Sri .Babu Oommen, Kollam V. The ACIT, Kollam

ITA 156/COCH/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3911 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Keywords: Cost of acquisition
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI ABRAHAM P. GEORGE, AM & GEORGE GEORGE K., JM I .T.A. NO. 156/ C OCH/201 5 ASSESSMENT YEAR : 20 07 - 08 SHRI BABU OOMMEN, ALPHONSA CASHEW INDUSTRIES, PUTHUR P.O., KOTTARAKKARA, KOLLAM. [PAN:AADPO 7373B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE - APPELLANT) (R EVENUE - RESPONDENT) ASSESSEE BY SHRI SURENDRANATH RAO, CA REVENUE BY SHRI A. DHANARAJ, SR. DR D ATE OF HEARING 12 / 06/ 201 7 DATE OF PRONOUNCEMENT 13 / 0 6 /201 7 O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER: THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAIN ST AN ORDER DATED 06/01/2015 OF CIT(A), TRIVANDRUM . 2. G ROUNDS TAKEN BY THE ASSESSEE ARE REPRODUCED HEREUND ER: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APP EALS) IS NOT IN ORDER. I.T.A. NO. 156/COCH/2015 2 2. THE COMMISSIONER OF INCOME-TAX(APPEALS) SHOULD HAVE APPRECIATED THAT THE VALUATION OF STOCK OF RAW CASH EW NUTS WAS CONSISTENTLY DONE BY THE APPELLANT ON FIFO BASIS. ACCORDINGLY, THE PURCHASE COST OF LAST FEW IMPORTS OF RAW CASHEW NUT S OF THE YEAR THAT WAS SUFFICIENT TO COVER THE QUANTITY IN STOCK, AS INCREASED BY THE PROPORTIONATE PURCHASE EXPENSES WAS CONSIDERED AS THE VALUE OF CLOSING STOCK. IN OTHER WORDS, THE CLOSING STOC K VALUATION WAS TAKEN ON THE BASIS THAT, THE RAW CASHEW NUTS RECEIV ED FIRST WAS CONSUMED FIRST AND THE CLOSING STOCK WAS OUT OF LAS T FEW PURCHASES. THE COMMISSIONER(APPEALS) MIS-UNDERSTOOD FIFO BASIS TO MEAN THE QUANTITY SHOULD ACTUALLY BE PHYSICALLY CONSUMED IN THE ORDER OF PURCHASES. PROOF OF CONSUMPTION OF MATERIALS IN SUC H CHRONOLOGICAL ORDER OF PURCHASES, IS NOT AN ACTUAL REQUIREMENT FO R THE APPELLANT TO FOLLOW FIFO BASIS. THE LEARNED COMMISSIONER(APP EALS) SHOULD HAVE ALLOWED THE APPEAL BY UPHOLDING THE VALUATION AS PRE FIFO METHOD CONSISTENTLY FOLLOWED BY THE APPELLANT WITHO UT INSISTING ON CLINCHING EVIDENCE OF ACTUAL PHYSICAL CONSUMPTION O F RAW MATERIALS IN THE ORDER OF RECEIPT OF PURCHASES. 3. FACTS APROPOS ARE THAT ASSESSEE IS A DEALER I N CASHEWNUTS. ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) WAS COMPLETED ON 29/12/2009, ASSESSING THE INCOME AT RS.2,11,16,812/ -. THEREAFTER ON 22/03/2012, CIT(CENTRAL), KOCHI PASSED AN ORDER U/S . 263 OF THE ACT DIRECTING THE ASSESSING OFFICER TO RE-DO THE ASSESSMENT. AS PER THE CIT, THE METHOD OF VALUATION OF CLOSING STOCK OF RAW CASHEWNUTS DONE B Y THE ASSESSEE AND LEFT UNDISTURBED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AGGRIEVED BY THE ORDER O F THE CIT, THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. THIS TRIBUNAL HOWEV ER, DISMISSED THE APPEAL OF THE ASSESSEE TAKING A VIEW THAT THE ASSESSING OFFIC ER WAS BOUND TO RECORD A REASON FOR ACCEPTING OR NOT ACCEPTING A CLAIM OF A TAX PAYER. AS PER THIS TRIBUNAL, THE ASSESSING OFFICER IN THE ORIGINAL ASS ESSMENT HAD NOT BROUGHT ON I.T.A. NO. 156/COCH/2015 3 RECORD ANY DETAILS REGARDING VALUE OF IMPORTED KERN ELS. THEREAFTER, THE ASSESSMENT PROCEEDINGS WERE ONCE AGAIN TAKEN UP BY THE ASSESSING OFFICER. ASSESSING OFFICER NOTED THAT THE AUDITORS IN THEIR AUDIT REPORT HAD CERTIFIED THE METHOD OF VALUATION OF CLOSING STOCK EMPLOYED BY TH E ASSESSEE AS AT COST. AS PER THE LD. AO, ASSESSEE HAD IMPORTED 1,80,501.68 B AGS OF RAW CASHEWNUTS FOR A COST OF RS.45,18,07,983/-. AVERAGE COST OF PURCH ASE PER BAG, AS PER THE ASSESSING OFFICER, CAME TO RS.2503.10. SINCE THE CL OSING STOCK OF RAW CASHEWNUTS CAME TO 21704 BAGS, THE VALUE OF THE CLO SING STOCK AT THE MATERIAL COST, AS PER THE LD. ASSESSING OFFICER, SHOULD HAVE BEEN RS.5,43,27,282/-. ADDING PROPORTIONATE EXPENSES OF RS.20,31,973/-, TH E ASSESSING OFFICER VALUED THE CLOSING STOCK AT 5,63,59,255/-. SINCE ASSESSEE HAD SHOWN VALUE OF THE CLOSING STOCK OF RAW NUTS AT RS.4,89,35,686/- ONLY, BALANCE OF RS.74,23,569/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE WAS THAT IT WAS FOLLOWING FIRST IN FIRST O UT (FIFO) METHOD WHILE ISSUING RAW NUTS FOR PROCESSING. CLAIM OF THE ASSESSEE WAS THAT WHAT WAS LYING IN THE STOCK AT THE END OF THE YEAR WAS THE NUTS WHICH WER E PURCHASED TOWARDS THE END OF THE YEAR AND NOT THE EARLIER STOCK. CONTENTION OF THE ASSESSEE WAS THAT APPLYING AVERAGE COST FOR VALUING THE CLOSING STOCK OF RAW CASHEWNUTS WAS INAPPROPRIATE AND GAVE ERRONEOUS RESULTS. FURTHER, AS PER THE ASSESSEE, IT HAD ADOPTED COST OF LAST PURCHASES, CONSIDERING FIFO, FOR VALUING THE STOCK. I.T.A. NO. 156/COCH/2015 4 HOWEVER, THE CIT(A) WAS NOT IMPRESSED. ACCORDING T O HIM, CLAIM OF THE ASSESSEE THAT THE CLOSING STOCK AS ON 31.03.2007 CO MPRISED OF RAW CASHEWNUTS PURCHASED BETWEEN JANUARY, 2007 AND MARCH, 2007, CO ULD NOT BE BELIEVED, SINCE ASSESSEES CLAIM OF ISSUING RAW NUTS BASED ON FIFO METHOD FOR PROCESSING WAS NOT ESTABLISHED BEYOND DOUBT. FURTHER ACCORDING TO HIM, THERE WAS A DISTINCT POSSIBILITY OF RAW NUTS PURCHASED PRIOR TO 1.1.2007 , BEING MIXED WITH THE NUTS PURCHASED AFTER THE SAID DATE. THUS, ACCORDING TO THE CIT(A), ASSESSING OFFICER WAS JUSTIFIED IN ADOPTING THE AVERAGE COST METHOD F OR VALUING THE CLOSING INVENTORY OF RAW CASHEWNUTS AND MAKING AN ADDITION OF RS.74,23,569/-. 5. NOW BEFORE US, LD. AR ASSAILING THE ORDER OF T HE CIT(A), SUBMITTED THAT THE ASSESSEE WAS VALUING ITS STOCK CONSIDERING THE FIRS T IN FIRST OUT METHOD. ACCORDING TO HIM, THERE WAS NO DISPUTE REGARDING TH E QUANTITY OF THE NUTS AS ON 31.03.2007. THE ONLY DIFFERENCE, AS PER THE LD. AR WAS WITH REGARD TO THE METHOD OF VALUATION. CONTENTION OF THE LD. AR WAS THAT FIFO METHOD WAS AN ACCEPTED METHOD FOR VALUING CLOSING STOCK OF RAW MA TERIALS AND ASSESSEE ALWAYS ENSURED THAT EARLIER PURCHASES WERE FIRST ISSUED FO R PRODUCTION AND PROCESSING SO THAT CASHEWNUTS WERE NOT LOST DUE TO AGEING. ACCOR DING TO HIM, THE SAME FIFO METHOD WAS ADOPTED BY THE ASSESSEE IN THE PRECEDING YEARS AND THE SUBSEQUENT YEARS AND THIS WAS ACCEPTED BY THE REVENUE IN SCRUT INY ASSESSMENTS. CONTENTION OF THE LD. AR WAS THAT A CONSISTENT METH OD OF VALUING THE CLOSING I.T.A. NO. 156/COCH/2015 5 STOCK ADOPTED BY THE ASSESSEE OUGHT NOT HAVE BEEN D ISTURBED WITHOUT VALID REASONS, THAT TOO, FOR ONE YEAR ALONE. 6. PER CONTRA, LD. DR SUPPORTING THE ORDERS OF T HE AUTHORITIES BELOW, SUBMITTED THAT THE AVERAGE COST OF RAW MATERIAL GAVE BETTER R ESULTS OF THE WORKINGS AND PROFITS OF THE ASSESSEE. AS PER THE LD. DR, IT WAS ONLY AN ASSUMPTION TAKEN BY THE ASSESSEE THAT FIRST PURCHASES WERE ALWAYS ISSUE D FOR PROCESSING AND PRODUCTION OF CASHEWNUTS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS. BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE ONE ON THE QUAN TITY OF THE CLOSING STOCK OF RAW NUTS AS ON 31.03.2007. ASSESSEE WAS HAVING 17, 36,320 KGS. OF CASHEWNUTS IN THE CLOSING STOCK WHICH TRANSLATED TO 21,704 BAG S OF 80 KG. EACH. ASSESSING OFFICER VALUED THIS STOCK CONSIDERING THE AVERAGE C OST OF RAW NUTS PURCHASED BY THE ASSESSEE DURING THE WHOLE OF THE YEAR. AS AGAI NST THIS, CONTENTION OF THE ASSESSEE IS THAT THE CLOSING STOCK WAS REPRESENTED BY LAST OF THE PURCHASES AND NOT THE EARLIER ONES SINCE IT FOLLOWED FIFO METHOD FOR ISSUING MATERIALS FOR PROCESSING. ASSESSEE HAS ALSO GIVEN INVOICE-WISE DE TAILS OF RAW CASHEWNUTS PURCHASED DURING THE PERIOD 15.01.2007 TO 20.03.200 7 WHICH REPRESENTED THE CLOSING STOCK OF 17,36,320 KG. OF RAW NUTS. IT IS NOT DISPUTED BY THE REVENUE THAT THE FIFO METHOD WHICH WAS EMPLOYED BY THE ASSE SSEE FOR VALUING THE CLOSING STOCK OF RAW NUTS HAS BEEN CONSISTENTLY FOL LOWED BY IT FOR THE EARLIER AS I.T.A. NO. 156/COCH/2015 6 WELL AS THE SUCCEEDING YEARS AND NOT DISTURBED BY T HE REVENUE IN THE ASSESSMENTS. FIFO IS AN ACCEPTED METHOD OF STOCK V ALUATION, AND IN THE NATURE OF THE TRADE OF THE ASSESSEE, IT WAS ONLY COMMERCIA LLY PRUDENT THAT EARLIER PURCHASES WERE FIRST ISSUED FOR PROCESSING, SO AS T O AVOID LOSS DUE TO AGEING. IN OUR OPINION, SUCH A CONSISTENT METHOD USED BY THE A SSESSEE OUGHT NOT HAVE BEEN DISTURBED. ESPECIALLY SO, SINCE, FOLLOWING A C ONSISTENT METHODOLOGY FOR STOCK VALUATION RENDERS THE EFFECT THEREOF REVENUE NEUTRAL OVER A PERIOD OF TIME. FOR FOISTING ON THE ASSESSEE A METHOD OF VALUING ST OCK, OTHER THAN ONE ADOPTED BY IT, WILL, IN OUR OPINION, REQUIRE SUBSTANTIAL RE ASONS AND SOLID JUSTIFICATION WHICH ARE NOT AVAILABLE IN THIS CASE. IN OUR OPINION, THE RE WAS NO REASON FOR DISTURBING THE VALUATION OF CLOSING STOCK DONE BY THE ASSESSEE . THE ADDITION OF RS.74,23,569/- MADE BY THE ASSESSING OFFICER STAND S DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS ALLOWED. PRONOUNCED IN THE O PEN COURT ON 13-06-2017. SD/- SD/- (GEORGE GEORGE K.) ( ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13 TH JUNE, 2017 GJ COPY TO: 1. SHRI BABU OOMMEN, ALPHONSA CASHEW INDUSTRIES,PUT HUR P.O., KOTTARAKKARA, KOLLAM. 2. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. I.T.A. NO. 156/COCH/2015 7 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVAND RUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN