Shri Falgunbhai Hasmukhbhai Parikh, Ahmedabad V. The Addl.CIT.,Range-2, Ahmedabad

ITA 1980/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85728 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K SINGH SR DR
• Assessee Lawyers: ANIL R SHAH
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO. 1980/AHD/2011 / ASSESSMENT YEAR: 2007-08 FALGUNBHAI HASMUKHBHAI PARIKH, B-413, B-G TOWERS, DELHI GATE, SHAHIBAUG ROAD, AHMEDABAD PAN : AASPP 1859 L VS ACIT, RANGE-2, AHMEDABAD / // / (APPELLANT) / // / (RESPONDENT) ASSESSEE(S) BY : SHRI ANIL R. SHAH, AR REVENUE BY : SHRI M.K. SINGH, SR. DR. !' # $%&/ // / DATE OF HEARING : 25/02/2015 '( # $%& /DATE OF PRONOUNCEMENT: 26/02/2015 )* )* )* )*/ // / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XIV, AHMEDABAD DATED 28.06.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE BRIEF FACTS OF THE CASE, AS CULLED OUT FROM THE RECORDS ARE AS UNDER:- 3. THE ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAG ED IN THE BUSINESS OF MANUFACTURING AND TRADING OF TEFLON PARTS ETC IN TH E NAME AND STYLE OF M/S. DIP FLON ENGINEERING CO. ASSESSEE FILED THE RE TURN OF INCOME FOR AY 2007-08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS 1,94,58,040/-. THE CASE ITA NO. 1980/AHD/ 2011 - FALGUNBHAI HASMUKHBHAI PARIKH. AY 2007-08 - 2 - WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESS MENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 19.11.2009 AND THE TOTAL IN COME WAS DETERMINED AT RS 1,99,35,190/-. AGGRIEVED BY THE ORDER OF ASSESSI NG OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE LD CIT(A) WHO VIDE ORDER DATED 28.06.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED B Y THE AFORESAID ORDER OF LD CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE CITA HAS ERRED IN CONFIRMING ADDITION OF RS. 3,86,581 MADE TO THE VALUE OF CLOSING STOCK ON ACCOUNT OF INCLUSION OF V AT/EXCISE DUTY U/S. 145A. IT IS SUBMITTED THAT AS PER THE WORKINGS CONTAINED IN THE AUDIT REPORT U/S. 44AB AND WORKING WITH EXPLANATIONS AND CASE LAWS FILED BEFORE THE CITA, ADDITION OF RS.3,86,581 FROM THE VALUE OF CLOSING STOCK IS REQUIRED TO BE DELETED. 2. ALTERNATIVELY, THE CITA HAS ERRED IN NOT GRANTING SET OFF OF ADDITION ON THE SIMILAR GROUNDS TO THE VALUE OF THE OPENING STOCK OF THE YEAR. IT IS SUBMITTED THAT AS PER SEC. 145A, ADJUSTMENT I S REQUIRED TO BE MADE IN THE INVENTORY AND HENCE, ADJUSTMENT ON THE EQUAL BASIS SHOULD ALSO BE MADE TO THE VALUE OF THE OPENING STOCK IN ORDER TO ENSURE CORRECT AND COMPLETE EFFECT OF SEC. 145A. 3. THE CITA HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.44,900 BEING 20% OUT OF TELEPHONE EXPENSES, RS.29,327 BEING 20% OF STAFF WELFARE EXPENSES AND RS. 16,342 BEING 20% OUT OF STAFF MOTO R CAR EXPENSES TREATING THE SAME TO BE IN THE NATURE OF NON BUSINESS EXPENS ES. IT IS SUBMITTED THAT AS PER THE FACTS AND CIRCUMSTA NCES OF THE CASE AND EVIDENCES FILED BEFORE THE AO AS WELL AS THE CITA, THE ENTIRE EXPENSES REFERRED TO ABOVE ARE WHOLLY AND EXCLUSIVELY INCURR ED FOR THE PURPOSE OF BUSINESS AND THERE IS NO ELEMENT OF NON BUSINESS EX PENDITURE INVOLVED AND WHEREVER THERE IS AN ELEMENTOF NON BUSINESS EXPENDI TURE, THE SAME HAS BEEN TAKEN CARE OF BY WAY OF DISALLOWANCE IN THE STATEME NT OF INCOME FILED BY THE APPELLANT HIMSELF AND HENCE, THE ABOVE DISALLOWANCE S ARE WRONGLY MADE AND THE SAME ARE REQUIRED TO BE DELETED. ITA NO. 1980/AHD/ 2011 - FALGUNBHAI HASMUKHBHAI PARIKH. AY 2007-08 - 3 - 4. THE CITA HAS ERRED IN HOLDING THAT INTEREST CHARGED U/S.234A/B/C/D IS CONSEQUENTIAL AND THE GROUND TAKEN AGAINST CHARG ING THE ABOVE INTEREST IS DISMISSED. 4. BEFORE US, LD. AR SUBMITTED THAT GROUND NOS. 1 & 2 ARE INTERCONNECTED AND ARE IN CONNECTION WITH ADDITION MADE TO CLOSING STOCK AND THEREFORE CAN BE CONSIDERED TOGETHER. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE VALUING THE CLOSING STOCK, THE A SSESSEE HAD NOT INCLUDED VAT AND EXCISE DUTY OF RS 3,86,581/- TO THE VALUE A S REQUIRED BY PROVISIONS OF S. 145A OF THE ACT. HE ACCORDINGLY ADDED THE AMO UNT OF RS 386581 TO THE VALUE OF CLOSING STOCK AND THUS ADDITION TO THAT EX TENT WAS MADE TO TOTAL INCOME. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DISMISSED THE GROUND O F THE ASSESSEE AND UPHELD THE ORDER OF THE ASSESSING OFFICER BY HOLDIN G AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND SUBMISSION FILED BY THE AR'S OF THE APPELLANT. THE APPELLANT'S SUBMI SSION MAINLY RELIES ON THE ACCOUNTING GUIDELINES OF ICAI. IT HAS BEEN SUBM ITTED BY HIM THAT AS PER ICAI GUIDELINE, IF THE ELEMENT OF VAT AND EXCISE DU TY ARE INCLUDED IN THE VALUATION OF CLOSING STOCK, THE SAME WILL SHOW ARTI FICIALLY INFLATED FIGURE OF PROFIT AND IT WILL NOT REFLECT TRUE AND FAIR POSITI ON. HE HAS NOT DISPUTED THIS FACT THAT HE HAS NOT INCURRED ANY EXCISE DUTY OR VA T ON THE GOODS INCLUDED IN THE CLOSING STOCK. HE HAS NOT MADE THIS FACTUAL DISTINCTION NEITHER IN THE SUBMISSION GIVEN BEFORE THE A. O. NOR BEFORE ME IN THE APPELLATE PROCEEDINGS. THEREFORE, IN VIEW OF THE FACTUAL POSI TION, THE ADDITION MADE BY THE A. O. BY INCLUDING EXCISE DUTY AND VAT IN THE V ALUATION OF CLOSING STOCK IS JUSTIFIED. THE CLAIM OF THE APPELLANT THAT IN CASE THE CLOSING STOCK VALUATION IS BEING DONE ON INCLUSIVE METHOD, THE VALUATION OF OPENING STOCK SHOULD ALSO BE ACCORDINGLY ADJUSTED. THE CLAIM OF THE APPELLANT IS NOT JUSTIFIED. THE SUITABLE ADJUSTMENT SHALL BE MADE BY THE A.O. IN THE OPENING STOCK OF NEXT YEAR BUT SIMILAR ADJUSTMENT IN THE OPENING STOCK OF THE PRES ENT YEAR WILL NOT BE PRACTICAL AS IT WILL HAVE A CASCADING EFFECT AND, T HEREFORE, IT WOULD NOT BE ITA NO. 1980/AHD/ 2011 - FALGUNBHAI HASMUKHBHAI PARIKH. AY 2007-08 - 4 - PRUDENT TO DISTURB THE WORKING. THE JUDICIAL PRONOU NCEMENT IN THE CASE OF BRITISH PAINTS LTD. [188 ITR 34] QUOTED BY THE APPE LLANT IS OF NO HELP TO HIM AS THE DECISION WAS REGARDING THE PRACTICE OF VALUA TION OF THE OPENING AND CLOSING STOCK IN TRADE. THE SECTION WHICH WAS DISCU SSED BY THE HON'BLE COURT WAS SECTION 145, WHEREAS IN THE PRESENT CASE, THE SECTION INVOLVED IS 145A. IN SECTION 145A, A SPECIFIC PROVISION HAS BEE N MADE BY THE LEGISLATURE TO INCLUDE THE EXCISE DUTY, VAT ETC. IN THE VALUATI ON OF STOCK. IT PROVIDES FOR FURTHER ADJUSTMENT ON ACCOUNT OF TAX DUTY ETC. AFTER CONSIDERING THE VALUATION IN ACCORDANCE WITH THE METHOD OF ACCOUNTI NG REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, THE AMOUNT OF EXCISE DU TY AND VAT WILL HAVE TO BE TAKEN INTO CONSIDERATION FOR WORKING OUT THE CLO SING STOCK OF THE APPELLANT WHICH HAS BEEN CORRECTLY DONE BY THE A. O. THE CLAIM OF THE APPELLANT THAT THE SIMILAR METHOD OF ACCOUNTING HAS BEEN ACCEPTED FOR EARLIER YEARS, AND THEREFORE, IT SHOULD NOT DISTURBED IN THE PRESENT YEAR IS ALSO NOT TENABLE AS IT IS THE DUTY OF THE A. O. TO CONSIDER WHETHER THE BOOKS OF ACCOUNTS DISCLOSE THE TRUE STA TE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THERE FROM. THE APPEL LANT CANNOT CONTEND THAT THE A. O. WAS BOUND TO ACCEPT THE SYSTEM OF ACCOUNT ING REGULARLY EMPLOYED BY THE APPELLANT, THE CORRECTNESS OF WHICH HAS NOT BEEN QUESTIONED IN THE PAST. THE PRINCIPLE OF ESTOPPELS IS NOT APPLICABLE IN THE INCOME TAX ASSESSMENT AND THE A. O. WAS NOT BOUND BY THE METHO D FOLLOWED IN THE EARLIER YEAR. THE RELIANCE IS PLACED ON BRITISH PAI NTS LTD. [188 ITR 34], THE GROUND OF APPEAL IS, THEREFORE, DISMISSED. HOWE VER, THE A. O. IS DIRECTED TO TAKE THE VALUE OF OPENING STOCK OF A. Y . 2008-09 AS THE VALUE OF CLOSING STOCK DETERMINED IN HIS ORDER FOR THIS YEAR . 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. AR REITERATED THE SUBMISSIONS MAD E BEFORE ASSESSING OFFICER AND CIT(A); AND FURTHER SUBMITTED THAT THE ASSESSEE FOLLOWS EXCLUSIVE METHOD FOR THE VALUATION OF CLOSING STOCK AND THEREFORE THE VALUE OF EXCISE DUTY AND VAT IS NEITHER INCLUDED IN THE C LOSING OR OPENING STOCK AND IF ADJUSTMENT IS MADE TO CLOSING STOCK CORRESPO NDING ADJUSTMENT WILL ALSO HAVE TO BE MADE TO THE OPENING STOCK AND FURTH ER THE EXERCISE IS REVENUE NEUTRAL AND THE SAME HAS ALSO BEEN CERTIFIE D BY THE CHARTERED ITA NO. 1980/AHD/ 2011 - FALGUNBHAI HASMUKHBHAI PARIKH. AY 2007-08 - 5 - ACCOUNTANT IN THE TAX AUDIT REPORT. HE POINTED TO P AGE 35 OF THE PAPER BOOK BEING THE ADJUSTMENT STATEMENT U/S 145A. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE SAME S YSTEM OF ACCOUNTING FOR THE VALUATION OF CLOSING STOCK AND THE SAME HAS BEE N ACCEPTED BY THE REVENUE WHILE FRAMING THE ASSESSMENTS U/S 143(3) IN THE IMMEDIATELY PRECEDING AND SUCCEEDING ASSESSMENT YEARS AND IN SU PPORT OF WHICH HE PLACED ASSESSMENT ORDERS FOR AY 2002-03, 03-04, 04- 05, 06-07 AND 08-09 AT PAGE NO 54 TO 74 OF THE PAPER BOOK. HE THEREFORE SU BMITTED THAT NO ADDITION COULD BE MADE IN A SINGLE YEAR WHEN THE FACTS ARE S IMILAR IN OTHER OTHERS. 8. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ER OF ASSESSING OFFICER AND CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RES PECT TO ADDITION OF EXCISE DUTY AND VAT TO THE VALUE OF CLOSING STOCK. BEFORE US, IT IS ASSESSEES SUBMISSION THAT ASSESSEE IS CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR THE PURPOSE OF VALUATION OF CLOSING STOCK AND THEREBY NOT INCLUDING THE VAT AND EXCISE DUTY TO EITHER THE CLO SING STOCK AND OPENING STOCK. IT IS ALSO THE ASSESSEES SUBMISSION THAT TH E METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE AUTHORITI ES. BEFORE US, NO MATERIAL HAS BEEN BROUGHT BY THE REVENUE TO CONTROV ERT THE SUBMISSIONS OF THE ASSESSEE. WE FURTHER FIND THAT THE AUDITOR IN T HE TAX AUDIT REPORT HAS CERTIFIED IN THE STATEMENT MADE FOR ADJUSTMENT U/S 145A THAT THE EXERCISE OF INCLUDING EXCISE DUTY AND VAT TO THE STOCK IS REVEN UE NEUTRAL. BEFORE US, REVENUE HAS NOT POINTED OUT ANY MISTAKE IN THE AFOR ESAID STATEMENT WHICH HAS BEEN CERTIFIED BY THE CHARTERED ACCOUNTANT. FUR THER, WHEN THE METHOD OF VALUATION OF STOCK HAS BEEN ACCEPTED BY THE REVE NUE AUTHORITIES IN ITA NO. 1980/AHD/ 2011 - FALGUNBHAI HASMUKHBHAI PARIKH. AY 2007-08 - 6 - PRECEDING AND SUCCEEDING YEARS AND THERE BEING NO C HANGE IN THE FACTS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION TO THE CLOSING STOCK. WE THUS DIRECT THE D ELETION OF ADDITION MADE BY THE ASSESSING OFFICER AND THUS, THIS GROUND OF T HE ASSESSEE IS ALLOWED. 10. BEFORE US, LD. AR SUBMITTED THAT HE DID NOT WI SH TO PRESS GROUND NO.3 WITH RESPECT TO DISALLOWANCE OF TELEPHONE EXPE NSES, STAFF WELFARE EXPENSES. THUS, THIS GROUND IS DISMISSED AS NOT PRE SSED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER (ANIL CHATURVEDI) ACCOUNTANT MEMBER AHMEDABAD; DATED 26/02/2015 *BIJU T, PS )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ !- / CONCERNED CIT 4. !- ( ) / THE CIT(A), 5. +01 $ , , / DR, ITAT, AHMEDABAD 6. 12 3' / GUARD FILE. )*! )*! )*! )*! / BY ORDER, //TRUE COPY// 4 44 4/ // / 5 5 5 5 (DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD