THE ITO, Ward -8(1), V. SARASWATI CONTAINERS LTD.,

ITA 1892/AHD/2003

• Counselvise Citation: 189220514 RSA 2003
• Duration Of Justice: 9 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-10-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 02-05-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH
• Assessee Lawyers: TEZ SHAH
• Keywords: Question of law; Tax effect
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.1892/AHD/2003 A. Y.: 1997-98 THE INCOME TAX OFFICER, WARD 8 (1), 4 TH FLOOR, AJANTA CHAMBERS, ASHRAM ROAD, AHMEDABAD VS SARASWATI CONTAINERS LTD., 201, ARJUN AVENUE, NR. LAW GARDEN, ELLISBRIDGE, AHMEDABAD P. A. NO. /GIR NO. 31-118-CZ-8976 (APPELLANT) (RESPONDENT) APPELLANT BY SHRI D. K. SINGH, SR. DR RESPONDENT BY SHRI TEZ SHAH, AR DATE OF HEARING: 29-10-2012 DATE OF PRONOUNCEMENT: 27-11-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS BEFORE US SINCE THE HON. HIGH COURT OF GUJARAT HAD QUASHED TH E ORDER OF THE TRIBUNAL DATED 28/09/07 IN ITA NO. 1892/AHD/2003 FO R THE ASSESSMENT YEAR 1997-98 AND REMANDED THE MATTER BAC K TO THE TRIBUNAL WITH DIRECTIONS TO DECIDE THE APPEAL ON M ERITS. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITE D COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF WATER S TORAGE TANKS FROM LLDPE FILED HIS RETURN OF INCOME ON 27-11-1997 DECLARING LOSS OF RS.22,46,280/-. THE RETURN WAS PROCESSED U/S 143 (1) (A) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D ASSESSMENT WAS FRAMED U/S 143(3) OF THE IT ACT ON 24-03-2000 A SSESSING THE ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 2 TOTAL LOSS OF THE ASSESSEE AT RS.2,68,685/- WHEREIN THE LEARNED AO MADE AN ADDITION ON ACCOUNT OF UNDISCLOSED STOCK FO R RS.19,77,592/- BY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. HE HELD AS UNDER: BUT CONSIDERING THE FACTS THE ASSESSEES REPRESENTATIVES ARGUMENTS ARE NOT ACCEPTABLE. THE FIGURES SHOWN IN THE ANNEXURE ALONG WITH THE LETTER DATED 21-03-2000 IS ALSO ERRONEOUS AND MISLEADING. THE ASSESSEE HAS SHOWN PU RCHASE OF 1,77,900 KGS. IN FACT TOTAL PURCHASE FOR QUANTIT Y GOODS TO 1,86,775 AS PER PURCHASE REGISTER FILED BY THE ASSE SSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THUS, THE ASS ESSEES REPRESENTATIVES ARGUMENT AS NON-USABLE IS THEREFOR E, NOT ACCEPTABLE. THE ASSESSEE HAS SHOWN OPENING STOCK OF RAW MATERIA LS OF RS.1,89,221/- THE VALUE OF WHICH IF CONSIDERED AT R S.45 PER KG. THE QUANTITY WORKS TO 4,502 KGS. THUS, THE TOTAL OP ENING STOCK AND PURCHASE QUANTITY COMES TO 1,90,980 KGS. THE AS SESSEE HAS SHOWN VERY MEAGER CLOSING STOCK. THE ASSESSEE H AS SHOWN CONSUMPTION OF 1,89,918 KGS. OF RAW MATERIALS . THEREFORE, THE OPENING STOCK AND PURCHASE MADE DURI NG THE YEAR TALLIES AND IT REVEALS THAT THE ASSESSEE HAS C ONSUMED WHATEVER PURCHASE MADE DURING THE YEAR AND OPENING STOCK SHOWN AS ON 1-4-1996. THUS, THE ASSESSEE HAS NOT SH OWN THE CLOSING STOCK OF PRODUCTION OUT OF THE OPENING STOC K OR SEMI- FINISHED GOODS OF RS.19,77,592/-. THE ASSESSEES CO NTENTION REGARDING THE STOCK OF 13.38 LACS SHOWN AS WORK-IN- PROGRESS MENTIONED ABOVE IS NOT USABLE AND HENCE WHILE VALUE OF STOCK TAKEN AS NIL VALUE. SUCH TYPE OF MATERIAL IS STILL LYING IN FACTORY PREMISES IS NOT ACCEPTABLE. WHEN THE ACCOUNTS ARE P REPARED THE DIRECTORS HAD ALREADY CERTIFIED THE VALUE OF CL OSING STOCK AT THE END OF THE FINANCIAL YEAR AND THEREFORE, THE AS SESSEES STORY OF NOT AT ALL USABLE IS NOT ACCEPTABLE. BUT THE A SSESSEE HAS SHOWN CLOSING STOCK SEVERAL YEAR I.E. FINANCIAL YEA R 1993-94 RS.3,62,750/-, FINANCIAL YEAR 1994-95 RS.3,38,275/- AND FINANCIAL YEAR 1995-96 RS.19,77,592/-. THE ASSESSEE HAD NEVER MENTIONED IN RETURN OF INCOME OR IN THE STATEMENT O F INCOME THAT THE CLOSING STOCK WAS NOT USABLE. THUS THE ASS ESSEES ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 3 STORY OF NON-USABLE OF CLOSING STOCK IS NOT ACCEPTA BLE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS I.E. BEFORE IS SUANCE OF SHOW CAUSE NOTICE THE ASSESSEES REPRESENTATIVE HAD NEVER BROUGHT TO MY NOTICE THAT THE STOCK WAS NOT USABLE. IF THE STOCK LYING IN THE FACTORY WAS NOT USABLE IT IS A QUESTIO N THAT WHY THE ASSESSEE HAD SHOWN THE SEMI-FINISHED GOODS IN THE C LOSING STOCK FOR ASSESSMENT YEAR 1996-97 RELEVANT TO FINAN CIAL YEAR 1995-96. IN AUDIT REPORT IN FORM 3 CD, CO. NO.3 (I) METHOD OF VALUATION OF OPENING STOCK AND CLOSING STOCK, STOCK IN TRADE: AT COST OF MARKET PRICE WHICHEVER IS LOWER. IN AUDITOR S REPORT IN COLUMN (VI) IN OUR OPINION, THE VALUATION OF STOCK IS FAIR AND PROPER AND IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNTING PRINCIPLES AND IS ON THE SAME BASIS AS I N THE PRECEDING PERIOD. THEREFORE, THE ASSESSEES STOCK O F NON- USABLE OF CLOSING STOCK IS NOT ACCEPTED. THE BOOKS OF ACCOUNTS ARE DEFECTIVE TO THAT EXTENT AND THEREFORE, REFUSED TO ACCEPT BOOK RESULT ON THE GROUND THAT THE ASSESSEE HAS NOT SHOWN ANY PRODUCTION OUT OF OPENING STOCK OF RS.19,77,592/- I N THE STOCK REGISTER AND THEREFORE, APPLY THE PROVISIONS OF SEC TION 145 OF THE ACT. I, THEREFORE, MAKE AN ADDITION OF RS.19,77,592 /- TO THE BOOK RESULT DECLARED BY THE ASSESSEE. 3. HOWEVER, IN APPEAL BY THE ASSESSEE, THE LEARNED CIT(A) DELETED THE ADDITION. RELEVANT FINDINGS OF THE LEAR NED CIT(A) IS REPRODUCED HEREIN UNDER FOR REFERENCE: 3. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE COUNSEL OF THE APPELLANT HAS SUBMITTED THAT THE WORK IN PRO GRESS OF RS.19,77,592/- WAS SUBSTANDARD/NOT TO BE MARK AND I T HAD NO MARKET VALUE AND VALUE WAS TAKEN AS NIL. FURTHER, E VEN IN SUBSEQUENT YEARS BECAUSE OF INHERENT DEFECT, THE CO NSUL HAS SUBMITTED THAT IT COULD NOT BE SOLD AND THE SAME CO ULD FETCH SOME PRICE ONLY WHEN IT IS DECIDED TO SELL AS A SCR AP, EVEN IF THE VALUE IS INCREASED BY THE VALUE OF SCRAP IN THE CLO SING STOCK, THE SAME WILL HAVE TO BE REFLECTED IN THE OPENING STOCK OF NEXT YEAR, WHICH WILL NOT IN ANY WAY MAKE ANY DIFFERENCE TO TH E REVENUE, BECAUSE IT WAS TO BE ULTIMATELY WRITTEN OFF. ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 4 4. AFTER CAREFULLY CONSIDERING THE OBSERVATION OF T HE A. O. AS WELL AS THE SUBMISSION OF THE COUNSEL OF THE APPELL ANT, I AM INCLINED TO AGREE WITH THE ARGUMENT AS ADVANCED BY THE COUNSEL OF THE APPELLANT THAT EVEN IF THE VALUE IS INCREASE D BY THE VALUE OF SCRAP IN THE CLOSING STOCK, THE SAME WILL HAVE T O BE REFLECTED IN THE OPENING STOCK OF NEXT YEAR. IN VIEW OF THE A BOVE FACTS AND CIRCUMSTANCES, I HOLD THAT THERE IS NO JUSTIFICATIO N FOR REJECTING THE BOOK RESULT AS SHOWN BY THE APPELLANT AND MAKIN G ADDITION OF RS.19,77,592/-. THE SAME IS THEREFORE, DIRECTED TO BE DELETED. 4. APPEAL AGAINST THE ORDER OF THE LEARNED CIT(A) W AS CARRIED BEFORE THE TRIBUNAL BY THE REVENUE AND THE ITAT AHM EDABAD C BENCH VIDE ORDER DATED 28-09-2007 DISMISSED THE SAM E DUE TO MONETARY LIMIT SINCE THE TAX EFFECT WAS BELOW RS.2 LACS. THE REVENUE THEREAFTER WENT IN APPEAL BEFORE THE HONBLE HIGH C OURT OF GUJARAT AND THE HONBLE HIGH COURT FRAMED THE FOLLOWING SUB STANTIAL QUESTION OF LAW FOR CONSIDERATION - WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL W AS JUSTIFIED IN LAW IN DISMISSING THE DEPARTMENTS APPEAL ON THE SOLE GROUND THAT THE TAX EFFECT WAS LESS THAN THE LIMIT LAID DO WN IN THE BOARDS INSTRUCTION NO.2/2005 DATED 24.10.2005? THE HONBLE HIGH COURT ANSWERED THE QUESTION IN FAVOUR OF THE R EVENUE AND QUASHED THE ORDER OF THE TRIBUNAL VIDE ORDER DATED 30/06/2011 AND REMANDED THE ISSUE TO THE TRIBUNAL WITH DIRECTION F OR CONSIDERATION OF THE APPEAL ON MERITS. 5. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPE AL DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 13-02 -2003 IN APPEAL NO.CIT(A)/XIV/DCIT/C. C. 7(6)/53/001-02 FOR THE ASS ESSMENT YEAR 1997-98 WHEREIN GROUNDS NO. 2 AND 3 ARE GENERAL IN NATURE AND DO ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 5 NOT SURVIVE FOR ADJUDICATION. THE ONLY EFFECTIVE GR OUND NO.1 OF THE APPEAL IS REPRODUCED HEREIN BELOW: (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.19,77,592/-MADE ON ACCOUNT OF UNDISCLOSED STOCK. 6. BEFORE US, THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED AO AND PRAYED THAT HIS ORDER MAY BE SUSTAINED. THE LEARNED AR ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A) AND PRAYED THAT HIS ORDER MAY BE UPHELD. HE FURTHER, IN SUPPOR T OF HIS CONTENTION REFERRED TO THE ORDER OF THE HONBLE HIGH COURT OF GUJARAT DATED 23/08/2012 PASSED IN TAX APPEAL NO.542 OF 2012 IN T HE CASE OF CIT VS INTERKLIN INDUSTRIES LTD. ON THE SIMILAR ISSUE. HE FURTHER ARGUED THAT THE REVENUE COULD HAVE PHYSICALLY EXAMINED THE STOC K AND DETERMINED WHETHER THE SAME IS USABLE AND HAD ANY VALUE, WHICH IT FAILED TO DO. THE ASSESSEE HAD SUBMITTED BEFORE THE LEARNED AO TH AT THE UNUSABLE STOCK WAS STILL LYING IN THE FACTORY PREMISES CONSI STING OF ACCUMULATED STOCK UP TO THE FINANCIAL YEAR ENDING ON 31-03-1996 WHICH AMOUNTED TO RS.19,77,592/-. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD ALONG WITH THE PAPER BOOK SUBMITTED BEFOR E US. IN THE PRESENT APPEAL BEFORE US, THE ASSESSEE HAD WRITTEN OFF THE VALUE OF CLOSING STOCK IN RESPECT OF WORK-IN-PROGRESS AMOUNT ING TO RS.19,77,592/- AS THE SAME WERE NOT AT ALL USABLE IN FUTURE FOR THE PURPOSE OF ASSESSEES BUSINESS. THE ASSESSEE HAD CA TEGORICALLY BROUGHT TO THE NOTICE OF THE LEARNED AO AT THE TIME OF ASSESSMENT PROCEEDING THAT IT HAD ACCUMULATED SOCK OF WORK-IN- PROGRESS OF ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 6 RS.19,77,592/-. THIS STOCKS ARE CLAIMED TO BE NON-U SABLE BECAUSE OF CERTAIN DEFECTS OCCURRED DURING THE TIME OF PRODUCT ION. THE ASSESSEE HAD FURTHER SUBMITTED BEFORE THE LEARNED AO THAT TH E STOCK IS STILL LYING IN THE FACTORY PREMISES AND THE SAME MAY BE INSPECT ED. THE REVENUE HAD AMPLE OPPORTUNITY TO INSPECT THE STOCK AND ARRI VE AT A CONCLUSION WHETHER THE SEMI-FINISHED STOCK HAD SOME VALUE AS O N 31-03-1997, WHICH IT FAILED TO EXERCISE. ONCE, THE ASSESSEE REA LIZES THAT THE STOCK LYING WITH IT HAS NO VALUE IT HAS NO OTHER OPTION O THER THAN TO WRITE OFF THE SAME IN ITS BOOKS OF ACCOUNTS IN THE YEAR IN WH ICH SUCH OCCURRENCE COMES TO ITS NOTICE. ONLY THEN THE CORRECT INCOME O F THE ASSESSEE COULD BE DETERMINED. THE REVENUE HAD NOT MADE ANY I NQUIRY INTO THE CLAIM OF THE ASSESSEE TO DISPROVE IT OTHERWISE. HEN CE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A) DELETING THE ADDITION OF RS.19,77,592/- MADE BY THE LEARNED AO ON ACCOUNT OF UNDISCLOSED STOCK ON ACCOUNT OF WORK-IN-PROGRESS. 8. WE FURTHER FIND THAT THE HONBLE HIGH COURT OF G UJARAT WHILE DECIDING THE CASE OF INTERKLIN INDUSTRIES LTD. CITE D SUPRA HAS PROPOSED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALLY E RRED IN UPHOLDING THE ORDER PASSED BY THE CIT(A) IN DELETIN G THE ADDITION OF RS.51 LACS ON ACCOUNT OF VALUE OF STOCK WRITTEN OFF ON ACCOUNT OF WORK IN PROGRESS? THE HONBLE HIGH COURT DECIDED THE ABOVE QUESTION A GAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE AND DISMISSED THE DEPARTMENTAL APPEAL BY OBSERVING IN PARA 3 AND 4 OF THE ORDER AS UNDER: ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 7 3. THE CIT (A) AND THE TRIBUNAL BOTH HAVE DELETED THE ADDITION OF RS.51 LACS MADE BY THE ASSESSING OFFICE R ON ACCOUNT OF VALUE OF STOCK WRITTEN OFF ON ACCOUNT OF WORK-IN- PROGRESS. THE FINDINGS ON FACTS AS RECORDED BY ITAT ARE THAT THE ASSESSEE HAS WRITTEN OFF WORK-IN-PROGRESS OF RS.51 LACS IN HIS BOOKS OF ACCOUNTS IN ACCORDANCE WITH TH E ACCOUNTING STANDARD AND NO SPECIFIC DEFECTS HAS BEE N POINTED OUT BY THE AO IN THIS REGARD. THE WORK-IN-P ROGRESS OF 154 MTS VALUED AT RS.51 LACS WAS CONSIDERED AS VALUELESS AS ON 31.3.2003 AND EXPLAINED TO BE LUMP FORM OR SAND FORM BY THE ASSESSEE. THE NECESSARY RESOLUTION S AND ENTRIES WERE PASSED IN THE BOOKS OF ACCOUNTS AND IN THE NEXT YEAR, CONSEQUENTLY, OPENING STOCK WAS LESS TO THAT EXTENT. 4. THEREFORE, WE DO NOT FIND THAT THIS APPEAL RAISE D ANY SUBSTANTIAL QUESTION OF LAW. THIS APPEAL BEING DEVO ID OF ANY MERIT, DESERVES DISMISSAL. ACCORDINGLY, THIS TA X APPEAL IS DISMISSED. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR AND IDENTICAL TO THE FACTS OF THE CASE IN THE CASE OF INTERKLIN INDUSTRIES LTD . DECIDED BY THE ITA NO.1892/AHD/2003 (AY: 1997-98) ITO, W-8(1), AHMEDABAD VS SARASWATI CONTAINERS LTD. 8 HONBLE HIGH COURT OF GUJARAT, CITED SUPRA AND FROM OUR DISCUSSIONS HEREINABOVE, WE FIND THAT THERE IS NO MERIT IN THE PRESENT CASE OF THE REVENUE AND ACCORDINGLY, WE DELETE THE ADDITION MAD E BY THE LEARNED AO FOR RS.19,77,592/-. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/11/12 SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT LAKSHMIKANT LAKSHMIKANT LAKSHMIKANTA AA A DEKA/ DEKA/ DEKA/ DEKA/ 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 ASST. REGISTRAR, I TAT, AHMEDABAD 1. DATE OF DICTATION: 23-11-12 COVERED MATTER 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 27-11-12 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: 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: