D.C.I.T Cir - 8,kolkata, Kolkata V. M/s Orient Copper Industries Limited, Kolkata

ITA 1209/KOL/2013

• Counselvise Citation: 120923514 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHRAJIT BHATTACHARYAY
• Assessee Lawyers: ANIL KOCHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH SMC , KOLKATA (BEFORE SHRI P. M. JAGTAP , ACCOUNTANT MEMBER ) ITA NO. 1209/KOL/2013 : ASSTT. YEAR : 2006 - 2007 DCIT, CIRCLE - 8, KOLKAT A VS M/S. ORIENT COPPER INDUSTRIES LTD. PAN: AAACO 5337K (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI SUBHRAJIT BHATTACHARYAY, JCIT, SR.DR RESPONDENT BY : SHRI ANIL KOCHAR, ADVOCATE DATE OF HEARING : 10 .09 .2015 DATE OF PRONO UNCEMENT : 16 .09 .2015 ORDER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE COMMISS IONER OF INCOME - TAX (APPEALS) - VI II , KOLKATA DATED 11.02.2013 FOR THE ASSESSMEN T YEAR 2006 - 07, WHERE BY HE DELETED THE DISALLOWANCE O F RS.17,34,218/ - MADE BY THE AO ON ACCOUNT OF ASSESSEE S CLAIM FOR LOSS IN RESPECT OF VALUATION OF CLOSING STOCK. 2. T HE ASSESSEE IN THE PRESENT CASE IS A N INVESTMENT AND FINANCE COMPANY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.11.2006 DECLARING A LOSS OF RS.5,93,678/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THERE A RE NO PURCHASE AND SALE OF SHARES MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THE LOSS OF RS.17,34,218/ - WAS CLAIMED BY THE ASSESSEE AS A RESULT OF CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF SHARES ADOPTED BY IT. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION IN THE MATTER. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT THE VALUATION OF STOCK ALL ALONG WAS ADOPTED AT COST. HOWEVER, THE STATUTORY AUDITORS DURING THE YEAR UNDER CONSIDERATION POINTED OUT THAT THE VALUATION OF STOCK IN TRADE SHOULD BE 2 ITA NO. 1209 /KOL/201 3 M/S. ORIENT COPPER INDUSTRIES LTD. AS SESSMENT YEAR: 20 06 - 07 ADOPTED AT COST OR MARKET PRICE WHICHEVER IS LOWER. SINCE THIS OPINIO N OF THE AUDITORS WAS BASED ON GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA FOR NON - BANKING FINANCE COMPANIES AS WELL AS ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE ASSESSEE CHANGED THE METHOD OF VALUATION OF STOCK OF SHARES FROM AT COST TO COST OR MARKET PRICE WHICHEVER IS THE LOWEST , WHICH RESULTED INTO LOSS. THIS EXPLANATION OFFERED BY THE ASSESSEE TO JUSTIFY THE CHANGE IN THE METHOD OF VALUATION OF STOCK BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. ACC ORDING TO HIM, THE METHOD EARLIER FOLLOWED BY THE ASSESSEE REGULARLY COULD NOT BE CHANGED WITHOUT ANY JUSTIFIABLE REASON AND THE ASSESSEE COULD NOT BE ALLOWED TO ARBITRARILY CHANGE SUCH METHOD TO SUIT HIS PURPOSE. HE, THEREFORE, REJECTED THE CHANGE OF METH OD OF VALUATION OF STOCK ADOPTED BY THE ASSESSEE AND TOOK THE VALUATION OF CLOSING STOCK OF SHARES AT COST, WHICH RESULTED IN THE DISALLOWANCE OF ASSESSEE S CLAIM FOR LOSS OF RS.17,34,218/ - . 3. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ITS CLAIM FOR L OSS DUE TO CHANGE IN THE METHOD OF VALUATION OF STOCK OF SHARES WAS CHALLENGED BY THE ASSESSEE IN THE APP EAL FILED BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIALS AVAILABLE ON RECORD, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR LOSS FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER. I HAVE GONE THROUGH THE WO RKING MADE OUT BY THE APPELLANT IN RESPECT OF VALUATION OF THESE SHARES AN D ALSO CONSIDERED THE FACTS RELATING TO THE GUIDELINES OF THE RESE RVE BANK OF INDIA AND THE ADVI CE OF THE AUDITORS ACCORDING TO WHICH IT HAD BECOME NECESSARY TO FALL IN LINE WITH THE ACCEPTED PROCEDURE IN REGARD TO THE VALUATION OF SUCH SHARES. SOME D ECISIONS WHICH THE A.O. HAS REFERRED IN THE ORDER OF ASSESSMENT HAVE BEEN CONSIDE RED AND IT IS SEEN THAT THESE ARE VERY OLD DECISIONS WHEREAS THE GUIDELINES OF THE 3 ITA NO. 1209 /KOL/201 3 M/S. ORIENT COPPER INDUSTRIES LTD. AS SESSMENT YEAR: 20 06 - 07 RESERVE B ANK OF INDIA BY WHICH THE APPELLA NT MADE THE CHANGE IN THE VALUATION OF SHARES HAS BEEN DONE TO FALL IN LINE WITH THE PRE SEN T DAY REQUIREMENTS. IN THE LIGHT OF THE ABOVE DISCUSSION AND FINDING, AFTER CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS MADE, I AM OF THE CONSIDERED OPINION THAT THE CHANGE IN THE SYSTEM OF VALUATION O F SHARES WHICH HAS BEEN EFFECTED IN THIS YEAR IN RELATION TO THOSE SHARES WHICH HAVE BEEN APPEARING IN THE BOOKS OF THE APPELLANT UNDER THE HEAD 'QUOTED SHARES' IS AS PER THE GUIDELINES OF THE RESERVE BANK OF INDIA AND, ACCORDINGLY, ALSO VIEWED IN THE CONT EXT OF THE SUBSEQUENT YEARS SYSTEM OF VALUING THE SHARES & THERE BEING NO CHANGE EFFECTED, I UPHOLD THE WORKING OF THE CLOSING STOCK AS MADE OUT BY THE APPELLANT AND DELE TE THE ADDITION OF RS.17,34,218/ - MADE BY THE A.O. THUS, THESE GROUNDS OF APPE AL OF TH E APPELLANT ARE ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4 . THE LD. DR STRONGLY RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE REVENUE S CASE ON THE ISSUE INVOLVED IN THIS APPEAL. HE SUBMITTED THAT THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK AS ADOPTED BY THE ASSESSEE WAS NOT SATISFACTORILY JUSTIFIED AND SINCE IT WAS DONE BY THE ASSESSEE TO SUIT ITS PURPOSE, THE SAME WAS RIGHTLY REJECTED BY THE AO. HE ALSO CONTENDED THAT THE GUIDELINES OF RESERVE BANK OF INDI A AND THE ACCOUNTING STANDARD - 2 (AS - 2) RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS ACTION IN CHANGING THE METHOD OF VALUATION OF STOCK OF SHARES ARE NOT APPLICABLE IN THE FACTS OF THE ASSESSEE S CASE AND THE R ELIANCE OF THE ASSESSEE THEREON THUS WAS CLEARLY MISPLACED. HE CONTENDED THAT ALL THESE RELEVANT ASPECTS, HOWEVER, ARE NOT PROPERLY A PPRECIATED BY THE LD. CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE FOR LOSS AS A RESULT OF CHANGE IN THE METHOD OF VALUATION OF ST OCK , WHICH IS NOT JUSTIFIED. 4 ITA NO. 1209 /KOL/201 3 M/S. ORIENT COPPER INDUSTRIES LTD. AS SESSMENT YEAR: 20 06 - 07 5 . THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR LOSS AS A RESULT OF CHANGE IN THE METHOD OF VALUATION OF CLOSING STO CK OF SHARES. HE CONTENDED THAT ALTHOUGH THE STOCK OF SHARES WAS EARLIER VALUED BY THE ASSESSEE AT COST, THE SAID METHOD WAS CHANGED ON THE BASIS OF THE OPINION OF STATUTORY AUDITORS, WHICH WAS DULY SUPPORTED BY THE RELEVANT RBI GUIDELINES AS WELL AS AS - 2 ISSUED BY THE ICAI. ACCORDING TO HIM, THE CHANGE IN THE METHO D OF VALUATION OF CLOSING STOCK THUS WAS FULLY JUSTIFIED BY THE ASSESSEE AND SINCE THE SAME WAS CONSISTENTLY FOLLOWED IN THE SUBSEQUENT YEAR S , THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO REJECT THE SAME MERELY BECAUSE IT HAS RESULTED IN LOSS. HE CONTENDED THAT THE LD. CIT(A) HAS RIGHTLY ACCEPTED THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF SHARES AS THE NEW METHOD ADOPTED BY THE ASSESSEE IS DULY RECOGNIZED. 6 . I HAVE CONSIDER ED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD . IT IS A BASIC PRINCIPLE FOR ACCOUNTING THAT THE VALUATION OF STOCK IN TRADE HAS TO BE DONE AT COST OR MARKET PRICE, WHICHEVER IS LOWER AND THE SAME IS IN CONSONANCE WITH OTHER IMPORTANT ACCOUNTING PRINCIPLE THAT ANTICIPATED LOSS IS REQUIRED TO BE CONSIDERED , WHILE DRAWING THE FINAL ACCOUNTS. IN THE PRESENT CASE, THE ASSESSEE HOWEVER WAS EARLIER FOLLOWING THE METHOD OF VALUING THE STOCK OF SHARES AT COST WHICH, IN MY OPINI ON, WAS NOT CORRECT METHOD FOLLOWED BY THE ASSESSEE, AS THE SHARES REPRESENTED ITS STOCK IN TRA DE. A S PER THE ADVICE OF THE STATUTORY AUDITORS, WHICH WAS DULY SUPPORTED BY THE RELEVANT GUIDELINES ISSUED BY THE RBI AS WELL AS ACCOUNTIN G STANDARD - 2 ISSUED BY THE ICAI, T HE ASSESSEE, THEREFORE, CHANGED THE METHOD OF VALUATION OF STOCK OF SHARES FROM AT COST TO EITHER COST OR MARKET PRICE WHICHEVER LOWER AND SINCE THE NEW METHOD ADOPTED BY THE 5 ITA NO. 1209 /KOL/201 3 M/S. ORIENT COPPER INDUSTRIES LTD. AS SESSMENT YEAR: 20 06 - 07 ASSESSEE WAS MORE PROPER AND CORRECT AND THE SAME WAS CONSISTENTL Y FOLLOWED BY THE ASSESSEE IN THE SUBSEQUENT YEARS, I AM OF THE OPINION THAT THERE WAS NO JUSTIFICATION ON THE PART O F THE AO TO REJECT THE SAME MERE LY BECAUSE IT HAD RESULTED IN LOSS. THE LD. CIT(A), ON THE OTHER HAND, HAS APPRECIATED ALL THE RELEVANT FAC TS OF THE CASE IN PROPER PERSPECTIVE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR LOSS AS A RESULT OF CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK, WHICH WAS FULLY JUSTIFIED. I THEREFORE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. U PHOLD ING THE SAME , I DISMISS THIS APPEAL OF THE REVENUE. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2015. SD/ - ( P.M.JAGTAP ) ACCOUNTANT MEMBER DATED: 16 /09/ 2015 TALUKDAR/SR.PS COPY OF ORDER FORWARDED TO: 1 M/S. ORIENT COPPER INDUSTRIES LTD. , 113, PARK STREET, KOLKATA 7 00 0 16 2 DCIT , CIRCLE - 8 , KOLKATA 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA