M/s. NTPC-SAIL Power Co. Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1037/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7432 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 31-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-02-2013
• Court: TRIBUNAL
• Department Lawyers: SUNIL CHANDRA SHARMA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E, NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A. NO. 1037 & 1038/DEL/2013 (ASSESSMENT YEARS 2008-09 & 2009-10) NTPC-SAIL POWER CO. PVT. LTD., VS. ACIT, CIRCLE 13( 1), 4 TH FLOOR, NBCC TOWER, NEW DELHI 15, BHIKAJI CAMA PLACE, NEW DELHI-110 066 GIR / PAN :AABCN5467A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.P.RASTOGI, ADV. SHRI P. N. SHASTRI, CA RESPONDENT BY : SHRI SUNIL CHANDRA SHARMA, CIT DR DATE OF HEARING: 31/5/2016 DATE OF PRONOUNCEMENT: 31/05/2016 ORDER PER BEENA A. PILLAI, JM: THE ABOVE APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 26/12/2012 PASSED BY LD. ID. CIT (A)-16, NEW DELHI FOR ASSESSMENT YEAR 2 008-09 AND 2009-10 ON THE FOLLOWING GROUNDS OF APPEAL: A. ITA NO. 1037/DEL/2013 (A.Y: 2008-09): 1. THE LEARNED CIT IAI HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.19.22 LAKHS BY AO, OF A BILL DAT ED, 2 I.T.A.NO.1037/DEL/2013 RECEIVED AND SETTLED IN CURRENT YEAR AND AFTER THE AUDIT OF LAST YEAR ACCOUNTS AS PRIOR PERIOD EXPENS E. 2 THE CIT(A) HAS ERRED CONFIRMING THE DISALLOWANCE BY ASSESSING OFFICER OF SHORTAGE OF STORES OF RS.5 LAKHS PROVIDED IN ACCOUNTS AS AN UNASCERTAINED LIABILITY. B. ITA NO. 1038/DEL/13 (A.Y. 2009-10): THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.21.18 LACS BY ASSESSING OFFICER, PROVIDED IN ACCOUNTS ON ACCOUNT OF LOWER REALIZABLE VALUE OF SLOW AND NON MOVING STOCKS OF STORES FROM THEIR COST AS AN UNASCERTAINED LIABILITY. 2. AS THE ISSUES INVOLVED IN BOTH THE ASSESSMENT YE ARS ARE COMMON AND FACTUAL BACKGROUND OF THE ASSESSEE I N BOTH THE ASSESSMENT YEARS ARE ALSO SIMILAR, WE ARE INCLINED TO DISPOSE OF THE SAME BY WAY OF A COMMON ORDER. THE BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1 THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING AND IS A 50% JOINT-VENTURE OF NTPC AND SAIL. THE ASSESSEE OW NS CAPTIVE THERMAL POWER PLANTS LOCATED AT DURGAPUR, ROURKELA AND BHILAI. THE POWER GENERATED IN THESE P LANTS IS SUPPLIED TO SAIL AS PER POWER PURCHASE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND SAIL. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29/09/2008 A ND 30/09/2009 FOR THE RELEVANT ASSESSMENT YEARS 2008-0 9 AND 2009-10 RESPECTIVELY DECLARING A TOTAL INCOME O F RS.92,07,31,550/- AND RS.95,91,18,430/- RESPECTIVEL Y. THE ASSESSEE HAD REVISED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 ON 10/02/2010 DECLARING A 3 I.T.A.NO.1037/DEL/2013 TOTAL INCOME OF RS. 92,07,31,550/-. THE RETURNS FOR THE YEARS UNDER CONSIDERATION WERE PROCESSED UNDER SECT ION 143 (1) AND THE CASE WAS SELECTED FOR SCRUTINY ASSE SSMENT. ACCORDINGLY, NOTICES WERE ISSUED TO THE ASSESSEE UN DER SECTION 142 (1) AND 143(2) OF THE I T ACT. A.Y. 2008-09: 3. DURING THE ASSESSMENT PROCEEDINGS THE LD. AO OBSERVED THAT THE ASSESSEE HAD TAKEN A V-SAT-INTERN ET CONNECTION FROM STPI CONNECTING THE POWER PLANT WIT H THE HEAD OFFICE IN THE LAST YEAR ENDED ON 31/03/2007 AN D BILL DATED 06/07/2007 FOR IT WAS RECEIVED BY THE ASSESSE E FOR THE PERIOD UP TO 31/03/2007 DURING THE ASSESSMENT Y EAR 2008-09 THE ASSESSEE THUS CONTENDED THAT THE BILL W AS RECEIVED AND ACCEPTED DURING THE YEAR UNDER CONSIDERATION AND THUS THE LIABILITY CRYSTALLIZED I N THE ASSESSMENT YEAR 2008-09. HOWEVER, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE LIABIL ITY DID NOT PERTAIN TO ASSESSMENT YEAR 2008-09. 3.1 AGGRIEVED BY THE ORDER OF THE LD. AO, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A). 3.2 THE LD.CIT(A) UPHELD THE ADDITION MADE BY THE L D. A.O. ON THE GROUND THAT AS THE ASSESSEE WAS MAINTAI NING ITS ACCOUNT ON MERCANTILE BASIS, THE ALLOWANCE MUST BE GRANTED IN THE YEAR IN WHICH THE LIABILITIES ACCRUE D, IRRESPECTIVE OF THE QUESTION WHETHER THE DISBURSEME NT HAS BEEN MADE OR NOT. 4 I.T.A.NO.1037/DEL/2013 3.3 AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US NOW: 3.4 THE LD. A.R. SUBMITTED THAT THOUGH THE EXPENSES RELATE TO FINANCIAL YEAR 2006-07, SINCE THE BILLS W ERE RECEIVED IN THE FINANCIAL YEAR 2007-08, THE EXPENSE S HAVE BEEN BOOKED IN THE CURRENT YEAR. THE LD.AR SUBMITTE D THAT ASSESSEE IS A LIMITED COMPANY AND THAT THE ASSESSEE RECEIVED THE BILL FOR THE CONNECTION FROM STPI ON 06/07/2007 AND, THEREFORE, THE LIABILITY HAS ACCRUE D TO THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR. H E SUBMITTED THAT THE LIABILITY HAS CRYSTALLIZED IN TH E YEAR UNDER CONSIDERATION, AS THE ACCOUNTS FOR THE YEAR E NDED 31 ST OF MARCH 2007 WERE ALREADY AUDITED AND CLOSED ON 17/05/2007, THE LIABILITY BEING ACCEPTED AFTER THE CLOSE OF THE ACCOUNTS FOR EARLIER YEAR, COULD NOT BE PROVIDE D IN THE RELEVANT PREVIOUS YEAR. THE LD. AR SUBMITTED THAT T HE EXPENSES HAVE BEEN DEPICTED AS RELATING TO EARLIER YEAR FOR THE PURPOSE OF TRANSPARENCY, HOWEVER AS IT HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, T HE PRIOR PERIOD EXPENSES SHOULD BE ALLOWED. THE LD. AR PLAC ED HIS RELIANCE UPON FOLLOWING DECISIONS: GOETZE (INDIA) LIMITED VS. DCIT REPORTED IN 112 TTJ 1 (DEL), UNITED PHOSPHORUS LTD VS. JCIT REPORTED IN 81 ITD 553 (AHD.), SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD VS. CIT REPORTED IN 213 ITR 523 (GUJ.). 3.5 ON THE CONTRARY THE LD. D.R. SUBMITTED THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING, U NDER 5 I.T.A.NO.1037/DEL/2013 WHICH, THE INCOME AND THE EXPENSES OF THE RELEVANT YEAR REQUIRED TO BE BOOKED WITHIN THE SAME YEAR. HE SUBM ITTED THAT SINCE THE EXPENDITURE DOES NOT RELATE TO THE P REVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008-09, THE PRIOR PERIOD EXPENSES SHOULD BE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE LD. DR SUBMITTED THAT T HE MOMENT THE ASSESSEE HAS TAKEN THE CONNECTION FROM S TPI, THE CONTRACT HAS BEEN ACCEPTED AND THE AMOUNT DUE A ND PAYABLE BY THE ASSESSEE AS PER THE AGREEMENT STANDS CRYSTALLIZED, SINCE THE AGREEMENT HAS BEEN ENTERED INTO BETWEEN THE PARTIES DURING THE FINANCIAL YEAR 2006- 07, THE LIABILITY TO MAKE THE PAYMENT STANDS CRYSTALLISED D URING THE FINANCIAL YEAR 2006-07. HE THUS SUBMITTED THA T IT IS NOT AN ACCEPTABLE POSITION TO ALLOW THE CLAIM OF TH E ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 3.6 WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE ARGUMENTS/SUBMISSIONS MAD E BY BOTH THE SIDES AND THE JUDGEMENTS RELIED UPON BY THE ASSESSEES COUNSEL. 3.7 IT IS AN ADMITTED POSITION THAT THE ASSESSEE H AD ENTERED INTO THE AGREEMENT WITH STPI DURING THE FIN ANCIAL YEAR 2006-07. IT HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT THAT THE BILL IN RESPECT OF THE INTERNET CONNECTION HAS BEEN RECEIVED BY THE ASSESSEE ON 06/07/2007, I.E., DURING THE FINANCIAL YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION. FURTHER, AS HA S BEEN SUBMITTED BY THE LD. AR THAT THE BILL WAS RECE IVED BY 6 I.T.A.NO.1037/DEL/2013 THE ASSESSEE AFTER THE CLOSE OF THE ACCOUNTS FOR FI NANCIAL YEAR 2006-07, THE ASSESSEE COULD NOT HAVE PROVIDED FOR THE AMOUNT IN THE YEAR 2006-07. 3.8 THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT ( A), AS WELL AS BEFORE US, THAT THE BILLS WERE RECEIVED AFTER THE CLOSE OF THE YEAR, THAT IS AFTER THE CLOSE OF THE A CCOUNTING YEAR AND, THEREFORE, THEY WERE ACCOUNTED FOR IN THE SUBSEQUENT YEAR. 3.9 WE HAVE GONE THROUGH THE DETAILS FURNISHED BY T HE ASSESSEE IN THE TAX AUDIT REPORT AT PAGES 2 TO 12 O F THE PAPER BOOK AS WELL AS THE BILLS RECEIVED FROM STPI PLACED AT PAGES 14 TO 18. THESE DOCUMENTS FURNISHED BY THE ASSESSEE JUSTIFY THE CLAIM BEING ACCOUNTED FOR IN T HE YEAR UNDER CONSIDERATION. WE ARE, THEREFORE, OF THE CONS IDERED OPINION THAT THE ASSESSEE HAVING EXPLAINED THAT THE BILLS WERE RECEIVED AFTER THE CLOSE OF THE ACCOUNTING YEA R HOWEVER, THE LIABILITY WAS ASCERTAINED AND CRYSTALL IZED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION, THEREFORE, THEY WERE ACCOUNTED FOR A ND IT IS MENTIONED IN THE NOTES TO THE ACCOUNTS THAT THE EXPENSES RELATE TO THE EARLIER PERIOD FOR THE PURPO SE OF TRANSPARENCY, THERE WAS NO JUSTIFICATION IN DISALLO WING THE SAME. IT IS ALSO OBSERVED THAT THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF GOETZE (INDIA) LIMITED VS. DCIT (SUPRA) SUPPORTS THE CONTENTION OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION RELIED UPON BY THE LD. 7 I.T.A.NO.1037/DEL/2013 AR, WE ALLOW GROUND NO. 1 OF THE ASSESSEE FOR ASSES SMENT YEAR 2008-09. 4. GROUND NO. 2 FOR ASSESSMENT YEAR 2008-09 AS WELL AS GROUND NO. 1 FOR ASSESSMENT YEAR 2009-10 DEAL WITH THE PROVISION OF SHORTAGE ON STORE. THIS BEING A CO MMON ISSUE FOR BOTH THE ASSESSMENT YEARS, THEY ARE BEING DISPOSED OFF TOGETHER. 4.1 THE ASSESSEE HAD DEBITED RS. 5 LAKHS AND RS.26,29,042/-FOR ASSESSMENT YEARS 2008-09 AND 2009 - 10 RESPECTIVELY IN THE PROFIT AND LOSS ACCOUNT UNDE R THE HEAD PROVISION OF SHORTAGE ON STORE AND PROVISION F OR OBSOLESCENCE AND DIMINISHING IN VALUE OF STORES RESPECTIVELY. THE LD. AO DISALLOWED THE CLAIM OF TH E ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD NOT NO TED IN THE ACCOUNTS THAT THERE IS SHORTAGE IN THE STORE FO UND ON PHYSICAL VERIFICATION FOR ASSESSMENT YEAR 2008-09. FOR ASSESSMENT YEAR 2009-10, LD. AO DID NOT APPROVE THE DIMINISHING IN THE VALUE SHOWN BY THE ASSESSEE. HE THUS HELD THAT IT IS A NOTIONAL DIMINUTION IN VALUE WRIT TEN OFF IN THE BOOKS OF ACCOUNT AND ADDED BACK THE SAME FOR DETERMINATION OF REAL INCOME OF THE ASSESSEE. 4.2 AGGRIEVED BY THE ORDER OF THE LD. AO, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) FOR BOTH THE ASSESSMENT YEARS. 4.3 THE LD.CIT (A) UPHELD THE FINDINGS OF THE LD. A O FOR ASSESSMENT YEAR 2008-09. FOR ASSESSMENT YEAR 2009 -10, 8 I.T.A.NO.1037/DEL/2013 THE LD.CIT (A) HELD THAT THE DIMINUTION IN THE VALU E OF STORES AND THE PROVISION FOR OBSOLESCENCE IN THE PR OFIT AND LOSS ACCOUNT IS NOT SUPPORTED BY ANY PARTICULAR EVI DENCE AND THUS IS NOT ACCEPTABLE. 4.4 AGGRIEVED BY THE ORDER OF THE LD.CIT (A), THE A SSESSEE IS IN APPEAL BEFORE US NOW. 4.5 FOR ASSESSMENT YEAR 2008-09 THERE WAS A SHORTAG E OF STORES ON PHYSICAL VERIFICATION. 4.6 THE LD.AR SUBMITTED THAT THE ASSESSEE FOLLOWS A METHOD OF RECORDING CONSUMPTION AND EXPENSES OF STO RES, ON THE BASIS OF EACH ISSUE OF STORES VALUED ON COST , OF THE ITEMS. A NUMBER OF ITEMS OF THE STORES LIKE LUBRIC ANTS AND OILS BY THEIR VERY NATURE, LOSES PORTION ON ACCOUNT OF EVAPORATION AND LEAKAGE. HE SUBMITTED THAT THERE AR E A NUMBER OF OTHER ITEMS LIKE NUTS & BOLTS AND WASHERS ETC., WHICH ARE OF SMALL VALUES, WHICH GET REDUCED BY THE IR VERY NATURE. SOME OTHERS GET SPOILED, WHICH ARE NOT FIT FOR USE. THE LD. AR SUBMITTED THAT ALL THESE ITEMS GET REDUC ED ON ITS OWN, AND CANNOT BE TERMED AS CONSUMED FOR WHICH , CONSUMPTION VOUCHERS CAN BE ISSUED. LD. A.R. SUBMIT TED THAT THESE REDUCTIONS OF ITEMS ARE DETERMINED ON PH YSICAL VERIFICATION, WHICH IS SEPARATELY RECORDED AND PROV IDED IN THE ACCOUNTS AS SHORTAGE. 4.7 THE LD. DR SUBMITTED THAT FOR THE PURPOSE OF TRANSPARENT DEPICTION AND IN ORDER TO BALANCE THE ACCOUNTS WITH THE QUANTUM OF PHYSICAL STORES INVENT ORY, 9 I.T.A.NO.1037/DEL/2013 THIS AMOUNT IS SEPARATELY REFLECTED IN THE ACCOUNTS BY REDUCING FROM THE STOCK OF INVENTORY OF STORES. H E FURTHER SUBMITTED THAT THE SHORTAGE PROVIDED EACH YEAR IS N OT CARRIED FORWARD BUT ADJUSTED IN THE CARRY FORWARD. THE LD. AR IN HIS REJOINDER SUBMITTED THAT ASSESSEE HAS BEE N FOLLOWING THIS METHOD OF ACCOUNTING SINCE THE INCEP TION AND THAT THE REVENUE HAS BEEN ACCEPTING THE SAME FO R ALL THE PREVIOUS YEARS AND SUBSEQUENT YEARS TO THE ASSESSMENT YEARS UNDER CONSIDERATION BEFORE US. 4.8 IN RESPECT OF ASSESSMENT YEAR 2009-10 THE LD.AR SUBMITTED THAT DURING THIS YEAR, THE ASSESSEE HAD M ADE PROVISION FOR OBSOLESCENCE AND DIMINISHING IN VALUE OF STORES. THE LD. AR SUBMITTED THAT IN AN ORGANIZATI ON LIKE THAT OF AN ASSESSEE, THE STORES INCLUDE A LARGE NUM BER OF ITEMS, WHICH ARE OLD, OBSOLETE, SLOW AND NON-MOVING FOR A LONG TIME. HE SUBMITTED THAT THE MARKET/REALIZABLE VALUE OF SUCH STOCKS ARE LOWER THAN THEIR COST. THE LD. A R SUBMITTED THAT IN ORDER TO VALUE THE STOCKS ON LOWE R OF COST OR MARKET/REALISABLE VALUE, SUITABLE PROVISION FOR REDUCTION IN VALUE OF OBSOLESCENCE AND DIMINISHING IN VALUE OF STOCK HAS TO BE MADE. ACCORDINGLY THE ASSE SSEE WORKED OUT THE AMOUNT OF REDUCTION IN VALUE OF OBSOLESCENCE AND DIMINISHING OF STOCKS, WHICH ARE O LD, OBSOLETE, SLOW AND NON-MOVING FOR A LONG TIME. 4.10 THE LD.AR PLACED HIS RELIANCE UPON THE FOLLOWI NG DECISIONS: 10 I.T.A.NO.1037/DEL/2013 MILTON CYCLE INDUSTRIES LTD. VS. DCIT REPORTED IN 5 4 TTJ 380. NATIONAL ALUMINIUM CO. LTD VS. DCIT REPORTED IN (2006) 101 TTJ 948 (ITAT-CTK). 4.11 THE LD.AR SUBMITTED THAT IN ORDER TO REVIEW TH E REDUCTION IN THE VALUE, A COMMITTEE OF TECHNICAL AN D FINANCIAL PERSONNEL WERE SET UP FOR EACH UNIT HELD BY THE ASSESSEE. IT IS ON THE BASIS OF THIS REPORT PROVIDE D BY THE COMMITTEE THAT THE PROVISION IS MADE IN THE P&L ACC OUNT. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS BEEN FOLL OWING THE SAME PRACTICE SINCE ITS INCEPTION, WHICH HAS NO T BEEN DISTURBED BY THE REVENUE IN THE PAST AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS EXCEPT FOR THE YEAR UND ER CONSIDERATION BEFORE US. 4.12 THE LD.AR FURTHER PRAYED THAT THE PROVISION MA DE FOR THE VALUATION OF THE STORES FOR BOTH THE ASSESSMENT YEARS SHOULD BE ALLOWED CONSIDERING THE FACTUAL POSITION. 4.13 ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE REDUCTION IN THE VALUE OF ITEMS OF STORES DETERMINE D ON PHYSICAL VERIFICATION IS CONTRARY TO THE AUDIT REPO RT. HE SUPPORTED THE FINDINGS OF THE AUTHORITIES BELOW AND PRAYED FOR THE ADDITION TO BE CONFIRMED. 4.14 WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW, THE SUBMISSIONS MADE BY BOTH THE PARTIES AS WELL AS THE DECISIONS RELIED UPON BY THE LD.AR. 4.15 IT IS AN UNDISPUTED FACT THAT THE ASSESSEES S TORE CONSISTS OF ITEMS, WHICH ARE PERISHABLE IN NATURE A ND/OR 11 I.T.A.NO.1037/DEL/2013 DUE TO THEIR OLDNESS/OBSOLETE, THE SAME HAVE LOST T HEIR WORTH. IT IS ALSO OBSERVED FROM THE DOCUMENTS SUBM ITTED BEFORE US TODAY IN RESPECT OF THE STOCK WRITE-OFF D ETAILS BY THE LD. AR THAT, AS AND WHEN THE STOCK HAS BEEN RE- USED, THE PROVISION IN RESPECT OF SUCH STOCK HAS BEEN WRI TTEN OFF AS INCOME UNDER PRIOR PERIOD FOR BOTH THE ASSESSMEN T YEARS. FROM THE LIST OF STOCK PHYSICALLY TAKEN, IT IS OBSERVED THAT SOME DISCREPANCIES IN RESPECT OF CERT AIN ITEMS CONTINUE SINCE 2006-07. 4.16 DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS APPOINTED A COMMITTEE OF EXPERTS TO DETERMINE THE CORRECT VALUE OF OLD AND OBSOLETE STO CK, WHICH HAD BEEN PILING UP SINCE THE INCEPTION OF ITS BUSINESS. WHEN IT WAS FELT THAT THE ASSESSEES BO OK RESULTS WERE GETTING DISTORTED, THE COMMITTEE SO AP POINTED MADE ITS RECOMMENDATIONS AND SUGGESTED ITEM WISE REDUCTION IN THE VALUE OF STOCKS BOTH OF RAW MATERI ALS, STORE AND SPARES. THE ASSESSEE ON THE BASIS OF SUCH RECOMMENDATIONS, REDUCE THE VALUE OF SUCH STOCK OF RAW MATERIALS AND STORES/SPARES AND DEBITED IT TO THE P &L ACCOUNT. AS SUBMITTED BY THE ASSESSEE THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTI NG IN RESPECT OF OBSOLETE/NON-MOVING STOCKS IN THE STORE. 4.17 WE FIND THAT TRIBUNAL, DELHI BENCH, IN THE CA SE OF MILTON CYCLE INDUSTRIES LTD. VS. DY. CIT (1996) 54 TTJ (DEL) 380HAS HELD AS UNDER (SHORT NOTES) : 12 I.T.A.NO.1037/DEL/2013 'WE HAVE HEARD THE LEARNED REPRESENTATIVES AND ALSO PERUSED THE RELEVANT RECORD. ON A PERUSAL OF RELEVA NT FACTS AND CIRCUMSTANCES AS DETAILED ABOVE, WE ARE O F THE VIEW THAT THE CHANGE EFFECTED BY THE ASSESSEE I S BONA FIDE AND AIMED AT OBTAINING CORRECT BUSINESS PROFIT. IT IS NOBODY'S CASE THAT ASSESSEE HAS NOT ACCUMULATED SUCH STOCKS IN THE PAST. UNDOUBTEDLY, SUCH STOCKS WENT ON LOSING THEIR VALUES FOR THE PURPOSES OF ASSESSEE'S BUSINESS THEREBY DISTORTING ASSESSEE'S PROFITS YEAR IN AND YEAR OUT WHEN A DECISION WAS TAKEN TO INVESTIGATE THE ENTIRE MATTER BY APPOINTING A COMMITTEE OF EXPERTS ON WHOSE RECOMMENDATIONS, BASED ON PROPER STUDY OF MARKET CONDITION, THE ASSESSEE-COMPANY REDUCED THE VALUE O F THE IMPUGNED STOCKS TO THE EXTENT OF RS.2,90,299 AN D THIS VERY VALUE HAS BEEN CARRIED FORWARD TO THE NEX T YEAR AND ASSESSED AS SUCH. THEREFORE, ON A CONSIDERATION OF RELEVANT FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CHANGE EFFECTED BY THE ASSESSEE IN THE METHOD OF VALUATION OF ITS STOCKS W AS BONA FIDE, THE SAME HAVING BEEN MADE ON PERMANENT BASIS AND THE CHANGED METHOD HAVING BEEN FOLLOWED IN THE SUBSEQUENT YEARS. THEREFORE, WE ARE OF THE V IEW THAT ASSESSEE'S CLAIM WAS JUSTIFIED. WE ACCORDINGLY ALLOW THIS GROUND OF APPEAL' 4.18 WE FIND THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT COMMERCE & INDUSTRIES LT D. (1999) 157 CTR (DEL) 53: (1999) 240 ITR 256(DEL) HA S HELD AS UNDER (SHORT NOTES) : 'AN ASSESSEE IS FREE TO ADOPT A PARTICULAR METHOD O F VALUATION OF ITS CLOSING STOCK WHICH IT HAS TO FOLL OW REGULARLY FROM YEAR TO YEAR. AT THE SAME TIME IT IS WELL-SETTLED THAT IRRESPECTIVE OF THE BASIS ADOPTED FOR VALUATION FOR EARLIER YEARS, THE ASSESSEE HAS AN OP TION TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK, PROVIDED THE CHANGE IS BONA FIDE AND FOLLOWED REGULARLY THEREAFTER. THE TRIBUNAL BEING THE FINAL FACT- FINDING AUTHORITY UNDER THE ACT, THE HIGH COURT IN THE 13 I.T.A.NO.1037/DEL/2013 EXERCISE OF ITS ADVISORY JURISDICTION CAN NEITHER G O BEHIND THE FACTS STATED BY THE TRIBUNAL NOR CAN DISTURB THE SAME UNLESS A CHALLENGE IS PROVIDED SPECIFICALLY BY A QUESTION FRAMED IN A REFERENCE AGAINST THE VALIDITY OF THE IMPUGNED FINDINGS OF FA CT ON THE GROUND THAT THERE IS NO EVIDENCE TO SUPPORT THEM OR THEY ARE THE RESULT OF A MISDIRECTION IN LA W. HELD, THAT, IN VIEW OF THE FINDINGS OF THE TRIBUNAL , THE ASSESSEE HAD RESORTED TO REVALUATION OF THE RAW MATERIALS ON THE BASIS OF SPECIFIC INSTANCES OF FAL L IN VALUE OF THE GOODS WHEN SUCH GOODS COULD NOT BE SOL D EVEN AT COST PRICE, THERE WAS NOTHING WRONG IN VALU ING THE GOODS AT AN ESTIMATED REALIZABLE VALUE. THE ASSESSEE HAS AN OPTION TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK IF THE CHANGE IS BONA FI DE AND FOLLOWED REGULARLY THEREAFTER. THE LOSS ARISING OUT OF REVALUATION OF CLOSING STOCK WAS ALLOWABLE.' 4.19 WE FURTHER FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT (19 53) 24 ITR 481(SC) HAS HELD AS UNDER (SHORT NOTES) : 'IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT 'AR ISES OUT OF THE VALUATION OF THE CLOSING STOCK' AND THE SITUS OF ITS ARISING OR ACCRUAL IS WHERE THE VALUATION IS MADE. VALUATION OF UNSOLD STOCK AT THE CLOSE OF AN ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCES S OF DETERMINING THE TRADING RESULTS OF THAT PERIOD, AND CAN IN NO SENSE BE REGARDED AS THE SOURCE OF SUCH PROFITS. NOR CAN THE PLACE WHERE SUCH VALUATION IS MADE BE REGARDED AS THE SITUS OF THEIR ACCRUAL. TH E SOURCE OF THE PROFITS AND GAINS OF A BUSINESS IS INDUBITABLY THE BUSINESS, AND THE PLACE OF THEIR ACCRUAL IS WHERE THE BUSINESS IS CARRIED ON. AS SU CH PROFITS CAN BE CORRECTLY ASCERTAINED ACCORDING TO T HE METHOD ADOPTED BY AN ASSESSEE ONLY AFTER BRINGING INTO THE TRADING ACCOUTN HIS CLOSING STOCK WHEREVER IT MAY EXIST, THE WHOLE OF THE PROFITS MUST BE TAKEN T O ACCRUE OR ARISE AT THE PLACE OF CARRYING ON THE BUSINESS. 14 I.T.A.NO.1037/DEL/2013 4.20 ON THE BASIS OF THE ABOVE DETAILED CIRCUMSTANCES AND RELEVANT FACTS, WE ARE OF THE VIE W THAT THE ASSESSEES BONA FIDES ARE AIMED AT OBTAINING CO RRECT BUSINESS PROFIT, IT IS NOBODYS CASE THAT ASSESSEE HAS NOT ACCUMULATED SUCH STOCK IN THE PAST. UNDOUBTEDLY, S UCH STOCKS WENT ON LOSING THEIR VALUES FOR THE PURPOSE OF ASSESSEES BUSINESS, THEREBY DISTORTING ASSESSEES PROFITS YEAR IN AND YEAR OUT, WHEN A DECISION WAS TAKEN TO INVESTIGATE THE ENTIRE MATTER BY APPOINTING A COMMI TTEE OF EXPERTS ON WHOSE RECOMMENDATIONS, BASED ON PROPER STUDY OF MARKET CONDITION, THE ASSESSEE HAS REDUCED THE VALUE OF THE STOCKS ITEM WISE AND THIS VALUE HAS BE EN CARRIED FORWARD TO THE NEXT YEAR AND ASSESSED AS SU CH. 4.21 RESPECTFULLY FOLLOWINGS THE RATIO LAID DOWN IN THE JUDGEMENT REFERRED ABOVE, WE ARE OF THE CONSIDE RED OPINION THAT ASSESSEES CLAIM WAS JUSTIFIED. WE ACCORDINGLY ALLOW THIS GROUND OF APPEAL. 5. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 STANDS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 31.05.2016. SD./- SD./- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:31.05. 2016 SP. 15 I.T.A.NO.1037/DEL/2013 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 31/5 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 31/5 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 31/5/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 31/5 SR. PS/PS 7 FILE SENT TO BENCH CLERK 7/6 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER