The ACIT, Circle-2(2), Baroda V. M/s. Plastichemix Industries, Baroda

ITA 1995/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8131 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 03-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NOS.1995/AHD/2014 2. ./ I.T.A. NOS.741/AHD/2015 ( / ASSESSMENT YEARS : 2010-11 & 2011-12) THE ASST.CIT/DCIT CIRCLE-2(2) BARODA 390 007 / VS. M/S.PLASTICHEMIX INDUSTRIES 6, KIRTI TOWERS TILAK ROAD SAYAJIGUNJ, BARODA 390 001 ./ ./ PAN/GIR NO. : AABFP 8519 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI V.K. SINGH, SR.DR / RESPONDENT BY : SHRI S.N. SOPARKAR & SHRI PARIN SHAH, AR / DATE OF HEARING 20/11/2017 !'# / DATE OF PRONOUNCEMENT 23/11/2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS BY THE REVENUE ARE DIRECTED A GAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX(A PPEALS)-II/5, BARODA [CIT(A) IN SHORT] DATED 05/03/2014 AND 28/11/2014 ARISING FROM THE ASSESSMENT ORDERS PASSED UNDER S.143(3) O F THE INCOME TAX ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 2 - ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 24/01/2013 AND 31/01/2014 RESPECTIVELY RELEVANT TO ASSESSMENT YEAR S (AYS) 2010-11 & 2011-12. 2. BOTH THE APPEALS OF THE REVENUE CONCERNS UNDER -VALUATION OF CLOSING STOCK BY THE ASSESSEE. THEREFORE, BOTH THE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 3. FACTS CONCERNING AY 2010-11 ARE NOTED HEREWITH. THE ASSESSEE IS A PARTNERSHIP-FIRM ENGAGED IN THE BUSINESS OF MANUF ACTURING OF PLASTIC MASTER-BATCHES ETC. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. THE ASSESSING OF FICER (AO) IN THE COURSE OF SCRUTINY ASSESSMENT, INTER-ALIA EXAMINED QUANTITY-WISE DETAILS OF RAW-MATERIAL PURCHASES MAINLY COMPRISING OF PIGM ENTS, POLYMERS, TITANIUM DIOXIDE AND CARBON BLACK AND OTHER RAW-MAT ERIALS USED IN MANUFACTURING PROCESS. THE AO IN A VERY DETAILED O RDER COMPREHENSIVELY ANALYZED THE VALUATION OF CLOSING S TOCK OF INVENTORIES AND FOUND THAT CLOSING INVENTORIES HAVE BEEN UNDERV ALUED BY THE ASSESSEE TO THE EXTENT OF RS.2,74,40,704/- RELEVANT TO AY 20 10-11 AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. SIMILAR UNDERVALUATION WAS FOUND IN AY 2011-12 ALSO. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 3 - 5. THE CIT(A) FOUND MERITS IN VARIOUS JUSTIFICATIO N GIVEN BEFORE IT BY THE ASSESSEE AND DELETED THE ENTIRE ADDITION TOW ARDS UNDERVALUATION OF CLOSING STOCK. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE T RIBUNAL. 7. THE LD.DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO. 8. THE SENIOR LD.COUNSEL MR. S.N.SOPARKAR ON BEHALF OF THE ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT WHILE THE ASSESSEE HAS ADOPTED ACTUA L COSTS OF THE INVENTORY OR MARKET VALUE WHICHEVER IS LOWER IN RES PECT OF ITS INVENTORY, THE AO HAS APPLIED THE AVERAGE COSTS INSTEAD , WH ICH IS NOT PERMISSIBLE. 9. WE HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER A S WELL THE ORDER OF THE CIT(A). THE ISSUE IN CONTROVERSY IS TOWARDS VALUATION OF CLOSING INVENTORIES HELD BY THE ASSESSEE. THE AO EXAMINED MONTH-WISE QUANTITATIVE DETAILS OF RAW-MATERIAL PURCHASES FOR THE FINANCIAL YEAR 2009-10 RELEVANT TO AY 2010-11 AS WELL AS MONTH-WIS E COST OF RAW- MATERIAL PURCHASES OF VARIOUS ITEMS IN TERMS OF ITS VALUE. THE AO ADOPTED THE AVERAGE COSTS OF RAW-MATERIAL PURCHASES FOR LAST MONTH OF THE YEAR FOR VARIOUS INVENTORIES HELD AS CLOSING STOCK AS REPORTED IN THE TAX AUDIT REPORT. IT IS THE CASE ON BEHALF OF THE ASSE SSEE THAT ASSESSEE ASSIGNS VALUES TO EACH ITEM OF RAW-MATERIAL ON THE BASIS OF ITS ACTUAL COST ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 4 - OF PURCHASES ON FIFO BASIS. THE VALUE OF CLOSING I NVENTORIES THUS REPRESENTS ACTUAL COST OF LARGE VARIETY OF VARIOUS RAW-MATERIAL OR MARKET VALUE THEREOF WHICHEVER IS LOWER. WE NOTICE HERE T HAT THE AO HAS TAKEN NOTE OF VARIOUS SUBMISSIONS GIVEN BY THE ASSESSEE I N ITS DEFENSE BEFORE IT AND FOUND SEVERAL INCONSISTENCIES IN THE SUBMISSION S OF THE ASSESSEE. FOR INSTANCE, THE AO INTER ALIA NOTED THAT WHILE CLOSING STOCK OF CERTAIN SEMI- FINISHED GOODS HAVE BEEN INCLUDED AS PART OF THE RA W-MATERIAL FOR ASSIGNING CLOSING STOCK QUANTITY, THE CORRESPONDIN G VALUE OF SUCH RAW- MATERIAL HAS BEEN STATED TO BE INCLUDED IN THE FINI SHED GOODS INVENTORY. THE AO COULD NOT FIND ANY SUPPORT FOR SUCH ACTION O F THE ASSESSEE. THE ASSESSEE, ON ONE HAND, HAS CLAIMED THAT COSTS RANGE OF VARIOUS VARIETIES OF THE RAW-MATERIAL ITEMS VIZ. PIGMENT ETC. FLOATS BET WEEN RS.100 TO 5500 PER KG, THE AO NOTED SERIOUS DEFECTS IN SUCH CLAIM. THE AO DEMONSTRATED AT PAGE NO.26 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DECLARED THE VALUE OF SEMI-FINISHED GOODS LESSER TH AN THE COST OF THE PRINCIPAL RAW-MATERIAL ITSELF. LIKEWISE, THE AO FO UND DEFICIENCIES IN THE VALUATION VIS-A-VIS LET DOWN RATIO DECLARED BY TH E ASSESSEE. THE AO FURTHER FOUND THAT THE CONSUMPTION OF PIGMENTS SHOW N BY THE ASSESSEE IS ON HIGHER SIDE WHILE DETERMINING THE CLOSING STOCK. THE AO BASED ON THE DETAILED OBSERVATIONS PROVIDED JUSTIFICATION FOR AD OPTING AVERAGE VALUATION IN THE PECULIAR FACTS OF THE CASE AS NOTE D IN THE ASSESSMENT ORDER. ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 5 - 9.1. THE CIT(A), ON THE OTHER HAND, HAS ACCEPTED EV ERY STATEMENT OF THE ASSESSEE PLACED BEFORE IT AS SACROSANCT DISCARD ING THE OBJECTIVE ANALYSIS OF FACTS CARRIED OUT BY THE AO. NOTICEAB LY, THE CIT(A) HAS NOT CONFRONTED THE SUBMISSIONS AND MATERIAL PLACED BEFO RE IT TO THE AO. NO REMAND REPORT ON THE FACTUAL ASPECTS SHOWING WIDE V ARIANCE IN THE FACTS INVOLVED HAS BEEN CALLED FOR. THE CIT(A) HAS ACCEP TED THE NARRATIVE PROPOUNDED BY THE ASSESSEE THAT WHILE THE QUANTITY OF SEMI-FINISHED GOODS HAVE BEEN INCLUDED IN THE RAW-MATERIAL TALLY, CORRESPONDING VALUE THEREOF HAS BEEN INCLUDED IN THE VALUATION OF THE F INISHED GOODS. THE REFERENCE TO THE STOCK REGISTER HAS BEEN MADE AT VA RIOUS PLACES IN THE ORDER OF THE CIT(A). HOWEVER, IT IS NOT DISCERNIBL E AS TO WHETHER THE STOCK REGISTER WAS PRODUCED BEFORE THE AO AT ALL. NO SPECIFIC REFERENCE IN THIS REGARD IS FOUND IN THE ASSESSMENT ORDER. T HE CIT(A) HAS ACCEPTED THE CLOSING STOCK OF PIGMENT AS ON THE LAST DAY OF THE FINANCIAL YEAR I.E. ON 31/03/2010 BASED ON STOCK REGISTER AT 60.10 METR IC TON IN PLACE OF 281.69 METRIC TON PLACING RELIANCE UPON DAY-TO-DAY STOCK RECORDS AS OBSERVED IN PARA 4.3.2 OF ITS ORDER. 9.2. THE STOCK REGISTER IS APPARENTLY VERY CRUCIAL FOR DETERMINATION OF THE CORRECTNESS OF VARIOUS ASSERTIONS OF THE ASSESSEE T OWARDS VALUATION OF STOCK. THEREFORE, RELEVANT STOCK REGISTER IS REQU IRED TO BE VERIFIED BOTH FOR QUANTITY TALLY AS WELL AS ADOPTION OF THE ACTUA L COSTS TO ASCERTAIN THE CLAIM OF ASSESSEE. THE MARKET VALUE IN PLACE OF AC TUAL VALUE WHENEVER LOWER ALSO REQUIRES TO BE VERIFIED. ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 6 - 9.3. THE CIT(A), IN OUR OPINION, HAS SUMMARILY ACC EPTED THE VERSION OF THE ASSESSEE WITHOUT GIVING FAIR OPPORTUNITY TO THE REVENUE IN THIS REGARD. THEREFORE, WE ARE NOT IN A POSITION TO ACCEPT OR OT HERWISE REJECT THE CONCLUSION DRAWN BY THE CIT(A). IN OUR VIEW, THE C IRCUMSTANCES EXISTING IN THE CASE WARRANTS SETTING ASIDE OF THE ORDER OF THE CIT(A) GRANTING RELIEF TO THE ASSESSEE ON THE AFORESAID ISSUE OF UN DERVALUATION OF STOCK. THE AFORESAID ISSUE IS THEREFORE SET ASIDE AND REST ORED BACK TO THE FILE OF AO FOR DE NOVO EXAMINATION OF THE FACTUAL ASPECTS CLAIMED BY THE ASSESSEE. NEEDLESS TO SAY, THE AO SHALL ADOPT COS T OR MARKET PRICE WHICHEVER IS LOWER FOR THE PURPOSES OF VALUATION O F INVENTORIES AS PER THE GENERALLY ACCEPTED ACCOUNTING PRACTICES. THE C OST FOR THIS PURPOSES SHALL BE ACTUAL COSTS AS PER FIFO METHOD SUBJECT TO VERIFICATION OF FACTS. FOR THE PURPOSE OF DETERMINATION OF ACTUAL COSTS OF THE INVENTORY AS PER FIFO METHOD, THE AO MAY ADOPT ACTUAL COSTS OF PURCH ASE ATTRIBUTABLE TO VARIOUS INVENTORIES HELD IF CORROBORATED TO HIS S ATISFACTION, HAVING REGARD TO THE RECORD MAINTAINED FOR THIS PURPOSES. HOWEVER, IT WILL BE OPEN TO THE AO TO APPLY AVERAGE COSTS WHERE OBSCURI TY OR OPAQUENESS PERSISTS ON FACTS. CONSEQUENTLY, THE ORDER OF THE CIT(A) ON THE ISSUE IS SET ASIDE AND RESTORED BACK TO THE FILE OF AO FOR DE NOVO DETERMINATION OF VALUATION OF CLOSING INVENTORY AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE IN THIS REGARD. THE ISSUE BEING ENTIRELY FACTUAL IN NATURE, WE DO NOT CONSIDER IT NECESSARY TO MAKE REFERENCE TO JUDI CIAL PRECEDENTS PUT ON RECORD. ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 7 - 10. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 1995/AHD/2014 FOR AY 2010-11 IS ALLOWED FOR STATISTICAL PURPOSES. 11. FOR PARITY OF REASONS IN ITA NO.1995/AHD/2014(S UPRA), THE ISSUE REGARDING UNDERVALUATION OF CLOSING STOCK RAISED IN ITA NO.741/AHD/2015 FOR AY 2011-12 IS ALSO SET ASIDE AN D RESTORED TO THE FILE OF AO FOR DE NOVO DETERMINATION AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 12. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 741/AHD/2015 FOR AY 2011-12 IS ALSO ALLOWED FOR STATISTICAL PURPOSES . 13. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 23 /11/2017 SD/- SD/- ( KUL BHARAT ) ( PRADIP KUMA R KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23/ 11 /2017 &.., .(../ T.C. NAIR, SR. PS ITA NOS.1995/AHD/2014 & 741/AHD/2015 ACIT/DCIT VS. M/S.PLASTICHEMIX INDUSTRIES ASST.YEARS 2010-11 & 2011-12 - 8 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-II, BARODA 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 22.11.17(DICTATION-PAD 18- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22.11.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.23.11.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.11.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER