The DCIT, Circle-1, Ahmedabad V. Prakash Silk Mills Ltd., Surat

ITA 1577/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62973 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: R N VEPARI

Judgement Text

IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 1577/AHD/2010 (ASST. YEAR: 2007-08) THE DEPUTY COMMISSIONER OF CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) VS. M/S. PRAKASH SILK MILLS P. LTD. NO.1079,SURAT TEXTILE MARKET, RING ROAD, SURAT (RESPONDENT) PAN: AABCD 9929M APPELLANT BY : MR. RAHULKUMAR SR.D.R. RESPONDENT BY : MR. R.N.VEPARI. ( )/ ORDER DATE OF HEARING : 31-8-2 012 DATE OF PRONOUNCEMENT : 5-10-2012 PER: SHRI ANIL CHATURVEDI, A.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF LD. CIT (A)-I, SURAT DATED 10-3-2010 FOR THE ASSESSMENT YEAR 2007- 08. 2. THE ONLY EFFECTIVE GROUND OF THE REVENUE READS A S UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) SURAT HAS ERRED IN DELETING THE ADD ITION MADE BY THE IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 2 A.O. OF RS.21,89,935/- ON ACCOUNT OF ADDITIONAL INC OME ON ACCOUNT OF GROSS PROFIT ON SALE OF STOCK. 3. THE ASSESSMENT ORDER REVEALS THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF TRADING OF CLOTH. IT FIL ED E-RETURN OF INCOME ON 15-11-2007 DECLARING TOTAL LOSS OF RS.17,14,793/-.T HE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS FRAMED U/S. 143 (3) AND TAXABLE INCOME WAS DETERMINED AT RS.4,75,140/-. 4. ON SCRUTINY OF THE DETAILS FURNISHED BY ASSESSEE THE A.O. OBSERVED THAT ASSESSEE HAD TRANSFERRED CLOSING STOCK OF 3,37 ,000 METERS VALUED RS.1,48,36,961/- AT COST TO ITS SISTER CONCERN (AIR R XMEDIA LTD. ).THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD TRANSFERRE D THE MATERIALS AS IT HAD STOPPED OPERATIONS SINCE LONG AND THE DESIGN AN D COLOURS OF MATERIALS OF SAREES HAD BECOME OUT OF DATE. THE CONTENTIONS O F THE ASSESSEE WERE NOT ACCEPTABLE TO A.O. HE WAS OF THE VIEW THAT IF T HE STOCK WAS UNSALEABLE, HOW DID THE SISTER CONCERN TOOK THE STOCK AND SOLD IT IN THE MARKET. HE WAS OF THE VIEW THAT THE STOCK SHOULD HAVE BEEN TRANSFE RRED AT BOOK VALUE PLUS PROFIT MARGIN. THE A.O. FURTHER OBSERVED THAT IN LI EU OF THE TRANSFER OF STOCK, THE ASSESSEE WAS ALLOTTED SHARES OF THE SISTER CONC ERN. THE A.O. THEREFORE CONCLUDED THAT THE TRANSFER OF STOCK AT BOOK VALUE WAS IN FACT THE SALES MADE TO SISTER CONCERN. HE ACCORDINGLY APPLIED THE G.P. RATE OF THE ASSESSEE FOR THE YEAR OF 14.76% ON THE STOCK TRANSF ER OF RS.1,48,36,961/- AND CALCULATED G.P. OF RS.21,89,935/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ACTION OF THE A.O . THE ASSESSEE CARRIED THE MATTER BEFORE CIT (A). BEFORE CIT (A) INTERALIA IT WAS SUBMITTED THAT THE STOCK HAD BECOME UNSALEABLE. CIT (A) DELETED THE AD DITION MADE BY A.O. BY HOLDING AS UNDER:- IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 3 2.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. IN ORDER TO VERIFY WHET HER THE CLOTH WAS SALEABLE OR NOT, THE ASSESSEE WAS ASKED TO GIVE DET AILS AS TO WHAT HAPPENED TO THIS CLOTH AFTER TRANSFER TO THE ASSESS EE COMPANY TO AXL. THE APPELLANT HAS, VIDE LETTER DATED 3-3-2010, STATED THAT OUT OF 3,37,000 METERS OF CLOTH PURCHASED BY AXL, 11,000 M ETERS WAS SOLD IN A.Y. 2007-08 AND 54,000 METERS WAS SOLD IN A.Y. 2008-09 AND 54,000 METERS WAS SOLD IN A.Y. 2009-10.THE APPELLAN T ARGUED THAT SINCE SUCH A SMALL QUANTITY HAS BEEN SOLD, IT SHOWS THAT CLOTH WAS NOT EASILY SALEABLE IN THE MARKET. FROM THIS ARGUMENT, IT IS ALSO SEEN THAT THE STOCK WAS NOT ENTIRELY NON-SALEABLE ALSO. THE A PPELLANTS SISTER CONCERN HAS SOLD ALMOST 1/3 RD OF THE TOTAL STOCK AND HENCE THE APPELLANT TRANSFERRED THIS STOCK TO THE SISTER CONC ERN AT BOOK VALUE WHICH IS NOT TOTALLY JUSTIFIABLE. HOWEVER, THIS IS NOT A QUESTION OF UNDERVALUATION, THE VALUATION OF CLOSING STOCK WHER E THE VALUATION CAN BE CORRECTED AS PER LAW. THIS IS NOT A QUESTION OF BOOKING OF LOSS OR PAYMENT OF EXPENSES WHERE PROVISIONS OF SECTION 40A (2)(B) CAN BE INVOKED. IT IS A CASE OF SALE TO A SISTER CONCERN. IF THE SALE IS AT PRICE LESS THAN THE MARKET VALUE, NO ADDITION CAN BE MADE WITHOUT THERE BEING ANY SPECIFIC MATERIAL ON RECORD TO SHOW A PAR TICULAR SALE PRICE. THERE IS NO DEEMING PROVISION OF THE NATURE OF SECT ION 40A(2)(B) FOR SALES TRANSACTION. HENCE ADDITION CANNOT BE SUSTAIN ED. THE ADDITION IS, THEREFORE, DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ACTION OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, THE LD. D.R. SUBMITTED THAT THE ASSES SEE SHOULD HAVE SOLD THE STOCK AT COST PLUS PROFIT MARGIN AND NOT AT COS T. HE THUS, RELIED ON THE ORDER OF THE A.O. ON THE OTHER HAND THE LD. A.R. S UBMITTED THAT IT MANUFACTURED ONLY ONE VARIETY OF CLOTH KNOWN AS POL YESTER X POLYESTER. THIS PARTICULAR QUALITY HAD LOST FANCY OF THE CUSTOMERS AND THEREFORE THERE WAS ACCUMULATION OF STOCK. THE STOCK THAT WAS TRANSFERR ED TO THE SISTER CONCERN IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 4 WAS BEING CARRIED IN THE BOOKS OF THE ASSESSEE SINC E LONG. THE ASSESSEE HAD TRANSFERRED TO ITS SISTER CONCERN THE STOCK WHI CH IT WAS CARRYING FORWARD FROM EARLIER YEARS. HE ALSO PLACED ON RECORD THE SU MMARISED QUANTITATIVE DETAILS OF PRODUCTION AND SALES TO JUSTIFY THAT THE TRANSFER OF STOCK WAS FROM STOCK BROUGHT FORWARD FROM EARLIER YEARS. IN VIEW OF THESE FACTS, THE LD. A.R. SUBMITTED THAT THE ASSESSEE WAS RIGHT IN TRANS FERRING THE OLD AND NON- MOVABLE STOCK AT COST TO ITS SISTER CONCERN AND CIT (A) HAD RIGHTLY DELETED THE ADDITION. HE THUS RELIED ON THE ORDER OF CIT (A ). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE HAD TRANSFERRED THE STOCK OF OLD STOCK OF CLOTH AT BOOK VALUE TO IT S SISTER CONCERN WHICH ACCORDING TO THE A.O. SHOULD HAVE BEEN TRANSFERRED AT COST PLUS PROFIT. THE ASSESSEES SUBMISSION IS THAT THE STOCK WAS OLD AND NON-MOVEABLE STOCK WHICH IT HAD BEEN CARRYING FORWARD FROM EARLIER YEA RS HAS NOT BEEN DISPUTED BY THE REVENUE BY BRINGING ANY MATERIAL TO THE CONT RARY ON RECORD. FURTHER, IT IS A SETTLED LAW THAT REVENUE CANNOT CLAIM TO PU T ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN AND ASSUME THE ROLE TO DECIDE AS TO HOW TO RUN THE BUSINESS. A BUSINESSMAN CANNOT BE COMPELLED TO MAXI MISE ITS PROFITS. CIT (A) HAS ALSO GIVEN A FINDING THAT THE CASE OF T HE REVENUE IS THAT IT IS OF A SALE TO SISTER CONCERN AT A PRICE WHICH IS LESS T HAN ITS MARKET VALUE. THE REVENUE HAS NOT BROUGHT ANY SPECIFIC MATERIAL ON RE CORD TO SHOW A PARTICULAR SALE PRICE. CIT (A) HAS FURTHER HELD THA T THERE IS NO DEEMING PROVISION OF THE NATURE OF SECTION 40A(2)(B) FOR SA LES TRANSACTION. THE REVENUE HAS ALSO NOT BEEN ABLE TO CONTROVERT THE FI NDINGS OF THE CIT (A) OR REBUT HIS OBSERVATIONS. IN VIEW OF THE TOTALITY OF AFORESAID FACTS, WE FIND NO IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 5 REASON TO INTERFERE IN THE ORDER OF CIT (A). THUS, THIS GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 5- 10- 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) I, SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD IT A. NO. 1577/AHD/2010 ASSESSMENT YEAR:. 2007-08. 6 1.DATE OF DICTATION 31 - 8 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 28 / 9 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER