Gopala Polyplast Ltd., Ahmedabad V. The Dy.CIT.,Circle-4, Ahmedabad

ITA 1712/AHD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1138 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: ASHEEM THAKKAR
• Keywords: Bonafide mistake
• Section: 143(3)

Judgement Text

ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH , AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S.S. GODARA JM ] ITA NO. 1712 / AHD / 2 0 11 ASSESSMENT YEAR: 200 7 - 08 GOPALA POLYPLAST LTD., ....... .. . ..... APPELLANT B - 1 - 2, AKANSHA APARTMENT, SOLA R OAD, GHATLODIA, AHMEDABAD [PAN AABCG 1282 C] VS. DY. COMMISSIONER OF INCOME TAX, .... ........ .... .. .. .. .... .. RESPONDENT CIRCLE 4, AHMEDABAD. APPEARANCES BY: ASHEEM THAKKAR, FOR THE APPELLANT SONIA KUMAR , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JU NE 30 TH , 201 5 DATE OF PRONOUNCING THE ORDER : AUGUST 31 ST , 2015 O R D E R PER PRAMOD KUMAR AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGE D CORRECTNESS OF THE ORDER DATED 6 TH APRIL, 2011 PASSED BY THE LD. CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2007 - 08, ON THE FOLLOWING GROUND: - 1. THE LEARNED COMMISSIONER OF INCOME TAX ( A PPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O . IN MAKING AN ADDITION OF RS.38,65,585/ - FOR THE ALLEGED UNDERVALUATION OF CLOSING STOCK. ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 2 OF 6 2. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING HDPE/PP WOVEN SACKS AND TRADING OF FABRICS. DURING THE COU RSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE THE VALUE OF CLOSING STOCK, AS SHOWN IN THE BALANCE SHEET, IS RS.11,01,86,483/ - , THE STOCK STATEMENTS FILED BY THE ASSESSEE WITH DENA BANK, RELIEF ROAD BRANCH, AHMEDABAD, REFL ECTED STATEMENT OF RS.11,40,52,068/ - . IT WAS ALSO NOTED THAT THE STOCK STATEMENT SUBMITTED TO THE BANK WAS DULY CERTIFIED BY THE MANAGEMENT. ON THESE FACTS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DIFFERENCE OF RS.38,65,58 5/ - NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN RESPONSE, THE ASSESSEE SUBMITTED AS FOLLOWS: - IT IS ALSO PROPOSED BY YOU TO MAKE ADDITION OF RS.38,65,585/ - ON ACCOUNT OF UNDER VALUATION OF STOCK. THE ASSESSEE COMPANY HAD FURNISHED STOCK STATEMENT TO THE BANK MOUNTING TO RS.11,40,52,068/ - AND THE STOCK HAS SHOWN IN THE BOOKS OF ACCOUNT AS RS.11,01,86,483/ - . THE DIFFERENCE HAS BEEN PROPOSED TO BE TREATED AS INCOME AS THE SAME HAS BEEN UNDERVALUED IN THE BOOKS OF ACCOUNTS. IT IS APPARENT THAT THERE IS NO DIFFERENCE IN QUANTITY BETWEEN THE STOCK SUBMITTED TO THE BANK AND THE SAME DISCLOSED IN THE BOOKS OF ACCOUNTS. FURTHERMORE, STOCKS HAVE TO BE SUBMITTED TO THE BANK BEFORE 15 TH OF EACH MONTH. THEREFORE THE STOCKS AS ON 31 . 3.2007 HAS TO BE FURNISHED T O THE BANK BEFORE 15.4.2007. AT THAT POINT OF TIME, THE STOCKS QUANTIFICATION AND VALUATION THEREOF HAS TAKEN ON PRIORITY BASIS . SOMETIMES EVEN IF THE BILLS/INVOICES HAVE NOT BEEN RECEIVED, APPROXIMATE RATES ARE APPLIED TO DISCLOSE THE STOCK TO THE BANK FROM WHERE THE CREDIT FACILITIES ARE AVAILED. IT MAY BE POSSIBLE THAT UNDER SUCH CIRCUMSTANCES CORRECT VALUATION MAY NOT HAVE BEEN ADOPTED. HOWEVER, WHEN THE BOOKS OF ACCOUNTS ARE FINALISED AND CLOSED, THE VALUATION OF STOCK IS DONE AS PER THE METHOD AND MANNER CONSISTENTLY FOLLOWED AND IN ACCORDANCE WITH THE ACCOUNTING STANDARDS LAID DOWN. THE BASIS OF VALUATION OF STOCK H A S BEEN FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THERE HAS BEEN NO DEVIATION EITHER IN THE MANNER OR MODE OF VALUATION . THE METHOD AND MANNER OF VALUATION STOCKS IS THE SAME AS IN EARLIER YEARS. NO SPECIFIC DEFECT OR DISCREPANCY HAS BEEN POINTED OUT WHILE EXAMINING THE ISSUE OF THE VALUATION OF THE INVENTORIES. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THIS BEING ON LY A VALUATION DIFFERENCE , WHICH IS ALSO ACCEPTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAME SHOULD BE DULY ACCEPTED AND NO ADVERSE INFERENCE BE DRAWN IN RESPECT OF THE SAME. 3. HOWEVER, THE ASSESSING OFFICER REJECTED THIS EXPLANATION ON THE GROUND THAT THE STOCK STATEMENT IS DULY CERTIFIED BY THE ASSESSEE WHICH CLEARLY SHOWS THAT THE VALUE OF THE STOCK IS MUCH HIGHER THAN WHAT WAS SHOWN IN THE BOOKS OF ACCOUNTS . ON THIS BASIS, AN ADDITION OF RS.38,65,585/ - WAS MADE TO THE INCOME OF THE A SSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 3 OF 6 IN APPEAL BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. LEANED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AND, WHILE DOING SO, OBSERVED AS FOLLOWS : - 3.3 I HAVE CAREFULLY CON SIDERED THE FACTS O F THE CASE, FINDINGS OF THE A.O. AS WELL AS THE SUBMISSION OF THE APPELLANT. THE A.O. MADE THE ADDITION ON THE GROUND THAT AS PER THE STOCK STATEMENT FILED WITH DENA BANK, RELIEF ROAD BRANCH, AHMEDABAD , THE TOTAL VALUE OF THE STOCK OF RAW MATERIAL, WORK I N PROGRESS, FINISHED GOODS AND STORES AND SPARES AS ON 11.01.2007 HAS BEEN SHOWN AT RS.114052068/ - WHEREAS AS PER THE BALANCE SHEET, TOTAL VALUE OF ENTIRE STOCK HAS BEEN SHOWN AT RS.11,01,86,483/ - . THE A.O. THEREFORE CONCLUDED THAT CLOSING STOCK S PER BOO KS IS UNDERVALUED BY RS.3865585/ - AND ACCORDINGLY MADE THE ADDITION. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT THERE IS NO DIFFERENCE IN QUANTITATIVE TERMS BETWEEN THE STOCK STATEMENT SUBMITTED TO THE BANK A ND THE STOCK DISCLOSED IN THE BOOKS OF ACCOU NT. SOMETIMES, EVEN IF THE BILLS/INVOICES HAVE NOT BEEN RECEIVED AND THEREFORE, APPROXIMATE RATES A RE APPLIED TO DISCLOSE THE STOCK TO THE BANK FROM WHERE THE CREDIT FACILITIES ARE AVAILED . HOWEVER, WHEN THE BOOKS OF ACCOUNTS ARE FINALISED AND CLOSED THE VALUATION OF STOCK IS DONE AS PER THE METHOD AND MANNER CONSISTENTLY FOLLOWED AND IN CONFORMITY WITH THE ACCOUNTING STANDARDS LAID DOWN. I HAVE CAREFULLY GONE THROUGH THE DECISIONS RELIED UPON BY THE LD. COUNSEL. IT W A S NOTICED ON EXAMINATION THAT EXCEPT A FEW, ALL OTHER DECISIONS ARE NOT RELEV A NT TO THE FACTS OF THE CASE. THE LD. COUNSEL HAS NOT ESTABLISHED AS TO HOW THOSE DECISIONS ARE RELEVANT AND HOW THE SAME ARE APPLICABLE ON THE FACTS OF THE CASE. THE HON BLE AMRITSAR TRIBUNAL HAS RIGHTLY OBSERVED IN THE CA S E OF SHREE BALAJI ALLOYS VS. ITO [2010] 127 TTJ 129 (ASR.) THAT IT IS CRUCIAL TO POINT OUT T HAT THE JUDICIAL PRECEDENTS ARE TO BE APPLIED WITH CARE AND CAUTION AND NOT MECHANICALLY, AS EACH CASE DEPENDS ON ITS OWN FACTS AND A CLOSE SIMILARITY B ETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SINGLE SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT. IT IS CARDINAL PRINCIPLE IN APPLYING JUDICIAL PRECEDENT THAT ONE SHOULD AVOID THE TEMPTATION TO DECIDE CASES, BY MATCHING THE COLOUR OF ONE CAS E AGAINST THE COLOUR OF ANOTHER. TO DECIDE, THEREFORE, ON WHICH SIDE OF THE LINE A CASE FALLS, THE BROAD RESEMBLANCE TO ANOTHER CASE IS NOT AT ALL DECISIVE. PRECEDENT SHOULD BE FOLLOWED ONLY SO FAR AS IT MARKS THE PATH OF JUSTICE, BUT YOU MUST CUT THE DE AD WOOD AND TRIM OFF THE SIDE BRANCHES ELSE YOU WILL FIND YOURSELF LOST IN THICKETS AND BRANCHES. THE PATH OF JUSTICE MUST BE CLEAR OF OBSTRUCTION WHICH COULD IMPEDE IT. THE OBSERVATIONS OF THE COURT MUST BE READ IN THE CONTEXT IN WHICH THEY APPEAR TO HA VE BEEN STATED. THE ASSESSEE HAS PLACED RELIANCE ON THE ABOVE DECISIONS WITHOUT DISCUSSING, AS TO HOW, THE FACTUAL SITUATION OF THE PRESENT CASE FITS IN THE FACT - SITUATION OF THE CASES RELIED UPON. SAME IS THE POSITION HERE IN THIS CASE. THE LD. COUNSE L HAS PLACED RELIANCE ON THE DECISIONS WITHOUT DISCUSSING, AS TO HOW, THE FACTUAL SITUATION OF THE PRESENT CASE FITS IN THE FACT - SITUATION OF THE CASES RELIED UPON. IT IS AN ADMITTED A ND VERIFIABLE FACT THAT T HE STATEMENT SUBMITTED TO THE DENA BANK S ON 31 .03.2007 SHOWS THE VALUE OF INVENTORY OF RS.11,40,52,068/ - . THOSE STOCK STATEMENTS HAVE BEEN DULY CERTIFIED BY THE MANAGEMENT OF THE APPELLA NT COMP A NY AS UNDER : - WE HEREBY CERTIFY THAT THE ABOVE STATEMENT REPRESENTS 1 TRUE POSITION OF OUR ENTIRE STOCK S WHETHER IN OUR POSSESSION OR HELD BY OTHERS ON OUR BEHALF. ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 4 OF 6 2. ALL THE GOODS WHICH ARE FULLY P A ID FOR IS FREE FROM ALL OUTSIDE ENCUMBRANCES OF ANY NATURE WHATSOEVER HAVE EXCEPT THE HYPOTHECATION THEREOF IN YOUR FAVOUR IN TERMS OF LETTER OF HYPOTHECATION E XECUTED BY US. THE ABOVE CERTIFICATE OF THE APPELLANT UNDOUBTEDLY ESTABLISH THAT THE VALUE OF THE STOCK SHOWN TO THE BANK IS THE CORRECT VALUE OF INVENTORY AS ON 31.03.2007. OTHERWISE ALSO THE ASSESSEE/APPELLANT COULD NOT ESTABLISH WITH COGENT EVIDENCE T HE DIFFERENCE IN VALUATION OF EACH AND EVERY ITEM DURING ASSESSMENT PROCEEDINGS VIS - A - VIS APPELLATE PROCEEDINGS. THE EXPLANATION OF THE APPELLANT THAT THERE IS NO DIFFERENCE IN QU ANTITATIVE TERMS OF STOCK STATEMENT SUBMITTED TO BANK AND PREPARED FOR BALAN CE SHEET AND DIFFERENCE I S ONLY IN VALUATION COULD HAVE BEEN EXPLAINED BY ITEM TO ITEM DURING ASSESSMENT PROCEEDINGS, WITH THE EVIDENCE THAT THOSE BILLS/INVOICES WERE NOT AVAILABLE WITH THE ASSESSEE AT THE TIME OF SUBMITTING THE STOCK STATEMENTS TO THE BAN K. TO EXPLAIN THE DIFFERENCE IN BOTH THE S TOCK STATEMEN T S AND ITS BONAFIDENESS, IS THE ONUS OF THE ASSESSEE TO DISCHARGE. ONE SHOULD NOT BE ALLOWED TO SUBMIT THE DIFFERENT FIGURE OF VALUATION OF INVENTORY, ON DIFFERENT PLATFORMS TO TAKE UNDUE ADVANTAGE OF EITHER INFLATED OR SUPPRESSED FIGURES BOTH FOR GETTING HIGHER FINANCE ON ONE HAND AND AVOIDING LEGITIMATE TAX PAYMENT ON THE OTHER HAND, FROM THE SAME SET OF FACTS WITHOUT ESTABLISHING ON RECORD THAT IT WAS A BONAFIDE MISTAKE. IN VIEW OF THESE FACTS, I M OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS DECLARED UNDER VALUE OF CLOSING INVENTORIES BY RS.3865585/ - AND THEREFORE THE ADDITION MADE BY THE A.O. IS CONFIRMED. AS SUCH THIS GROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOT SATISFIED WITH THE S TAND SO TAKEN BY THE LEARNED CIT(A) AS WELL, AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE FIND THAT LEARNED CI T(A) HAS JUSTIFIED THE IMPUGNED ADDITION ON THE GROUND THAT ONE SHOULD NOT BE ALLOWED TO SUBMIT DIFFERENT FIGURES OF VALUATION OF INVENTORY, ON DIFFERENT PLATFORMS, TO TAKE UNDUE ADVANTAGE O F EITHER INFLATED OR SUPPRESSED FIGURES BOTH FOR GETTI NG HIGHER FINANCE ON ONE HAND, FROM THE SAME SET OF FACTS, WITHOUT ESTABLISHING ON RECORD THAT IT WAS A BONAFIDE MISTAKE , BUT, WHILE HOLDING SO, HE HAS APPARENTLY OVERLOOKED THE FUNDAMENTAL LEGAL POSITION T HAT SO FAR AS COMPUTATION OF INCOME, FOR INCOME T AX PURPOSES, IS CONCERNED, IT CANNOT BE INFLUENCED BY SUCH EXTRANEOUS FACTORS. IF SOMEONE HAS EARNED AN INCOME, HE SHOULD PAY TAX ON THE SAME BUT IF HE HAS BEHAVED A LESS THAN APPROPRIATE MANNER, THE COMPUTATION O F ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 5 OF 6 INCOME CANNOT BE INFLUENCED BY SUCH A CO NDUCT. THE STOCK STATEMENT GIVEN TO THE BANK MAY GIVE USEFUL INPUTS FOR FURTHER PROBE INTO CORRECTNESS OF VALUE OF STOCK, BUT MERELY BECAUSE SUCH A STATEMENT SHOWS A DIFFERENT FIGURE THAN THE VALUE OF STOCK AS PER BOOKS, THE STATEMENT FIGURE CANNOT BE SUB STITUTED FOR THE FIGURE OF STOCK AS PER THE BOOKS OF ACCOUNTS. NO INFIRMITIES WHATSOEVER ARE POINTED OUT IN THE FIGURES OF STOCK AS PER THE BALANCE SHEET. IT IS ALSO IMPORTANT TO NOTE THE FACT THAT IN THE PRESENT CASE, THE DIFFERENCE IS ONLY ON ACCOUNT O F VALUATION OF STOCK AND NOT IN TERMS OF THE QUANTITY. SO FAR AS THE VALUATION OF STOCK, FOR THE PURPOSE OF COMPUTING PROFITS AND GAINS FROM BUSINESS AND PROFESSION IS CONCERNED, IT HAS TO BE DONE ON THE BASIS OF COST PRICE OR MARKET PRICE WHICHEVER IS LESS WHEREAS IT IS NOT NECESSARILY THE SAME BASIS ON WHICH STOCKS ARE TO BE VALUED FOR THE PURPOSES OF BANK. IN THE CERTIFICATION TO THE BANKER GIVEN BY ASSESSEE ALSO, WHICH HAS BEEN REPRODUCED BY THE AUTHORITIES BELOW, THERE IS NO SUCH MENTION. IN OT HER WORDS, THERE IS NO REASON TO INFER THAT VALUATION BASIS FOR THE PURPOSE OF BANK CREDIT LIMIT AND FOR THE PURPOSE OF COMMERCIAL PROFIT IS THE SAME. THE VERY FOUNDATION OF THE IMPUGNED ADDITION IS THUS WHOLLY UNSUSTAINABLE IN LAW, AND THERE IS NO REASON TO COME TO THE CONCLUSION THAT THE VALUATION OF STOCK, FOR ACCOUNTING PURPOSES, SHOULD BE THE SAME AS ADOPTED FOR THE PURPOSES OF BANK CREDIT LIMIT. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY LEGALLY SUSTAINABLE BASIS TO JUSTIFY THE IMPUGNED ADD ITION. 7. WE HAVE ALSO TAKEN NOTE OF JUDICIAL PRECEDENTS IN THE CASE OF CIT VS. RIDDHI STEEL & TUBES PVT. LTD [(2014) 220 TAXMAN 148 (GUJ)], CIT VS. VEERDIP ROLLE R S PVT. L T D. [(2010) 323 ITR 341 (GUJ)] AND CIT VS. AR R OW EXIM PVT. LTD . [(2010) 230 CTR 293 ( GUJ)] WHICH SUPPORT THE PROPOSITION THAT A DIFFERENCE IN THE VALUE OF STOCK AS PER ACCOUNTS VIS - - VIS THE VALUE OF STOCK AS PER BANK STATEMENT PER SE CANNOT BE REASON ENOUGH FOR MAKING AN ADDITION TO THE INCOME OF THE ASSESSEE. THAT PRECISELY, HOWEVER, HA S BEEN DONE IN THE INSTANT CASE. 8. FOR THE REASONS SET OUT ABOVE, AND BEARING IN MIND ENTIRETY OF THE CASE, WE HOLD THAT THE IMPUGNED ADDITION OF RS.38,65,585/ - IS UNSUSTAINABLE IN LAW. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. ITA NO . 1712 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 07 - 08 P AGE 6 OF 6 9. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE COURT ON THIS 31 ST T HE DAY OF AUGUST, 2015. (ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2015 ) SD/ - SD/ - S.S. GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , THE 31 ST DAY OF AUGUST, 201 5 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DE PARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD