Shri Pareshkumar Bhikhachand Shah, Panchmahal V. The Income tax Officer,Ward-1, Palanpur

ITA 1063/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0767 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH SOLANKI HEARING CONCLUD
• Assessee Lawyers: A C SHAH
• Section: 143(3)

Judgement Text

I.T.A. NO.: 1063/AHD/2013 ASSESSMENT YEARS: 2007 - 08 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD SMC BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM ] I.T.A. NO. : 1063 /AHD/201 3 ASSESSMENT YEAR S: 2007 - 08 PARESHKUMAR BHIKAMCHAD SHAH ............APPELLANT [PAN: AUBPS3514J ] VS INCOME TAX OFFICER WARD 1, PALAN PUR ...........RESPONDENT APPEARANCES BY A C SHAH FOR THE APPELLANT SATISH SOLANKI FOR THE RESPONDENT HEARING CONCLUDED ON: 04 /0 8 /16 ORDER PRONOUNCED ON : 16 /08/16 O R D E R 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGA INST THE ORDER DATED 25 TH NOVEMBER, 2014 PASSED BY THE CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS RAISED TWO GROUNDS OF APPEAL - FIRST, AGAINST LEARNED CIT(A) C ONFIRMING THE ADDITION OF RS 5,46,407 IN RESPECT OF VALUATION OF CLOSING STOCK; AND - SECOND, AGAINST ADDITION OF RS 90,000 IN RESPECT OF LOW HOUSEHOLD WITHDRAWALS OF THE ASSESSEE. HOWEVER, THE ONLY GRIEVANCE PRESSED BEFORE US IS WITH RESPECT TO ADDITION OF RS 5,46,407 IN RESPECT OF CLOSING STOCK. THE GRIEVANCE AGAINST ADDITION ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS IS, THEREFORE, TREATED AS NOT PRESSED AND DISMISSED AS SUCH. I.T.A. NO.: 1063/AHD/2013 ASSESSMENT YEARS: 2007 - 08 PAGE 2 OF 4 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN AGRICULTURAL PRODUCTS A ND AS COMMISSION AGENT. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTED, IN RESPECT OF VALUATION OF STOCK, THAT WHILE THE COST PRICE OF PURCHASES IN THE MONTH OF AUGUST SEPTEMBER AND MARCH ARE RS 1,955, RS 1,955 AND RS 2,334 RESPECTIVELY, THE CLOSING STOCK IS VALUED AT RS 1,738. HE CONCLUDED THAT THE STOCK IS NO VALUED AT COST UNDER FIFO BASIS. THE ASSESSEE S EXPLANATION WAS THAT THE STOCK IS VALUED AT COST PRICE OR MARKET PRICE, WHICHEVER IS LESS, AND THE MARKET VALUE AS ON THE YEAR END HAVE BEEN, TO THAT EXTENT, TAKEN INTO ACCOUNT. A COPY OF THE CERTIFICATE FROM APMC PALANPUR WAS ALSO FURNISHED BY THE ASSESSEE. THIS EXPLANATION WAS, HOWEVER, REJECTED BY OBSERVING THAT THE ASSESSEE S ABOVE REPLY IS CAREFULLY CONSIDERE D AND IS NOT ACCEPTABLE AS ON VERIFICATION OF AUDIT REPORT, IT IS REVEALED THAT THE AUDITOR HAS MENTIONED NOTE THE METHOD OF VALUATION OF CLOSING STOCK IN TRADE ITEMS VALUED AT COST . THE AO THEN PROCEEDED TO REVALUE THE STOCK ON THE BASIS OF LAST PURC HASE PRICE UNDER THE FIFO METHOD. ACCORDINGLY, AN ADDITION OF RS 5,46,407 WAS MADE IN RESPECT OF ALLEGED UNDERVALUATION OF CLOSING STOCK. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISF IED AND IS IN SECOND APPEAL BEFORE ME. 3. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 4. IT IS ONLY ELEMENTARY THAT WHILE COMPUTING BUSINESS PROFI TS, THE TRADING STOCK CAN ONLY BE TAKEN AT COST OR MARKET PRICE - WHICHEVER IS LESS. THE BASIC ACCOUNTING PRINCIPLE OF CONSERVATISM IS THE CONCEPTUAL FOUNDATION OF THIS PRACTICE. IN AN OFT REFERRED AND LANDMARK JUDGMENT OF HON BLE SUPREME COURT, IN THE CASE OF CHAINRUP SAMPATRAM VS CIT [(1953) 24 ITR 481 (SC)] , IT IS STATED AS FOLLOWS: AS POINTED OUT IN PARAGRAPH 8 OF THE REPORT OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDING OF TRADING STOCKS, 1919, 'AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED WHICH HAVE NOT BEEN SOLD, IT SHOULD NECESSARILY REPRESENT THE COST OF THE I.T.A. NO.: 1063/AHD/2013 ASSESSMENT YEARS: 2007 - 08 PAGE 3 OF 4 GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN THE EFFECT IS TO STATE THE PROFIT ON THE GOODS WHICH ACTUALLY HAVE BEEN SOLD AT THE INCORRECT FIGURE...... FROM THIS RIGID DOCTRINE ONE EXCEPTION IS VERY GENERALLY RECOGNISED ON PRUDENTIAL GROUNDS AND IS NOW FULLY SANCTIONED BY CUSTOM, VIZ., THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF THAT VALUE IS LESS, THAN COST. IT IS OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON THOSE GOODS IN THE FOLLOWING YEAR, AND MAY EVEN HAVE THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEAR'S RESULTS A GREATER AMOUNT OF PROFIT THAN THE DIFFERENCE BETWEEN THE ACTUAL SALE PRICE AND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION.' (EXTRACTED IN PARAGRAPH 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFITS PRESENTED TO BRITISH PARLIAMENT IN APRIL, 1951). WHILE ANTI CIPATED LOSS IS THUS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY U NDERLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOWER, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. 5. IN THE PRESENT CASE, THE ASSESSEE HAD DULY FURNI SHED A CERTIFICATE FROM THE APMC PALANPUR CONFIRMING THE MARKET PRICE AT THE YEAR END WHICH HAS C LEARLY ESTABLISHED THAT THE MARKET PRICE WERE LOWER THAN THE COST PRICE . IT WAS ON THE BASIS OF THAT MARKET PRICE THAT THE STOCKS WERE VALUED. THAT IS PRECISEL Y WHAT OUGHT TO HAVE BEEN DONE ANYWAY . THE STAND OF THE ASSESSEE DOES MERIT ACCEPTANCE. AS FOR THE VALUATION ON FIFO BASIS, I.E. FIRST IN FIRST OUT, I DONOT FIND ANY LEGAL SANCTION FOR MANDATORY USE OF THIS METHOD. BE THAT IS IT MAY, EVEN IF FIFO IS TAKEN, SINCE THE MARKET PRICE ARE ADMITTEDLY LOWER THAN THE PRICES SO ARRIVED AT, ONLY MARKET PRICE CAN BE TAKEN INTO ACCOUNT. VIEWED THUS ALSO, THE STAND OF THE A SSESSEE CANNOT BE FAULTED WITH. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY O F THE CASE, I UPHOLD THE PLEA OF THE ASSESSEE. THE ADDITION OF RS 5,46,407 TO THE VALUE OF CLOSING STOCK IS THUS DELETED. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. I.T.A. NO.: 1063/AHD/2013 ASSESSMENT YEARS: 2007 - 08 PAGE 4 OF 4 6. AS I PART WITH THE MATTER, I MAY ADD THAT THE ORDER PASSED BY THE CIT(A) WAS EX - PARTE AND THE MATTER SHOULD HAVE BEEN NORMALLY AT BEST RESTORED TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON MERITS AFTER GIVING YET ANOTHER OF OPPORTUNITY OF HEARING TO THE ASSESSEE. HOWEVER, AS IT WAS ONE OF THE CASES IN WHICH ALL THE RELEVANT FACTS WER E DISCERNIBLE FROM THE ASSESSMENT ORDER ITSELF, THE AMOUNT AND ISSUE INVOLVED WAS SMALL, AND, THEREFORE, AN EXCEPTION WAS MADE OUT. IT SHOULD NOT BE TREATE D AS A PRECEDENT AND IT SHOULD BE EXPECTED TO BE A MATTER OF COURSE THAT SUCH ADJUDICATION ON MERIT S IS DONE IN THE CASES IN WHICH, FOR WHATEVER REASONS, THE ASSESSEE DOES NOT APPEAR BEFORE THE FIRST APPELLATE AUTHORITY. 7 . IN THE RESULT, T HE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 16 TH D AY OF AUGUST, 2016. SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: 16 TH DAY OF AUGUST ,2016 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGI STRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD