M/S Rajratan Global Wire Ltd, V. The ACIT 5 (1),

ITA 133/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2957 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 16-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: P D NAGAR
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NO.133/IND/2009 A.YS. 2006-07 RAJRATAN GLOBAL WIRE LTD. (PAN AABCR 4530 Q) C/O P.D. NAGAR & CO., CA 403, CITY PLAZA, 564, M.G. ROAD, INDORE APPELLANT VS ACIT, CIRCLE-5(1), INDORE RESPONDENT APPELLANT BY : SHRI P.D. NAGAR, CA RESPONDENT BY : SHRI K.K. SINGH, CIT, DR O R D E R PER BENCH THIS APPEAL IS BY THE ASSESSEES AGAINST THE ORDER O F THE LEARNED CIT(A)-II, INDORE, DATED 22.1.2009 WHEREIN THE FIRS T GROUND RAISED IS THAT THE LEARNED CIT(A) ERRED IN LAW IN CONFIRMING THE A DDITION OF RS.,66,64,704/- TOWARDS ALLEGED UNDER VALUATION OF CLOSING STOCK BY INVOKING SECTION 145A OF THE ACT. 2. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHR I P.D. NAGAR, LD. COUNSEL FOR THE ASSESSEE AND SHRI K.K. SINGH, LD. C IT, DR. THE CRUX OF ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE IS THA T THE LD. CIT(A) 2 OUGHT TO HAVE CONSIDERED THAT PURCHASE PRICE OF RAW MATERIAL DEBITED TO P & L ACCOUNT WAS EXCLUDING THE ELEMENT OF EXCISE D UTY, THEREON, HENCE THE VALUATION OF CLOSING STOCK WAS MADE AT COST. TH ERE BEING NEUTRAL EFFECT ON PROFIT, VALUATION OF CLOSING STOCK WAS BA SED UPON ACCOUNTING WHICH WAS TRUE AND CORRECT, AS PER ACCOUNTING STAND ARDS. IT WAS ALSO PLEADED THAT THE IMPUGNED ISSUE IS COVERED BY THE D ECISION OF THE TRIBUNAL IN THE GROUP CASE FOR ASSESSMENT YEAR 2003 -04 (ITA NOS.768/IND/2006). THIS ASSERTION OF THE ASSESSEE W AS NOT CONTROVERTED BY THE REVENUE. IN VIEW OF THE ABOVE, WE ARE REPROD UCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID ORDER : 3. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL IN I.T.A.NO. 768/IND/2006. 4. IN FIRST GROUND, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF A.O. IN RESPECT OF ADJUSTMENT OF THE VALUE OF CLOSING STOCK BY THE AMOUNT OF EXCISE DUTY U/S 145A OF THE ACT. 5. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE VALUED I TS CLOSING STOCK OF RAW MATERIAL AT NET OF EXCISE DUTY . THE A.O. HELD THAT THE PROVISIONS OF SECTION 145A WERE MANDATORY, HENCE, SUCH CLOSING STOCK SHOULD HAVE BEEN VALUED AFTER INCLUDING EXCISE DUTY. THE A.O., ACCORDINGLY, MADE AN ADDITION OF RS. 45,89,259/-. IN THE APPEAL, BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT IT WAS RECORDING PURCHASES, SALES AS PER NET METHOD CONSISTENTLY. HENCE, NO ADJUSTMENT WAS REQUIRED IN THE VALUATION OF CLOSING STOCK. IT WAS ALSO SUBMITTED THAT IF ADJUSTMENTS WERE REQUIRED, THEN THE VALUE O F OPENING STOCK, PURCHASES AND SALES SHOULD HAVE ALSO BEEN ADJUSTED AND IN THAT SITUATION, THERE 3 WOULD NOT BE ANY IMPACT ON THE PROFITS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE ALSO RELIED ON VARIOUS JUDICIAL DECISION I N THIS REGARD. THE LD. CIT(A), HOWEVER, HELD THAT IT WAS A ONE TIME ADDITION FOR THE ASSESSMENT YEAR 1999-2000 AND IN SUBSEQUENT YEARS NO ADJUSTMENT WOULD BE REQUIRED AS BOTH THE OPENING AND CLOSING STOCKS WOULD BE IN TUNE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. IN THIS REGARD, THE LD. CIT(A) PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF WASTE PAPER MILLS AS REPORTED IN 286 ITR 252 ( A.T.). ACCORDINGLY, HE CONFIRMED THE ACTION OF THE A.O. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE FACTS AND CONTENDED THAT METHOD OF ACCOUNTING NET OF EXCISE DUTY WAS DULY APPROVED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND IN CASE THE ADJUSTMENT WAS TO BE MADE, ALL THE ITEMS COVERED U/S 145A WERE TO BE ADJUSTED. AS REGARDS THE DECISION OF THE TRIBUNAL IN THE CASE OF WEST COAST PAPER MILS, THE LEARNED COUNSEL SUBMITTED THAT THERE WERE SEVERAL OTHER TRIBUNAL DECISIONS IN FAVOUR OF THE ASSESSEE AND AFTER AFORESAID DECISION OF THE TRIBUNAL, THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALLUMINIUM LIMITED, AS REPORTED IN 297 ITR 77 HAD HELD THAT IN CASE OF ADJUSTMENTS TO BE MADE AS PER THE PROVISIONS OF SECTION 145A, THE VALUE OF OPENING STOCK WAS ALSO TO BE ADJUSTED. HENCE, THE DECISION OF THE TRIBUNAL IN THE SAID CASE WAS NO LONGER A GOOD LAW. 7. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF LD. CIT(A) AND ALSO SUBMITTED THAT EARLIER YEARS WOULD ALSO BE REQUIRED TO BE REOPENED, IF THE VALUE OF OPENING STOCK WAS DISTURBED. 8. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. 4 9. IT IS NOTED THAT THE ASSESSEE IS RECORDING PURCHASES, SALES, OPENING STOCK AND CLOSING STOCK ACCORDING TO THE NET METHOD I.E. WITHOUT CONSIDERING THE EXCISE DUTY/MODVAT. HENCE, AS PER PROVISIONS OF SECTION 145A, NECESSARY ADJUSTMENTS HAVE TO BE CARRIED OUT IN THE VALUE OF ALL SUCH ITEMS AND NOT IN THE VALUE AS CLOSING STOC K ONLY. THIS VIEW IS DULY SUPPORTED BY THE DECISION O F HON'BLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALLUMINIUM LIMITED (SUPRA). WE FURTHER FIND THAT IN THE TAX AUDIT REPORT AS WELL AS DURING THE COURS E OF ASSESSMENT PROCEEDINGS, AS STATED BY THE LEARNED COUNSEL, NECESSARY DETAILS HAVE BEEN FURNISHED, WHICH GO TO SHOW THAT IF ADJUSTMENTS U/S 145A, ARE CARRIED OUT IN ALL THE FOUR ITEMS, THEN THERE WOULD NOT BE ANY IMPACT ON THE PROFITS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. WE ARE FURTHER OF THE VIEW THAT THERE IS NO NECESSITY TO OPEN THE ASSESSMENT OF EARLIER YEARS AS THE PROFITS OF THOSE YEARS HAVE BEEN ASSESSED AS PER DIFFERENT METHOD OF ACCOUNTING AND THIS BEING THE FIRST YEAR OF CHANGE, NECESSARY ADJUSTMENTS HAVE TO BE CARRIED OUT ONLY IN THE OPENING STOCK TO GIVE EFFEC T TO SUCH PROVISIONS. ACCORDINGLY, THIS GROUND OF THE ASSESSEE STANDS ALLOWED. IN THE LIGHT OF THE ABOVE, AND ALSO THE ASSERTION/ ADMISSION FROM BOTH SIDES THAT THE IMPUGNED ISSUE IS COVERED BY TH E AFORESAID DECISION, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THIS GR OUND OF THE ASSESSEE IS ALLOWED. 3. THE NEXT GROUND RAISED IS THAT THE LD. CIT(A) ER RED IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS.1,13,750/- OUT OF I NTEREST PAYMENTS BY INVOKING PROVISIONS OF SEC. 14A OF THE ACT TOWARDS INVESTMENT OF RS.20 LACS IN EQUITY SHARES OF A PRIVATE LIMITED COMPANY. IN FACT, SUCH AMOUNT WAS INVESTED OUT OF EARNINGS FOR THE YEAR AND BORRO WED FUNDS WERE NOT 5 UTILISED FOR THE PURPOSE. DISALLOWANCE OF RS.1,13,7 50/- IS, THEREFORE, WHOLLY UNJUSTIFIED, IMPROPER, BAD IN LAW AND DESERV ES TO BE SET-ASIDE. 4. DURING HEARING, THIS GROUND WAS NOT PRESSED BY T HE LD. COUNSEL FOR THE ASSESSEE, CONSEQUENTLY, THIS GROUND IS DISMISSE D AS NOT PRESSED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 4TH MAY, 2010. SD SD (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MAY 4 , 2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE !VYAS!