M/s. Dhanlaxmi Dyeing & Printing Mills Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(4), Surat

ITA 149/AHD/2010

• Counselvise Citation: 14920514 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M J SHAH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 149/ AHD/2010 (ASSESSMENT YEAR 2006-07) M/S. DHANLAXMI DYEING & PRINTING MILLS PVT. LTD., BLOCK 168, GIDC, PANDESARA, SURAT 394221 VS. ITO, WARD 1(4), SURAT PAN/GIR NO. : AABCD4076D (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI M J SHAH, AR RESPONDENT BY: SHRI VINOD TANWANI, SR. DR DATE OF HEARING: 09.04.2012 DATE OF PRONOUNCEMENT: 04.2012 O R D E R PER SHRI KUL BHARAT, JM:- THE PRESENT APPEAL OF THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF LD. CIT(A) - I, SURAT DATED 16.11.2009 FOR THE ASSE SSMENT YEAR 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) -1 HAS ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION ON ACCOUNT OF WORK-IN-PROGRESS. 2) IT IS, THEREFORE, PRAYED THAT THE ABOVE ADDITION CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY PL EASE BE DELETED. 3) THE APPELLANT PRAYS FOR GRANTING SUCH OTHER RELI EF AS MAY BE DEEMED JUST AND PROPER BY YOUR HONOURS CONSIDERING THE FACTUAL AND LEGAL ASPECTS OF THE CASE OF THE APPELLANT. I.T.A.NO.149 /AHD/2010 2 4) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DELETE, SUBSTITUTE OR MODIFY ANY OR ALL OF THE GROUNDS OF G ROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF JOB WORK OF DYEING OF FABRICS. THE CAS E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY FOR THE ASSESSMENT YEAR 2006- 07 AND THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 WERE COMPLETED VIDE ORDER DATED 19.12.2008. THE A.O. DISALLOWED THE CL AIM OF THE ASSESSEE IN RESPECT OF THE CLOSING STOCK OF W.I.P. OF RS.2,91,6 19/-. THE ASSESSEE FEELING AGGRIEVED BY THE ORDER OF THE A.O., APPROAC HED LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE ASS ESSEE FEELING FURTHER AGGRIEVED, APPROACHED THIS TRIBUNAL BY WAY OF THE P RESENT APPEAL. 3. THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE AUTHORITIES BELOW IS ERRONEOUS ON ACCOUNT OF THE FA CT THAT BOTH THE AUTHORITIES FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF VALUING THE CL OSING STOCK OF W.I.P. AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE LD. A .R. SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT UNLESS THE APPELLANT COMPLETES THE CLOTH DYING JOB WORK, THE PARTIES ASSIGNING THE JOB WORK TO THE ASSESSEE, WOULD NOT PAY A SINGLE RUPEE BY WAY OF JO B WORK CHARGES. IN OTHER WORDS, IN CASE THE CLOTH DYEING JOB WORK IS H ALF DONE AT THE YEAR ENDING, THE APPELLANT WOULD NOT BE ABLE TO RECOVER A SINGLE RUPEE FROM THE JOB WORK FROM THE PARTY. LD. A.R. FURTHER SUBMITTE D THAT NO VALUATION TO THE WORK IN PROGRESS CAN BE ATTACHED ON THE YEAR EN DING AS PER THE MOST ACCEPTED ACCOUNTING PRINCIPLE BEING FOLLOWED BY THE APPELLANT IN THE YEAR WHICH LAYS DOWN THAT THE LOSING STOCK OF W.I.P. IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. LD. A.R. ALSO POI NTED OUT THAT THE I.T.A.NO.149 /AHD/2010 3 ASSESSEE HAD SUBMITTED THE CONFIRMATION LETTER FROM THE PARTIES WHO HAVE ASSIGNED THE JOB WORK TO THE ASSESSEE. THE LD. A.R . FURTHER SUBMITTED THAT THE VALUATION ADOPTED BY THE A.O. AT THE PER M ETER BASIS IS ALSO WRONG AS THE CLOTH WHICH IS DYED IS TAKEN ON THE BASIS OF WEIGHT. THE LD. A.R. SUBMITTED THAT HIS CASE IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL PASSED IN I.T.A.NO. 2728/AHD/ 2000 IN THE MATTER OF M/S. ADARSH TEXTILE MILLS VS ITO. 4. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL UNDER THE IDENTICAL SET OF FACTS IN I.T.A.NO. 2728/AHD/2000 HAS TAKEN A VIEW IN FAVO UR OF THE ASSESSEE. FOR THE SAKE OF CLARITY, WE REPRODUCE THE RELEVANT CONTENTS OF THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN I.T.A.NO. 2 728/AHD/2000 AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITA T. WE FIND THAT WHILE ADJUDICATING AN IDENTICAL ISSUE, THE ITAT IN THEIR DECISION DATED 28.5.2010 IN THE CASE OF ITO VS. M/S RISHABH DYEING & PRINTING MILLS (P) LTD. IN ITA NO. 1823/AHD./2007 H ELD AS UNDER :- '3. AGAINST THIS LD. AR SUBMITTED THAT SIMILAR ISSU E HAD COME BEFORE THE TRIBUNAL IN THE CASE OF PRATIK PROCESSOR S PVT. LTD V DCIT IN ITA NO.1956/AHD/2007, WHEREIN TRIBUNAL HAS HELD THAT THERE CANNOT BE ANY WORK-IN-PROGRESS IN A CASE WHER E BUSINESS OF DYEING AND PRINTING OF CLOTH IS DONE ON JOB WORK BA SIS. HE REFERRED TO PARA-6 FROM THAT ORDER AS UNDER:- '6. AT THE TIME OF HEARING BOTH THE REPRESENTATIVES AGREED THE SIMILAR ISSUE AROSE IN AN APPEAL BY THE REVENUE IN ITA NO. 2649/AHD/2006 IN THE CASE OF VIPUL INDUSTRIES PVT. LTD. V/S ACIT ORDER DATED 17.9.2003 IN THE SAID CASE, WHEN IN THE SAID CASE THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF CLOTH ON JOB WORK BASIS AND WHERE THE ASSESSES HAD NOT SHOWN ANY I.T.A.NO.149 /AHD/2010 4 WORK-IN-PROGRESS AT THE YEAR END, THE SAME WAS ESTI MATED TO BE 50% OF THE JOB RECEIPT OF THE LIKELY STOCK REMAININ G IN PROCESS. HOWEVER WAS DELETED BY THE LD. CIT(A) BY OBSERVING AS UNDER: '12. I HAVE CAREFULLY CONSIDERED THE FACT OF THE CA SE AND SUBMISSIONS MADE BY THE ID AR. AS REGARDS THE ADDIT ION MADE IN RESPECT OF ESTIMATED WORK IN PROGRESS, IT IS SEEN T HAT THE APPELLANT IN THE INSTANT CASE IS A JOB-WORKER AND PROCESS GRE Y CLOTH FOR ITS CUSTOMERS ACCORDING TO THEIR REQUIREMENT. THE APPEL LANT NOT ENGAGED IN ANY MANUFACTURING ACTIVITIES OF ITS OWN. THE CLOTH PROCESSED BY THE APPELLANT THUS BELONG TO ITS CUSTO MERS IS PROCESSED BY THE APPELLANT AND. AFTER PROCESSING TH E SAME IN ACCORDANCE WITH THE CUSTOMERS REQUIREMENT, IT IS RE TURNED. IN THE ABOVE FACTS OF THE CASE THE QUESTION OF SHOWING ANY WORK IN PROGRESS IN THE BOOKS OF ACCOUNT OF THE APPELLANT I N RESPECT OF THE CLOTH BELONGING TO ITS CUSTOMERS DID NOT ARISE AS S UCH CLOTH WAS REQUIRED TO BE SHOWN IN THE CLOSING STOCK OF THE CO NCERNED CUSTOMERS. ON THE BASIS OF THE COMPLETION OF WORK O N THE CUSTOMERS CLOTH, THE APPELLANT IS ENTITLED TO RECEI VE ITS WORK CHARGES. NO INTERIM PAYMENTS OR ADVANCES PAYMENTS A RE RECEIVED BY THE APPELLANT FROM ITS CUSTOMERS DURING THE PEND ENCY OF THE JOB WORK. THE RECEIPTS FROM THE JOB WORK ARE BEING ACCO UNTED FOR BY THE APPELLANT ON COMPLETED CONTRACT METHOD AS PER A S-9. THE CLOSING STOCK OF MATERIALS USED FOR PROCESSING OF C LOTH, I.E. COLOUR, CHEMICALS ETC. HAVE BEEN DULY ACCOUNTED FOR BY THE APPELLANT IN ACCORDANCE WITH AS-9 IN REGARD TO THE VALUE ADDITIO N MADE BY THE APPELLANT ON THE CUSTOMER'S CLOTH, WHICH MAY HAVE B EEN AT DIFFERENT INTERMEDIATE STAGES OF PROCESSING AS ON 31.3.2003, NEITHER ANY OPENING STOCK NOR CLOSING STOCK WAS EVER SHOWN BY T HE APPELLANT. AS PER THE PRINCIPLES OF ACCOUNTING LAID DOWN BY TH E ICAI, UNDER THE SCOPE OF VALUATION OF INVENTORIES IN ITEM 1 (SU B-ITEM (B) OF AS-2 (REVISED) THE 'WORK-IN-PROGRESS' ARISING IN TH E ORDINARY COURSE OF BUSINESS OF SERVICE PROVIDER' HAS BEEN SP ECIFICALLY SCOPED OUT OF THE SAID STATEMENT. FURTHER, IN THE D EFINITIONS PROVIDED UNDER ITEM 3 OF THE AS-2 'INVENTORIES' HAV E BEEN DEFINED AS 'ASSETS (A) HELD FOR SALE IN THE ORDINARY COURSE OF BUSINESS (B) IN THE PROCESS OF PRODUCTION, FOR SUCH SALE' OR (C) IN THE FORM OF MATERIALS OR SUPPLIES TO BE CONSUMED IN THE PRODUCT ION FOR SALE' OR IN THE RENDERING OF SERVICES. SINCE THE APPELLANT W AS NOT ENGAGED IN THE BUSINESS OF SALE OF THE PROCESSED CLOTH OR IN T HE PRODUCTION FOR I.T.A.NO.149 /AHD/2010 5 SALE OF THE PROCESSED CLOTH BUT WAS ENGAGED IN THE BUSINESS OF RENDERING OF SERVICES FOR PROCESSING OF GREY CLOTH FOR ITS CUSTOMERS THE PRINCIPLES LAID DOWN IN AS-2 FOR THE 'VALUATION OF INVENTORIES' WERE NOT APPLICABLE IN ITS CASE IN ACCORDANCE WITH ITEM L(B) THEREOF. HOWEVER, THE MATERIALS OR SUPPLIES TO BE CONSUMED I N THE PRODUCTION PROCESS OR IN THE RENDERING OF SERVICES WOULD EVIDENTLY FAIL IN CATEGORY (C) OF THE AFORESAID 'DEFINITIONS' PROVIDED IN ITEM 3 OF THE ACCOUNTING PRINCIPLES LAID DOWN IN AS-2, AND THE SAME WOULD BE REQUIRED TO BE ACCOUNTED FOR BY IT IN THE FORM OF STOCK, WHICH HAS BEEN DONE IN THE INSTANT CASE. THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT IS THUS SEEN TO BE IN ACC ORDANCE WITH THE ACCOUNTING PRINCIPLES LAID DOWN BY THE ICAI. 13. IT IS FURTHER SEEN THAT THE AFORESAID METHOD OF ACCOUNTING OF OPENING/CLOSING STOCK HAS BEEN REGULARLY AND CONSIS TENTLY FOLLOWED BY THE APPELLANT COMPANY SINCE THE BELONGING THE AP PELLANT HAS ALSO CONSISTENTLY FOLLOWED, THE ACCOUNTING POLICY O F RECOGNIZING REVENUE OF COMPLETED CONTRACT METHOD. WHILE THE PRI NCIPLES OF RES- JUDICATA ARE NOT APPLICABLE TO THE INCOME-TAX PROCE EDINGS, IT HAS BEEN HELD BY THE COURTS IN SEVERAL JUDGMENTS: THAT, WHERE THE APPELLANT HAS BEEN FOLLOWING REGULAR SYSTEM OF ACCO UNTING SINCE THE LAST SO MANY YEARS AN SUCH METHOD WAS BASED ON ACCEPTED PRINCIPLES OF ACCOUNTING THERE WAS NO JUSTIFICATION FOR REJECTING THE SAID METHOD FOR VALUATION OF STOCK. THIS WOULD ESPE CIALLY HOLD IN A CASE WHERE THE PROPOSED CHANGE IN THE METHOD OF VAL UATION IS FOUND TO HAVE NO IMPACT, AS IN THE INSTANT CASE, IF THE CHANGED METHOD ADOPTED BY THE ASSESSING OFFICER WERE APPLIE D FOR VALUATION OF THE OPENING AS WELL AS THE CLOSING STO CK. 14. FOR REASONS DISCUSSED ABOVE IN DETAILS, IN MY O PINION THERE WAS NO BASIS OR JUSTIFICATION IN MAKING THE ANY ESTIMAT ED ADDITION ON ACCOUNT OF WORK-IN-PROGRESS IS THIS CASE. THE ADDIT ION OF RS.12.56.970/- MADE BY THE AO IN RESPECT OF ESTIMAT ED WORK IN PROGRESS IS THEREFORE DELETED. THIS GROUND OF APPEA L IS ALLOWED ' THUS DELETION WAS CONFIRMED BY THE TRIBUNAL. THEREF ORE IN, THE PRESENT CASE ALSO FOLLOWING THE DECISION OF THE TRI BUNAL CONFIRM THE ORDER OF THE CIT(A), THE ADDITION ON ACCOUNT OF ESTIMATED VALUE OF WORK-IN-PROGRESS IS REQUIRED TO BE DELETED.' 5.1 FOLLOWING THE VIEW TAKEN IN THE AFORCITED DECIS ION, THE ITAT IN THEIR DECISION DATED 16-07-2010 IN THE CASE OF KRIS HNA ART SILK I.T.A.NO.149 /AHD/2010 6 CLOTH (P) LTD. VS. DCIT IN ITA NO.1264/AHD/2010, IN WHICH CASE ALSO, THE ID. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE LIGHT OF DECISION DATED 26.10.2007 IN THE CASE OF AKRUTI DYE ING & PRINTING MILLS PVT. LTD. IN ITA NO.2551/AHD/2006, ALLOWED TH E CLAIM OF THE ASSESSEE. 5.2 IN ANOTHER DECISION DATED 13-05-2011,FOLLOWING THE VIEW TAKEN BY THE ITAT IN THEIR DECISION DATED 3.04.09 IN ITA NO. 167/AHD/2009 IN THE CASE OF KANHAIYA PROCESSORS PVT . LTD. VS. ITO, WE CONCLUDED AS UNDER: 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE TRIBUNAL IN TH E CASE OF KANHAIYA PROCESSORS PRIVATE LTD. (SUPRA) OBSERVED T HAT THE AO COULD NOT BE ABLE TO APPRECIATE THE TRUE NATURE OF THE BUSINESS OF A PROCESSING HOUSE. HE UNDERTOOK THE JOB WORK. THE FA BRIC DOES NOT BELONG TO THE ASSESSEE. THERE IS DIFFERENCE IN RAW MATERIAL AND THE CONSUMABLES. RAW MATERIAL ONCE CONSUMED DOES NOT LO SE ITS IDENTITY, IT ONLY GETS ITS UTILITY TRANSFERRED. WHI LE THE CONSUMABLES, ONCE CONSUMED, CANNOT BE SEPARATELY IDENTIFIED AND IT LOSES ITS IDENTITY. WHEN THE ASSESSEE HAS BEEN ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF ART-SILK CLOTH ON JOB WORK B ASIS, THE RAW MATERIAL DOES NOT BELONG TO THE ASSESSEE. THE ASSES SEE HAS SIMPLY TO INCUR THE EXPENDITURE ON COLOUR, CHEMICAL, WAGES , POWER AND FUEL. COLOUR AND CHEMICALS ARE CONSUMABLES AND ONCE THESE ARE APPLIED TO THE FABRIC UNDER PROCESS, THEY LOSE THEI R IDENTITY AND CANNOT BE PART OF THE STOCK IN PROCESS.' THE ASSESS EE IS VALUING THE STOCK BY FOLLOWING THE SAME METHOD CONSISTENTLY IN WHICH THERE IS NO ILLEGALITY. ON THIS BASIS, ADDITION MADE ON ACCO UNT OF SUPPRESSED WORK-IN- PROGRESS IS DELETED BY THE TRIBUNAL, V BEN CH VIDE ORDER DATED 3? APRIL, 2009 IN THE OF KANHAIYA PROCESSORS PVT. LTD. (SUPRA). 7.1 THE SIMILAR VIEW HAS BEEN TAKEN IN OTHER CASES RELIED ON BY THE ID. COUNSEL OF ASSESSEE. UNDER THE FACTS AND CIRCUM STANCES, WE ARE OF THE VIEW THAT THE AO WAS MOT CORRECT IN LAW IN V ALUING THE WORK-IN-PROGRESS IN RESPECT OF VARIOUS EXPENSES INC URRED BY THE ASSESSEE RELATING TO FABRIC WHILE IN PROCESS FOR DY EING AND PRINTING. WE. ACCORDINGLY, DELETE THE ADDITION OF RS.4,11,335 /-. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED.' 5.3 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DEC ISIONS ON IDENTICAL FACTS AND CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO ALLOW THE I.T.A.NO.149 /AHD/2010 7 CLAIM OF THE ASSESSEE IN THE INSTANT CASE. THEREFOR E, GROUND NO.1 IN THE APPEAL IS ALLOWED. 6. IN VIEW OF THE FACT THAT THE COORDINATE BENCH OF THE TRIBUNAL HAS ALREADY TAKEN A VIEW IN RESPECT OF THE ISSUE IN QUE STION, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION IN I.T.A.NO. 27 28/AHD/2000, WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE A.O. TO D ELETE THE ADDITION OF RS.2,91,619/- MADE ON ACCOUNT OF W.I.P. 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALL OWED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (A. K. GARODIA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 12/4 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER12/4 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 20/4 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.20/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20/4/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER.