Mather & Platt Pumps Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1141/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2869 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 28-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT HALDER
• Section: 143(3)

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1141/PN/2014 ASSESSMENT YEAR : 2008-09 MATHER & PLATT PUMPS LIMITED, GREAVES COMPOUND, MUMBAI PUNE ROAD, CHINCHWAD, PUNE 411 019. PAN : AABCD3568L . APPELLANT VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE. . RESPONDENT ITA NO.1385/PN/2014 ASSESSMENT YEAR : 2008-09 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE. . APPELLANT VS. MATHER & PLATT PUMPS LIMITED, GREAVES COMPOUND, MUMBAI PUNE ROAD, CHINCHWAD, PUNE 411 019. PAN : AABCD3568L . RESPONDENT ASSESSEE BY : SHRI C. H. NANIWADEKAR DEPARTMENT BY : SHRI ABHIJIT HALDER / DATE OF HEARING : 07.01.2016 / DATE OF PRONOUNCEMENT: 20.01.2016 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REV ENUE ARE AGAINST THE ORDER OF CIT(A)-V, PUNE, DATED 04.03.2014 RELATING TO ASSESSMENT YEAR 2008-09 PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER. 3. THE ASSESSEE IN ITA NO.1141/PN/2014 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED C.I.T.(A) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF WRITE-OFF OF OBSOLETE AND SLOW-MOVING INVENTORY OF RS.12,77,862/- AS PER THE CONSISTENT PRACTICE FOLLOWED BY THE COMPANY. THE C OMPANY CARRIES OUT A DETAILED ANALYSIS OF ALL SLOW-MOVING AND OBSOLETE INVENTORY AND WRITES DOWN THEIR VALUE IN THE BOOKS IN ORDER TO PRESENT A TRUE AND FAIR VIEW OF ITS STATE OF AFFAIRS. THE PARTS WHICH HAVE NOT MOVED FOR MORE THAN ONE YEAR AND LES S THAN TWO YEARS ARE WRITTEN DOWN BY 50% AND THOSE WHICH HAVE NOT MOVED FOR MORE THAN TWO YEARS ARE WRITTEN DOWN FULLY. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE THE ABOVE GROUND OF APPEAL. 4. THE REVENUE IN ITA NO.1385/PN/2014 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DIRECTING THE A.O. TO RESTRI CT THE DISALLOWANCE TO RS.12,77,862/- FROM THE ADDITION MADE ON ACCOUNT OF WRITE DOWN OF INVENTORY, IGNORING THE FACT THAT THE ASSESSEE HAS NOT PROVED THE BASIS OF ADOPTING T HE VALUE OF INVENTORY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DIRECTING THE A.O. TO RESTRI CT THE DISALLOWANCE TO RS.12,77,862/- FROM THE ADDITION MADE ON ACCOUNT OF WRITE DOWN OF INVENTORY, WITHOUT APPRECIATING THAT THE PROVISIONS OF INCOME TAX ACT CLEARLY PROVI DE THAT CLOSING INVENTORY SHOULD BE VALUED AT COST PRICE OR AT MARKET PRICE, WHICHEV ER IS LESS? 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 5. IN THESE CROSS APPEALS, THE SOLITARY ISSUE RAISE D BY THE ASSESSEE AS WELL AS BY THE REVENUE IS CONCERNING THE DISALLOWANCE ON AC COUNT OF PROVISIONS MADE FOR WRITE-OFF OF OBSOLETE AND SLOW-MOVING INVENTORY . 6. BRIEFLY STATED, THE RELEVANT FACTS OF THE CASE A RE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ERECTION AND COMMISSIONING OF PUMPS, ETC.. THE ASSESSEE IN THE INSTANCE CASE HAD MADE A PROVISION OF RS.26,57,782/- DURING THE RELEVANT YEA R ON ACCOUNT OF SLOW- MOVING INVENTORY AND REDUCED THE SAME FROM CLOSING VALUE OF INVENTORY WHICH 3 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 RESULTED IN REDUCTION OF INCOME TO THE SAME EXTENT. THE PROVISION SO MADE WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THA T VALUATION OF INVENTORY HAS TO BE MADE EITHER AT COST OR MARKET PRICE, WHICHEVE R IS LESS. THE ASSESSING OFFICER DECLINED TO ACCEPT THE PLEA OF THE ASSESSEE THAT THE IMPUGNED WRITE- OFF/DOWN OF INVENTORY HAS BEEN MADE AS PER THE CONS ISTENT POLICY FOLLOWED BY THE ASSESSEE. AS PER THIS POLICY, IF THE INVENTORY DOES NOT MOVE FOR MORE THAN ONE YEAR BUT LESS THAN TWO YEARS, 50% OF ITS COST I S WRITTEN DOWN AND IF THE INVENTORY DOES NOT MOVE FOR MORE THAN TWO YEARS, TH E ENTIRE COST OF INVENTORY IS WRITTEN OFF. THE ASSESSING OFFICER DISCARDED TH E AFORESAID PLEA OF THE ASSESSEE ASSERTING THAT THE PROVISIONS OF INCOME TA X ACT DO NOT ALLOW THE VALUATION OF INVENTORY AS PER INTERNAL POLICY/GUIDE LINES OF THE ASSESSEE. IT WAS ALSO THE CASE OF THE ASSESSING OFFICER THAT THE ASS ESSEE DOES NOT HAVE ANY DOCUMENTARY EVIDENCE TO SUGGEST THAT THE ITEMS OF I NVENTORY SO PROVISIONED HAS MARKET VALUE OF NIL/HALF OF THE COST PRICE. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER ADDED BACK AN AMOUNT OF RS.26,57, 782/- WRITTEN-OFF BY THE ASSESSEE TOWARDS PROVISIONS FOR SLOW-MOVING/OBSOLET E INVENTORY. 7. IN THE FIRST APPEAL, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER ON PRINCIPLES. HOWEVER, HE GRANTED PARTIAL RELIEF AND RESTRICTED THE DISALLOWED TO RS.12,77,862/-. FOR DOING SO, THE CIT(A) ACCEPT ED THE ALTERNATE PLEA OF THE ASSESSEE THAT CREDIT SHOULD BE GIVEN IN RESPECT OF EARLIER YEARS SIMILAR DISALLOWANCE OF RS.13,79,920/- WHICH WILL, RESULTAN TLY, FORM PART OF THE OPENING STOCK OF THIS YEAR IN APPEAL AND ACCORDINGL Y OPENING STOCK STANDS CORRESPONDINGLY INCREASED TO THE EXTENT OF DISALLOW ANCE IN THE EARLIER YEAR. AS REGARDS THE MAIN PLANK OF CONTENTION OF THE ASSESSE E THAT THE ASSESSEE IS ENTITLED TO REDUCE THE CLOSING INVENTORY IN RESPECT OF COST OF SLOW-MOVING AND OBSOLETE INVENTORY AS PER ITS CONSISTENT POLICY, TH E CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), BOTH THE A SSESSEE AS WELL AS THE REVENUE IS IN APPEAL BEFORE US. 4 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 9. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, AT THE OUTSET, SUBMITTED THAT THE IDENTICAL ISSUE HAS ARISEN IN AS SESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE IN ITA NO.351/PN/2009 & OTHERS, ORDER DATED 28.10.2013 AND ALSO IN THE ASSESSMENT YEAR 2007-08 IN ITA NO.1 276/PN/2012, ORDER DATED 31.10.2013, WHEREIN THE CO-ORDINATE BENCH OF THE TR IBUNAL HAS SET-ASIDE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AND THE OUTCOME IS YET TO REACH FINALITY. THE LD. AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE ALSO SUBMITTED THAT THE TRIBUNAL IN ITA NO .1276/PN/2012 (SUPRA) IN ASSESSEES OWN CASE HAS CATEGORICALLY ACCEPTED THE ALTERNATE PLEA OF THE ASSESSEE AND SUSTAINED THE VIEW TAKEN BY THE CIT(A) THAT THE ADDITION ON ACCOUNT OF OBSOLETE/SLOW-MOVING INVENTORY WILL CORR ESPONDINGLY FORM PART OF THE OPENING STOCK OF THIS YEAR IN APPEAL AND THEREF ORE DISALLOWANCE SHOULD BE RESTRICTED TO DIFFERENTIAL AMOUNT AFTER MAKING SUIT ABLE ADJUSTMENT ON ACCOUNT OF DISALLOWANCES MADE IN THE EARLIER YEAR. HE ACCORDI NGLY SUBMITTED THAT THE REVENUES APPEAL IS LIABLE TO BE DISMISSED IN VIEW OF THE FINDINGS OF THE TRIBUNAL AS PER PARA 4 AND 5 OF THE ORDER OF THE TR IBUNAL IN ITA NO.1276/PN/2012 (SUPRA). 10. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICE R AND SUBMITTED THAT NO INTERFERENCE WITH THE ORDER OF THE ASSESSING OFFICE R IS CALLED FOR. 11. WE HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER, ORDER OF THE CIT(A) AS WELL AS THE DECISIONS OF THE CO-ORDINATE BENCH O F TRIBUNAL IN THE CASE OF ASSESSEE ITSELF, RELIED UPON BY THE ASSESSEE AND OT HER MATERIAL PLACED ON RECORD. THE ONLY ISSUE INVOLVED AS NOTED ABOVE IS DETERMINA TION OF ALLOWABILITY OF PROVISIONING MADE TOWARDS SLOW-MOVING AND OBSOLETE INVENTORY HELD BY THE ASSESSEE AT THE YEAR-END. WE OBSERVE THAT THE ASSE SSEE HAS SHOWN CLOSING INVENTORY OF RS.46,80,17,553/- AS ON 31.03.2008 AFT ER REDUCING THE AMOUNT OF PROVISION OF RS.26,57,782/- ON ACCOUNT OF SLOW-MOVI NG/ OBSOLETE INVENTORY. THE ASSESSING OFFICER DID NOT FIND RATIONALE IN THE BASIS OF REDUCTION IN THE CLOSING STOCK INVENTORY ON ACCOUNT OF SALE-MOVING A ND OBSOLETE INVENTORY LEFT 5 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 AT THE YEAR-END. WE FIND THAT THE IDENTICAL ISSUE HAS ARISEN IN ITA NO.351/PN/2009 AND ITA NO.1000/PN/2012 RELEVANT TO ASSESSMENT YEARS 2005-06 AND 2007-08 RESPECTIVELY, WHEREIN THE CO-OR DINATE BENCH OF THE PUNE TRIBUNAL HAS SET-ASIDE THE ISSUE AND REMITTED IT BA CK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO GIVE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM WITH RELEVANT EVIDENCES. THE RELEVANT OP ERATIVE PARA OF THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.351 /PN/2009 IS REPRODUCED HEREUNDER FOR READY REFERENCE :- 3. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE HAD MADE PROV ISION OF RS.68,31,255/- ON ACCOUNT OF SLOW-MOVING INVENTORY WHICH WAS DISALLOW ED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) ON THE GROUND THAT THE VAL UATION OF INVENTORY HAS TO BE MADE EITHER AT COST OR MARKET PRICE WHICHEVER IS LE SS. WE FIND THE CIT(A) WHILE UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER HAS FURTHER OBSERVED THAT THE ASSESSEE AT NO POINT OF TIME WAS ABLE TO SHOW T HAT THE MARKET VALUE OF THESE PARTS HAVE COME DOWN TO SUCH AN EXTENT. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK AS WELL AS FROM THE ORDE RS OF THE ASSESSING OFFICER AND THE CIT(A) WE FIND NOTHING IS COMING OUT AS TO WHAT HAPPENS WHEN SOMETHING IS SOLD OUT OF SUCH SLOW MOVING /OBSOLETE STOCK. IT IS ALS O NOT KNOWN AS TO HOW LONG THE ASSESSEE HELD SUCH OBSOLETE STOCK IN THE ACCOUNTS A ND THE TREATMENT OF THE SAME. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A D IRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EV IDENCE TO HIS SATISFACTION REGARDING THE BASIS OF THE VALUATION OF THE INVENTO RY, THE PERIOD OF HOLDING OF SUCH INVENTORY IN THE STOCK, THE TREATMENT OF SALE, IF A NY, OUT OF SUCH STOCK. THE AO SHALL ALSO VERIFY THE PAST RECORDS AND THE TREATMENT, IF ANY, GIVEN IN THE PAST IN SCRUTINY ASSESSMENTS. GROUND OF APPEAL NO.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 12. THE ISSUE BEING IDENTICAL IN ITS OWN CASE OF TH E ASSESSEE, THE DIRECTIONS GIVEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL SHAL L APPLY MUTATIS-MUTANDIS TO THIS ASSESSMENT YEAR ALSO. ACCORDINGLY, THE ALL OWABILITY OF DEDUCTION ON ACCOUNT OF SLOW-MOVING/ OBSOLETE INVENTORY IS SET-A SIDE TO THE FILE OF THE ASSESSING OFFICER ON IDENTICAL TERMS AS DIRECTED IN ASSESSMENT YEARS 2005-06 AND 2007-08. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 6 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 14. AS REGARDS THE REVENUES APPEAL, WE FIND THAT T HE ISSUE IS SQUARELY COVERED AGAINST THE REVENUE IN VIEW OF THE ACCEPTAN CE OF ALTERNATIVE PLEA OF THE ASSESSEE IN ITA NO.1276/PN/2012 RELEVANT TO ASS ESSMENT YEAR 2007-08, ORDER DATED 31.10.2013. THE RELEVANT EXTRACT OF TH E ORDER OF THE TRIBUNAL DEALING WITH THE ISSUE RAISED BY THE REVENUE IS REP RODUCED HEREUNDER FOR READY REFERENCE :- 4. GROUND NO.2 IS IN RESPECT OF DIRECTIONS OF THE LD.CIT(A) TO THE AO ON THE ALTERNATE PLEA THAT AS THE ADDITION ON ACCOUNT OF O BSOLETE STOCK IS A PART OF THE OPENING STOCK OF THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2007-08 AND THEREFORE THE DISALLOWANCE SHOULD BE RESTRICTED TO DIFFERENTIAL A MOUNT IN THE PRECEDING ASSESSMENT YEAR. THE ASSESSEE WROTE OFF OBSOLETE AND SLOW MOV ING INVENTORY TO THE EXTENT OF RS.68,31,255/- AND RS. 13,79,920/- IN THE A.YRS. 20 05-06 AND 2006-07 RESPECTIVELY. BUT THE SAID CLAIM WAS REJECTED BY THE AO AND CONFI RMED BY THE LD.CIT(A) IN BOTH THE ASSESSMENT YEARS. THE ASSESSEE CARRIED THE ISSU E BEFORE THE TRIBUNAL AND THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF THE AO I N BOTH THE ASSESSMENT YEARS. 5. WE HAVE HEARD THE PARTIES. IN THE A.Y. 2007-08, THE GRIEVANCE OF THE REVENUE IS AGAINST THE DIRECTIONS OF THE LD.CIT(A) TO THE AO THAT IF THERE IS AN INCREASE IN THE CLOSING STOCK IN THE PRECEDING YEAR , THEN THE SAME SHOULD BE TAKEN AS OPENING STOCK IN THE SUBSEQUENT YEAR. AS THE QUANT UM ADDITION IS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER IN THE PRECEDING YEAR WHIC H WILL HAVE THE BEARING ON THE DIRECTIONS GIVEN IN THE CURRENT YEAR, THE AO SHOULD FOLLOW THE SAID DIRECTIONS IN THIS YEAR ALSO, IN CASE THE CLAIM OF OBSOLETE AND SLOW M OVING ITEMS IN THE STOCK IS DISALLOWED. IN OUR OPINION, THE DIRECTIONS OF THE LD.CIT(A) ARE AS PER PROVISIONS OF LAW. WE FIND NO REASON TO INTERFERE WITH THE DIREC TIONS OF LD.CIT(A) ON THIS ISSUE. WE ACCORDINGLY DISMISS THE GROUND NO.2 TAKEN BY THE REVENUE. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 15. FOLLOWING THE PARITY OF REASONING, THE REVENUE S APPEAL STANDS DISMISSED. 16. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 20 TH DAY OF JANUARY, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 20 TH JANUARY, 2016. 7 ITA NO.1141/PN/2014 ITA NO.1385/PN/2014 % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , //TRUE COPY// ! '# / SR. PRIVATE SECRETARY $ %& %'' , / ITAT, PUNE