Prapalsha Agros Limited, Hyderabad V. ITO, Ward-16(2), Hyderabad

ITA 127/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6060 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Cost of acquisition; Assessment record; Condonation of delay; Ignorance of law
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 127/HYD/2013 ASSESSMENT YEAR: 2007-08 PRAPALSHA AGRO LTD., HYDERABAD. PAN AABLP 9390C VS. INCOME-TAX OFFICER, WARD 16(2), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI P. CHANDRA SEKHAR DATE OF HEARING 20-10-2016 DATE OF PRONOUNCEMENT 28-10-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX - IV, HYDERA BAD, DATED 05/01/2012 PASSED U/S 263 OF THE ACT, FOR AY 2007 -08. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE WAS DE LAY OF 334 DAYS IN FILING OF THIS APPEAL. IN THIS CONNECTION, THE A SSESSEE FILED A PETITION FOR CONDONATION OF DELAY STATING, INTER-ALIA, THERE IN THAT THE REASONS FOR THE DELAY IS BEYOND THE CONTROL OF THE ASSESSEE AND IS NOT INTENTIONAL. THE ASSESSEE ALSO FILED AN AFFIDAVIT I N THIS REGARD AFFIRMING THE REASONS MENTIONED IN THE PETITION FOR CONDONATION OF DELAY. HE RELIED ON THE FOLLOWING DECISIONS OF THE TRIBUNAL: 1. SRI A RAMIREDDY VS. CIT IN ITA NO. 1000/H/2013, DTD. 23/05/15. 2. M/S VIRUPA TOWNSHIP VS. ACIT, ITA NOS. 614 & 61 5/VIZAG/13, DATED 23/05/15. 2 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. 3. THE LD. DR, ON OTHER HAND, STRONGLY OBJECTED FOR CONDONATION OF DELAY. HE SUBMITTED THAT ASSESSEE HAS NOT PROVED TH E BONAFIDES AND THERE CANNOT BE A CASE FOR IGNORANCE OF LAW. ACCORD ING TO HIM, ASSESSEE HAS COME BEFORE THE ITAT ON A SECOND THOUG HT AFTER RECEIVING THE CONSEQUENTIAL ORDER U/S 263, THEREFOR E, THERE IS NO CASE FOR CONDONATION OF DELAY. 4. IN THE CASE OF M/S VIRUPA TOWNSHIP, THE COORDINA TE BENCH OF ITAT, VIZAG CONDONED THE DELAY OF 603 DAYS RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF REMEX CONSTRUCTIONS/REMEX ELECTRICALS VS. FIRST INCOME-TA X OFFICER AND OTHERS, 166 ITR 18, WHEREIN THE BOMBAY HIGH COURT H AS HELD AS UNDER: THE GRIEVANCE OF SHRI PANDIT THAT THE TRIBUNAL WAS, VERY TECHNICAL IN NOT CONDONING THE DELAY OF ABOUT THREE YEARS IN FILING THE APPEALS AGAINST THE ORDERS PASSED UNDER S. 263 OF T HE ACT IS NOT WITHOUT MERIT. THE TRIBUNAL HELD THAT THE PETITIONE R OUGHT TO HAVE FILED AN APPLICATION FOR CONDONATION OF DELAY DULY SUPPORTED BY AN AFFIDAVIT AT THE TIME OF PRESENTATION OF APPEAL, BU T INSTEAD OF THAT, MERELY APPEALS WERE LODGED AND AN AFFIDAVIT OF A PA RTNER OF THE FIRM WAS TENDERED ONLY WHEN THE OBJECTION WAS RAISE D ABOUT THE DELAY IN FILING THE APPEALS. IT IS UNDOUBTEDLY TRUE THAT THE EXPLANATION GIVEN IN THE AFFIDAVIT FOR DELAY IN LOD GING THE APPEALS