ITO, Baddi V. M/s Himachal Winding Wire Products, Solan

ITA 1076/CHANDI/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5109 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C CHANDRAKANTA
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR , ACCOUNTANT MEMBER ITA NO. 1076/CHD/2011 ASSESSMENT YEAR:2006-07 THE ITO VS. HIMACHAL WINDING WIRE PRODUCTS BADDI VILLAGE BURANWALA P.O. BAROTIWALA SOLAN PAN NO. AADFH5165Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. C.S. ANAND DEPARTMENT BY : SMT. C. CHANDRAKANTA DATE OF HEARING : 07/03/2018 DATE OF PRONOUNCEMENT : 14/03/2018 ORDER PER DR. B.R.R. KUMAR, A.M: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A), SHIMLA DT. 25/08/2011. 2. IN THE PRESENT APPEAL REVENUE HAS RAISED THE FOL LOWING EFFECTIVE GROUNDS: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION AMOUNTING TO RS. RS. 27,12,972/- MADE ON ACCOUNT OF EXCESS STOCK FOUND.' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL GROUND OF APPEAL REGARDING EXP LANATION OF DIFFERENCE IN VALUE OF STOCK. 3. THE LD. CIT(A) HAS FURTHER ERRED IN DELETING THE AD DITION OF RS. 11,96,000/- MADE ON ACCOUNT OF DONATION EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT . 2 3. ASSESSMENT IN THIS CASE WAS COMPLETED UNDER SECT ION 143(3) OF THE I.T. ACT, 1961 VIDE ORDER DATED 30-09-2008. WHILE COMPLETING THE ASSESSMENT, THE DEDUCTION CLAIMED UNDER SECTION 80-IC OF THE I.T. A CT AMOUNTING TO RS. 12,08,33,314/- WAS DISALLOWED TREATING THE INCOME N OT DERIVED BY MANUFACTURING ACTIVITIES (RS. 10,15,17,475/- TREATE D AS INCOME FROM OTHER SOURCES AND RS. 1,93,15,839/- DETERMINED FROM BUSINESS ACTI VITIES BUT NOT DERIVED FROM MFG. ACTIVITIES). BESIDES THIS, ADDITION ON ACCOUNT OF DIFFERENCE IN STOCK NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AMOUNTI NG TO RS. 27,12,972/- WAS ALSO MADE. EXPENSES AMOUNTING TO RS. 11,96,500/- CL AIMED ON ACCOUNT OF DONATION IN THE PROFIT AND LOSS ACCOUNT WERE ALSO D ISALLOWED BEING NOT RELATED TO BUSINESS ACTIVITIES. THE LD. CIT(A) SHIMLA DISMI SSED THE APPEAL FILED BY ASSESSEE VIDE ORDER PASSED IN APPEAL NO.IT/183/08-0 9/SML DATED 24-08-2009. NOT SATISFYING WITH THE ORDER OF THE LD. CIT(A), TH E ASSESSEE WENT IN APPEAL BEFORE THE HON'BLE ITAT, CHANDIGARH, WHO VIDE ITS O RDER PASSED IN APPEAL NO. ITA/997/2009 DATED 31-12-2009 DECIDED THE APPEAL OF THE ASSESSEE AND ADDITION MADE ON ACCOUNT OF DEDUCTION DISALLOWED AM OUNTING TO RS. 12,08,45,198/- WAS DELETED AND REGARDING OTHER ADDI TIONS, THE MATTER WAS RESTORED TO THE FILE OF THE CIT(A) FOR FRESH ADJUDI CATION. 4. IN THE SECOND ROUND OF APPEAL THE LD. CIT(A) HAS DELETED THE ADDITION OF RS. 27,12,972/- MADE ON ACCOUNT OF EXCESS STOCK AND RS. 11,96,000/- MADE ON ACCOUNT OF DONATION EXPENSES DEBITED TO P&L ACCOUNT , HENCE THE APPEAL OF THE REVENUE. (I) ADDITION OF( RS. 27,12,972/-) IN THIS CASE SURVEY UNDER SECTION 133A WAS CONDUCTE D DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. DURI NG THE COURSE OF SURVEY, STOCK OF THE ASSESSEE WAS INVENTORISED AND VALUED A T RS. 1,53,74,942/- WHEREAS AS PER TRADING ACCOUNT GOT PREPARED AT THE TIME OF SURVEY, CLOSING STOCK WAS AT RS. 1,25,47,972/- AND THUS THERE WAS DIFFERENCE OF RS. 28,26,972/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS A SKED TO EXPLAIN THE DIFFERENCE WHICH IT SOUGHT TO BE EXPLAINED (AS QUOT ED AT PAGE 11 OF ASSESSMENT ORDER IN PARA 9) BY STATING THAT G.P. RATE OF EARLI ER YEAR (FINANCIAL YEAR 2004-05) 3 AT 24.64% HAS BEEN APPLIED TO VALUE THE CLOSING STO CK WHEREAS G.P. RATE OF THIS YEAR WAS @31.84%. THE ASSESSEE ALSO REPLIED THAT TH E VALUE DIFFERS ACCORDING TO SIZE OF DIFFERENT PRODUCTS. THE ASSESSEE SOUGHT TO EXPLAIN THE DIFFERENCE BY STATING THAT MAINLY THE DIFFERENCE IS ON ACCOUNT OF JOB WORK STOCK PERTAINING TO DIFFERENT PARTIES NAMELY M/S HAVELLS INDIA LTD. (R S. 6,39,220/-); SHARDA ENTERPRISES (RS.6,01,493/-) & SUKAM POWERS SYSTEMS (P) LTD. (RS . 1,14,000/-) AND ALSO ON ACCOUNT OF EXCESS VALUE OF FINISHED GOODS. 4.1 SINCE DURING THE COURSE OF SURVEY CONDUCTED U/S 133A OF THE I.T. ACT, JOB WORK STOCK OF M/S SU-KAM POWER SYSTEMS WAS STATED T O BE LYING AT ITS PREMISES WHICH WAS OF RS. 1,14,000/-, CREDIT FOR IT WAS ALLO WED AT THE TIME OF ASSESSMENT AND DIFFERENCE OF RS. 27,12,972/-(RS. 28,26,972/- M INUS 1,14,000/-) WAS ADDED TO ASSESSEE'S TOTAL INCOME. THE OBSERVATION OF THE LD. CIT(A) WHILE DELETING TH E ABOVE ADDITION IS AS UNDER : THE LD. A.O. MADE THE ADDITION ON THE BASIS OF DIFF ERENCE IN THE VALUE OF STOCK INVENTORIZED AS ON SURVEY DATE. HE WORKED OUT THE V ALUE OF SUCH STOCK BY APPLYING G.P. RATE ON SALES & JOB WORK TILL THAT DATE. LD. A.O. MAINLY RELIED UPON THE G.P. RATE AND ACCORDINGLY WORKED OUT THE VALUE OF SUCH S TOCK. IT IS NOTICED THAT LD. A O INITIALLY ASKED THE APPELLANT TO SHOW CAUSE AS TO W HY ADDITION OF RS. 23,21,262/-, BEING THE DIFFERENCE OF RS. 1,53,74,942/- (THE VALU E WORKED ON THE SURVEY DATE) AND RS. 1,30,53,710/- (THE VALUE WORKED AT THE TIME OF SURVEY AS PER TRADING ACCOUNT), BE NOT MADE. IN RESPONSE THE APPELLANT INFORMED VID E ITS LETTER DT. 04/09/2008, THAT THE CORRECT VALUE OF ITS OWN STOCKS AS ON SURVEY DA TE WAS RS. 1,40,72,824/- AND NOT RS. 1,30,53,710/-. THE APPELLANT RECONCILED THE DIF FERENCE OF RS. 12,02,118/- BY STATING THAT IT WAS HAVING JOB WORK STOCK OF RS. 10 ,17,579/-, BELONGING TO TWO OTHER PARTIES - HAVELL'S INDIA LTD (RS. 6,39,210/-) AND S HARDA ENTERPRISES (RS. 3,78,359/-). IT IS ALSO NOTICED THAT THE APPELLANT RAISED SUCH CLAIM B EFORE THE LD. A.O. TOO, BUT HE REJECTED SUCH CLAIM ON THE GROUND THAT DURING EXAMI NATION OF THE PARTNER,SH. NEERAJ JAIN, DID NOT SAY ANYTHING REGARDING SUCH JO B WORK STOCKS OF HAVELL'S INDIA LTD AND SHARDA ENTERPRISES AND ALSO NO DOCUMENTS WA S PRESENTED / GIVEN AT THE TIME OF SURVEY. IT IS NOT THE CASE OF LD. A.O. THAT ANY DIFFERENCE IN QUANTITY OF STOCK WAS FOUND DURING THE COURSE OF SURVEY. THEREFORE, I FIND FORCE IN THE ARGUMENTS MADE BY THE ID A/R AND FEEL THAT THE CREDIT OF RS. 10,17,579/- JOB WORK STOCKS OF HAVELL'S INDIA LTD AND SHARDA ENTERPRISES SHOULD BE ALLOWED TO THE APPELLANT. 3.2 THE APPELLANT FURTHER RECONCILED THE REMAINING DIFFERENCE BY STATING THAT THE SAME WAS DUE TO ESTIMATION / GUESS WORK DONE BY THE SURVEY PARTY WITH REGARD TO THE MATERIAL RUNNING ON MACHINES AND ALSO EXCESS IVE VALUATION DONE IN RESPECT OF ENAMELED WIRE @ RS. 310/- PER KG INSTEAD OF RS. 195/- PER KG BEING THE YEARLY AVERAGE SELLING RATE. IT WAS NOTICED THAT THE LD. A .O. RAISED SUCH ISSUE ON THE 4 GROUND THAT THE APPELLANT SHOWED ITS INABILITY TO G IVE AVERAGE SALE RATE (SIZE WISE) OF THE WIRE. THE A. O. STATED IN THE ASSESSMENT ORD ER VIDE PARA 9.3 THAT 'MOREOVER ON TAKING THE AVERAGE SALE RATE OF DIFFERENT SIZES OF WIRE ON THE BASIS OF AVERAGE SALE OF RATE OF FEB, 2006, THE MONTH IN WHICH SURVE Y WAS CONDUCTED, THE SALE RATE COMES TO ALMOST THE SAME WHICH WAS QUOTED BY THE AS SESSEE AT THE TIME OF SURVEY. HENCE, THE PLEA OF THE ASSESSEE ON THIS ISS UE IS REJECTED'. 3.3 THE ID A/R HAS DEALT WITH THESE OBSERVATIONS OF LD. A.O. VIDE PARA NOS 1.13 OF HIS WRITTEN ARGUMENTS. I FIND FORCE IN THE ARGUM ENT MADE BY HIM AND FEEL THAT SINCE THE APPELLANT ONCE ADOPTED THE BASIS FOR VALU ING ITS CLOSING STOCK - RAW MATERIAL AT COST AND FINISHED GOODS AT YEARLY AVERA GE SELLING RATE, THE SAME BASIS FOR VALUING THE STOCK AS ON SURVEY DATE SHOULD BE A PPLIED. IT IS FURTHER NOTICED THAT LD. A. C HIMSELF ACCEPTED THE COST FOR VALUING THE CLOSING S TOCK AS ON 31.03.2006. IT IS ALSO NOTICED THAT THE ID. AO. DID NOT MENTION IN THE ASSESSMENT ORDER THAT THERE WAS ANY DIFFERENCE IN THE QUANTITIES OF THE STOCKS AS ON SURVEY DATE AND ALSO THAT HE DID NOT FILE ANY DISCREPANCY IN THE PURCHASE, SA LE, RECEIPT OR EXPENSES. THEREFORE, I DO NOT SEE ANY JUSTIFICATION TO UPHOLD THE ADDITION OF RS 27,12,970/- MADE ON ACCOUNT OF STOCKS. ACCORDINGLY, THE ADDITIO N OF RS. 27,12,970/- IS DELETED 5. BEFORE US THE LD. DR ARGUED THAT THE RATE OF RS. 310 PER KG IS AS PER THE RATE DETERMINED AS PER THE BOOKS OF ACCOUNTS. IT WA S ARGUED THAT NOWHERE DURING THE SURVEY THE JOB WORK STOCK BELONGING TO H AVELLS INDIA AND SHARDA ENTERPRISES HAVE BEEN BROUGHT TO THE NOTICE OF THE SURVEY TEAM AND THE ASSESSEE SHOWED INABILITY TO PROVIDE AVERAGE SALE R ATE (SIZE WISE) OF THE WIRE. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER. 6. THE LD. AR RELIED ON THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND ARGUED THAT THERE WAS NO DIFFERENCE IN THE QUANTITY FOUND TO THE EXTENT THERE IS NO EXCESS STOCK PER SE AS PER THE BOOKS OF ACCOUNTS . IT WAS SUBMITTED THAT 2062 KGS OF ENAMELED COPPER WIRE BELONGING TO HAVELLS IN DIA LTD. VALUED RS. 310 PER KG AND BARE COPPER WIRE WEIGHING 1940 KG BELONGING TO SHARDA ENTERPRISES VALUED TO RS. 195 PER KG HAVE TO BE GIVEN THE BENEF IT OF. IT WAS FURTHER ARGUED THAT THE ADDITION WAS PRIMARILY BASED ON THE DIFFER ENCE IN THE VALUATION OF THE STOCK BUT NOT BASED ON THE DIFFERENCE OF THE QUANTI TY OF STOCK. 7. ON GOING THROUGH THE RECORD WE FIND THAT THE PRI CING HAS BEEN TAKEN @ RS. 310 PER KG BEING THE SELLING RATE OF THE FINISH ED GOODS WHEREAS RS. 195 PER KG IS THE VALUE OF THE JOB WORK AND THE RATE OF THE RA W MATERIAL. THE EVIDENCES HAVE BEEN FILED FOR THE RECONCILE STOCK IN THE FORM OF JOB WORK EXCISE CHALLANS, 5 COPY OF THE ADVICES. THE DETAILS OF THE JOB WORK DO NE BY THE ASSESSEE FOR BOTH THE ENTERPRISES NAMELY M/S HAVELLS INDIA LTD. AND M /S SHARDA ENTERPRISES HAVE BEEN SUBMITTED. THE REGULAR METHOD OF VALUING THE C LOSING STOCK I.E; RAW MATERIAL AT COST AND FINISHED GOODS AT YEARLY AVERA GE SELLING RATE, THEN THE SAME BASIS FOR HAS TO BE ADOPTED FOR VALUING THE ST OCK AS ON DATE OF SURVEY. THERE WAS NO DIFFERENCE IN THE QUANTITY OF THE STOC K FOUND DURING THE COURSE OF SURVEY AS AFFIRMED BY THE LD. CIT(A) IN HIS ORDER. HENCE KEEPING IN VIEW THE TOTALITY OF THE EVENTS WE DECLINE TO INTERFERE IN T HE ORDER OF THE LD. CIT(A). (II) DISALLOWANCE OF DONATION EXPENSES RS. 11,9 6,500/- DONATION OF RS. 11,96,000/- WERE DISALLOWED AT THE TIME OF COMPLETING THE ASSESSMENT SINCE IT WAS NOT A BUSINESS EXPENSE THE LD. CIT(A) HAS DELETED THIS DISALLOWANCE OBSERVING IN PARA 3.4 AND 3.5 OF APPEL LATE ORDER THAT WHEN BUSINESS PROFITS OF INDUSTRIAL UNDERTAKING ARE EXEM PT UNDER SECTION 80-IC, IT WILL HAVE NO IMPACT ON TAXABLE INCOME. 8. THE LD. DR ARGUED THAT THE DEPTT. HAS FILED APPE AL TO THE HON'BLE HIGH COURT AGAINST ALLOWING OF DEDUCTION UNDER SECTION 8 0-IC. 9. LD. AR RELIED ON THE ORDER OF THE LD. CIT(A) AND THE JUDGMENT IN THE CASE OF CIT VS. ALLIED INDUSTRIES 31 DTR 323 (H.P). 10. THE DISALLOWANCE OF DONATION ULTIMATELY LEADS T O INCREASED IN THE PROFITS AND AS PER THE PROVISIONS OF THE ACT APPLICABLE TO THE ASSESSEE PERTAINING TO SECTION 80IC, HE WOULD BE AUTOMATICALLY GETS BENEFI TTED IN THE SCHEME OF COMPUTATION OF INCOME AND CONSEQUENT DEDUCTION UNDE R CHAPTER-VIA. HENCE THE ACTION OF THE LD. CIT(A) IS UPHELD. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14/03/2018 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR