ACIT, Central Circle - XXI, Kolkata, Kolkata V. M/s. The Champdany Industries Ltd., Kolkata

ITA 1664/KOL/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2529 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 18-05-2010
• Assessment Year: 1994-1995
• Appeal Filed On: 29-06-2007
• Court: TRIBUNAL
• Department Lawyers: K B BRAHMA
• Assessee Lawyers: R N BAJORIA; S AGARWAL
• Keywords: Business income; Assessment record; Set aside
• Section: 143(3); 250

Judgement Text

1 , A , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A , KO LKATA [ . . . . . . . . , , , , , . .. . . .. . , , , , ! ] BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER ' ' ' ' / ITA NOS.1664 & 2045 (KOL) OF 2007 #$% &' / ASSESSMENT YEAR 1994-95 ASSTT.COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-XXI, KOLKATA. THE CHAMPDANY INDS. LTD. KOLKATA. (*+ / APPELLANT ) - $ - - VERSUS -. (.*+/ RESPONDENT ) *+ / 0 / FOR THE APPELLANT: / SRI K.B. BRAHMA .*+ / 0 / FOR THE RESPONDENT: / S/SRI R.N.BAJORIA & S.AGARWAL 1 / ORDER ( . .. . . .. . ), ! (C.D. RAO), ACCOUNTANT MEMBER : THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGA INST THE ORDERS DATED 30.03.2007 AND 04/05/2007 OF LD. C.I.T.(A), CENTRAL -II, KOLKATA PERTAINING TO ASSESSMENT YEAR 1994-95. BOTH THESE APPEALS INVOLVI NG COMMON ISSUES ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE-COMPANY FILED ITS RETURN DECLARING TOTAL INCOME OF RS.1,71,21,790/- AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) AT RS. 3,33,94,465/-. SUBSEQUENTLY, VIDE ORDER PASSED U/S. 147/148 OF THE ACT, THE TOTAL INC OME WAS DETERMINED AT RS.8,60,78,050/-. THE ASSESSEE PREFERRED APPEAL BEF ORE THE LD .C.I.T.(A), CENTRAL-II, WHO PASSED ORDER DATED 20.11.2002. THE MATTER CAME BEF ORE THE TRIBUNAL AND THE TRIBUNAL SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH A DIRECTION TO LD. C.I.T.(A) TO DISPOSE OF GROUNDS NO. II & III IN THE ORIGINAL APPEAL FILE D BY THE ASSESSEE. THE A.O. PASSED ORDER U/S. 143(3)/147/251/254 DATED 02/1/2006 GIVIN G EFFECT TO THE ORDER OF THE TRIBUNAL DATED 28/1/2005 AGAINST WHICH THE ASSESSEE FILED AP PEAL BEFORE THE LD. C.I.T.(A), CENTRAL-II, KOLKATA. THE LD. C.I.T.(A) PASSED HIS APPELLATE ORDER DATED 30/3/2007, AGAINST WHICH THE DEPARTMENT IS IN APPEAL BEFORE TH E TRIBUNAL VIDE ITA NO.1664 (KOL)/2007. THE ASSESSEE ALSO FILED APPEAL AGAINST ASSESSMENT FRAMED U/S. 143(3)/147 2 BEFORE THE LD. C.I.T.(A), CENTRAL-II, WHO FOLLOWING HIS ORDER DATED 30/3/2007 FOR A.Y. 1994-95 DISPOSED OF THE ASSESSEES APPEAL. AGAINST THIS ORDER OF THE LD. C.I.T.(A), THE DEPARTMENT AGAIN FILED APPEAL BEFORE THE TRIBUNAL V IDE ITA NO.2045 (KOL)/2007. IN BOTH THESE APPEALS, THE FOLLOWING IDENTICAL GROUNDS WERE RAISED BY THE REVENUE :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,69,02,562/- ON ACCOUNT OF SUPP RESSION OF PRODUCTION THEREBY DECREASING THE CLOSING STOCK BY TILE ASSESS EE COMPANY MERELY ON THE BASIS OF THE SUBMISSION BEFORE HIS HONOUR WITHOUT A PPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN DELETING THE ADDITION OF ADDITION OF RS.92,76,827/- ON ACCOU NT OF LOWER VALUATION OF CLOSING STOCK SHOWN BY THE ASSESSEE COMPANY MERELY ON THE BASIS OF THE SUBMISSION BEFORE HIS HONOUR WITHOUT APPRECIATING T HE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE FIRST GROUND RELATES TO ADDITION OF RS.1,69 ,02,562/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK. DURING THE APPELLATE PROCEEDINGS BEFORE THE LD. C.I.T.(A), THE ASSESSEE FILED VOLUMINOUS EVIDENCE IN EXPLAININ G THE CLOSING STOCK. THE LD. C.I.T.(A) FORWARDED THESE DOCUMENTS TO THE A.O. WIT H A DIRECTION TO SUBMIT HIS REPORT ON THE SAME. THE A.O. IN TURN CALLED EXPLANATION F ROM THE ASSESSEE AND THE ASSESSEE SUBMITTED THE FOLLOWING REPLY BEFORE THE A.O. :- THE A/R HAS MADE THE FOLLOWING SUBMISSIONS IN RESP ECT OF THE ADDITION ON ACCOUNT OF FINISHED GOODS-IN-TRANSIT OF RS.47,47,000/- THAT F INISHED GOODS IN TRANSIT OF RS.47,47,000/- WAS SHOWN UNDER THE HEAD EXPORT IN THE HYPOTHECATION STOCK STATEMENT FURNISHED WITH THE BANK INCLUDED VALUE OF SHIPMENT AMOUNTING TO RS.40,49,000/- (ACCOUNTED FOR AS SALES AT RS.40,54,846/-. THE DIFF ERENCE IS DUE TO EXCHANGE FLUCTUATION AS THE INVOICES RATES WERE TAKEN ON. ACTUAL EXCHANG E RATE AT THE TIME OF NEGOTIATION AND BEFORE THE BANK THE INVOKE VALUE WAS TAKEN ON ESTIM ATED EXCHANGE RATE,, THE BILLS OF LADING IN RESPECT OF SUCH INVOICES WERE NOT RECEIVE D FOR PRESENTATION OF DOCUMENTS TO THE BANKS AT THE TIME OF SUBMISSION OF SUCH STOCK S TATEMENTS OF HYPOTHECATION TO THE BANKS. SUBSEQUENTLY, WHEN THE BILLS OF LADING RELAT ING TO THE SHIPMENT OF GOODS AMOUNTING TO RS.40,49,000/- WERE RECEIVED ON 31.03. 1994 THE SAME WERE CONSIDERED AS SALES FOR THE PURPOSE OF ANNUAL ACCOUNTS FOR THE YE AR ENDED 31 ST MARCH, 1994. IT WAS FURTHER SUBMITTED THAT WITH REGARD TO THE BALANCE, SHIPMENT OF RS.6,91,000/- OUT OF RS. 47,40,000/- WAS SHIPPED ON 08.04.1994 AS PER THE BI LL OF LADING AND THE SAME WAS APPROPRIATELY SHOWN AS STOCK IN TRANSIT FORMING PAR T OF THE CLOSING STOCK FOR THE PURPOSE OF THE ASSESSEES FINANCIAL ACCOUNTS FOR THE YEAR E NDED 31 ST MARCH, 1994 [FIGURE OF RS.47,40,000/- HAS BEEN WRONGLY MENTIONED AS RS.47, 47,000/-] 3 THE A.O. WAS NOT SATISFIED WITH THE ASSESSEES EXPL ANATIONS IN REGARD TO SUMS OF RS.47,40,000/- ON ACCOUNT OF FINISHED GOODS IN TRAN SIT AND RS.1,21,62,562/- ON ACCOUNT OF WORK-IN-PROGRESS. THE OBSERVATION OF THE A.O. IN SUPPORT OF ABOVE ADDITION WAS AS UNDER :- ON EXAMINATION OF THE ASSESSMENT RECORDS AND THE D ETAILS PRODUCED AND SUBMITTED IT IS SEEN THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS T HEY SUBMITTED THE DETAILS OF EXPORT SALES (FOB) WHICH WAS THE COMPOSITE SALE FIGURES AG AINST VARIOUS CONCERNS. NOW THE ASSESSEE COMPANY TRIED TO EXPLAIN THE GOODS IN TRAN SIT SHOWN BEFORE THE BANK PARTLY AS FEW EXPORT SALES EFFECTED ON 31.03.1994 (VALUED AT RS.40,49.000P AND PARTLY AS PART OF STOCK AS ON. 31.03.1994 (VALUED AT RS. 6,91,000/-) DISCLOSED IN ITS ACCOUNTS. BUT THE SAME CANNOT BE ACCEPTED AS, PRIMARILY, THE GOODS IN TRANSIT CAN ONLY BE TREATED AS STOCK ONLY WHEN THE SAME HAS NOT BEEN SOLD OUT AND FORM P ART OF STOCK. SECONDLY, FROM THE ABOVE DETAILS OF EXPORT SALES (FOB), SUBMITTED IN C OURSE OF ASSESSMENT PROCEEDINGS IT CAN NOT BE INFERRED WHETHER THE ABOVE SALES WERE IN CLUDED IN THE TOTAL SALES AS OUT OF 25 EXPORT BILLS RAISED BY THE ASSESSEE COMPANY ON 31.0 3.1994, ONLY THE VALUE OF SEVER CONSIGNMENT WERE SHOWN TO THE BANK AS STOCK IN TRAN SIT. THE SAME ARGUMENT IS APPLICABLE IN CASE OF TH E BALANCE SHIPMENT OF RS.6,91,000/- WHICH WAS CLAIMED AS STOCK IN TRANSIT FORMING PART OF CLOSING STOCK, SHOWN TO THE BANK WHEN THE SAME WAS SHOWN AT RS.4,30,004/- INSTEAD OF RS.6,91,000/-, IN THE ACCOUNTS UNDER THE HEAD STATEMENT SHOWING INVENTORIES. NO FURTHER EXPLANATION WAS GIVEN IN THIS REGARDS. ACCORDINGLY, THE EXPLANATION OFFERED BY THE ASSESSEE COMPANY IN RESPECT OF ADDITION OF RS.47,40,000/- ON ACCOUNT OF FINISHE D GOODS IN TRANSIT IS NOT ACCEPTABLE. (2) REGARDING THE ISSUE OF STOCK IN PROCESS OF RS.1 ,21,62,562/- (486.469 MT) IT WAS SUBMITTED THAT THE SAME WAS ACTUALLY STOCK IN PROCE SS OF WELLINGTON JUTE MILL. IT WAS CATEGORICALLY STATED AS .. WHICH IS ACTUALLY STOC K IN PROCESS OF MARCH, 1994 OF WELLINGTON JUTE MILL (PAGE-2 OF THE LETTER DATED 1 2.01.2007). IT WAS AGAIN EXPLAINED THAT STOCK OF RS.3,25,11,939/- SHOWN UNDER THE SUB- HEAD LYING AT MILLS HEAD-OFFICE & BRANCH STOCK UNDER THE HEAD FINISHED JUTE GOODS AS SHOWN IN THE STATEMENT SHOWING INVENTORIES INCLUDED UNPACKED STOCK OF RS.93,83,12 9/- (486.219 MT) AND THE SAME STOCK WAS SHOWN IN THE BANK UNDER THE HEAD STOCK I N PROCESS BUT VALUED AT RS. 1,21,62,562/- (486.469 MT) WHICH WAS THE MARKET VAL UE OF THE GOODS. NOW PRIMARILY THE QUANTITY DID NOT TALLY AND SECONDLY IT WAS CATE GORICALLY STATED THAT THE STOCK IN QUESTION WAS ACTUALLY STOCK IN PROCESS OF MARCH, 19 94 OF WELLINGTON JUTE MILL. BUT PRESENTLY THEY TRIED TO RECONCILE THE STOCK IN PROC ESS IN QUESTION. OF RS.1,21,62,562/- BY SEGREGATING THE STOCK OF FINISHED JUTE GOODS OF RS. 3,25,11,939/- AND EXPLAINED THE SAME AS UNPACKED GOODS. HERE ALSO THEY VALUED THE ABOVE GOODS AT RS. 93,83,129/- INSTEAD OF RS.1,21,2,562/- ON EXAMINATION IT IS ALSO SEEN THAT THE WORK IN PROGRESS HAD ALREADY BEEN SEPARATELY SHOWN IN THE BALANCE SHEET AT RS.1, 00,91,718/- (AS PER SEPARATE SCHEDULE-7 ANNEXED WITH THE BALANCE-SHEET). IN SUPP ORT OF THEIR CLAIM THE ASSESSEE COMPANY PRODUCED CERTIFICATES DATED 30.10.2006 OBTA INED FROM CHARTERED ACCOUNTANT M/S. D.P.SEN & CO IT IS SEEN THAT THE ITOR HAS GIVE N BREAK UP OF VALUATION OF THE STOCK ON THE BASIS OF INFORMATION AND EXPLANATIONS SUPPLI ED BY THE ASSESSEE COMPANY, BUT NOT 4 PHYSICAL VERIFICATION. THUS, THE CERTIFICATES FILED BY THE ASSESSEE COMPANY IS A SELF SERVING DOCUMENT WHICH CAN NOT BE TREATED AS RELIAB LE EVIDENCE. CONSIDERING THE ABOVE FACTS, THE EXPLANATION OF THE ASSESSEE COMPANY IN R EGARD TO THE ADDITION OF RS.1,21,62,562/- ON ACCOUNT OF STOCK ON WORK-IN-PRO CESS IS NOT ACCEPTABLE. 4. IN REGARD TO ADDITION ON ACCOUNT OF STOCK ON WO RK-IN-PROCESS, THE ASSESSEES EXPLANATION BEFORE THE LD. C.I.T.(A) WAS AS UNDER:- 1) AS THE ENTIRE STOCK WAS NOT UNDER HYPOTHECATION TO THE BANK, THE STATEMENT OF STOCK SUBMITTED TO THE BANK COVERS ONLY PART OF SUC H STOCK HYPOTHECATED TO BANK. 2) THE A.O HAS PLACED RELIANCE ON THE AUDITED BALAN CE SHEET AND ACCOUNTS PREPARED IN AUGUST, 1994 AFTER THOROUGH RECONCILIAT ION, CHECKING AND AUDIT, WHEREAS THE BANK STATEMENT WAS MERELY AN ESTIMATE P REPARED AROUND 31.03.94 AND SUBMITTED SOON THEREAFTER. 3) THE VALUE ADOPTED IN THE BANK STATEMENT OF HYPOT HECATION STOCK OF FINISHED GOODS WAS THE ESTIMATED REALIZABLE VALUE, WHEREAS T HE VALUE OF SUCH FINISHED GOODS IN THE AUDITED ACCOUNTS WAS ON THE RECOGNIZED REGULARLY FOLLOWED METHOD OF COST OR MARKET WHICHEVER IS LOWER. 4) THE A.O. HAS NOT BROUGHT ANY SINGLE CASE ON RECO RD WHERE CLANDESTINE REMOVAL THROUGH SALE OF FINISHED GOODS HAVE BEEN RECORDED. REGARDING THE ADDITION OF RS.47,40,000/- MADE BY TH E A.O. IN RESPECT OF FINISHED GOODS IN TRANSIT, THE ASSESSEE SUBMITTED AS UNDER :- 1) IN THE BANK STATEMENT THE SUM OF RS.47,40,000/ - HAS BEEN TREATED AS FINISHED GOODS IN TRANSIT AS THE STATEMENT WAS PREPARED ON T HE VERY DAY OF EXPORT AND THE ACTUAL EXPORT DOCUMENTS CONCERNING SUCH EXPORTS HAD NOT BEEN RECEIVED WHEN THE BANK STATEMENT WAS PREPARED. 2) THAT EIGHT CONSIGNMENTS OUT OF NINE IN THE T OTAL SALE VALUE OF RS.40,54,840/- WAS DULY ACCOUNTED FOR. COPY OF SALES DAY BOOK SHO WING THE ACCOUNT OF EXPORT SALES AS PART OF THE SALES FOR THE YEAR WAS FILED B EFORE THE LD. C.I.T.(A). 3) THAT THE REMAINING CONSIGNMENT WAS ACTUALLY SOLD IN APRIL, 1994 AND WAS REFLECTED IN THE SALES LEDGER FOR THE FOLLOWING FIN ANCIAL YEAR. THE ASSESSEE, THEREFORE, SUBMITTED THAT THE ACCOUNTING TREATMENT WAS RIGHT IN THE SENSE THAT EIGHT CONSIGNMENTS WERE IN THE PROCESS OF MATURING IN COMPLETING SALES. 5 4.1. CONSIDERING THE ABOVE SUBMISSIONS AND EVIDENC ES FILED BY THE ASSESSEE, THE LD. C.I.T.(A) HELD THAT THE A.O. HAS NOT APPRECIATED TH E EXPLANATION OF THE ASSESSEE IN PROPER PERSPECTIVE. HE, THEREFORE, DELETED THE ADD ITION OF RS.1,69,02,562/- WITH THE FOLLOWING OBSERVATIONS :- 6.4. HERE IT IS NOTED THAT ALL THE FACTS REGA RDING THE STOCK HAVE BEEN ON RECORD AND IN THE COURSE OF THE REMAND PROCEEDINGS THE ASSESSEE H AS TRIED TO EXPLAIN THE ALLEGED DISCREPANCY BY TREATING THE GOODS IN TRANSIT SHOWN BEFORE THE BANK AS FEW EXPORTS SALES AND ALSO AS PART OF THE STOCK DISCLOSED IN ITS ACCO UNTS. IT IS NOTED THAT THE A.O. HAS NOT BEEN ABLE TO FIND ANY FACTUAL MISTAKE IN SUCH AN EX PLANATION AND HAS ALSO FAILED TO PIN POINT THE ACTUAL ITEMS OF DISCREPANCY. THE A.O HAS ALSO NOT GIVEN THE BASIS ON WHICH HE HAS REJECTED THE APPE1LANTS EXPLANATION THAT THE I NVOICE RATES DIFFERENCES ARE DUE TO EXCHANGE FLUCTUATION. IT IS NOT THE A.OS CASE THAT THE EXCESS STOCK WAS FOUND PHYSICALLY IN THE PREMISES OF THE ASSESSEE. THE A.O HAS TRIED TO BUILD THE CASE THAT THE DIFFERENCES NOTED BETWEEN THE ASSESSEES AUDITED FI NANCIAL ACCOUNTS AND IN THE STOCK STATEMENT OF HYPOTHECATION TO THE BANKS. IT IS A WE LL SETTLED PRINCIPLE OF LAW THAT THE ASSESSEES INCOME IS TO BE ASSESSED BY THE INCOME T AX OFFICER ON THE BASIS OF MATERIAL WHICH IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT AND ORDINARILY NOT ON THE BASIS OF THE STATEMENT WHICH THE ASSESSEE MAY H AVE GIVEN TO A THIRD PARTY UNLESS THERE IS MATERIAL TO CORROBORATE THE STATEMENT OF T HE ASSESSEE GIVEN TO A THIRD PARTY, EVEN IF IT BE A BANK. THE MERE FACT THAT THE ASSESS EE HAD MADE SUCH A STATEMENT BY ITSELF CANNOT BE TREATED AS HAVING RESULTED IN AN IRREFUTA BLE PRESUMPTION AGAINST THE ASSESSEE. THE BURDEN OF SHOWING THAT THE ASSESSEE HAD UNDISCL OSED INCOME IS ON THE REVENUE. THAT BURDEN CANNOT BE SAID TO BE DISCHARGED BY MERE LY REFERRING TO THE STATEMENT GIVEN BY THE ASSESSEE TO THE THIRD PARTY IN CONNECTION WI TH A TRANSACTION WHICH IS NOT DIRECTLY RELATED TO THE ASSESSMENT AND MAKING THAT THE SOLE FOUNDATION FOR A FINDING THAT THE ASSESSEE HAD DELIBERATELY SUPPRESSED HIM INCOME. [C IT VA. N. SWAMY (2000) 241 ITR 363 (MAD)] . IT IS ALSO NOTED THAT IN THE REMAND PR OCEEDINGS THE ASSESSEE HAS BEEN ABLE TO IDENTIFY THE EXPORT BILLS RELATING TO THE GOODS IN TRANSIT VALUED AT RS. 40,49,000/- AND THE A.O HAS NOT BEEN ABLE TO REBUT THIS EVIDENCE EX CEPT FOR STATING THAT THE GOODS IN TRANSIT CAN ONLY BE TREATED AS STOCK ONLY WHEN THE SAME HAS NOT BEEN SOLD OUT. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT CLOSING STOCK DE CLARED IN THE RETURN FILED BY THE ASSESSEE AND BASED ON THE BOOKS OF ACCOUNTS SHOULD BE ACCEPTED RATHER THAN THE CLOSING STOCK AS DECLARED TO THE BANK WHICH WAS MADE FOR TH E PURPOSE OF SECURING A LOAN. [CIT VS. SRIK PADMAVATHI COTTON MILLS (1998) 148 CTR (MA D) 371]. IN THE PRESENT CASE IT IS APPARENT THAT THE ASSESSEE HAS BEEN ABLE TO EXPLAIN BILL WISE THE ALLEGED DISCREPANCY OF RS. 47,47,000/- AND THE A.O HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO REBUT THIS EXPLANATION EXCEPT FOR REJECTING THE ASSESSEES EXP LANATION ON TECHNICAL GROUNDS. 6.5. WITH REGARD TO THE ISSUE OF STOCK IN PROC ESS OF RS. 1,21,62,562/- (486.469 MT), THE A.O HAS REJECTED THE CERTIFICATES DATED 30.10.0 6 OBTAINED FROM THE CHARTERED ACCOUNTANT M/S. D. P. SEN & CO. WHICH GIVES BREAK U P OF VALUATION OF THE STOCK AS A SELF-SERVING DOCUMENT WHICH CANNOT BE RELIED UPON A S AN EVIDENCE. IN THE COURSE OF THE PRESENT APPELLATE PROCEEDINGS, THE A/R OF THE APPEL LANT HAS STATED THAT THE SAID STOCK OF 486.469 MT OF UNPACKED FINISHED GOODS HAS BEEN SHOW N IN THE SUMMARIZED BANK STATEMENT AS PART OF FINISHED GOODS UNDER SL. NO. 5 AND NOT AS STOCK IN PROCESS AS ALLEGED BY THE A/O. AT SL. NO. 5 OF THE SUMMARIZED BANK STATEMENT, THE VALUE OF FINISHED STOCK IS SHOWN AT RS.5,10,83,518/- WHICH I NCLUDES THE SUM OF RS. 6 1,21,62,562/- REFERABLE TO 486.469 MT. IT IS ALSO N OTED THAT THIS STATEMENT OF THE ASSESSEE WHICH IS BACKED BY AUDITED REPORT HAS NOT BEEN REBUTTED BY THE AO IN HIS REMAND REPORT AND THE AUDIT REPORT HAS BEEN REJECTE D AS A SELF-SERVING DOCUMENT. THE A/R OF THE APPELLANT HAS FURTHER POINTED OUT THAT T HE FINISHED GOODS IN THE SUMMARIZED STATEMENT WIDER SUB-ITEM D OF SL. NO. 5 RELATES T O FINISHED GOODS OF NARAYANPUR EOU UNIT AND THAT UNDER G RELATES TO THE RISHRA EOU U NIT. WITH THIS STATEMENT THE A/R OF THE APPELLANT HAS SUBMITTED THAT THE ENTIRE FINISHE D GOODS INCLUDING THE SAID QUANTIFY OF 486.469 MT WAS SHOWN IN THE BANK STATEMENT UNDER RE SPECTIVE SL. NO. 5. IT IS FURTHER STATED THAT THE A.O. IN THE REMAND REPORT HAS STATE D THAT THE FIGURE IN THE FINAL ACCOUNTS WAS 486.219 MT VALUED AT RS.93,83,129/- BUT IN. THE BANK STATEMENT IT WAS 486.469 MT VALUED AT RS.1,21,62,562/- WHICH CLEARLY SHOWS T HAT THE TWO ITEMS ARE DIFFERENT. THE A.R. OF THE APPELLANT HAS SUBMITTED THAT THE MI NOR DIFFERENCE IN QUANTITY OF 250 KG WAS ON ACCOUNT OF CORRECTION IN THE FINAL COMPUTATI ON IN THE ACCOUNTS AS AGAINST THE FIGURE GIVEN TO BANK ON MARCH 31, 1994 BEFORE AUDIT AND FINAL CHECKING. TO SUMMARIZE, THE A/R OF THE APPELLANT HAS STATED THAT THE REASONS GIVEN BY THE A.O. ARE UNSUSTAINABLE AS THE VALUE IN THE BANK STATEMENT WA S REALIZABLE ESTIMATED SALE VALUE WHEREAS THAT IN THE ACCOUNTS WAS COST OR MARKET WHI CHEVER IS LOWER. 6.6. TO SUMMARISE, THE A.O. HAS INITIALLY MADE AN ADDITION ON THE GROUND THAT THE CATEGORISATION OF GOODS AS ON PACKED FINISHED GOODS , FINISHED, GOODS AND STOCK IN PROCESS ETC. WERE NOT PROPERLY REFLECTED IN THE STA TEMENT OF INVENTORIES FURNISHED BEFORE THE BANK. IN THE COURSE OF THE REMAND PROCEEDINGS D URING THE PRESENT APPELLATE PROCEEDING A BREAKUP OF VALUATION OF STOCK FROM A C HARTERED ACCOUNTANT WAS SUBMITTED BEFORE THE A.O, BUT THE SAME WAS NOT CONSIDERED ON THE GROUND THAT THE SAID DOCUMENT IS A SELF SERVING DOCUMENT WHICH CANNOT BE RELIED U PON AS EVIDENCE. THE STATUTORY AUDITORS REPORT HAS BEEN PERUSED, AND IT IS APPARE NT THAT THE SAID REPORT CONTAINS A CLEAR CATEGORISATION OF GOODS OF THE ASSESSEE COMPANY LYI NG IN DIFFERENT UNITS. IT IS NOTED THAT REPORT A COMPETENT CHARTERED ACCOUNTANT IS A RELIAB LE EVIDENCE AS THE SAME IS BASED ON SOUND ACCOUNTING PRINCIPLES, AND THE ONUS WAS ON TH E A.O. TO POINT OUT MISTAKES, IF ANY, IN THE SAID REPORT OF THE STATUTORY AUDITOR. IN THE PRESENT CASE THE A.O. HAS FAILED TO DO SO AND HAS TOTALLY RELIED ON THE VALUES SHOWN IN THE BANK STATEMENT WHICH WERE PREPARED BEFORE AUDIT AND FINALIZATION OF ACCOUNTS. AS IS DISCUSSED IN PARA 6.2 ABOVE, NO ADDITION CAN BE MADE ONLY BECAUSE THE ASSESSEE H AS SHOWN A DIFFERENT VALUE IN THE BANK STATEMENT. 6.7. KEEPING IN VIEW THE FACTS OF THE CASE AND A FOREMENTIONED JUDICIAL DECISIONS IT IS HELD THAT THE A.O. HAS NOT CORRECTLY APPRECIATED TH E EXPLANATION OF THE ASSESSEE SUPPORTED BY THE CERTIFICATE OF STATUTORY AUDITORS AND HAS MADE ADDITION OF RS.1,69,02,562/- ON ACCOUNT OF SUPPRESSION OF CLOSI NG STOCK FOR WHICH THERE IS NO BASIS, AND SAME IS HEREBY DELETED. 5. AT THE TIME OF HEARING BEFORE US, THE LD. DEPAR TMENTAL REPRESENTATIVE RELIED ON THE ORDER OF A.O. THE LEARNED A/R OF THE ASSESSEE, ON THE OTHER HAND, APART FROM REITERATING THE SUBMISSIONS MADE BEFORE THE LD. C.I .T.(A), ALSO SUPPORTED THE ORDER OF LD. C.I.T.(A) AND PRAYED FOR UPHOLDING THE SAME. 7 6. WE HAVE HEARD THE PARTIES, CAREFULLY PERUSED TH E ORDERS OF THE AUTHORITIES BELOW AND EVIDENCE ON RECORD. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, IT IS FOUND THAT THE A.O. INITIALLY MADE ADDITION ALLEGING THAT CATEGORIZATION OF PACKED FINISHED GOODS, FINISHED GOODS, STOCK-IN-PROCESS ETC. WERE N OT PROPERLY REFLECTED IN THE STATEMENT OF INVENTORIES FURNISHED BY THE ASSESSEE BEFORE THE BANK. DURING THE REMAND PROCEEDINGS, THE ASSESSEE SUBMITTED A BREAK-UP OF V ALUATION OF STOCK FROM ITS CHARTERED ACCOUNTANT, WHICH WAS AS WELL FILED BEFORE THE A.O. BUT THE A.O. DID NOT CONSIDER THE SAID BREAK-UP AS RELIABLE EVIDENCE TREATING THE SAM E AS SELF-SERVING DOCUMENT. THE LD. C.I.T.(A) HAD GONE THROUGH THE AUDITORS REPORT AND HE FOUND THAT THE SAID REPORT CONTAINED A CLEAR CATEGORIZATION OF GOODS LYING IN DIFFERENT UNITS OF THE ASSESSEE- COMPANY. THE LD. C.I.T.(A) ON THE ABOVE FACTS HAS HELD THAT SUCH REPORT OF THE AUDITOR WAS A RELIABLE EVIDENCE AS THE SAME WAS BASED ON SO UND ACCOUNTING PRINCIPLES. WE ALSO FIND THAT THE A.O. COULD NOT POINT ANY SPECIFIC IRR EGULARITY OR MISTAKE IN THE SAID STATUTORY AUDIT REPORT. IT IS ALSO PERTINENT TO MEN TION HERE THAT THE A.O. RELIED ON THE VALUES SHOWN IN THE BANK STATEMENT, WHICH WAS ADMIT TEDLY PREPARED ON ESTIMATE BASIS BEFORE AUDIT AND FINALIZATION OF ACCOUNTS FOR THE Y EAR UNDER CONSIDERATION. IT IS ALSO NOT DISPUTED BY THE DEPARTMENT THAT THE ENTIRE STOCK OF THE ASSESSEE WAS NOT PUT UNDER HYPOTHECATION TO THE BANK AND THE STATEMENT FURNISH ED TO THE BANK CONTAINED ONLY PART OF SUCH STOCK HYPOTHECATED TO THE BANK. FURTHER, THE L D. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ON RECORD ANY EVIDENCE TO CONTRADICT THE OBSERVATIONS OF THE LD. C.I.T.(A) WHILE DELETING THE ADDITION. THE LD. C.I.T.(A) HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. SRIK PADMAVATHI COTTON MILLS [148 CTR 371 ( MAD)] WHEREIN IT HAS BEEN HELD THAT IT IS A WELL SETTLED PRINCIPLE OF LAW THAT CLO SING STOCK DECLARED IN THE RETURN AND BASED ON THE BOOKS OF ACCOUNTS SHOULD BE ACCEPTED R ATHER THAN THE CLOSING STOCK AS DECLARED TO THE BANK FOR THE PURPOSE OF SECURING LO AN ETC. IN OUR OPINION, THEREFORE, THE LD. C.I.T.(A) HAS RIGHTLY DELETED THE ADDITION OF R S.47,40,000/- MADE BY THE A.O. IN RESPECT OF FINISHED GOODS IN TRANSIT AND HIS ORDER ON THIS ISSUE IS UPHELD. 6.1. THE OTHER PART OF THE ADDITION IS RS.1,21,62, 562/- MADE ON ACCOUNT OF STOCK-IN- PROCESS. FOR THE REASONS DISCUSSED HEREINABOVE IN R ESPECT OF ADDITION OF RS.47,40,000/-, 8 WE FIND NO INFIRMITY IN THE ORDER OF THE LD. C.I.T. (A) IN DELETING THE SAID ADDITION MADE BY THE A.O. WE, THEREFORE, UPHOLD THE ORDER OF THE LD. C.I.T.(A) DELETING THE ADDITION OF RS.1,21,62,562/-. TO SUM UP, DELETION OF TOTAL ADD ITION OF RS.1,69,02,562/- [RS.47,40,000 + RS.1,21,62,562] BY THE LD. C.I.T.(A ) IS UPHELD. GROUND NO.1 OF THE REVENUES APPEAL IS, THEREFORE, DISMISSED. 7. THE ONLY OTHER GROUND RAISED IN THIS REVENUES APPEAL IS AGAINST DELETION OF ADDITION OF RS.92,76,827/- MADE ON ACCOUNT OF DISCL OSURE OF LOWER VALUATION OF CLOSING STOCK BY THE ASSESSEE. THIS GROUND IS RELATED TO G ROUND NO.1, WHICH HAS BEEN DEALT WITH ABOVE. THE A.O. OBSERVED THAT IN THE STOCK INVENTOR Y STATEMENT FURNISHED TO THE BANK, THE FINISHED GOODS IN TRANSIT WAS VALUED AT RS.47,4 0,000/- AND WORK-IN-PROCESS VALUED AT RS.1,21,62,562/- WAS NOT INCLUDED IN THE CLOSING ST OCK, WHICH HAS RESULTED IN DECREASE IN THE VALUE OF CLOSING STOCK BY RS.1,69,02,562/-. TH E A.O. ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDING TO THE A.O., THER EFORE, THE NET IMPACT OF THIS VALUATION WAS THAT THE VALUATION AS PER P/L ACCOUNT WAS LOWER BY RS.92,76,827/-, WHICH HE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8. BEFORE THE LD. C.I.T.(A), THE ASSESSEE FURNISHE D EXPLANATION WITH VOLUMINOUS EVIDENCE IN SUPPORT OF ITS VALUATION OF CLOSING STO CK, WHICH WAS FORWARDED TO THE A.O. TO SUBMIT HIS REMAND REPORT ON THE SAME. AFTER PERU SING THE REMAND REPORT SENT BY THE A.O. AND SUBMISSIONS OF THE ASSESSEE, THE LD. C.I.T .(A) FOUND NO BASIS IN MAKING SUCH ADDITION ON THIS ACCOUNT AND HE, THEREFORE, DELETED THE ADDITION OF RS.92,76,827/- WITH THE FOLLOWING OBSERVATIONS :- 7.3. THE OBSERVATIONS OF THE A.O. AND SUBMISSION S MADE BY THE A.R. OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS NOTED THAT T HE ONLY ACCEPTABLE WAY FOR VALUING CLOSING STOCK ARE AS PER THE NORMS LAID DOWN IN PRE SCRIBED ACCOUNTING STANDARDS (AS-II). AS DISCUSSED IN PARA 6.2 ABOVE, NO ADDITION CAN BE MADE ONLY BECAUSE THE ASSESSEE HAS FURNISHED A DIFFERENT VALUATION OF CLOSING STOCK BE FORE THE BANK. APART FROM DETERMINING THE UNDER VALUATION OF STOCK VIS--VIS THE VALUES SUBMITTED BEFORE THE BANK, THE A.O. HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO SUGGEST THAT WHILE VALUING THE CLOSING STOCK THE ASSESSEE HAS DEVIATED FROM THE NO RMS SET IN ACCOUNTING STANDARDS AS- II. IN VIEW OF SUCH FACTS THE ADDITION OF RS.92,7 6,827/- ON ACCOUNT OF ALLEGED LOWER VALUATION OF STOCK IS HELD TO BE WITHOUT ANY BASIS, AND THE SAME IS HEREBY DELETED. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL PLACED BEFORE US. IN VIEW OF OUR DISCUSSIONS ABOVE WHILE DEALING WITH GROUND NO. 1 OF THIS REVENUES APPEAL, WE FIND 9 NO INFIRMITY IN THE ORDER OF LD. C.I.T.(A) DELETING THE ADDITION OF RS.92,76,827/- MADE BY THE A.O. ON ACCOUNT OF ALLEGED LOWER VALUATION OF S TOCK. THAT BEING SO, WE UPHOLD HIS ORDER ON THIS ISSUE AND GROUND NO.2 OF THE REVENUE S APPEAL STANDS DISMISSED. 10. IN THE RESULT, THE APPEALS BY THE REVENUE ARE DISMISSED. 2 1 !3 4 3$ 25 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 30.6.10. SD/- SD/- [D.K. TYAGI] [C.D. RAO] JUDICIAL MEMBER ACCOUNTANT MEMBE R ( (( (! ! ! !) )) ) DATE: 30-06-2010 1 / .##6 76&8- COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT : A.C.I.T., CENTRAL CIRCLE-XXI, KOLKATA. 2 .*+ / THE RESPONDENT : THE CHAMPDANY INDS. LTD., 25, PRINCEP STREET, KOLKATA-700 072. 3. #1$ () : THE CIT(A), CENTRAL-II, KOLKATA. 4. #1$/ THE CIT, KOL- 4. =# .#$ / DR, ITAT, KOLKATA BENCHES, KOLKATA 5. GUARD FILE . 6 .#/ TRUE COPY, 1$3/ BY ORDER, (DKP) ? @ / DEPUTY REGISTRAR .