IS NOT VERY SUBSTANTIAL, BUT, IN MY JUDGMENT, TAKIN G INTO CONSIDERATION THE FACT THAT THE REVISIONAL AUTHORIT Y HAD ACTED WITHOUT JURISDICTION, WAS ENOUGH FOR THE TRIBUNAL T O CONDONE THE DELAY AND ENTERTAIN THE APPEALS. IT IS TRUE THAT TH E TRIBUNAL COULD NOT ENTERTAIN THE APPEALS BEYOND THE PERIOD OF LIMI TATION AS A MATTER OF COURSE, BUT EQUALLY THE TRIBUNAL WOULD NO T DEFEAT THE ENDS OF JUSTICE MERELY BECAUSE THE PARTIES FAILED T O RESORT TO PROPER PROCEDURE IN FILING THE APPEALS. IN MY JUDGM ENT, THE TRIBUNAL OUGHT TO HAVE CONDONED THE DELAY IN FILING THE APPEALS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ONCE IT IS FOUND THAT THE APPEALS AGAINST THE ORDER OF THE REVISIONAL AUTHORITY SHOULD HAVE BEEN ENTERTAINED A ND IT IS FURTHER FOUND THAT THE ORDER OF THE REVISIONAL AUTHORITY WA S WHOLLY WITHOUT JURISDICTION, THEN THE SEQUITUR IS THAT THE APPEALS FILED AGAINST THE REVISIONAL AUTHORITY MUST BE ALLOWED. SHRI JETLY DI D NOT SERIOUSLY DISPUTE THAT IF THE APPEALS WERE MAINTAINABLE AND W ERE ENTERTAINED, THE ORDER OF THE REVISIONAL AUTHORITY COULD NOT BE SUSTAINED. IN THESE CIRCUMSTANCES, IN MY JUDGMENT, THE PETITIONER 3 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. IS ENTITLED TO SUCCEED. SHRI JETLY SUBMITTED THAT T HE PETITIONER HAD AN ALTERNATE REMEDY OF SEEKING REFERENCE AGAINST TH E ORDER OF THE TRIBUNAL AND AS THE PETITIONER HAS FAILED TO ADOPT THAT REMEDY, THE RELIEF SHOULD NOT BE GRANTED. NORMALLY, I WOULD NOT HAVE PERMITTED THE PETITIONER TO APPROACH THE WRIT COURT FOR RELIEF, WHEN THERE WAS REMEDY OF SEEKING REFERENCE, BUT TAK ING INTO CONSIDERATION THE FACT THAT THIS PETITION IS PENDIN G IN THIS COURT FOR THE LAST FOUR YEARS AND THE FACT THAT THE PETIT IONER IS A SMALL CONCERN HAVING A SMALL TURNOVER AND THE FACT THAT T HE ORDER PASSED BY THE REVISIONAL AUTHORITY WAS WHOLLY WITHO UT JURISDICTION, I AM NOT INCLINED TO REFUSE THE RELIEF ON THE GROUN D OF AVAILABILITY OF ALTERNATE REMEDY. THEREFORE CONSIDERING THE ASSESSEES EXPLANATION IN THE LIGHT OF THE DECISION OF THE BOMBAY HIGH COURT (SUPRA), WE FIND IT APPROPRIATE TO CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SELLING OF TOBACCO AND TOBACCO PRODUCTS AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 19.11.2007 ADMITTING TOTAL INCOME O F RS. 2,81,595/-. THE INCOME TAX OFFICER, WARD -16(2) HAD COMPLETED T HE ASSESSMENT ON 30.06.2009 U/S.143(3) DETERMINING THE TOTAL INCO ME AT A SUM OF RS. 4,17,600/- 6. ON EXAMINATION OF THE ASSESSMENT RECORD RELATING TO THE ASSESSEE COMPANY FOR THE ASST.YEAR 2007-08, THE CIT NOTICED THAT IN THE BALANCE SHEET UNDER THE HEAD' CURRENT ASSETS, L OANS & ADVANCES' (SCHEDULE 'D') FOR THE YEAR ENDING ON 31. 03.2007, A SUM OF RS. 2,39,87,333/- WAS REFLECTED AS CLOSING STOCK OF MATERIAL. IT IS STATED IN THE SCHEDULE TO THE BALANCE SHEET THAT TH E VALUE OF CLOSING STOCK WAS VERIFIED AND CERTIFIED BY THE MANAGEMENT. IN THE P&L ACCOUNT FOR THE YEAR ENDING ON 31.03.2007, THE COST OF GOODS WAS REFLECTED AT A SUM OF RS. 3,89,42,519/-. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSEE FURNISHED THE COST OF GOOD S SOLD AS UNDER: OPENING STOCK RS. 1,40,22,952/- ADD: PURCHASES:- (A) DEALERS RS. 4,32,90,855/- 4 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. (B) FARMERS RS. 56,16,545/- TOTAL RS. 6,29,30,352/- LESS: CLOSING STOCK RS.2,39,87,833/- COST OF GOODS SOLD RS. 3,89,42,519/- ============== 6.1 CIT OBSERVED THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE DETAILS OF CLOSING STOCK WERE NOT FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER ALSO DID NOT EXAMIN E THE ISSUE RELATING TO THE VALUATION OF CLOSING STOCK AND COMP LETED THE ASSESSMENT WITHOUT APPLICATION OF MIND ON THE VALUA TION OF CLOSING STOCK . THE CLOSING STOCK REQUIRES TO BE VALUED AT COST PRICE OR MARKET PRICE WHICHEVER IS LOWER. IN 3CD REPORT PREPARED UN DER SECTION 44AB, FILED ALONG WITH THE RETURN OF INCOME, IT IS STATED THAT THE ASSESSEE IS A TRADING CONCERN AND THERE WAS NO SHORTAGE OR LOSS OF TOBACCO IN PROCESSING. THE QUANTITY OF TOBACCO TRADED AND REFL ECTED IN THE 3CD REPORT (AGAINST COLUMN 28(A)), IS REPRODUCED AS UND ER: (I) OPENING STOCK 5,84,742 KGS (II) PURCHASES DURING THE PREVIOUS YEARS 10,83,480 KGS (III) SALES DURING THE PREVIOUS YEAR 7,91,451 KGS (IV) CLOSING STOCK 8,76,771 KGS 6.2 CIT OBSERVED THAT THE ASSESSING OFFICER OUGHT T O HAVE CALLED FOR THE DETAILS OF CLOSING STOCK AND HE SHOULD HAVE VERIFIED THE VALUE OF CLOSING STOCK. THUS, NON-ENQUIRY INTO THE VALUAT ION OF CLOSING STOCK BY THE ASSESSING OFFICER, THE ASSESSMENT ORDER HAS BECOME ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. ON GOING THROUGH THE ASSESSMENT RECORD OF THE ASSESSEE, CIT NOTICED THAT CLOSING STOCK WAS UNDER-VALUED AND A NOTICE DATED 09/11/2011 WAS ISSUED U/S. 263 POINTING OUT THAT THE VALUE OF CLO SING STOCK WAS NOT DETERMINED IN ACCORDANCE WITH THE ACCEPTED PRINCIPL E OF VALUATION. THE RELEVANT PORTION FROM THE NOTICE U/S 263 IS REP RODUCED AS UNDER: 'YOU HAD CLAIMED THE COST OF GOODS SOLD AS FOLLOWS; QUANTITY IN KILOS VALUE IN RS. AVERAGE COST PER KG. 5 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. OPENING STOCK 584742 14022952 23.98 ADD: PURCHASES 1083480 48907400 45.14 TOTAL 1668222 62930352 37.72 LESS: CLOSING STOCK 876771 23987833 27.36 COST OF GOODS SOLD 791451 38942519 49.26 FOR VALUATION OF CLOSING STOCK, COST PRICE OR MARKE T PRICE WHICHEVER IS LOWER SHOULD BE ADOPTED. BUT AS SEEN FROM THE ABOVE TABLE, IT IS CLEAR THAT THE VALUE OF CLOSING STOCK ADOPTED BY YOU IS M UST LESSER THAN THE COST OF GOODS PURCHASED WHICH RESULTED IN INFLATED COST OF GOODS SOLD TO THE EXTENT OF RS. 90,83,347/-. THE ASSESSING OFF ICER OUGHT TO HAVE EXAMINED THE ISSUE THOROUGHLY AND ASCERTAINED THE R EASONS FOR SUCH HUGE VARIANCE. BY PASSING THE ORDER U/ S.143(3) WIT HOUT EXAMINING THE ISSUE THE ORDER OF THE ASSESSING OFFICER RESULTED I N AN ERRONEOUS ORDER AND UNDERSTATEMENT OF TOTAL INCOME. YOU ARE, THEREFORE, REQUESTED TO SHOW CAUSE WHY THE PROFIT SHOULD NOT B E RECOMPUTED TAKING THE CORRECT VALUE OF CLOSING STOCK AT RS, 49 .26 PER KG.' 6.3 AGAINST THE SAID NOTICE, SUBMISSIONS MADE BY TH E AR OF THE ASSESSEE WERE AS UNDER: (I) TOBACCO LEAF BEING AN AGRICULTURAL CROP IS VERY SENSITIVE TO CLIMATIC CONDITIONS, MOISTURE CONTENT, SUNSHINE ETC., AND TH E FINAL QUALITY OF TOBACCO DEPENDS ON MANY FACTORS. IN PROCESSING AND CLEANING OF TOBACCO 3% TO 5% IS LOST AS WASTAGE. HE SUBMITTED T HAT CLOSING STOCK COMPRISES OF STEMS, BITS, SCRAP AND ELIMINATION. TH E COMPANY HAS BEEN CONSISTENTLY FOLLOWING THE PRINCIPLE OF 'COST OR MARKET PRICE' WHICHEVER IS LESS AND THERE HAS BEEN NO DEVIATION I N THE SAME. THE CONCEPT OF AVERAGE COST OF GOODS SOLD DOES NOT HAVE ANY RELATIONSHIP OR BEARING ON THE AVERAGE COST OF CLOSING STOCK. TH E VALUE OF CLOSING STOCK IS BASED ON THE ACTUAL QUALITIES AND QUANTITI ES OF TOBACCO LEAF, BITS, STEMS, ELIMINATION ETC. AND THERE WAS VERY LI TTLE MARKET PRICE. THE ASSESSEE HAS DEALT WITH VARIOUS GRADES OF TOBAC CO SUCH AS VFC, VAC, NAATU, BURLY, HDBR, LSB ETC. THE MARKET PRICE FLUCTUATES. (II) FOR THE FIRST TIME, THE ASSESSEE HAS FURNISHED THE DETAILS OF CLOSING STOCK WHICH ARE REPRODUCED AS UNDER: 6 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. PARTICULARS QTY (KGS) PRICE AMOUNT VFC/LEAF 158,935 40.00 6,357,400 VFC/STRIPES 61,274 46.00 2,818,604 VFC/RTL 163,884 61.00 9,996,924 VAC/LEAF 57,458 30.00 1,723,740 VAC/STRIPES 9,908 35.00 346,780 VAC/RTL 4,485 45.00 201,825 BITS 60,058 18.00 1,081,044 SCRAP 25,926 2.00 51,852 ELIMINATION 99,351 4.00 397,404 STEM/BITS 3,902 1.00 3,902 SLS 7,534 2.00 15,068 RAVVAS 7,980 1.00 7,980 DUST 1,494 0.50 747 LS2 802 1.50 1,203 R.BITS 27,809 22.00 611,798 6.4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT HELD AS FOLLOWS: 5. I HAVE CONSIDERED THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE AND I HAVE ALSO EXAMINED THE ASSESSM ENT RECORD FOR THE ASST.YEAR 2007-08. THE ASSESSING OFF ICER DID NOT EXAMINE THE VALUATION OF CLOSING STOCK DURING COURS E OF ASSESSMENT PROCEEDINGS. THUS, THE NON-ENQUIRY BY TH E ASSESSING OFFICER INTO THE VALUATION OF CLOSING STO CK HAS RESULTED IN UNDER-STATEMENT OF TOTAL INCOME WHICH I N TURN IS PREJUDICIAL TO THE INTERESTS OF REVENUE. FURTHER, T HE AVERAGE PURCHASE PRICE OF TOBACCO TO ASSESSEE WORKS OUT TO RS. 45.14 PER KG, WHEREAS, THE ASSESSEE HAD VALUED THE CLOSIN G STOCK AT A SUM OF RS. 27.36 PER KG. THUS, THE VALUE OF CLOSING STOCK ADOPTED BY THE ASSESSEE IS MUCH LOWER THAN THE PURC HASE PRICE AND THE ASSESSEE DID NOT BRING ANY EVIDENCE ON RECO RD TO ESTABLISH THAT MARKET PRICE OF THE PRODUCT WAS LOWE R THAN THE COST PRICE. IT IS STATED IN THE AUDIT REPORT FURNIS HED U/S.44AB THAT THE ASSESSEE IS A TRADING CONCERN AND THE TOTA L QUANTITY OF TOBACCO TRADED WAS 16,68,222 KGS (OPENING STOCK +PU RCHASES 16,68,222= SALES + CLOSING STOCK 16,68,222). NO SHO RTAGE WAS REPORTED IN THE 3CD REPORT. FOR THE FIRST TIME DURI NG THE COURSE OF PROCEEDINGS U/S.263, THE COMPANY HAS FILED THE D ETAILS OF CLOSING STOCK WHICH ARE CONTRARY TO THE QUANTITIES FURNISHED IN THE 3CD REPORT U/S.44AB. FOR THE FIRST TIME, THE CO MPANY CLAIMS THAT IT HAD LOST 62,117 KGS OF TOBACCO IN PROCESSIN G. AT NO POINT OF TIME THE ASSESSEE HAD EXPLAINED HOW IT HAD SUSTA INED THE LOSS, BEFORE THE ASSESSING OFFICER. AS A MATTER OF FACT, THE ASSESSEE DID NOT DISCLOSE THE FACT OF 'LOSS IN PROC ESSING OF TOBACCO' BEFORE THE ASSESSING OFFICER AND THE ASSES SMENT RECORD DOES NOT CONTAIN ANY DETAILS OF LOSS ON PROC ESSING OF 7 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. TOBACCO. THE DETAILS OF PURCHASES OF TOBACCO WERE F URNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE DETAILS FURNISHED BEFORE THE ASSESSING OFFICER, THE ASSESSE E DID NOT INFORM THAT THERE WERE BY-PRODUCTS SUCH AS SCRAP, E LIMINATION, SLS, LS2 ETC. 6. THE DETAILS AVAILABLE ON THE ASSESSMENT RECORD IND ICATE THAT THE ASSESSEE HAD PURCHASED TOBACCO OF THE FOLLOWING VARIETIES ONLY: (A) VFC/LEAF, (B) VFC / STRIPES (C) VAC/STRIPES (D) VFC/RTL (E) BITS' THE QUANTITY OF TOBACCO AND VARIETIES OF TOBACCO PU RCHASED BY THE ASSESSEE ARE ON ASSESSMENT RECORD AND THE SAME ARE REFLECTED IN THE FOLLOWING TABLE FOR CONVENIENCE: SL.NO MONTH VARIETY OF TOBACCO QUANTITY PRICE 1 APRIL,2006 VFC/LEAF 798 30,087 2 MAY,2006 VFC/LEAF,VAC/STRIPES, VFC/STRIPES 147581 11,84,384 3 JUNE, 2006 VFC/LEAF, VFC/STEM, BITS 34,836 8,38,380 4 JULY, 2006 VFC/LEAF BITS 63,087 20,69,065 5 AUG,2006 VAC/RTL 2,277 1,59,390 6 SEP,2006 VFC/LEAF 4,251 2,04,273 7 OCT,2006 VFC/LEAF, VFC/STRIPES 36,875 25,64,468 8 NOV,2006 VFC/LEAF 46,489 22,75,627 9 DEC,2006 VFC/LEAF-VFC/STEM 2,28,687 94,73,494 10 JAN,2007 VFC/RTL VFC/RTL 53,812 29,45,845 11 FEB,2007 VFC/LEAF, VFC-RTL, VFC/STRIPES 2,25,572 1,04,69,201 12 MARCH, 2007 VFC/LEAF, VAC/STRIPES BITS, VFC/RTL 2,50,098 1,10,76,575 9,61,540 4,32,90,789 LSB-PURCHASED IN NOV, DEC,06 /JAN,07 1,21,945 56,16,545 10,83,485 4,89,07,400 AS THE ASSESSING OFFICER DID NOT VERIFY THE VALUATI ON OF CLOSING STOCK, THE ASSESSMENT ORDER U/S.143(3) PASSED ON 3 0.06.2009 IS SET ASIDE WITH A DIRECTION TO EXAMINE THE ISSUE OF VALUATION OF CLOSING STOCK AFTER VERIFICATION OF THE STOCK REGIS TER, IF ANY, AND 8 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. THE ASSESSING OFFICER SHOULD ANALYSE THE PURCHASES OF TOBACCO QUALITY WISE AND ARRIVE AT THE CORRECT QUANTITY OF CLOSING STOCK OF TOBACCO QUALITY-WISE. THE ASSESSING OFFICER IS ALSO HEREBY DIRECTED TO VERIFY WHETHER THE ASSESSEE HAS CARRIED OUT ANY PROCESSING OF TOBACCO AS CLAIMED BY THE LEARNED AUT HORISED REPRESENTATIVE BECAUSE THE CONTENTION OF THE LEARNE D AUTHORISED REPRESENTATIVE IS CONTRARY TO THE FACTS REPORTED IN 3CD REPORT U/S.44AB. THE ASSESSING OFFICER SHOULD A PPLY THE PRINCIPLE OF 'COST PRICE OR MARKET PRICE' WHICHEVER IS LESS FOR THE VALUATION OF CLOSING STOCK AND HE SHOULD ALSO EXAMI NE THE CLAIM OF THE ASSESSEE WHETHER THERE WAS ANY LOSS OF TOBAC CO TO THE TUNE OF 62,117 KGS. THUS, THE ASSESSMENT ORDER PASS ED U/S.143(3) IS SET ASIDE AND THE ASSESSING OFFICER H AS TO VALUE THE CLOSING STOCK OF THE ASSESSEE AFTER THOROUGH EX AMINATION OF THE FACTS AND PASS THE ASSESSMENT ORDER DENOVO IN A CCORDANCE WITH THE PROVISIONS OF LAW. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E-TAX PASSED U/S 263 OF THE LT. ACT IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THERE IS ANY ERROR WHICH IS PREJUDICIAL TO THE INTE REST OF THE REVENUE IN THE ASSESSMENT ORDER PASSED U/S 143(3) D ATED 30.6.2009 PASSED BY THE LNCOME-TAX OFFICER, WARD-16 (2), HYDERABAD; 3. THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT TO HAVE SEEN THAT THE ASSESSING OFFICER WHILE CONSIDERING THE VA LUATION OF THE CLOSING STOCK CONSIDERED THE CLAIM MADE BY THE' ASS ESSEE AND CAME TO CORRECT CONCLUSION. 4. THE LEARNED COMMISSIONER OF INCOME- TAX IS NOT J USTIFIED IN HOLDING THAT THE PROCESS, ADOPTED BY THE ASSESSING OFFICER IN ARRIVING AT THE CLOSING STOCK IS IN ANY WAY ERRONEO US. 5. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) AND ALSO ERRED IN DIRECTING THE ASSESSING OF FICER TO VALUE THE CLOSING STOCK ONCE AGAIN. 9 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. 6. THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT TO HAVE SEEN THAT THE LOSS OF TOBACCO TO THE TUNE OF 62,117 KG. WAS ALLOWED AFTER DUE CONSIDERATION OF THE FACTS BY THE ASSESSI NG OFFICER AND HENCE THE LEARNED COMMISSIONER OF INCOME-TAX SHOULD NOT HAVE SET ASIDE THE ORDER TO THE FILE OF THE ASSESSING OF FICER. 8. THE AR OF THE ASSESSEE SUBMITTED THAT ASSESSEE I S INVOLVED IN BUYING AND PROCESSING AND SELLING OF TOBACCO LEAVES . INITIALLY ASSESSMENT WAS COMPLETED U/S 143(3) AND AO HAS VERI FIED THE PURCHASE COST, CLOSING STOCK, ETC. DURING THE REGUL AR ASSESSMENT ITSELF. ASSESSEE WHILE PROCESSING THE TOBACCO LEAVE S, DETERMINE THE MARKET VALUE OF THE TOBACCO LEAVES BASED ON THE PRO CESSING RESULTS. DURING THE PROCESS, ASSESSEE WILL HAVE TO LOOSE SO ME LEAVES, WHICH WILL BE ADJUSTED IN THE STOCK VALUATION. HE BROUGHT TO OUR KNOWLEDGE THE CLOSING STOCK VALUATION AT PAGE 53 OF THE PAPER BOOK. HE SUBMITTED THAT THE STOCK REPORTS WERE SUBMITTED BEF ORE THE CIT AND HE HAS NOT HIGHLIGHTED ANY DISCREPANCY IN THE STOCK RE PORTS. SINCE THE CIT HAS NOT POINTED OUT ANY MISTAKE IN THE STOCK RE PORT, HE CONTENDED THAT INVOKING POWERS U/S 263 IS NOT JUSTIFIED. HE S UBMITTED THAT THE CIT CANNOT EQUATE THE PURCHASE PRICE WITH THE PROCE SSED PRICE SINCE PROCESSED PRICE WILL UNDERGO CHANGE DEPENDING UPON THE TYPES OF TOBACCO LEAVES, LIKE TOBACCO BITS, ETC. HE RELIED ON THE FOLLOWING CASE: 1. MARUTHI SECURITIES LTD. VS. ACIT, [2015] 53 TAX MANN.COM (HYD.) 9. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT A O HAS NOT VERIFIED THE STOCK SUBMITTED BY THE ASSESSEE. HE SU BMITTED THAT THE ASSESSEE CLAIMED THAT IT HAS PROCESS, WHICH AMOUNTS TO MANUFACTURE. IN THE 3CD REPORT, THE VALUATION OF THE CLOSING STO CK HAS TO BE GIVEN SEPARATELY FOR MANUFACTURING COMPANY AND TRADING CO MPANY. HE POINTED OUT THAT THE ASSESSEE HAS SHOWN CLOSING STO CK ONLY AS TRADING COMPANY WHEREIN IT HAS NOT GIVEN THE VALUATION AS P ER THE MANUFACTURING COMPANY. HE SUBMITTED THAT IT CLEARLY SHOWS THAT THE ASSESSEE HAS NOT SUBMITTED THE INFORMATION PROPERLY . HE FURTHER 10 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. SUBMITTED THAT LOSS OF TOBACCO WAS NOT BROUGHT ON R ECORD BY THE ASSESSEE BEFORE THE AO, BUT, ONLY ON ENQUIRY U/S 26 3, ASSESSEE HAS SUBMITTED ALL THE INFORMATION BEFORE THE CIT. THE B ASIS OF LOSS WAS ALSO NOT PROPERLY EXPLAINED BY THE ASSESSEE. LD. D R RELIED ON THE FOLLOWING CASE LAW: 1. CIT VS. INFOSYS TECHNOLOGIES LTD., [2012 341 IT R 0293) 10. IN REBUTTAL, THE AR OF THE ASSESSEE SUBMITTED T HAT ASSESSEE IS NOT IN THE MANUFACTURING BUSINESS, IT DOES ONLY BUY ING AND PROCESSING AND SELLING OF TOBACCO LEAVES, THAT IS THE REASON A SSESSEE HAS GIVEN INFORMATION IN FORM 3CD RELATING TO TRADING BUSINES S ONLY. HE FURTHER SUBMITTED THAT STOCK REGISTERS ARE PART OF BOOK KEE PING, ALL THE STOCK REGISTERS WERE SUBMITTED BEFORE THE AO AND ALL THES E WERE ALREADY EXAMINED BY THE AO. HE CONTENDED THAT THERE IS NO NEW MATERIAL WAS FOUND BY THE CIT IN THE REVISIONARY PROCEEDINGS TO INVOKE THE PROVISIONS OF SECTION 263. 14. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD AS WELL AS THE DECISIONS CITED AT BAR. T HE ISSUE IN DISPUTE BEFORE US IS WHETHER THE CIT IS RIGHT IN TREATING T HE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE A CT, ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE BY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. THE MUTE QUESTION BEFORE US IS WHETHER THE CLOSING STOCK VALUED ARE PROPER AND IF SO, HOW IT I S PREJUDICIAL TO THE INTERESTS OF REVENUE. LOOKING AT THE BUSINESS MODEL OF THE ASSESSEE, HE PROCURES THE LEAVES AND PROCESS THE LEAVES. BASE D ON THE RESULT OF PROCESSING, IT SELLS THE SAME TO THE VENDORS. THE V ALUATION OF STOCK DEPENDS ON THE RESULTS OF THE PROCESSING. THE ASSES SEE WILL ADJUST THE STANDARD LOSS ON THE MARKETABLE PRODUCTS AND TH E BALANCE OF THE COST WILL BE APPROPRIATED TO THE BALANCE OF THE INF ERIOR QUALITY OF THE LEAVES, WHICH ARE ALSO MARKETABLE, BUT, NOT AT THE SAME AT PAR WITH THE SUPERIOR QUALITY. THIS IS NOTHING BUT THE ACTUA L RESULT OF THE PROCESSING. WHAT IS LEFT AFTER SELLING TO VENDORS A RE VALUED AT MARKET 11 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. PRICE OR COST, WHICHEVER IS LESS. THE CLOSING STOCK SUBMITTED BEFORE THE AO ON THE SAME PRINCIPLE. THE STOCK LEFT OVER CANNOT BE EQUATED WITH THE PURCHASE PRICE. 15. WE OBSERVE THAT THE AO HAS RECORDED THE BUSINES S OF THE ASSESSEE AS ENGAGED IN BUSINESS OF PROCUREMENT, PR OCESSING AND SELLING OF TOBACCO PRODUCTS, WHICH IS MATCHING WIT H THE 3CD REPORT SUBMITTED BY THE ASSESSEE. WHEREAS THE CIT RECORDED AS ENGAGED IN THE BUSINESS OF PURCHASE AND SELLING OF TOBACCO AND TOBACCO PRODUCTS. THERE IS DIFFERENCE OF PERCEPTION IN THE MIND OF LD. CIT. 16. LD. CIT HAS FOUND OUT THAT THE ORDER PASSED BY THE AO IS ERRONEOUS, BUT, COULD NOT BE QUANTIFIED HOW IT IS P REJUDICIAL TO THE INTERESTS OF REVENUE. THE ASSESSEE HAS BOUGHT THE T OBACCO LEAVES AND SOLD THE LEAVES AS PER THE PROCESSING RESULT. T HAT MEANS THE COST OF THE PURCHASE WAS APPORTIONED AND ADJUSTED IN THE SELLING PRICE. THE LEFT OVER OF THE STOCK WAS VALUED AS PER MARKET PRICE. THIS WILL BE THE OPENING VALUE FOR THE FOLLOWING YEAR. THERE IS NO LOSS TO THE REVENUE AS PRESUMED BY THE LD. CIT. IN THE ABSENCE OF ANY FINDING AS LOSS TO THE REVENUE, WE FIND IT APPROPRIATE TO ADJU DICATE THAT THE ORDER OF THE AO IS NOT PREJUDICIAL TO THE REVENUE AND ACC ORDINGLY THE ORDER OF CIT IS QUASHED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 28 TH OCTOBER, 2016 KV 12 ITA NO. 127/H/13 PRAPALSHA AGRO LTD. COPY TO:- 1) PRAPALSHA AGROS LTD., C/O SRI S. RAMA RAO, ADVOC ATE, FLAT NO. 102, SHRIYAS ELEGANCE, H. NO. 3-6-643 , ST. NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029 2) ITO, WARD 16(2), HYDERABAD 3) CIT - IV, HYDERABAD 4 ADDL. CIT, RANGE - 16 HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE