ACIT, Pune V. Smt Alka Chandrashekhar Gadgil, Pune

ITA 1673/PUN/2012

• Counselvise Citation: 167324514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1673/PN/2012 A.Y. 2008-09 ACIT, CIRCLE 11(2), PUNE APPELLANT VS. SMT. ALKA CHANDRASHEKHAR GADGIL 481/B, ASHISH SHRIKRUPA SOCIETY, PUNE 411009 PAN: AAWPG2085P RESPONDENT APPELLANT BY : SHRI S.P. W ALIMBE RESPONDENT BY : SHRI NIK HIL PATHAK DATE OF HEARING: 06.03.2014 DATE OF ORDER : 10.03.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, [SHORT CI T(A)-I] PUNE, DATED 09.02.2012 FOR A.Y. 2008-09 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A)-I, PUNE HAS ERRED IN DELETI NG THE DISALLOWANCE ON ACCOUNT OF UNDERSTATEMENT OF CLOSIN G STOCK OF SHARES BY CHANGE IN METHOD OF VALUATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A)-I, PUNE HAS ERRED IN NOT CONSIDERING THE FACT THAT ACCOUNTING STANDARD AS-2 IS SILENT AS FAR AS VALUATION OF SHARES AND SECURITIES IS CONCERNED AND THE ASSESSEE SHOULD HAVE FOLLOWED THE METHOD OF VALUATION CONSISTENTLY WHICH HAS BEEN FOL LOWED BY THE ASSESSEE FROM THE BEGINNING 3. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD. COMMISSIONER OF 2 INCOME-TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUND OF APPEAL DURING THE COURSE OF APP ELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL 2. THE ASSESSEE IS AN INDIVIDUAL WHO IS ALSO A PART NER IN M/S. SOHAM ENGINEERING SALES AND SERVICES, A FIRM ENGAGE D IN THE BUSINESS OF TRADING AND PUMPS. THE ASSESSEE IS ALS O A WHOLE TIME DIRECTOR OF SOHAM SURFACE COATINGS PVT. LTD., A COMPANY ENGAGED IN THE BUSINESS OF SUPPLY AND DESIGN OF PAI NTING EQUIPMENTS. BESIDES THIS, THE ASSESSEE HAS ALSO EN GAGED IN THE TRADING OF SHARES AND SECURITIES IN HER PERSONAL AC TIVITY AND HAS COMMENCED THIS BUSINESS FROM 01.04.2006. THE ASSES SING OFFICER ASSESSED THE TOTAL INCOME OF ASSESSEE AT 32,47,740/- AS AGAINST THE RETURNED INCOME OF 10,58,820/-. 3. THE MATTER WAS CARRIED BEFORE FIRST APPELLATE AU THORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) ALLOWED THE ASSESSEES CLAIM. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALIA SUBMITTED THAT THE CI T(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF UNDERSTA TEMENT OF CLOSING STOCK OF SHARES BY CHANGE IN METHOD OF VALU ATION. THE CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT A CCOUNTING STANDARD AS-2 IS SILENT AS FAR AS VALUATION OF SHAR ES AND SECURITIES IS CONCERNED AND THE ASSESSEE SHOULD HAV E FOLLOWED THE METHOD OF VALUATION CONSISTENTLY WHICH HAS BEEN FOL LOWED BY THE ASSESSEE FROM THE BEGINNING. ACCORDINGLY, THE ORDE R OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED . ON THE OTHER HAND, LEARNED AUTHORIZED REPRESENTATIVE SUPPORTED T HE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER ERR ED IN ADDING 21,88,917/- ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF CLOSING STOCK OF SHARES BY CHANGE IN METHOD OF VALUATION FR OM AT COST TO 3 AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE AS SESSING OFFICER ERRED IN NOT APPRECIATING THAT THE METHOD OF VALUIN G STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER IS MORE APPROPRI ATE AND UNIVERSALLY ADOPTED AS AGAINST VALUATION OF STOCK / INVENTORY AT COST, ACCOUNTING STANDARD (AS-2) VALUATION OF INVEN TORIES ALSO MANDATORILY PROVIDES THAT COST OR MARKET PRICE WHIC HEVER IS LOWER IS THE CORRECT METHOD FOR VALUING INVENTORIES. THE ASSESSEE IS ENTITLED TO MAKE A BONAFIDE CHANGE IN METHOD OF VAL UATION OF STOCK AND DEPARTMENT SHOULD NOT REJECT SUCH CHANGE IN METHOD OF ACCOUNTING ESPECIALLY IF THE CHANGE TOWARDS A MO RE APPROPRIATE, CORRECT AND RECOGNIZED METHOD. ACCORD INGLY, THE ORDER OF CIT(A) BE UPHELD, PLEADED ON BEHALF OF LEA RNED AUTHORIZED REPRESENTATIVE. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE AMONG OTHER BUSIN ESS VENTURES HAS ALSO ENGAGED HERSELF IN TRADING OF SHARES AND S ECURITIES FROM A.Y. 2007-08 I.E. IMMEDIATE PRECEDING ASSESSMENT YE AR TO THE ASSESSMENT UNDER CONSIDERATION WITH REGARD TO ADDIT ION IN QUESTION. THE ASSESSEE HAS CLAIMED THAT THE ASSESS ING OFFICER WITHOUT VERIFYING THE FACT HAS FORMED HIS OPINION F OR REJECTION OF THE VALUATION ADOPTED BY THE ASSESSEE. IT WAS CONT ENDED THAT THE ACTIVITY OF TRADE IN SHARES AND SECURITIES STARTED IN IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE CLOSING STOCK IN TH E SAME YEAR WAS VALUED AT 'COST' BUT AFTER REALIZING THAT THE P ROPER AND MOST ACCEPTED METHOD OF VALUING THE CLOSING STOCK IS TO VALUE IT AT 'COST OR MARKET PRICE WHICHEVER IS LESS', IT WAS CONSIDER ED PRUDENT AND PROPER TO FOLLOW THIS METHOD FROM THE YEAR UNDER CO NSIDERATION. IT WAS THE STAND OF THE ASSESSEE THAT THIS METHOD I S UNIVERSALLY ACCEPTED METHOD OF VALUING THE CLOSING STOCK, WHICH IS MANDATED BY AS-1, AS-2 AND AS-3. IN THESE FACTS AND CIRCUMS TANCES, THE CLAIM OF THE ASSESSEE HAS BEEN THAT THE CHANGE HAS BEEN MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION AFTER NOTIC ING THE 4 DEFICIENCY OF THE EARLIER METHOD IN A BONAFIDE MANN ER AND THE CHANGED METHOD IS BEING FOLLOWED REGULARLY. THE CI T(A) FOUND IT UNDISPUTED THAT THE METHOD ADOPTED BY THE ASSESSEE IN THE ASSESSMENT UNDER CONSIDERATION HAS BEEN UNIVERSALLY ACKNOWLEDGED TO BE A MORE PRUDENT AND REASONABLE ME THOD OF VALUATION OF CLOSING STOCK AND EVEN THE ASSESSING O FFICER HAS NOT STATED IN THE ASSESSMENT ORDER THAT THE CHANGED MET HOD IS NOT A PROPER METHOD. THE REJECTION OF THE CHANGE IS PRIM ARILY BASED ON THE ASSUMPTION THAT THE SAME HAS NOT BEEN DRIVEN BY BONAFIDE REASONS BECAUSE IT WAS STATED BY ASSESSING OFFICER TO HAVE BEEN DONE IN THE YEAR WHEN THE STOCK MARKET HAS CRASHED AND THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK WAS RESULTING INTO A LOWERING OF PROFIT BY 21,88,917/-. FOR ARRIVING AT THIS CONCLUSION, THE ASSESSING OFFICER HAS BASICALLY TRI ED TO DEPEND ON TWO ARGUMENTS I.E. THE CHANGE HAS BEEN MADE AFTER F OLLOWING THE EARLIER METHOD CONSISTENTLY IN THE LAST MANY YEARS AND THE CHANGE HAS BEEN EFFECTED IN A YEAR IN WHICH THERE W AS A CRASH IN THE STOCK MARKET. THE STOCK MARKET IS SUBJECT TO F LUCTUATIONS AND ALWAYS DEPENDS ON MARKET CONDITIONS. HENCE THE CRASH CANNOT BE CONSIDERED AS UNUSUAL OR A ONCE IN MANY Y EARS PHENOMENON. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS BEEN FOLLOWING THE OLD METHOD CONSISTENTLY FOR MANY YEARS BECAUSE THE ACTIVITY OF TRADE IN SHARES AND SECURITIES STARTED ONLY IN A.Y. 2007-08. THE SAME W AS IMMEDIATELY CHANGED IN THE SUBSEQUENT YEAR ON REALI ZING THAT THE EARLIER METHOD WAS NOT PROPER AND IS NOT GENERALLY FOLLOWED AND ACCEPTED METHOD OF VALUATION. IN VIEW OF THIS, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE CHANG E HAS BEEN MADE WITH THE MOTIVE TO LOWER THE PROFIT AND NOT FO R ADOPTING PROPER METHOD OF ACCOUNT. THE METHOD OF VALUING TH E CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER IS A PROPER METHOD OF ACCOUNTING AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CHINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC). 5 THE CHANGES TO THIS METHOD HAVE ONLY BEEN REJECTED IN CASES WHERE IT WAS FOUND THAT THE PURPOSE WAS OTHER THAN TO ARRIVE AT THE PROPER METHOD OF ACCOUNTING. THE LOSSES WERE I NCURRED EVEN IN THE SUBSEQUENT YEARS AFTER THE CHANGE OF ACCOUNT ING. SO FAR AS THE CHANGE OF ACCOUNT IS CONCERNED, IT IS A SETTLED FACT THAT SECTION 145 OF I.T. ACT DEALS WITH METHOD OF ACCOUN TING AND THIS SECTION HAS BEEN SUBSTITUTED BY THE FINANCE ACT, 19 95 W.E.F. 01.04.1997 AND THEREAFTER SEC. 145(1) MANDATES THAT THE INCOME CHARGEABLE UNDER THE HEAD BUSINESS AND PROFESSION O R INCOME FROM OTHER SOURCES HAS TO BE COMPUTED EITHER UNDER THE CASH METHOD OR MERCANTILE SYSTEM OF ACCOUNTING. SUB-SECT ION (2) MANDATES THE CENTRAL GOVERNMENT TO NOTIFY IN THE OF FICIAL GAZETTE, THE ACCOUNTING STANDARDS WHICH ARE MANDATO RILY REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THE CENTRAL GOVERNMENT HAS SO FAR NOTIFIED ONLY AS-1 AND AS-2 AND OTHER ACCOUNTING STANDARDS I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS, HAS ONLY AD VISORY STATUS OF A TECHNICAL BODY. SO FAR AS ITS APPLICATION VIS- A-VIS INCOME TAX PROVISIONS ARE CONCERNED, THE METHOD OF VALUATION B Y A PARTICULAR METHOD IS BASED ON COMMERCIAL CONSIDERATION. ANY M ETHOD WHICH CAN GIVE A PROPER COMPUTATION OF INCOME FOR T HE PREVIOUS YEAR AS PER I.T. LAW IS A GOOD METHOD. THE METHOD OF VALUING THE STOCK AT 'COST OR MARKET PRICE WHICHEVER IS LESS' H AS BEEN ACCEPTED BY DIFFERENT JUDICIAL FORUMS AND SUCH CHAN GE CAN BE REJECTED ONLY AFTER BRINGING ON RECORD THAT THE CHA NGE IF MADE FROM ONE METHOD TO ANOTHER OF VALUING THE STOCK AT COST OR AT MARKET COST WHICHEVER IS LESS IS DRIVEN BY CONSIDER ATIONS TO LOWER THE PROFIT ONLY. IN THE PRESENT CASE, THERE IS NOT HING ON RECORD TO SUGGEST THAT THE CHANGE WAS MADE BY THE ASSESSEE WI TH ANY SUCH MOTIVE AND THE FINDING GIVEN BY THE ASSESSING OFFIC ER TO THAT EFFECT WAS FOUND TO BE BASED ON ASSUMPTION ONLY. A CCORDINGLY, THE CIT(A) WAS JUSTIFIED IN REVERSING THE FINDING O F ASSESSING 6 OFFICER ON THE CLAIM OF ASSESSEE. THIS REASONED FA CTUAL FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPH OLD THE SAME. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 10 TH OF MARCH, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 10 TH MARCH, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE