The ITO, Ward-1(1), Baroda V. M/s. Cube Mines & Minerals Pvt.Ltd., Baroda

ITA 1752/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89551 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N SOPARKAR
• Section: 143(3)

Judgement Text

ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE S/SHRI PRAMOD KUMAR, AM AND S. S. GODARA, J M ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 INCOME-TAX OFFICER, WARD-1(1), BARODA. VS M/S CUBE MINES & MINERALS (P) LTD., 1, CHANDRAMANI NAGAR, VIDYAVIHAR SCHOOL LANE, SUBHANPURA HIGH TENSION, BARODA. (APPELLANT) (RESPONDENT) PA NO.AACCC5761D APPELLANT BY SHRI DINESH SINGH, SR. DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 29/4/2015 DATE OF PRONOUNCEMENT: 9/6/2015 O R D E R PER S. S. GODARA, JUDICIAL MEMBER. THIS REVENUES APPEAL FOR AY 2007-08 ARISES FROM T HE ORDER OF CIT(A)-I, BARODA, DATED 29.4.2011, PASSED IN THE CA SE NO.CAB-I/199/09- 10, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCO ME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUES SOURCE OF SUBSTANTIVE GROUND SEEKS TO RESTORE ADDITION OF RS.18,40,920/- ARISING FROM ALLEGED DIF FERENCE IN VALUATION OF CLOSING STOCK . THE ASSESSEE IS A COMPANY IN THE B USINESS OF ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 2 PURCHASING MANGANESE ORE. THE SAID MINERAL IS SORTE D OUT IN DIFFERENT QUALITATIVE CATEGORIES AND SOLD. WE FIND THAT THE C IT(A)S ORDER COMPRISES AOS FINDINGS, ASSESSEES SUBMISSIONS IN THE LOWER APPELLATE PROCEEDINGS AS WELL AS THE FINDING UNDER CHALLENGE BEFORE US WHICH ARE AS UNDER :- 3. NEXT GROUND OF APPEAL IS REGARDING ADDITION OF RS.18,40,920/- BEING DIFFERENCE IN VALUATION OF CLOSING ;TOCK. APP ELLANT COMPANY WAS IN THE BUSINESS OF PURCHASING MANGANESE ORE, SORT I T OUT IN DIFFERENT QUALITY AND SELL IT ACCORDINGLY. AO OBSERVE D THAT APPELLANT HAD SHOWN RAW MATERIAL STOCK AT 35224.104 MT, VALUE OF WHICH WAS SHOWN AT RS.78,45,708/- IN SCHEDULE-16 UNDER THE HEAD MATERI AL CONSUMED. VALUE OF STOCK OF RS.78,45,708/- WAS ALSO SHOWN IN THE AU DIT REPORT IN SCHEDULE-7. AS PER AO, APPELLANT HAD NOT SHOWN ANY FINISHED OR SORTED MATERIAL STOCK IN THE RETURN OF INCOME, IT PURCHASE D 40375.33 MT DURING THE YEAR UNDER CONSIDERATION AT RS.1,11,03,218/- @ RS.275/- FROM GUJARAT MINERAL DEVELOPMENT CORPORATION LTD AND SIN CE ONLY RAW MATERIAL STOCK WAS SHOWN BY THE APPELLANT, VALUE OF RAW MATERIAL STOCK SHOULD BE AT PURCHASE PRICE RATE I.E. RS.275/- PER M.T. APPELLANT'S REPLY TO AO'S SHOW CAUSE NOTICE WAS THAT THOUGH IT PURCHA SED RAW MATERIAL I.E. MANGANESE ORE WASTE DUMP AT RS.275/- PER TON, AFTER SORTING OUT, IT OBTAINED DIFFERENT TYPES OF REALIZABLE PRODUCTS WHI CH WERE VALUED AT LOWER OF COST OR MARKET VALUE. APPELLANT FILED DETAILED V ALUATION OF CLOSING STOCK AND SUBMITTED THAT CLOSING STOCK OF 35224.104 TONS INCLUDED RAW MATERIAL WITHOUT SORTING AND ALSO WASTE MATERIAL REMAINING A FTER COMPLETION OF SORTING, DUE TO WHICH TOTAL QUANTITY OF 35224.104 T ONS COULD NOT BE VALUED AT COST PRICE. APPELLANT SUBMITTED THAT SIZEABLE QU ANTITY OF MATERIAL WHICH REMAINED AFTER COMPLETION OF ANALYSIS HAD REALIZABL E VALUE OF RS.50-100 PER MT OR SOMETIMES EVEN ZERO, BEING DUST ONLY FOR W HICH APPELLANT HAD TO PAY FOR LIFTING THE MATERIAL FROM SITE. APPELLANT A LSO FILED CERTIFICATE OF VALUATION OF STOCK BY LAB TECHNICIAN. THE AO DID NOT ACCEPT APPELLANT'S CONTENTION ON THE GROUND THAT EARLIER SUBMISSIONS M ADE BY THE APPELLANT DID NOT REFLECT ANY SORTED MATERIAL OR FINISHED GOO DS. AO PROCEEDED TO CALCULATE VALUE OF ENTIRE CLOSING STOCK AS PER PURC HASE RATE OF RS.275/- PER MT AND MADE ADDITION OF DIFFERENCE OF RS.18,40,920/- TO THE VALUE OF CLOSING STOCK. ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 3 3.1 IN APPEAL, SUBMISSIONS AS UNDER WERE MADE:- 'THE LEARNED ASSESSING OFFICER HAS ADDED RS 18, 40, 920 ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK AS SHOWN IN RETURN OF INCOME AND AS C OMPUTED BY THE ASSESSING OFFICER. \ OBSERVATION OF THE ASSESSING OFFICER: THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E HAS SHOWN ONLY THE CLOSING STOCK OF RAW MATERIAL IN THE RETURN OF INCOME FILLE D BY IT. SINCE ONLY THE RAW MATERIAL STOCK IS SHOWN, THE VALUE OF SUCH STOCK SH OULD BE THE PURCHASE PRICE I.E. RS 27 5/-. HENCE THE VALUE OF SUCH STOCK SHOULD BE COMPUTED AT RS 96, 86,628/- (275* 35224.104). THE ASSESSEE HAS SHOWN THE VALUE OF CLOSING STOCK AT RS 78, 45,708/-. HENCE THE DIFFERENCE OF RS 18, 40, 920 WA S ADDED TO THE TOTAL INCOME OF THE ASSESSEE. APPELLANT'S SUBMISSION: > YOUR APPELLANT SUBMITS THAT IT VALUES THE CLOSING S TOCK OF RAW MATERIAL AT LOWER OF COST OR NET REALIZABLE VALUE. THIS POLICY I S IN AGREEMENT WITH AS 2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF I NDIA. THE RAW MATERIAL I.E. MANGANESE ORE PRODUCES DIFFER ENT REALIZABLE PRODUCTS AFTER SORTING. HENCE THE VALUE OF SUCH STOCK OF MAN GANESE ORE IS TAKEN AT COST OR MARKET VALUE, WHICHEVER IS LOWER. VARIOUS REALIZ ABLE PRODUCTS OBTAINED AFTER SORTING AND THEIR SALE PRICE RANGE IS AS SHOWN BELO W: DESCRIPTION OF ITEM SALE PRICE RANGE (RS) 1 7%-20% SORTED MANGANESE ORE DUMP 500-600 MIX WASTE CHURL OF MANGANESE DULY SORTED 1600-1800 ORE WASTE 50-100 MANUALLY SORTED MANGANESE ORE LESS THAN 15% , 100-150 > THE REALIZABLE PRODUCTS PRODUCED AFTER THE SORTING PROCESS CAN FETCH RS 50- 100 PER METRIC TON OR SOMETIMES MORE OR NIL VALUE SINCE THEY REMAIN ONLY DUST AND THE ASSESSEE INCURS CHARGES TO LIF\ THEM F ROM THE SITE. ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 4 > MOREOVER, A CERTIFICATE FROM A DULY QUALIFIED LAB T ECHNICIAN EMPLOYED BY THE ASSESSEE WAS PRODUCED BEFORE THE ASSESSING OFFICER. HE CERTIFIES THAT THE STOCK OF RAW MATERIAL AND SORTED MATERIAL IS AS FOLLOWS: A) RAW MATERIAL: PARTICULARS QTY (MTS) RATE TOTAL ( RS; MANGANESE ORE WASTE DUMP 12325.39 275 33894 7 7/- TOTAL(A) 12325.39 33894 7 7/- B) SORTED MATERIAL: TOTAL (A+B) 35224.104 7845708/- THE COPY OF ABOVE CERTIFICATE IS ENCLOSED FOR YOUR VERIFICATION. THE STOCK SHOWN BY THE APPELLANT INCLUDES RAW MATER IAL QUANTITY Q, 12325.39 MTS VALUED AT RS 2 75 PER ML IT ALSO INCLUDES SORTED MA TERIAL LIKE 12% MANGANESE AND MANGANESE ORE DUST WHICH IS VALUED AT ITS REALIZABL E VALUE SINCE SUCH VALUE IS LOWER OF COST PRICE. WE ENCLOSE THE COPY OF THE INVOICES RAISED BY THE A SSESEE IN SUBSEQUENT YEARS WHICH JUSTIFIES THE MANGANESE ORE POWDER WASTE (DUM P) WHICH IS SOLD AT A RATE OF RS 50 PER TON TO DIFFERENT CORPORATE. PARTICULARS QTY (MTS) RATE TOTAL (RS) -12% MANGANESE 22464.59 180 4043 >27 MANGANESE ORE 434.32 950 412614 TOTAL (B) \ 22898.91 445623; ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 5 THE METHOD OF VALUATION OF STOCK IS VERY MUCH PREVA LENT IN AGRICULTURAL PRODUCE LIKE TUVAR DAL MANUFACTURER, TEA INDUSTRY WHERE PRE MIUM QUALITY PRODUCT IS SOLD AT HIGHER PRICE AND THEREAFTER ABC ANALYSIS OF THE PRO DUCTS ARE MADE AND ACCORDINGLY SALE PRICES ARE DETERMINED. THE REMAINI NG LOWEST QUALITY OF PRODUCT OR RAW MATERIAL IS SOLD AT THROW AWAY PRICE AND ACC ORDINGLY AT THE END OF THE YEAR VALUATION IS MADE AT A COST OR MARKET VALUE WHICHEV ER IS LOWER. IN LIGHT OF THE ABOVE WE REQUEST YOU TO CONSIDER TH E VALUATION OF STOCK MADE BY THE ASSESSEE AT COST OR MARKET VALUE WHICHEVER IS LOWER AS CORRECT AND DELETE THE ADDITIONS. 3.1.1 FURTHER SUBMISSIONS AS UNDER WERE MADE: 'FURTHER TO OUR EARLIER SUBMISSION WE HAVE BEEN INS TRUCTED TO SUBMIT AS UNDER: 1) LIST OF MACHINERY USED FOR THE SORTING PROCESS IS A S FOLLOWS: - LOADER - TRACTOR - SUBMERSIBLE PUMP - ELECTRO WEIGHT MACHINE - ELECTRIC MOTORS \ -HOPPER WITH CONVEYOR 'S BELT - JAW CRUSHER - PILOT PLANT 2) SORTING PROCESS ADOPTED BY THE COMPANY: THE MANGANESE ORE IS COLLECTED FROM GMDC LTD SITUAT ED AT SHIVRAJPUR TAL. HALOL DIST PANCHMDHAL. MANGANESE WASTE DUMP IS LIFTED BY TRUCKS OR TRACTORS TO THE ASSESSEE 'S PREMISES AND DUMPED AT VIBRATING SCREEN AREA. VIBRATING SCREENS SEPARATE BIG SIZE PARTICLES AND SMALL SIZE PARTICLE S AND DUST. THEN THE MACHINES SEPARATE THE DUMP CATEGORY WISE AND THE LABORERS MA NUALLY SORT MANGANESE CONTAINS DEPENDING ON SIZES LIKE FROM OMM TO 2MM, 2 0MM TO 40MM, ETC. AND COLOUR. AFTER THAT THEY START MANUALLY JIGGING AND WASH THE MATERIALS TO REMOVE IMPURITIES FROM IT LIKE SAND. DEPENDING UPON THE MA NGANESE CONTENTS MATERIAL'S ARE SEPARATED BY ABC APPROACH WHERE GOOD QUALITY MA TERIAL FETCHES THE HIGHEST PRICE THEN B CATEGORY FETCHES THE MEDIUM RATES AND THE REMAINING IS C CATEGORY WHICH IS WASTE WHICH FETCHES RS 50- 100 PER METRIC TON BECAUSE THE SAME MATERIAL IS USED FOR REFILLING THE LAND. THE MATERIALS ARE S EPARATED BY MAGNETIC SEPARATION SYSTEM WHERE MANGANESE ORE ARE SEPARATED. THIS MAGN ETIC SEPARATION SYSTEM USES THE NORMAL SIZED MAGNETS TO SEPARATE THE IRON CONTE NT FROM MANGANESE. WE ATTACH HERE WITH PHOTOGRAPHS SHOWING THE MATERIA L I.E. WASTE DUMP PURCHASED AND STORED IN OPEN, CRUSHING, SEPARATING AND THE MA NUAL PROCESS OF SORTING AND THE DIFFERENT QUALITIES MANGANESE ORE/DUST LYING IN STOCK. ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 6 3) FURTHER WE SUBMIT THAT NORMALLY GOOD RATED STOCK IS SOLD FIRST AS IT FETCHES MORE REVENUE AND REQUIRES LESS EFFORTS TO SALE. 4) SUBSTANDARD MATERIAL IS SOLD LATE AS IT REQUIRES MORE EFFORTS TO SALE AM YIELDS LESS REVENUE. 5) THERE IS NO REASON TO DISBELIEVE THE STOCK TAKEN BY RESPONSIBLE STAFF/ ENGINEER OF THE COMPANY AND VALUED AND CERTIFIED BY LAB TECHNIC IAN WHICI IS CONSISTENTLY VALUED AT LOWER OF COST OR MARKET VALUE WHICH IS PR ESCRIBE< I BY AS 2 ISSUED BY THE ICAI. 6) VARIOUS INVOICES FILED INDICATES THAT GOODS SOLD /LYING IN STOCK IS DIFFERENT FROM GOODS PURCHASED AS IT IS SORTED INTO DIFFERENT QUAL ITIES HEM E VALUATION OF CLOSING STOCK AT PURCHASE RATE IS INCORRECT SINCE MATERIAL IN STOCK IS NOT THE SAME AS MATERIAL PURCHASED. CONSIDERING THE ABOVE FACTS WE REQUEST YOUR HONOR T O DELETE THE ADDITIOT IS MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK. ' 3.1.2 BESIDES APPELLANT SUBMITTED GROSS PROFIT WORK ING FOR 2007-08 TO 2010-11 TO CONTEND THAT GP DECLARED WAS HIGHEST IN AY 2007-08 AT 56.96% AND THE VALUATION OF CLOSING STOCK WAS THERE FORE JUSTIFIED IN AY 2007-08. APPELLANT ALSO FILED COPIES OF BILLS FOR SALE OF WASTE AT THE RATES RS.50-100 PER MT. 3.2 I HAVE CONSIDERED FACTS OF THE CASE AND APPELLA NT'S SUBMISSIONS. AO HAS NOT ACCEPTED APPELLANT'S VALUATION OF CLOSING S TOCK ONLY ON THE GROUND THAT SORTED MATERIAL OR FINISHED GOODS WERE NOT SHOWN AS CLOSING STOCK IN THE RETURN OF INCOME AND THE AUDIT REPORT. AO VALUED ENTIRE CLOSING STOCK AT THE AVERAGE PURCHASE RATE OF MATER IAL FROM GMDC I.E. RS. 275 PER MT. AO DID NOT ACCEPT APPELLANT'S EXPLA NATION THAT CLOSING STOCK INCLUDED UNSORTED MATERIAL AS WE I AS SORTED MATERIAL AND VALUATION OF CLOSING STOCK WAS DONE AFTER PHYSICAL VERIFICATI ON. DURING THE YEAR, APPELLANT PURCHASED 40,375.336 MT OF MANGANESE ORE FROM GMDC LTD AT A PRICE OF RS.111,03,218/- I.E. AT AVERAGE R ATE OF RS.275 PER MT. APPELLANT CARRIED OUT SORTING OF A PORTION OF ORE P URCHASED AS PER THE PROCESS EXPLAINED AND SOLD 5151.232 MTS OF SORTED G OOD QUALITY MANGANESE ORE AS WELL AS SOME WASTE FOR RS.1,15,23, 157/- I.E. AT AVERAGE RATE OF RS.2,237/- PER MT. APPELLANT SHOWED BALANCE QUANTITY OF 35224.104 MT (I.E. 4037! .336 MT' LESS 5151.232 MT) AS CLOSING STOCK VALUED AT RS.78,45,708/- AS PER BREAK UP SUBM ITTED TO THE AO. AFTER SORTING OUT 5151.232 MTS OF HIGH QUALITY MANG ANESE -ORE WHICH ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 7 WAS SOLD FETCHING A PRICE MUCH ABOVE THE AVERAGE PU RCHASE PRICE, REMAINING MATERIAL COULD VERY WELL BE OF LOWER REALIZABLE VALUE THAN THE AVERAGE PURCHASE PRICE FROM GMDC OF RS.275 PER MT. P ARTLY SORTED MATERIAL CATEGORIZED AS RAW MATERIAL IN FORM 3CD REP ORT WAS VALUED BELOW AVERAGE COST OF PURCHASE OF RAW MATERIAL FROM GMDC. AS PER FORM 3CD, APPELLANT'S METHOD OF VALUING CLOSING STOCK IS LOWE R OF COST OR NET REALIZABLE VALUE. APPELLANT HAS VALUED THE UNPROCESSED/UNSORTE D ORE AT COST, I.E. AVERAGE PURCHASE RATE FROM GMDC OF RS.275 PER MT AND INTERMEDIATE STAGE/PARTLY SORTED ORE AT NET REALIZABLE VALUE AS ASSESSED BY ITS MINING PROJECT COORDINATORS/LAB TECHNICIAN AFTER PHYSICAL VERIFICATION. AO HAS NO: BROUGHT ANY MATERIAL ON RECORD TO JUSTIFY NON-ACCEP TANCE OF CLOSING STOCK VALUATION BY THE APPELLANT. ADDITION OF RS. 18,40,9 207- IS DELETED 4, IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THIS LEAVES THE REVENUE AGGRIEVED. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE CAS E FILE. THE REVENUES ONLY ARGUMENT IS THAT THE ASSESSEE COMPAN Y HAD NOT SHOWN ANY FINISHED OR SORTED MATERIAL IN THE RETURN OF IN COME. THE ASSESSEE HAS PLACED A PAPER BOOK CONTAINING ITS AUDITED ANNU AL ACCOUNTS, TAX- AUDIT REPORT, CERTIFIED VALUATION OF STOCK BY EXPER T LAB TECHNICIAN, INVOICES FOR THE PURCHASE OF RAW MATERIALS @ RS.275 /- PER MT. PAGE 32 OF THE PAPER BOOK DESCRIBES SORTING OF MANGANESE OR E IN FOUR DIFFERENT RATE-WISE CATEGORIES. THE ASSESSEE HAS ALSO PLACED ON RECORD ALL DETAILS OF RAW AND SORTED MATERIAL AT PAGE 34 OF THE PAPER BOOK WITH ALL DUE CERTIFICATES. THERE IS ALSO DUE MATCHING OF THE QUA NTITY OF THE MANGANESE ORE BEFORE AND AFTER BEING SORTED OUT. THE REVENUE FAILS TO DISPUTE ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 8 CONTENTS THEREOF. WE DRAW SUPPORT FROM THE ABOVE SA ID RECORD AND HOLD THAT THE ASSESSEE HAS PLACED OVERWHELMING MATERIAL IN SUPPORT OF ITS CLAIM OF SORTING OF THE RAW MATERIAL QUALITY WISE A ND VALUING THE SAME AT COST OR MARKET PRICE. WE UPHOLD THE CIT(A)S FINDIN GS IN THESE CIRCUMSTANCES AND REJECT THE REVENUES GROUND. 5. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9/6/15 SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (S. S. GODARA) JUDICIAL MEMBER DATE OF PRONOUNCE MENT 09/06/2015 DATE OF PRONOUNCEMENT 09/06/2015 DATE OF PRONOUNCEMENT 09/06/2015 DATE OF PRONOUNCEMENT 09/06/2015 SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - N. S. SAIN I S. S. GODARA MAHATA/- A.M. J.M. COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD ITA NO.1752/AHD/2011 ASST. YEAR 2007-08 9 1. DATE OF DICTATION: 19/5/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 20/5/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 9/6/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: