DCIT, V. Sri. Chamundeshwari Sugar Ltd.,

ITA 1538/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8570 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-03-2016
• Assessment Year: 1990-1991
• Appeal Filed On: 13-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law; Reassessment proceedings

Judgement Text

ITA.1538/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.1538/BANG/2013 (ASSESSMENT YEAR : 1990-91) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE .. APPELLANT V. M/S. SRI CHAMUNDESHWARI SUGAR LTD, NO.76, ULSOOR ROAD, BANGALORE 560 042 .. RESPONDEN T PAN : AACCSS004R ASSESSEE BY : VIKRAM VIJAYARAGHAVAN, ADVOCATE REVENUE BY : SHRI. SUNIL KUMAR AGARWALA, JCIT HEARD ON : 08.03.2016 PRONOUNCED ON : 18.03.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY REVENUE DIRECTED AGAINS T AN ORDERDT.23.08.2013 OF CIT (A) III, BENGALURU. ITA.1538/BANG/2013 PAGE - 2 02. OF THE FOUR GROUNDS TAKEN BY REVENUE, GROUNDS 1 , 3 AND 4 ARE GENERAL NEEDING NO SPECIFIC ADJUDICATION. EFFECTIV E GROUND 2 IS REPRODUCED HEREUNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT (A) ERRED IN LAW IN DIRECTING THE AO TO ACCEPT THE VALUE OF CLOSING STOCK AT THE VALUE ADOPTED BY TH E ASSESSEE FOR A. Y 1990-91 WITHOUT APPRECIATING THE FACT THAT IN SPITE OF THE DIRECTIONS OF THE HONBLE HIGH COURT OF KARNATA KA TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM WITH EVIDENCE BE FORE THE AO, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE EXCEPT R EITERATING ITS EARLIER STAND DURING THE COURSE OF REASSESSMENT PROCEEDINGS. 03. A READING OF THE ABOVE GROUND WOULD SHOW THAT T HE MATTER RELATES TO DIRECTIONS GIVEN BY THE HONBLE JURISDICTIONAL HIGH COURT ON REVENUES APPEAL INASSESSEES OWN CASE IN AN EARLIER ROUND OF PROCEEDINGS. 04. ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTUR E OF SUGAR, HAD DURING THE PREVIOUS YEAR RELEVANT TO A. Y. 1989-90 MADE A CHANGE IN METHOD OF VALUATION OF STOCK. CHANGE WAS FROM NET REALISABLE VALUE, TO COST OR MARKET PRICE WHICHEVER WAS LOWER. AO REFUS ED TO ACCEPT THE CHANGE IN METHOD OF VALUATION IN THE ASSESSMENT DON E FOR A. Y. 1989-90 AND MADE AN ADDITION FOR SUPPRESSION IN VALUATION O F STOCK. SINCE ASSESSEE HAD FOLLOWED THE NEW METHOD FOR IMPUGNED ASSESSMENT YEAR ALSO, AO ITA.1538/BANG/2013 PAGE - 3 PERSISTED WITH THE EARLIER METHOD AND MADE AN ADDIT ION OF RS.61,55,000/-, AS SUPPRESSION IN VALUATION. 05. ON ASSESSEES APPEALS FOR BOTH ASSESSMENT YEARS 1989-90 AND 1990- 91, ADDITIONS WERE DELETED BY CIT (A), AND THIS WAS UPHELD BY THE TRIBUNAL ON REVENUES APPEAL. 06. DEPARTMENT HAD CHOSEN TO MOVE IN FURTHER APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT FOR BOTH THE ASSESSMENT Y EARS. FOR A. Y. 1989-90 IN WHICH THE CHANGE WAS MADE FOR THE FIRST TIME, THEIR LORDSHIP IN THEIR JUDGMENT DT.26.11.2007 IN ITRC.2/2003, HELD AS UND ER AT PARAS 3 TO 7 : 3. WE HAVE HEARD SRI.M.V.SESHACHALA, LEARNED COUNS EL APPEARING FOR THE REVENUE AND SRL.THIRUVENGADAM, LEARNED COUNSEL FOR THE ASSESSEE. DURING THE RELEVANT YEAR , THE BOARD OF DIRECTORS OF ASSESSING COMPANY PASSED THE RESOLUTIO N, WHICH READS THUS: 'RESOLVED THAT THE CLOSING STOCK OF SUGAR FOR THE ACCOUNTING YEAR ENDING ON 31ST MARCH, 1989, BE VALUED AT COST PRICE OR MARKET PRICE WHICHEVER IS LOWER AND THE SAME OF VALUATION BE FOLLOWED FOR EAC H ACCOUNTING YEAR ENDING SUBSEQUENT TO 31ST MARCH, 19 89. IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. (188 ITR 45), THE SUPREME COURT HAS HELD, VALUATION OF STOCK-IN-TRADE AT COST OR MARKET VALUE WHICHEVER IS LOWER IS A MATTER ENTIRELY WITHI N THE DISCRETION OF THE ASSESSEE BUT WHICHEVER METHOD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS. ITA.1538/BANG/2013 PAGE - 4 4. IN THE CASE ON HAND, APART FROM THE RESOLUTION W HICH HAS BEEN EXTRACTED ABOVE, THE ASSESSEE HAS NOT DISCLOSE D A TRUE PICTURE OF ITS PROFITS AND GAINS BEFORE THE ASSESSI NG OFFICER TO ADOPT COST PRICE TO EVALUATE THE STOCK-IN-TRADE FO R THE ACCOUNTING YEAR ENDING 31 ST MARCH 1989. 5. THE FIRST APPELLATE COMMISSIONER HAS TAKEN INTO CONSIDERATION THE FLUCTUATION IN THE SUGAR PRICES D URING THE RELEVANT PERIOD TO REVERSE THE ORDER OF THE ASSESSING OFFICER. -THE-FIRST APPELLATE COMMISSIONE R AND THE TRIBUNAL HAVE NOT NOTICED SETTLED PRINCIPLES OF LAW RELATING TO EVALUATION OF STOCK-IN-TRADE. 6. THEREFORE, WE ARE OF THE CONSIDERED OPINION THE MATTER REQUIRES A REMAND TO THE ASSESSING OFFICER. IN VIEW OF THE REMAND ORDER, WE DO NOT ANSWER THE QUESTION OF LAW RAISED IN THIS REFERENCE. 7. ACCORDINGLY, WE PASS THE FOLLOWING : O R D E R THE ORDERS PASSED BY THE AUTHORITIES BELOW ARE SET ASIDE. THE MATTER IS REMANDED TO THE ASSESSING OFFICER FOR RE- CONSIDERATION. THE ASSESSEE IS AT LIBERTY TO PRODUCE ADDITIONAL MA TERIAL, SO ALSO THE REVENUE. COPY OF THIS ORDER SHALL BE SENT TO THE TRIBUNAL AS REQUIRED UNDER SECTION 269 OF THE ACT. 07. FOR THE IMPUGNED ASSESSMENT YEAR DIRECTIONS GIV EN IN ITA.184/2001, DT.26.11.2001, BY THE HONBLE JURISDICTIONAL HIGH C OURT WERE AS UNDER : - ITA.1538/BANG/2013 PAGE - 5 08. ACCORDINGLY MATTER WAS CONSIDERED ONCE AGAIN BY THE AO. AS PER THE AO, DESPITE A NUMBER OF OPPORTUNITIES GIVEN, AS SESSEE DID NOT FURNISH ANY DETAILS IN SUPPORT OF THE CHANGE OF METHOD OF A CCOUNTING. HE HELD THAT ASSESSEE HAD NOTHING TO SAY WITH REGARD TO THE CHAN GE IN THE METHOD OF ITA.1538/BANG/2013 PAGE - 6 VALUATION OF STOCK AND MADE A SIMILAR ADDITION OF R S.61,55,000/- ONCE AGAIN. 09. AGGRIEVED ASSESSEE MOVED IN APPEAL BEFORE THE C IT (A). CIT (A) AFTER CONSIDERING THE JUDGMENT OF HONBLE JURISDICT IONAL HIGH COURT AND ASSESSEES SUBMISSIONS SOUGHT A REMAND REPORT FROM THE AO. AS PER THE CIT (A), AO DID NOT EXAMINE THE MATTER IN THE LIGHT OF SUBMISSIONS MADE BY ASSESSEE IN SUCH REMAND PROCEEDINGS. CIT (A) WA S OF THE OPINION THAT THE CHANGE IN METHOD OF VALUATION OF STOCK FROM NET REALISABLE VALUE TO COST OR MARKET VALUE, WHICHEVER WAS LOWER WAS TO BE ACCE PTED SINCE THE ASSESSEE HAD FOLLOWED THE NEW METHOD CONSISTENTLY T HEREAFTER. AS PER THE CIT (A) BY VIRTUE OF THE JUDGMENT OF HONBLE APEX C OURT IN THE CASE OF CIT V. BRITISH PAINTS LTD, [188 ITR 45], VALUATION OF STOCK AT COST OR MARKET PRICE WHICHEVER WAS LOWER WAS AN ACCEPTED METHOD OF VALUATION. FURTHER AS PER THE CIT (A), CHANGE IN METHOD OF VALUATION W AS APPROVED BY THE BOARD OF DIRECTORS OF THE ASSESSEE. HE THUS DELETE D THE ADDITION MADE BY THE AO. 10. NOW BEFORE US, LD. DR SUBMITTED THAT THE HONBL E JURISDICTIONAL HIGH COURT HAD IN THE PROCEEDINGS FOR A. Y. 1989-90 REMITTED THE MATTER TO THE AO. ASSESSMENT FOR THE SAID YEAR WAS STILL TO BE COMPLETED. ACCORDING ITA.1538/BANG/2013 PAGE - 7 TO HIM SINCE THE ISSUES ARISING FOR THE IMPUGNED AS SESSMENT YEAR ALSO WAS EMANATING FROM THE CHANGE IN THE METHOD OF VALUATIO N EFFECTED FOR THE FIRST TIME BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING A SSESSMENT YEAR, LD CIT (A) FELL IN ERROR IN DELETING THE ADDITION FOR THE IMPUGNED ASSESSMENT YEAR. AS PER THE LD. DR, ASSESSEE DESPITE GIVING A DEQUATE OPPORTUNITIES BY THE LOWER AUTHORITIES FAILED TO JUSTIFY ITS NEW MET HOD OF ACCOUNTING. THUS ACCORDING TO THE LD. DR, CIT (A) ERRED IN DELETING THE ADDITION. 11. PER CONTRA, LD. AR IN SUPPORT OF THE ORDER OF C IT (A) SUBMITTED THAT CHANGE IN METHOD FROM NET REALISABLE VALUE TO COST OR MARKET VALUE, WHICHEVER WAS LOWER WAS AN ACCEPTED ONE BY VIRTUE O F JUDGEMENT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. COR PORATION BANK LTD, [174 ITR 616]. FURTHER ACCORDING TO HIM, SIMILAR VIEW W AS ALSO TAKEN BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. INDI AN SUGAR GENERAL AND GEN. INDUSTRY EXPORT IMPORT [349 ITR 38]. AS PER THE LD. AR THIS METHOD WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE IN SUBSEQ UENT YEARS AND ACCEPTED BY THE DEPARTMENT. AS PER THE LD. AR, EARLIER TO A . Y. 1989-90, ASSESSEE WAS FOLLOWING 30 TH SEPTEMBER AS ITS ACCOUNTING YEAR END, BUT BY VIRTU E OF AMENDMENTS MADE BY FINANCE ACT, 1989, ASSESSEE WAS COMPELLED TO FOLLOW FINANCIAL YEAR ENDING ON 31 ST MARCH AS ITS PREVIOUS YEAR. ALONG WITH THIS ITA.1538/BANG/2013 PAGE - 8 CHANGE ASSESSEE DECIDED TO CHANGE ITS METHOD OF VAL UATION OF STOCK ALSO FROM NET REALISABLE VALUE TO COST OR MARKET VALUE, WHICHEVER WAS LOWER. ACCORDING TO HIM, AO HAD FAILED TO CONSIDER THE VAR IOUS SUBMISSIONS MADE BY THE AO IN THIS REGARD IN THE REMAND PROCEEDINGS. HENCE, AS PER THE LD. AR, CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. HONBLE JURISDICTIONAL HIGH COURT HAD FOLLOWED ITS OWN JUDG MENT FOR A. Y. 1989-90 WHILE REMITTING THE MATTER BACK TO THE AO, IN ITS J UDGMENT. FOR A. Y. 1989-90, HONBLE JURISDICTIONAL HIGH COURT HAD HELD THAT THE LOWER AUTHORITIES DID NOT CONSIDER THE SETTLED PRINCIPLES OF LAW RELATING TO VALUATION OF STOCK. AS PER THE AO IN THE REMAND PR OCEEDINGS ASSESSEE FAILED TO GIVE THE DETAILS REGARDING THE CHANGE IN METHOD OF VALUATION OF STOCK. THERE CAN BE NO DOUBT THAT AN ASSESSEE CAN CHANGE ITS METHOD OF VALUATION OF STOCK, PROVIDED THE NEW METHOD WHICH I S ADOPTED IS ONE WHICH IS ACCEPTABLE IN NORMAL COMMERCIAL PRACTICE AND SUC H CHANGED METHOD IS CONSISTENTLY FOLLOWED. VALUATION OF STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER IS ONE OF THE METHODS ACCEPTED FOR VALUATI ON OF CLOSING STOCK AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF CORPORATION BANK (SUPRA). SAME PRINCIPLE EMANATES FROM THE HONBLE APEX COURT DECISION IN ITA.1538/BANG/2013 PAGE - 9 THE CASE OF BRITISH PAINTS LTD (SUPRA) ALSO. AS PE R THE ASSESSEE, IT WAS CONSISTENTLY FOLLOWING THE NEW METHOD SINCE A. Y. 1 989-90 AND IN SUBSEQUENT YEARS, DEPARTMENT HAD ACCEPTED THE CHANG ED METHOD OF STOCK VALUATION. ASSESSMENT FOR A. Y. 1989-90 IS STILL T O BE DONE PURSUANT TO THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT. NON E OF THE LOWER AUTHORITIES HAVE VERIFIED WHETHER ASSESSEES WORKIN G OF THE COST OR MARKET PRICE WHICHEVER WAS LOWER OF THE STOCK, AS ON 01.04 .1989 AND STOCK AS ON 31.03.1990 WERE CORRECTLY MADE. THOUGH CIT (A) WAS JUSTIFIED IN TAKING A VIEW THAT ASSESSEE COULD CHANGE ITS METHOD OF ACCOU NTING TO COST OR MARKET PRICE WHICHEVER WAS LOWER FOR VALUING ITS STOCK, CO RRECTNESS OF THE COST ARRIVED AT BY THE ASSESSEE WERE NOT VERIFIED BY ANY OF THE AUTHORITIES BELOW. COST OF OPENING STOCK WILL ALSO DEPEND ON THE ASSES SMENT DONE BY THE AO FOR A. Y. 1989-90 PURSUANT TO THE JUDGMENT OF HONB LE JURISDICTIONAL HIGH COURT REPRODUCED BY US AT PARA SIX ABOVE. 13. IN THE RESULT, THOUGH WE HOLD THAT ASSESSEE WAS JUSTIFIED IN ADOPTING A NEW METHOD FOR VALUATION OF STOCK, WE ARE OF THE OP INION THAT THE MATTER REQUIRES A FRESH LOOK BY THE AO FOR VERIFYING THE C ORRECTNESS OF THE VALUE ARRIVED AT BY THE ASSESSEE. WE, THEREFORE, SET ASI DE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT IT TO THE FILE OF AO FO R CONSIDERATION AFRESH. ITA.1538/BANG/2013 PAGE - 10 AO SHALL ALSO CONSIDER THE VIEW TAKEN BY HIM FOR A. Y. 1989-90 WHILE DISPOSING OF THE REMITTED ISSUES. 14. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DAY OF MARCH, 2016. SD/- SD/- (VIJAY PAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR