फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, उप उप उप उप/ / / /सहायक पंजीकार सहायक पंजीकार सहायक पंजीकार सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, , , , \u000eद\u0010ली \u000eद\u0010ली \u000eद\u0010ली \u000eद\u0010ली / ITAT, DELHI "