ITO(OSD), CHENNAI V. M/s. Shardlow India Ltd., CHENNAI

ITA 1435/CHNY/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51778 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-08-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 23-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K ME GHANATH CHOWHAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: TDS
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER) .. I.T.A. NO. 1435/MDS/2007 ASSESSMENT YEAR : 2001-02 THE INCOME TAX OFFICER (OSD), COMPANY CIRCLE VI(2), CHENNAI 600 034. (APPELLANT) V. M/S SHARDLOW INDIA LTD., HOZUR GARDENS, MADHAVARAM HIGH ROAD, SEMBIAM, CHENNAI 600 011. PAN : AAACS5048P (RESPONDENT) APPELLANT BY : SHRI K. MEGHANATH CHOWHAN, JCIT RESPONDENT BY : SHRI R. VIJAYARAGHA VAN O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY REVENUE FOR THE ASSESSMENT YEAR 2001- 2002 AGAINST AN ORDER DATED 23.02.2007 OF COMMISSIO NER OF INCOME TAX (APPEALS)-V, CHENNAI. I.T.A. NO. 1435/MDS/07 2 2. GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION BY US. 3. IN GROUND NO. 2, THE GRIEVANCE PROJECTED BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN HOLDING THAT SECTION 4 0(A)(IA) OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE ACT] IS NOT APP LICABLE TO PAYMENTS OF FOREIGN AGENCY COMMISSION AND THEREBY D ELETING ADDITION OF RS. 17,13,000/- MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TDS IN RESPECT OF AGENCY COMMISSION PAID TO NON RESIDENT COMPANY M /S WALLACE CARTWRIGHT & COMPANY LTD. 4. THE LD. D.R. DID NOT MAKE ANY ARGUMENTS ON THIS GROUND OF APPEAL OF THE REVENUE. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 5. GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DIR ECTED AGAINST THE ORDER OF THE LD. CIT(A) IN TREATING THE END BIT S AS RAW MATERIAL I.T.A. NO. 1435/MDS/07 3 INSTEAD OF SCRAP AND THEREBY DELETING THE ADDITION OF RS. 9,62,220/- MADE TOWARDS UNDER VALUATION OF CLOSING STOCK. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING O FFICER, ON PERUSAL OF DETAILS OF CLOSING STOCK OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS SHOWN 76,775/- KGS OF END BITS, WHICH AROSE IN THE MANUFACTURING PROCESS AS SCRAP. THE ASSESSING OFFIC ER WAS OF THE OPINION THAT THIS WAS NOT A SCARP AND THEREFORE, HE VALUED THE SAME AT RS. 16,10,210/- AS AGAINST RS. 6,47,990/- SHOW N BY THE ASSESSEE AND THEREBY MADE AN ADDITION OF RS. 9,62,220/- TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF UNDER VALUATION OF STOCK . 7. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE AR GUED THAT END BITS ARE NOTHING BUT SCRAP/BYE PRODUCT ARISING OUT OF MANUFACTURING ACTIVITY AND THE SAME CANNOT FETCH SAME VALUE IN TH E MARKET AS STEEL BARS. THE ASSESSING OFFICER OUGHT HAVE ADOPT ED THE ACTUAL REALIZABLE VALUE OF THE END BITS WHICH WAS DECLARED BY THE APPELLANT @ RS. 8.40 PER KG. IT WAS, THEREFORE, PRAYED THAT THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. I.T.A. NO. 1435/MDS/07 4 8. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, HELD AS UNDER: 4.2.3. THE ARGUMENTS PUT FORWARD BY LEARNED A.R. HAV E CAREFULLY BEEN EXAMINED VIS--VIS THE CONTENTIONS RA ISED BY THE A.O. IN THE ASSESSMENT ORDER. ON THE BASIS OF QUANTITATIVE DETAILS OF STOCK INCLUDING THE END-BITS FURNISHED BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS, IT IS SEEN THAT THE END-BITS HAVE BEEN SHOWN SEPARATELY AS A DISTINGUISHABLE ENTITY FROM THE STEEL BARS. I AM, T HEREFORE, UNABLE TO COMPREHEND AS TO WHY THE A.O. WENT ON TO V ALUE THE END-BITS AT THE COST PRICE OF STEEL BARS, PARTI CULARLY WHEN THE A.O. HIMSELF HAS ADMITTED THAT END-BITS ARE DIS CLOSED BY THE APPELLANT UNDER THE HEAD SCRAP. AS PER NORMAL PRUDENCE AND WISDOM, SCRAP CANNOT BE EXPECTED TO BE SOLD IN THE OPEN MARKET AT THE PRICE OF THE RAW MATERIALS, WHICH IS STEEL BARS IN THE APPELLANTS CASE. SINCE THE NET REALISABLE VALUE OF THE END-BITS HAS NOT BEEN DISPUTED BY THE A. O. AND SINCE THE END-BITS ARE CLEARLY DISTINGUISHABLE FROM THE RAW MATERIAL, I DIRECT THE A.O. TO ADOPT THE VALUE OF EN D-BITS AT RS.8,400/- PER METRIC TONNE AS DECLARED BY THE APPE LLANT. IN THE RESULT, THE ADDITION OF RS.9,62,220/- IS DIRECTE D TO BE I.T.A. NO. 1435/MDS/07 5 DELETED. THE GROUND OF THE APPELLANT IN THIS REGARD THUS SUCCEEDS. 9. THE LD. D.R. VEHEMENTLY ARGUED AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREIN THE LD. A.R. OF THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND RELI ED ON THE ORDER OF THE LD. CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD SHOWN CLOSING STOCK OF 76,775 KGS OF END BITS WHICH WAS V ALUED BY IT AT RS. 8.40 PER KG AND THE VALUE OF THE SAME WAS SHOWN AT RS. 6,47,990/-. ACCORDING TO THE ASSESSING OFFICER, THE ENDS BITS W ERE NOTHING BUT RAW MATERIAL. THEREFORE, HE VALUED THE SAME AT COS T OF RAW MATERIAL AND ARRIVED AT VALUE OF RS. 16,10,210/- A ND MADE ADDITION FOR DIFFERENCE AMOUNT OF RS. 9,62,220/- AS UNDER V ALUATION OF STOCK OF END BITS. I.T.A. NO. 1435/MDS/07 6 11. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION FOR THE REASON THAT THE ASSESSING OFFICER WENT ON TO VALUE THE END BITS AT COST PRICE OF STEEL BARS WHEN HE HIMSELF ADMITTED THAT T HE END BITS ARE DISCLOSED BY THE ASSESSEE UNDER THE HEAD SCRAP. HE NOTED THAT AS PER NORMAL PRUDENCE AND WISDOM, SCRAP CANNOT BE EXP ECTED TO BE SOLD IN THE MARKET AT THE PRICE OF THE RAW MATERIAL S, WHICH IS, STEEL BARS IN THE ASSESSEES CASE. SINCE THE NET REALIZA BLE VALUE OF THE END BITS WAS NOT DISPUTED BY THE ASSESSING OFFICER AND THE END BITS ARE DISTINGUISHABLE FROM RAW MATERIAL, HE DIRECTED THE ASSESSING OFFICER TO ADOPT VALUE OF END BITS AT RS. 8400 PER METRIC TONNE DECLARED BY THE ASSESSEE AND DELETED THE ADDITION O F RS 9,62,220/-. THE CONTENTION OF THE REVENUE IS THAT THE ASSESSEE HAS UNDER VALUED THE CLOSING STOCK OF END BITS AS IT WAS TO BE VALUE D AT COST OF RAW MATERIAL OF STEEL BARS. IT IS AN ACCEPTED PRINCIPL E OF ACCOUNTANCY TO VALUE CLOSING STOCK AT COST OR NET REALIZABLE VALUE , WHICH EVER IS LOWER BASIS. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE NET REALIZABLE VALUE OF END BITS WAS HIGHER THAN THE VALUE OF RS. 6,47,990/- SHOWN BY THE ASSE SSEE. IN THE ABSENCE OF ANY SUCH MATERIAL BEING BROUGHT ON RECOR D, WE DO NOT I.T.A. NO. 1435/MDS/07 7 FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED AND GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 10 TH AUGUST, 2011. SD/- SD/- (HARI OM MARATHA) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH AUGUST, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-IX, CHENNAI-34 (4) CIT, CHENNAI-34 (5) D.R. (6) GUARD FILE