M/S. POLYCHEM LTD., MUMBAI V. ACIT CIR 1(2), MUMBAI

ITA 2129/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59900 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-03-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: D J SHUKLA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI RAJENDRA SINGH, A.M. AND SHRI V.D. RAO , J.M. ITA NO. : 2129/MUM/2011 ASSESSMENT YEAR : 1999-2000 M/S. POLYCHEM LTD. 7, J. TATA ROAD, CHURCHGATE MUMBAI-400 020. PAN NO:AAACP 7184 M ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-A(2) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI D.J. SHUKLA RESPONDENT BY : SHRI A.C. TEJPAL DATE OF HEARING : 21.3.2012 DATE OF PRONOUNCEMENT : 26.3.2012 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 16.12.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 1999-2000. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING ADDITION OF RS.46,70,760/- MADE BY AO ON ACCOUNT OF MODVAT DUTY ADJUSTMENT IN T HE OPENING STOCK UNDER SECTION 145A OF THE INCOME TAX ACT, 1961(THE ACT). 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AND HAD NOT ROUTED THE MODVAT TH ROUGH THE TRADING ACCOUNT. THEREFORE, IN THE COMPUTATION OF INCOM E, THE ITA NO. 2129/M/11 A.Y.99-00 2 ASSESSEE HAD MADE ADJUSTMENT ON ACCOUNT OF MODVAT AT DIFFE RENT STAGES SUCH AS PURCHASE, SALES INCLUDING OPENING STOCK AND CLOSIN G STOCK. THE ADJUSTMENT MADE TO THE OPENING STOCK WAS RS.46 ,70,760/-. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE BASIS OF REVALUATION OF OPENING STOCK. THE ASSESSEE EXPLAINED THA T ADJUSTMENT HAD BEEN MADE UNDER THE PROVISIONS OF SECTION 145A WHICH WAS IN ACCORDANCE WITH GUIDANCE NOTE ISSUED BY INSTITUTE OF CHA RTERED ACCOUNTANTS OF INDIA (ICAI). THE AO HOWEVER, DID NOT ACCEPT THE EXPLANATION AND HELD THAT ADJUSTMENT TO OPENING STOCK WAS NOT JUSTIFIED. THE AO PLACED RELIANCE ON JUDGMENT OF HON'BL E HIGH COURT OF BOMBAY IN THE CASE OF MELMOULD CORPORATION(202 ITR 78 9). 2.1 IN APPEAL THE ASSESSEE SUBMITTED BEFORE THE CIT(A) T HAT THE VIEW TAKEN BY THE AO WAS NOT CORRECT. THE ASSESSEE PLACED RELIANCE ON SEVERAL DECISIONS. CIT(A) HOWEVER DID NOT ACCEPT THE A RGUMENTS ADVANCED. IT WAS OBSERVED BY HIM THAT IT WAS THE FIRST YEAR IN WHICH THE PROVISIONS OF SECTION 145A CAME INTO EFFECT AS PER WHICH ADJUSTMENT TO CLOSING STOCK WAS REQUIRED TO BE MADE ON A CCOUNT OF ANY TAX, CESS ETC.. CIT(A) FURTHER OBSERVED THAT IN THE FIRST YEAR IN WHICH THE CHANGES ARE MADE THERE IS BOUND TO BE SOME PO SITIVE IMPACT ON THE INCOME AND NO ADJUSTMENT WAS REQUIRED T O BE MADE TO THE OPENING STOCK. HE, THEREFORE UPHELD THE ORDER OF AO, AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 2129/M/11 A.Y.99-00 3 3. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE VIEW TAKEN BY THE AUTHORITIES BELOW WAS NOT IN TUNE WITH T HE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN CASE OF CIT(A) VS. MAHAVI R ALUMINIUM LTD. (297 ITR 77), IN WHICH IT HAS BEEN HELD THAT WHI LE MAKING ADJUSTMENT UNDER SECTION 145A, ADJUSTMENT IN OPENING STOCK WAS ALSO REQUIRED TO BE MADE. IT WAS ALSO SUBMITTED THAT THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF MAHALAXMI GLASS WORKS PVT. LT D. (318 ITR 116) HAVE ALSO AGREED WITH THE VIEW TAKEN BY HONBLE HIGH COURT OF DELHI (SUPRA). IT WAS ACCORDINGLY URGED THAT THE ADDITI ON MADE SHOULD BE DELETED. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS G IVEN THEREIN. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONDITIONS CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT OF OPEN ING STOCK ON ACCOUNT OF MODVAT IN THE ASSESSMENT YEAR 1999-00 WHICH WAS THE FIRST YEAR IN WHICH PROVISIONS OF SECTION 145A WERE APPLICABLE. UNDER THE SAID PROVISIONS, THE PROFIT COMPUTED BY THE ASSESSEE AS PE R METHOD OF ACCOUNTING REGULARLY FOLLOWED HAS TO BE FURTHER ADJUST ED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEES BY WHATEVER NAME CALLED, ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. THE AUTHORITIES BELOW HAVE HELD THAT THE OPENING STOCK OF THIS YEAR HA S TO BE THE SAME AS CLOSING STOCK OF THE LAST YEAR AND, THEREFORE, NO ADJU STMENT TO THE ITA NO. 2129/M/11 A.Y.99-00 4 OPENING STOCK IS REQUIRED TO BE MADE. RELIANCE HAS BEE N PLACED ON THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN CASE O F MELMOULD CORPORATION (SUPRA). THE SAID CASE IN OUR VIEW IS DISTIN GUISHABLE. IN THAT CASE THE HONBLE HIGH COURT WAS CONCERNED WITH A SITUA TION IN WHICH THE ASSESSEE HAD ITSELF CHANGED THE METHOD OF VALUAT ION OF CLOSING STOCK AND ISSUE WAS WHETHER THE SAME SHOULD BE ACCEPT ED. HONBLE HIGH COURT HELD THAT CHANGE MADE BY ASSESSEE IF F OUND BONAFIDE HAS TO BE ACCEPTED AND IN SUCH A CASE, THE CHANGE D NEW METHOD WOULD APPLY ONLY TO CLOSING STOCK AND NOT TO O PENING STOCK. 4.1 PRESENT CASE IS DIFFERENT IN WHICH THE CHANGE IS D UE TO STATUTORY PROVISIONS AS PER WHICH ADJUSTMENTS ARE REQUIRED TO BE M ADE ON ACCOUNT OF TAX, DUTY, CESS OR IF INCURRED FOR BRINGING TH E GOODS TO THE PLACED OF ITS LOCATION ON THE DATE OF VALUATION. THE A MENDED PROVISIONS DO NOT REFER ONLY TO CLOSING STOCK VALUATION. THEREFORE , THE ADJUSTMENT HAS TO BE MADE BOTH TO CLOSING STOCK AND OPENING STOCK. THE SAME VIEW HAS BEEN TAKEN BY HON'BLE HIGH COURT OF DELHI IN CASE OF MAHAVIR ALUMINIUM LTD. (SUPRA), IN WHICH HONBLE HIGH COURT H ELD THAT ADJUSTMENT IS REQUIRED TO BE MADE BOTH TO OPENING ST OCK AND CLOSING STOCK TO GET THE CORRECT PROFITS. THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF MAHALAXMI GLASS WORKS PVT. LTD. (SUPRA), HAVE AG REED WITH THE VIEW TAKEN BY HON'BLE HIGH COURT OF DELHI IN CASE OF MA HAVIR ALUMINIUM LTD. (SUPRA). WE, THEREFORE, RESPECTFULLY FOLLOWING THE ITA NO. 2129/M/11 A.Y.99-00 5 AFORESAID JUDGMENTS WHICH ARE DIRECTLY ON THE ISSUE SET ASI DE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE ON ACCOUNT OF DENIAL OF ADJUSTMENT TO THE OPENING STOCK. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.3.2012. SD/- SD/- (V.D. RAO) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 26.3.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.