ASST CIT 17(3), MUMBAI V. RAMANLAL JAMNDAS PAREKH, MUMBAI

ITA 1142/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9866 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Capital expenditure
• Section: 143(3)

Judgement Text

1 ITA 1142/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.1142/MUM/2016 (ASSESSMENT YEAR: 2011-12) ACIT 17(3), MUMBAI VS SHRI RAMANLAL JAMNADAS PAREK H 24, MAHAVIR CHAMBERS, SAMUEL STREET, VADGADI, MUMBAI-3 PAN : AAFPP6011P APPELLANT RESPONDENT APPELLANT BY SHRI RAJAT MITTAL RESPONDENT BY DINKLE HARIYA DATE OF HEARING 07-03-2018 DATE OF PRONOUNCEMENT 14-03-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-28, MUMBAI DATED 29-12-2015 AND IT PERTAINS TO AY 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- (I) 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,26,648 ON ACCOUNT OF CLOSING STOCK. (II) 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.32,96,881/- MADE BY THE AO ON ACCOUNT OF UNUTILI ZED CREDIT REFLECTING DISTORTION OF SALES.' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND 2 ITA 1142/MUM/2015 PROPRIETOR OF M/S ARUN ENTERPRISES ENGAGED IN THE B USINESS OF WHOLESALER AND IMPORTER OF CHEMICALS AND DRUGS, FIL ED HIS RETURN OF INCOME FOR AY 2011-12 ON 23-09-2012 DECLARING TOTAL INCOME OF RS.40,98,030. THE CASE HAS BEEN SELECTED FOR SCRUT INY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 17-02-2014 B Y DETERMINING THE TOTAL INCOME AT RS.77,78,569 INTERALIA MAKING A DDITION TOWARDS VALUATION OF CLOSING STOCK OF RS.2,26,648, DISTORTI ON IN SALES OF RS.32,96,881 AND DISALLOWANCE OF CERTAIN EXPENSES O F RS.1,57,005. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A). 3. BEFORE THE CIT(A), ASSESSEE HAS FILED VARIOUS DE TAILS TO JUSTIFY VALUATION OF CLOSING STOCK TO ARGUE THAT HE HAD FOL LOWED INCLUSION METHOD FOR VALUATION OF CLOSING STOCK WHICH INCLUDES EXCIS E DUTY PAID. THEREFORE, THERE IS NO REASON FOR THE AO TO MAKE AD DITION TOWARDS ESTIMATED DIFFERENCE IN CLOSING STOCK VALUATION ON THE GROUND THAT THE ASSESSEE HAS NOT CLARIFIED WHETHER HE HAS FOLLOWED INCLUSION METHOD OR EXCLUSION METHOD FOR VALUATION OF CLOSING STOCK. T HE ASSESSEE ALSO FILED RE-CONCILIATION TO EXPLAIN THE VALUATION IN CLOSING STOCK AS WELL AS ADDITION MADE BY THE AO TOWARDS SHORTAGE OF SALES TO ARGUE T HAT HE HAD ACCOUNTED SALES AND PURCHASES NET OF VAT AND THE UN UTILIZED PORTION OF VAT HAS BEEN TREATED AS CURRENT ASSETS, THEREFORE, THE AO WAS INCORRECT IN TREATING UNUTILIZED VAT AS SUPPRESSED SALES. TH E ASSESSEE ALSO FILED 3 ITA 1142/MUM/2015 DETAILED EXPLANATIONS FOR ADHOC DISALLOWANCE OF EXP ENSES TO ARGUE THAT THE AO WAS ERRED IN DISALLOWING EXPENSES BY IGNORIN G THE FACT THAT THE EXPENSES ARE WHOLLY AND EXCLUSIVELY INCURRED FOR TH E PURPOSES OF BUSINESS AND THEY ARE NEITHER CAPITAL EXPENDITURE N OR PERSONAL EXPENSES. THE CIT(A), AFTER CONSIDERING RELEVANT S UBMISSIONS OF THE ASSESSEE ALLOWED APPEAL FILED BY THE ASSESSEE WHERE IN HE HAS DELETED ADDITION MADE BY THE AO TOWARDS ADHOC DISALLOWANCE OF EXPENSES, ADDITION TOWARDS DIFFERENCE IN CLOSING STOCK VALUAT ION AND ADDITION TOWARDS SUPPRESSION OF SALES ON ACCOUNT OF UNUTILIZ ED CREDIT OF MVAT. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APP EAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION MADE BY THE AO TOWARDS DIFFERENCE IN VALUATION OF CLOSIN G STOCK. THE AO MADE ADDITION OF RS.2,26,648 ON THE GROUND THAT THE ASSESSEE HAS FAILED TO EXPLAIN VALUATION OF CLOSING STOCK WHETHER HE HA D FOLLOWED INCLUSION METHOD OR EXCLUSION METHOD TO INCLUDE INDIRECT TAXE S TO ARRIVE AT VALUE OF CLOSING STOCK, THEREFORE, MADE ESTIMATION ON THE BA SIS OF STOCK TURNOVER RATIO AT 2.04% ON TOTAL INDIRECT TAXES AND ADDED BA CK TO THE CLOSING STOCK FOR RS.2,26,648. IT IS THE CONTENTION OF THE ASSES SEE THAT HE HAD ALREADY INCLUDED INDIRECT TAXES FOR VALUATION OF CLOSING ST OCK, AND FURTHER ADDITION ON ESTIMATE BASIS AMOUNTS TO DOUBLE ADDITION, THERE FORE, THERE IS NO REASON FOR THE AO TO MAKE ADHOC ESTIMATION WITHOUT POINTING OUT THAT THE CLOSING STOCK VALUE ARRIVED AT IS NOT INCLUSIVE OF INDIRECT TAXES. 4 ITA 1142/MUM/2015 5. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL AVAILABLE ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSE SSEE FOR THE REASON THAT THE ASSESSEE HAS FILED DETAILED RECONCILIATION OF VALUATION OF CLOSING STOCK BEFORE THE LD. CIT(A) WHICH HAS BEEN EXTRACTE D BY THE CIT(A) IN HIS ORDER WHEREIN IT WAS EXPLAINED THAT CLOSING STO CK VALUATION IS MADE INCLUDING INDIRECT TAXES. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS INCORRECT IN MAKING ADHOC ESTIMATION OF INDIRECT TA XES COMPONENT AND ADDED TO THE CLOSING STOCK VALUATION. THE LD.CIT(A ), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITION MADE BY THE AO TOWARDS SHORTAGE IN SALES ON ACCOUNT OF U NUTILIZED CREDIT FOR MVAT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO EXPLAIN WHETHER HE HAD ACCOUNTED PURCHASES AND SALES INCLUSIVE OF VAT OR MAINTAINS SEPARATE ACCOUNT FOR VAT. ACCORDING TO THE AO, AS PER THE VAT AUDIT REPORT FILED, THERE IS A DIFFERENCE IN GROSS TURNOV ER SHOWN IN P&L ACCOUNT AND GROSS TURNOVER REPORTED IN VAT REPORT AND ACCOR DINGLY OPINED THAT THE ASSESSEE HAS FAILED TO EXPLAIN UNUTILISED CREDI T UNDER SALES-TAX; THIS WOULD LEAD TO INFERENCE THAT ASSESSEE IS MAINTAININ G SALES-TAX ACCOUNT SEPARATELY. THEREFORE, MADE ADDITION TOWARDS UNUTI LIZED CREDIT OF VAT 5 ITA 1142/MUM/2015 AS SHORTAGE OF SALES. IT IS THE CONTENTION OF THE ASSESSEE THAT IT WAS ACCOUNTING PURCHASES AND SALES NET OF VAT AND TRANS FERRED UNUTILIZED VAT CREDIT TO THE CURRENT ASSETS, THEREFORE, THE AO WAS INCORRECT IN MAKING ADDITION TOWARDS UNUTILIZED VAT AS SHORTAGE OF SALES. THE ASSESSEE ALSO FILED DETAILED RE-CONCILIATION EXPLAI NING THE TURNOVER REPORTED IN VAT AUDIT REPORT AND TURNOVER AS PER P& L ACCOUNT WHICH HAS BEEN ENCLOSED IN PAPER BOOK PAGE 72. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS FILED DETAILED RE-CONCILIATION STATEME NT EXPLAINING THE SALES REPORTED IN VAT AUDIT REPORT AND SALES AS PER P&L A CCOUNT. AS PER RE- CONCILIATION FILED BY THE ASSESSEE, THE ASSESSEE HA S ACCOUNTED SALES EXCLUDING VAT COLLECTED AND TRANSFERRED UNUTILIZED VAT CREDIT TO THE CURRENT ASSET. IN THE CIRCUMSTANCES, THE UNUTILIZE D SALES-TAX CREDIT CANNOT BE ASSESSED AS SUPPRESSION OF SALES. THE AO , WITHOUT APPRECIATING THE FACT HAS MADE ADDITION TOWARDS UNU TILIZED VAT CREDIT BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS 188 ITR 44 (SC). THE LD.CIT(A), AFTER CONSI DERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO TOWARDS SUPPRESSION OF SALES ON ACCOUNT OF UNUTILIZED VAT CREDIT. WE DO N OT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 6 ITA 1142/MUM/2015 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 14 TH MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI