ACIT, CHENNAI V. B.L.Steels, CHENNAI

ITA 1648/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90347 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 11-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G T VENKATESWARA RAO
• Assessee Lawyers: T BANUSEKAR
• Section: 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO . 1648/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX BUSINESS RANGE-VIII, CHENNAI - 6. VS M/S. B.L.STEELS, HAPPY BUILDING, 1 ST FLOOR, 67, SEMBUDOSS STREET CHENNAI - 600 001. PAN: AADFB2991G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. G.T.VENKATESWARA RAO, CIT /RESPONDENT BY : MR.T.BANUSEKAR, C.A. /DATE OF HEARING : 18 TH MARCH, 2015 /DATE OF PRONOUNCEMENT : 15 TH MAY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III CHENNA I DATED 06.1.2014 FOR THE ASSESSMENT YEAR 2010-11. THE ONLY GRIEVANCE OF THE REVENUE IS THAT COMMISSIONER OF IN COME TAX (APPEALS) ERRED IN DELETING THE ADDITION MADE O N ACCOUNT OF DIFFERENCE IN CLOSING STOCK RELYING ON THE EARLI ER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.637/ MDS/2012 DATED 19.7.2012 FOR THE ASSESSMENT YEAR 2008-09. 2 ITA NO.1648 /MDS/2014 2. AT THE TIME OF HEARING, AUTHORIZED REPRESENTATI VE FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL IS SQ UARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASS ESSMENT YEAR AND WHICH DECISION WAS FOLLOWED BY THE COMMISS IONER OF INCOME TAX (APPEALS) AND THEREFORE PLEADS FOR SU STAINING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S). 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF ASSESSING OFFICER AND SUBMITS THAT THERE I S UNDERVALUATION OF CLOSING STOCK BY THE ASSESSEE AND THEREFORE THE ASSESSING OFFICER HAS RIGHTLY QUANTIF IED AND VALUED THE STOCK AND MADE THE DIFFERENCE AS ADDITIO N. 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION RELIED ON. ON GOING THROUGH THE OR DER OF THIS TRIBUNAL IN ITA NO.637/MDS/2012 DATED 19.7.2012 FO R THE ASSESSMENT YEAR 2008-09, WE FIND THAT AN IDENTICAL ISSUE HAS COME UP BEFORE THE CO-ORDINATE BENCH IN VALUING CLO SING STOCK OF THE ASSESSEE AND THE TRIBUNAL DELETED THE ADDITION OBSERVING AS UNDER:- 3 ITA NO.1648 /MDS/2014 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF TRADING IN IRON & STEEL GOODS. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED RETURN OF ITS INCOME ON 29.9.2008 DECLARING TOTAL INCOME OF ` 31,27,810/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 25.08.2009. IN ORDER TO VERIFY THE STOCK, THE ASSESSING OFFICER CALLED FOR STOCK REGISTER, IN VENTORY OF CLOSING STOCK, PURCHASE & SALE LEDGERS. AS PER T HE CASE OF THE ASSESSEE, THE ASSESSEE WAS FOLLOWING FI FO METHOD FOR VALUATION OF STOCK. THE ASSESSING OFFIC ER VIDE ASSESSMENT ORDER DATED 31.12.2010 HELD THAT SI NCE THE ASSESSEE WAS FOLLOWING FIFO METHOD OF STOCK VALUATION, THERE CANNOT BE OLD STOCK AND THUS MADE THE ADDITION OF ` 4,78,53,941/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER OF THE ASSES SING OFFICER AND DISMISSED THE APPEAL OF THE ASSESSEE. N OW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNA L IMPUGNING THE ORDER OF THE CIT(A) DATED 22.2.2012. THE GROUNDS RAISED BEFORE THE TRIBUNAL ARE WITH REGARD TO THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK OF ` 4,78,53,941/- AS WELL AS LEVY OF INTEREST UNDER SECTION 234B ON THE ADDIT IONS MADE IN THE INCOME. 3. SHRI BANUSEKAR, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER FAILE D TO TAKE INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAD VALUED STOCK AT THE LOWER OF COST OR NET REALIZABLE VALUE. THE ASSESSEE HAD FOLLOWED FIRST IN FIRST OUT (FIFO) METHOD FOR THE PURPOSE OF VALUATION OF CLOSING STO CK ONLY. THE ENTIRE STOCK IS LYING IN A GODOWN WHERE IT IS DIFFICULT TO SEGREGATE THE OLD AND NEW STOCK. THE P HYSICAL SALE OF THE STOCK IS MADE ON LAST IN FIRST OUT (LIF O) BASIS. SINCE, IT IS NOT PRACTICABLE TO DEMARCATE TH E OLD AND NEW STOCK OF IRON BARS, THEREFORE, SALE BY WAY OF FIFO METHOD IS NOT POSSIBLE. THE A.R. MADE A STATEM ENT AT THE BAR THAT FIFO METHOD IS APPLIED ONLY FOR VAL UATION OF THE STOCK AND NOT FOR THE SALE OF THE STOCK. THE A.R. FURTHER CONTENDED THAT AT THE TIME OF ASSESSMENT, T HE ASSESSING OFFICER ONLY ASKED FOR DOCUMENTS RELATING TO THE PHYSICAL QUANTITY OF THE CLOSING STOCK. THE ASS ESSING OFFICER HAD NEVER ASKED FOR VALUATION OF THE CLOSI NG STOCK AND THE DEFECTIVE STOCK. HE FURTHER CONTENDED THAT VALUE OF THE DEFECTIVE STOCK IS ALWAYS LESS THAN THE MARK ET VALUE. THE ASSESSING OFFICER NEVER ASKED FOR THE D ETAILS 4 ITA NO.1648 /MDS/2014 OF THE DEFECTIVE STOCK. THE ASSESSING OFFICER CALCU LATED THE VALUE OF THE CLOSING STOCK IN A HYPER-TECHNICAL MANNER WITHOUT TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE IS ALSO SELLING STEEL ROLLS BY CUTTING/SLI CING IT INTO PIECES AND THEREFORE THERE WAS BOUND TO BE SOME WA STE IN THE FORM OF CUTTINGS/SCRAP AND ALSO THAT IT IS N OT POSSIBLE TO SELL THE STOCK BY FIFO METHOD. 4. ON THE OTHER HAND, DR. S.MOHARANA REPRESENTING THE DEPARTMENT SUBMITTED THAT THE ASSESSEE WAS FOLLOWING LIFO METHOD AND NOT FIFO METHOD, AS IS EVIDENT FROM PARA 8 OF THE ORDER OF THE CIT(A). H E FURTHER SUBMITTED THAT ASSESSEE NEVER SHOWED DEFECT IVE STOCK IN THE STOCK REGISTER. HE STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND PRAYED FOR DISMISSAL OF APP EAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE PARTIES AND HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER OF THE CIT(A). A PERUSAL OF THE ORDER OF THE CIT(A) SHOWS THAT THE CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE FACT THAT THE ASSESSEE IS MAINTAI NING A GODOWN WHEREIN IT IS DIFFICULT TO DEMARCATE THE OLD AND NEW STOCK OF IRON BARS AND STEEL ROLLS. THE SALE OF IRON AND STEEL ROLLS HAS TO BE MADE ON THE BASIS OF THE CONVENIENCE OF THE REMOVAL OF PHYSICAL STOCK. ITEMS WHICH ARE PLACED ON THE TOP ARE TO BE REMOVED FIRST . THE ASSESSEE HAD CATEGORICALLY STATED THAT IT IS FOLLOW ING FIFO METHOD ONLY FOR THE PURPOSE OF VALUATION OF STOCK . AS FAR AS SALE PURPOSE IS CONCERNED, FIFO METHOD IS NOT PRACTICABLE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS A FORCE IN THE ARGUMENT OF THE LEARNED AR THAT SALES CANNOT BE MADE ON THE BASIS OF FIFO. 6. AS REGARDS THE FINDINGS OF THE LOWER AUTHORITIES WITH REGARD TO DEFECTIVE/WASTE STOCK IS CONCERNED, THE SAME ARE NOT SUSTAINABLE, SINCE THE ASSESSEE IS SEL LING STEEL ROLLS BY SLICING/CUTTING THEM AS PER THE CUST OMERS REQUIREMENTS, THERE IS BOUND TO BE SOME WASTE MATERIAL/SCRAP ARISING OUT OF THE CUTTINGS. WE ARE , THEREFORE, OF THE VIEW THAT THE ASSESSING OFFICER V ALUED THE CLOSING STOCK WITHOUT TAKING INTO CONSIDERATION PRACTICAL DIFFICULTIES IN THE REMOVAL OF PHYSICAL S TOCK AS WELL AS THE WASTAGE. THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE ERRED IN NOT TAKING INTO CONSIDERATION THE DETAILS OF OLD AND DEFECTIVE STOCK PRODUCED BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE PRODUCED THE RELEVANT RECORDS ON ISSUANCE OF SHOW CAUSE NOTICE. 5 ITA NO.1648 /MDS/2014 HOWEVER, THE AUTHORITIES BELOW DISCARDED THE SAME I N AN ARBITRARY MANNER BY TERMING IT AS AFTERTHOUGHT. 7. IN VIEW OF OUR ABOVE FINDINGS, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ADDITION MADE IN THE CL OSING STOCK IS DELETED. THE APPEAL OF THE ASSESSEE IS AL LOWED. 5. FACTS AND CIRCUMSTANCES OF THE CASE BEING IDENTI CAL, FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENC H OF THIS TRIBUNAL, WE UPHOLD THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) FOR THIS ASSESSMENT YEAR ALSO AND REJ ECT THE GROUNDS RAISED BY THE REVENUE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 15 TH MAY, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .