DCIT 17(1), MUMBAI V. DEVAKINDANAD GUPTA (HUF), MUMBAI

ITA 1711/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3296 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Keywords: Rule of consistency
• Section: 145

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H, MUMBAI . , . ! , # $%& $ BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM $ ./I.T.A. NO.1711/M/2012 ( ' ( )( / ASSESSMENT YEAR : 2008-2009) DCIT-17(1), 1 ST FLOOR, R.NO. 113, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI. / VS. DEVAKINANDAN GUPTA (HUF), 131, KASARA STREET, DARUKHANA, MUMBAI-400 010. &* # $ ./PAN : AAAHG 0277M ( *+ /APPELLANT) .. ( ,-*+ / RESPONDENT) *+ . / $ / APPELLANT BY : SHRI RAJARSHI DWIVEDI, DR ,-*+ . / $ / RESPONDENT BY : SHRI SHEKHAR GUPTA $ . 0# /DATE OF HEARING : 17.6.2013 1) . 0# /DATE OF PRONOUNCEMENT : 3.7.2013 %2 %2 %2 %2 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 12.3.2012 IS A GAINST THE ORDER OF CIT (A) 9.12.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL REVENUE RAISED THE FOLLOWING GROUN DS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DIRECTING THE AO TO DELETE ADD ITION MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF RS. 45,88,839/- BY NOT ADOPTING VALUE U/S 145 OF ACT AS METHOD ADOPTED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT ASSESSE E HAS SUBSTANTIALLY PURCHASED GOODS AT THE END OF THE YEAR AND COST OF GOODS PURCHASED IN THE MONTH OF MARCH SHOULD BE CONSIDERED AS COST OF CLOSING STOCK, THUS STOCK HAS BEEN UNDERVALUED BY THE ASSESSEE BY RS. 34,23,401/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT DIRECT EXPENSES ARE NEED TO ADDED IN CLOSING STOCK AS PER DECISION OF APEX COURT IN THE CASE OF CIT V S. BRITISH PAINTS INDIA (SC) 188 ITR 44. 2 3. THE ABOVE MENTIONED GROUNDS REVOLVE AROUND THE A DDITION OF RS. 45,88,839/- RELATING TO THE UNDER VALUATION OF CLOSING STOCK QUA THE FIFO VALUATION METHOD NOT ADOPTED BY THE ASSESSEE AND ALSO THE DIRECT EXPENDI TURE. RELEVANT FACTS ON METHOD OF VALUATION IN THIS REGARD ARE GIVEN IN PARA 5.2 O F THE IMPUGNED ORDER WHICH IS SELF- CONTAINED AND THEREFORE, THE SAME IS REPRODUCED HER E UNDER: IN APPEAL IT IS CONTENTED THAT ASSESSEE DEALER IN I RON AND STEEL SCRAP FOR THE LAST 30 YEARS. IT IS ASSERTED THAT THE PURCHASES ARE PILED UP IN GODOWN AND AS THE STEEL SCRAP IS HEAVY, IT IS THE TOP MOST LAYERS WHICH IS NORMALLY SOLD AND THUS FIFO (FIRST IN FIRST OUT) IS NOT THE CORRECT METHOD ADOP TED BY THE AO.IT IS ARGUED THAT THE ASSESSEE HAS BEEN VALUING STOCK AT AVERAGE COST FOR PAST SO MANY YEARS AND THE METHOD HAS BEEN ACCEPTED BY THE DEPARTMENT. THE AS SESSMENT ORDER FOR 2008- 2009, WHEREIN, WHILE GIVING EFFECT TO THE ORDER OF THE CIT (A), IT WAS MENTIONED THAT THE ASSESSEE IS VALUING THE STOCK AT AVERAGE COST P RICE IS CITED IN THE CONTEXT. THE DECISIONS IN THE CASE OF CIT VS. FAZILKA SUGAR MILL 177 CTR 255 (P&H) AND CIT VS. H.P. STATE CIVIL SUPPLIES 309 ITR 102 (HP) ARE MAIN LY RELIED UPON. IT IS ALSO SUBMITTED THAT THE DIRECT EXPENSES HAVE ALREADY BEE N CONSIDERED WHILE VALUING THE CLOSING STOCK. 3.1. FURTHER, AO ADDED THE RELEVANT DIRECT EXPENDIT URE AND CUSTOMS DUTY TO THE CLOSING STOCK. THE ADDITION ON THESE ACCOUNTS WORKS OUT TO RS 45,88,839/-. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FIL ED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, IT WAS SUBMITTED THAT THE ASSESSEE CONSISTENTLY FOLLOWING THE AVERAGE STOCK OF PURCHAS ES METHOD AND NOT FIFO METHOD. THEREFORE, AO CANNOT DISTURB T HE ASSESSEES METHOD OF VALUATION OF CLOSING STOCK AND THRUST FIFO METHOD ON THE ASSESSEE FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION. HE ALSO MENT IONED THAT STEEL SCRAP IS ALWAYS DUMPED AND SCATTERED IN THE GODOWNS AND IT IS IMPOS SIBLE TO IDENTIFY WHICH LOT IS PURCHASED FIRST, NEXT AND LOST. FIFO METHOD CANNOT B E APPLIED IN SUCH CASES OF PURCHASES. ASSESSEE FURTHER MENTIONED THAT THIS IS SUE WAS EXAMINED DEEPLY IN THE ASSESSMENT YEAR 1988-89 AND THE SAME WAS ACCEPTED B Y THE AO AND ASSESSEE RELY TO DEMONSTRATE THE SAME ON THE CONTENTS OF PARA 5. 2 OF THE IMPUGNED ORDER. CIT (A) CONSIDERED THE SAME AND ACCEPTED THE ASSESSEES SUBMISSIONS AND DELETED THE ADDITION MADE BY THE AO. AGGRIEVED WITH THE SAME, REVENUE IS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 3 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED O N THE ORDERS OF THE AO AND HE IS CRITICAL OF THE ORDER OF THE CIT (A), BUT THE RE IS NO SPECIFIC ARGUMENT MADE BY THE LD DR BEFORE US. 6. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE R EITERATED THE ARGUMENTS MADE BEFORE THE LOWER AUTHORITIES AND MENTIONED THA T CONSIDERING THE RULE OF CONSISTENCY FOLLOWED BY THE ASSESSEE REGULARLY, IT IS NOT FAIR ON PART OF THE REVENUE TO THRUST THE FIFO METHOD ON THE ASSESSEE WHICH IS T OTALLY INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. HE RELIED ON THE DISCUSSION G IVEN IN PARA 5.2 OF THE IMPUGNED ORDER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES IN GENERAL AND THE CONTENTS OF PARA 5.3 OF THE IMPUGNED ORDER IN PARTICULAR WHICH IS REPRODUCED HERE UNDER: 5.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER. IT IS AN ADMITTED FAC T THAT APPELLANT IS FOLLOWING AVERAGE COST METHOD OF VALUING THE CLOSING STOCK. THE AO PROPOSED FIF O METHOD FOR VALUATION OF THE CLOSING STOCK AND THUS, ADOPTE D THE RATES OF MARCH, 2008 FOR VALUING THE CLOSING STOCK. FURTHER, THE AO ADDED PROPORTIONATE DIRECT COST TO THE CLOSING STOCK THEREBY MAKING AN ADDITION OF RS. 45, 88,839/-. THE APPELLANT HAS IMPRESSED THAT IT IS DEALING IN IRON AND STEEL SCRA P AND THAT FIFO IS NOT THE FEASIBLE METHOD FOR VALUING THE CLOSING STOCK AS THE MATERIAL IS LA YING SCATTERED IN GODOWN AND DISPOSED NOT IN ANY PARTICULAR ORDER. THE APPELLANT HAS ALSO SHOWN FROM THE DETAILS IN TRADING ACCOUNT THAT THE ENTIRE DIRECT E XPENSES HAVE BEEN INCORPORATED FOR PURPOSES OF CLOSING STOCK. A PERUSAL OF THESE DETAILS SHOWS THAT THE AO DID NOT INCLUDE CUSTOM DUTY AS DIRECT COST I N VALUATION BUT IT WAS PARTLY INCLUDED IN THE BILLS OF MARCH, 2008 AND THEREFORE, THE METHOD EMPLOYED BY THE AO TO ESTIMATE THE DIRECT COST ATTRIBUTABLE TO THE CLO SING STOCK IS INCORRECT. THE AO HAS ALSO NOT GIVEN A REASON AS TO WHY THE METHOD OF THE APPELLANT IS IMPROPER. IN FACT, SECTION 145 PERMITS VALUATION OF INVENTORY IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. MORE OVER, DISTURBING THE ESTABLISHED METHOD OF VALUATION OF CLOSING STOCK WITHOUT IMPACT ING THE OPENING STOCK WILL NOT REFLECT CORRECT PROFITS AND IS OF NO APPARENT GAIN AS THE ADDITION TO CLOSING STOCK IS REVENUE NEUTRAL. IN VIEW OF THE FOREGOING, THE ADD ITION OF RS. 45,88,839/- TO THE CLOSING STOCK IS DIRECTED TO BE DELETED. GROUND NO .2 IS ALLOWED. 8. FROM THE ABOVE IT IS EVIDENT THAT THE AO MADE TW O CHANGES TO THE VALUATION OF CLOSING STOCK IE (I) THRUSTING ON THE ASSESSEE T HE FIFO METHOD AND (II) THRUSTING ON THE ASSESSEE DIRECT EXPENDITURE OF THE CLOSING S TOCK. REGARDING FIRST ISSUE, WE APPRECIATE THAT THE ASSESSEES METHOD OF VALUATION HAS BEEN CONSISTENTLY ACCEPTED BY THE REVENUE. SCRUTINY ASSESSMENT FOR THE ASSESSM ENT YEAR 1988-89 EVIDENCES THE 4 SAME. REGARDING THE THRUSTING OF THE DIRECT EXPENDI TURE ALSO, WE FIND THAT THE ASSESSEE SUCCESSFULLY DEMONSTRATED THAT THE RELEVAN T DIRECT EXPENDITURE WAS ALSO READY INCORPORATED AND THE CUSTOMS DUTY AMOUNTS ARE PART OF THE PURCHASE BILLS. THEREFORE, AOS ATTEMPT TO ADD ONCE AGAIN THE SAID DIRECT EXPENDITURE AMOUNTS TO DOUBLE ADDITION OF IMPUGNED DIRECT EXPENDITURE, WHI CH IS NOT PROPER. THEREFORE, IN OUR OPINION, THE ORDER OF THE CIT (A) IS PROPER. CO NSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE DECISION OF THE CIT (A) IS REASONA BLE AND THERE IS NO INFIRMITY IN THE SAME. THEREFORE, THE ORDER OF CIT (A) DOES NOT CAL L FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . 3 04 5& . #35 . 50 6 ORDER PRONOUNCED IN THE OPEN COURT ON 3.7.2013 . SD/- SD/- (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT # $%& / ACCOUNTANT MEMBER MUMBAI; 7% 3.7.2013 . ' . $ ./ OKK , SR. PS %2 %2 %2 %2 . .. . ,'089 ,'089 ,'089 ,'089 :9)0 :9)0 :9)0 :9)0 / COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT 2. ,-*+ / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. 9 <= ,'0' , , / DR, ITAT, MUMBAI 6. =( > / GUARD FILE. $-90 ,'0 //TRUE COPY// %2 $ %2 $ %2 $ %2 $ / BY ORDER, / $ $ $ $ 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI