Asst. Commissioner of Income Tax, Circle-2, Margao V. M/s Marman Engineering & Ship Building Pvt. Ltd., Goa

ITA 128/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93490 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANGARI
• Assessee Lawyers: PARDIP KULKARNI
• Keywords: Capital asset; Cost of acquisition; Date of conversion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA , HONBLE ACCOUNTANT MEMBER ITA NO. 1 28 /PNJ/2014 (ASST. YEAR : 200 6 - 0 7 ) ACIT, CIRCLE4 - 2, MARGAO, GOA. VS. M/S. MARMAN ENGINEERING & SHIP B UILDING PVT. LTD., MARMAN HOUSE SHIPYARD AT ZORINTO POINT, SANCOALE, GOA. PAN NO. AABCM 7204 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PARDIP KULKARNI - CA DEPARTMENT BY : SHRI M.R. BANGARI - D.R. DATE OF HEARING : 08 / 0 6 /2015 . DATE OF PRONOUNCEMENT : 08 / 0 6 /201 5 . O R D E R PER N.K. BILLAIYA THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF L D. CIT (A), PANAJI, GOA , DATED 19 / 12 /201 3 PERTAINING TO A.Y. 200 6 - 0 7 . 2. THE REVENUE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. THE FIRST GRIEVANCE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE AT RS. 95,51,276/ - BEING ADDITIONS MADE INTO CLOSING STOCK IN CONVERSION OF A FIXED ASSET INTO STOCK - IN - TRADE. 2 ITA NO. 128 /PNJ/2014 3. THE ASSESSEE IS IN THE BUSINESS OF SHIPBUILDING AND REPAIRS. FOR THE YEAR UNDER CONSIDERATION , RETURN OF INCOME WAS FILED ON 18/11/2006 . THE RETURN WAS SELE C TED FOR SCRUTINY ASSESSMENT. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS CONVERTED ITS FIXED ASSETS NAMELY BARGE 300 DWT COSTING RS. 95,51,276 / - INTO STOCK - IN - TRADE WHICH WAS SHOWN IN THE BALANCE SHEET . THE ASSESSING OFFICER FURTHER OBSERVED THAT AS PER THE ACCOUNTING POLICY, THE ABOVE STOCK SHOULD HAVE BEEN SHOWN AS CLOSING STOCK IN THE P & L A/C. THE ASSESSEE WAS ASKED TO SHOW - CAUSE WHY AN AMOUNT OF RS. 95,51,276/ - BE NOT ADDED TO THE TOTAL INCOME ON ACCOUNT OF NON - SHOWING OF CLOSING STOCK ON CONVERSION OF ITS FIXED ASSETS INTO STOCK - IN - TRADE. THE ASSESSEE FILED A DETAILED REPLY WHICH READS AS UNDER: - 'THE BARGE ALONG WITH OTHER WORK IN PROGRESS IS INCLUDED IN STOCK IN TRADE AND SHOWN UNDER CURRENT ASSETS IN SCHEDULE ' C ' OF THE BALANCE SHEET AS ON 31.03.2006. THE COMPANY HAS THE PRACTICE OF SHOWING ONLY INCREASE OR DECREASE IN MATERIAL CONSUMED IN THE PROFIT & LOSS A/C (VIDE SCHEDULE H) AND NOT THE FINISHED STOCK OR WORK IN PROGRESS AND FINISHED STOCK IS SHOWN AS STOCK I N HAND IN SCHEDULE ' C ' OF THE BALANCE SHEET. IF THE CONVERTED STOCK IN TRADE IS TO BE INCLUDED IN THE CLOSING STOCK CORRESPONDING OPENING STOCK ALSO WILL HAVE TO BE INCREASED BY RS. 95,51,276/ - . IT WOULD NOT THEREFORE MAKE ANY DIFFERENCE IN THE PROFIT OF THE COMPANY. THE SAME BARGE IS ALSO NOT SOLD OR TRANSFERRED DURING THE YEAR HENCE THERE IS NO QUESTION OF PROFIT OR LOSS ON THE SAME. WE ALSO WISH TO INFORM YOU THAT NO DEPREDATION ON THE SAID BARGE HAS BEEN CLAIMED AT ALL DURING THE EARLI ER YEARS. COPY OF THE BA L ANCE SHEETS OF THE EARLIER YEARS IS ENCLOSED FOR YOUR REFERENCE. 3 ITA NO. 128 /PNJ/2014 4 . THIS CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS CONVERTED ITS FIXED ASSETS INTO STOCK - IN - TRADE AND THE SAID ASSET WAS SHOWN AS FIXED ASSETS AS AT THE BEGINNING OF THE YEAR I.E. 01/04/2005 AND DURING THE YEAR IT HAS BEEN CONVERTED INTO STOCK - IN - TRADE. THEREFORE , IT SHOULD NOT HAVE BEEN SHOWN AS OPENING STOCK AS ON 01/04/2005 . THE ASSESSING OFFICER, ACCORDINGLY, TREATED THE AMOUNT OF RS. 95,51,276/ - AS INCOME ON ACCOUNT OF CONVERSION OF ITS FIXED ASSET INTO STOCK - IN - TRADE. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND EXPLAINED THE FACTS AND CIRCUMSTANCES. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, LD. CIT(A) OBSERVED THAT WHEN A CAPITAL ASSET IS CONVERTED INTO STOCK - IN - TRADE , A PROFIT OR LOSS DEPENDING UPON THE COST OF ACQUISITION AND THE MARKET VALUE ON THE DATE OF CONVERSION AR ISES. HOWEVER , THIS CAPITAL GAIN OR LOSS SHALL BE NOTIONAL IN NATURE . LD. CIT(A) CONCLUDED BY HOLDING THAT PROFIT OR LOSS ARISES WHEN A SALE TRANSACTION TAKES PLACE AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO WORK OUT THE CAPITAL GAIN/LOSS ON CONVERSION AND TAX THE SAME IN THE YEAR OF SALE . 6. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 4 ITA NO. 128 /PNJ/2014 7 . LEARNED DR COULD NOT BRING ANY DISTINGUISHING FACTS/DECISION TO CONTROVERT THE FINDINGS OF THE LD. CIT(A) . COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8 . WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THERE WAS A CONVERSION OF A CAPITAL ASSET INTO STOCK - IN - TRADE THEREBY MAKING THE PROVISIONS OF SECTION 45 (2) OF THE ACT A S APPLICABLE. HOWEVER, THE PROFIT/LOSS ON THIS CONVERSION SHALL BE DETERMINED WHEN THE ASSET IS SOLD. WE , THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) . THE FIRST GRIEVANCE OF THE REVENUE IS, ACCORDIN GLY, DISMISSED. 9 . THE SECOND GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF ADDITION OF RS. 6,39,668/ - MADE BY THE ASSESSING OFFICER. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED THE FOLLOWING INDIRECT INCOMES : - S.NO. PARTICULARS AMOUNT 1. INTEREST ON FD 18,819 2. INTEREST RECEIVED 12,885 3 REIMBURSEMENT OF EXPENSES 4 , 76,993 4 RENT RECEIVED 18,67,875 TOTAL 23,76,542 HOWEVER, THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAS CREDITED ONLY RS. 17,36,874/ - WHICH H A S RESULTED INTO OMISSION OF 5 ITA NO. 128 /PNJ/2014 RS. 6,39,668/ - . THE ASSESSEE WAS ASKED TO RECONCILE THE DIFFERENCE. ON RECEIVING, NO PLAUSIBLE REPLY BY THE ASSESSEE , T HE ASSESSING OFFICER ADDED RS. 6,39,668/ - AS INCOME OF THE ASSESSEE. 10 . AGGRIEVED BY THIS, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IN THE GROUNDS OF APPEAL ITSELF, THE ASSESSEE FILED A RECONCILIATION EXPLA INING THE DIFFERENCE BETWEEN THE INCOME AS PER THE TRIAL BALANCE AND AS PER P & L ACCOUNT. THIS RECONCILIATION , WHICH WAS FILED WITH THE GROUNDS OF APPEAL , WAS NOT OBJECTED BY THE ASSESSING OFFICER. AFTER SATISFYING HIMSELF WITH THE RECONCILIATION, THE LD. CIT(A) DELETED THE ADDITION OF RS. 6, 39,668/ - . 11 . BEFORE US , LEARNED DR COULD NOT BRING ANY DISTINGUISHING FACTS . I NSOFAR AS RECONCILIATION IS CONCER NED, WE CAREFULLY PERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO GONE THROUGH THE RECONCILIATION FILED BY THE ASSESSEE. WE FIND THAT FACTUALLY, THE ASSESSEE HAS RECONCILED THE DIFFERENCE . T HEREFORE , WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) . GROUND NO.2 IS ALSO DISMISSED . 12 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ( ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JUNE , 201 5 ). S D / - S D / - ( GEORGE MATHAN ) ( N.K. BILLA I YA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 0 9 T H JUNE , 201 5 . 6 ITA NO. 128 /PNJ/2014 VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 7 ITA NO. 128 /PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 0 8 .06.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 08 .06.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 0 8 / 0 6 / 2 0 1 5 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 0 8 / 0 6 / 2 0 1 5 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 0 9 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 08 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 0 9 /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER