The ACIT, Circle 7(2), Ahmedabad V. M/s. Lubi Electronics, Ahmedabad

ITA 2197/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3263 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 24-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO.2197/AHD/2016 ( / ASSESSMENT YEAR : 2008-09) THE ACIT CIRCLE7(2) AHMEDABAD / VS. M/S. LUBI ELECTRONICS NR. KALYAN MILL NARODA ROAD AHMEDABAD-380 025 ./ ./ PAN/GIR NO. : AABFL 4708 P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : MS. URVASHI SHODHAN, AR / RESPONDENT BY : SHRI VINOD TANWANI, SR.DR / DATE OF HEARING 30/01/2019 !'# / DATE OF PRONOUNCEMENT 18 /02/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS)7, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-7 /128/15-16 DATED 21/06/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961(HEREINAFTER R EFERRED TO AS 'THE ACT') DATED 11/09/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2008-09. 2. THE REVENUE HAS RAISED FOLLOWING GROUND OF APPEA L:- ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 2 - 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION MADE BY THE AO OF RS.90,61,172/- U/S.145A. 3. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT TH E LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER FOR RS. 90,61,172/-U/S 145A OF THE ACT. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF ELECTRONIC GOODS AND SPARES. THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS CLAIMED THAT IT HAS BEEN FOLLOWING THE EXCLUSIVE METHOD OF ACCOU NTING. THEREFORE, THE OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK O F THE GOODS WERE RECORDED IN THE BOOKS OF ACCOUNTS WITHOUT INCLUDING THE AMOUNT OF CENVAT/VAT. 4.1. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT I T IS MANDATORY TO VALUE THE CLOSING STOCK AS PER THE PROVISIONS OF SE CTION 145A OF THE ACT I.E. AFTER INCLUDING THE ELEMENT OF THE TAXES. ACC ORDINGLY, THE ASSESSING OFFICER FOUND THAT THERE WAS A CLOSING BALANCE OF C ENVAT AS ON 31/03/2008 FOR RS. 2,09,33,355/- WHEREAS THE OPENIN G BALANCE WAS OF RS.1,18,72,183/- ONLY. THUS, THE DIFFERENCE OF RS. 90,61,172/- (RS.2,09,33,355 RS.1,18,72,183) IS REPRESENTING T HE ELEMENT OF CENVAT NOT INCLUDED IN THE CLOSING STOCK OF THE GOO DS AS ON 3103/2008. HENCE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS UNDERVALUED ITS CLOSING STOCK BY THE A MOUNT OF ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 3 - RS. 90,61,172/- AND ACCORDINGLY THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE AGGRIEVED ASSESSEE, PREFERRED AN APPEAL TO T HE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFI CER BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE HONBLE SUPREME COURT IN THE CASE OF CIT INDO NIPPON CHEMICALS CO. LTD. (2003) 130 TAXMAN 17 9 HAS HELD AS UNDER: ...THERE ARE TWO POSSIBLE METHODS OF VALUATION OF STOCK. THE FIRST WOULD BE THE GROSS METHOD, IN WHICH THE STOCK IS VALUED AT COST PRICE INCLUSIVE OF THE EXCISE DUTY ELEMENT. IF THIS METH OD IS ADOPTED, THEN THE UNCONSUMED STOCK ALSO MUST NECESSARILY BE CLUED IN THE SAME MANNER. THE OTHER METHOD IS THE NET METHOD, IN WHICH THE RAW MATERIAL PURCHASED IS VALUED AT THE ACTUAL COST, T HAT IS THE ACTUAL PURCHASE PRICE AND, ON THIS, MODVAT CREDIT WOULD BE AVAILABLE. IF THIS METHOD IS TO BE ADOPTED, THEN UNIFORMLY THE SAME ME THOD MUST BE ADOPTED WHILE VALUING THE UNCONSUMED STOCK AT THE E ND OF THE YEAR. WHICHEVER METHOD ONE ADOPTS, THE RESULT WOULD BE S AME... 5.2.1 IT IS SEEN THAT THE AO HAS ONLY PARTIALLY FOL LOWED THE PROVISIONS OF SECTION 145A OF THE I.T. ACT. I AM INCLINED TO A GREE WITH THE CONTENTION OF THE APPELLANT THAT IT IS NOT APPROPRI ATE TO INCLUDE THE AMOUNT OF TAX ETC INCLUDIBLE IN THE VALUE OF CLOSIN G STOCK ONLY WITHOUT MODIFYING THE FIGURES OF PURCHASES, SALES AND OPENI NG STOCK. MOREOVER, THE APPELLANT HAS BEEN FOLLOWING THIS METHOD OF ACC OUNTING FOR THE PAST MANY YEARS. THE METHOD OF ACCOUNTING REGULARLY FOLL OWED BY THE TAXPAYER WHICH WAS ACCEPTED BY THE AO IN THE PAST C ANNOT BE REJECTED IN FUTURE YEARS WITHOUT EXPRESSING A DISSATISFACTIO N ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE TAXPAYER, WHICH HAS NOT BEEN DONE IN THIS CASE. IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF THE HONBLE SUPREME COURT, THE SAID ADD ITION OF RS. 90,61,712/- U/S. 145A MADE BY THE ASSESSING OFFICER IS DELETED. GROUND OF APPEAL NO.2 IS ALLOWED. ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 4 - 6. GROUND OF APPEAL NO. 3 IS RESIDUAL IN NATURE AND IS THEREFORE TREATED AS DISMISSED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 6. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7. BOTH THE PARTIES BEFORE US RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AS FAVORABLE TO THEM. THE LD.AR FILED A PAPER -BOOK CONTAINING PAGE NOS.1 TO 51. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ALLEGATION OF THE ASSESSI NG OFFICER IN THE INSTANT CASE IS THAT THE ASSESSEE WHILE VALUING THE CLOSING STOCK OF ITS GOODS AS ON 31/03/2008 HAS NOT INCLUDED THE AMOUNT OF CENVAT WH ICH IS CONTRARY TO THE PROVISIONS OF SECTION 145A OF THE ACT. TH EREFORE, THE CLOSING STOCK OF THE ASSESSEE WAS ENHANCED BY THE AMOUNT OF CENVAT OF RS.90,61,172/- AS ATTRIBUTABLE TO THE CLOSING STOCK OF THE ASSESSEE. 9. HOWEVER, THE LD. CIT(A) DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HA S BEEN FOLLOWING ITS METHOD OF VALUATION CONSISTENTLY AND THERE WAS NO D ISSATISFACTION OF THE ASSESSING OFFICER ABOUT THE CORRECTNESS/COMPLETENES S OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 5 - 10. FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE HAS BEEN RECORDING ITS TRANSACTIONS OF PURCHASE, SALES, AND VALUATION OF INVENTORIES, NET OF CENVAT/VAT CONSISTENTLY. THUS, IF THE INVEN TORY OF CLOSING STOCK IS ENHANCED BY THE AMOUNT OF CENVAT CREDIT AT TRIBUTABLE TO IT, THEN THE AMOUNT OF CORRESPONDING PURCHASES SHOULD A LSO BE INCREASED BY THE SAID AMOUNT WHICH WILL RESULT IN TAX NEUTRAL EX ERCISE. THUS, IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER ERRED IN ENH ANCING THE VALUE OF CLOSING STOCK WITHOUT GIVING EFFECT TO THE PURCHASE S. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. GUJARAT GAS COMPANY LTD. IN TAX APPEAL NO.90 OF 2017 VIDE ORDER DATED 07/02/2017, WHEREIN IT WAS HELD AS UNDER:- 3.03. NOW, SO FAR AS QUESTION NO. [B] I.E. WITH RE SPECT TO ADDITION MADE BY THE A.O. ON ACCOUNT OF UNUTILIZED MODVAT/CE NVAT CREDIT OF RS. 56,08,089/- IS CONNECTED, IT IS REQUIRED TO BE NOTE D THAT THE LEARNED TRIBUNAL HAS TAKEN NOTE THAT WITH RESPECT TO MODVAT RECEIVABLE ACCOUNT, THERE IS CORRESPONDING LESS DEBIT TO THE PURCHASE A CCOUNT AND HENCE TO THAT EXTENT THERE IS ALREADY INCOME OFFERED FOR TAX . IF THAT BE SO, THERE WAS NO QUESTION OF FURTHER ADDING MODVAT/CENVAT CRE DIT TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. UNDE R THE CIRCUMSTANCES, WE SEE NO REASON TO INTERFERE WITH THE IMPUGNED JUD GEMENT AND ORDER PASSED BY THE LEARNED TRIBUNAL SO FAR AS CONFIRMING THE ORDER PASSED BY THE LEARNED CIT(A) DELETING THE ADDITION MADE BY TH E A.O. ON ACCOUNT OF UNUTILISED MODVAT/CENVAT CREDIT OF RS. 56,08,089/-. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE LEARNED TRIBUN AL. 11. THERE IS NO AMBIGUITY THAT THE ASSESSEE HAS BEE N FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING. HOWEVER, THE ASSES SEE TO COMPLY THE PROVISIONS OF SECTION 145A OF THE ACT HAS GIVEN THE EFFECT OF CENVAT/VAT IN THE OPENING STOCK, PURCHASES, SALES A ND CLOSING STOCK ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 6 - IN THE MEMORANDUM PROFIT AND LOSS ACCOUNT WHICH IS PLACED AT PAGE NO.21 OF THE PAPER-BOOK. WE FURTHER NOTE THAT THE ASSESSEE HAS MADE ITS COMPUTATION OF INCOME AFTER TAKING THE PROFIT AS SH OWN IN THE MEMORANDUM PROFIT AND LOSS ACCOUNT AS ON 31/03/2008 . THUS, WE CAN SAFELY CONCLUDE THAT THOUGH THE ASSESSEE IS FOLLOWI NG THE EXCLUSIVE METHOD OF ACCOUNTING WHICH IS CONTRARY TO THE PROVI SIONS OF SECTION 145A OF THE ACT, BUT THE EFFECT OF THE SAME HAS BEEN DUL Y CONSIDERED BY THE ASSESSEE IN ITS MEMORANDUM PROFIT AND LOSS ACCOUNT WHICH WAS OFFERED TO TAX. THUS, THERE CANNOT BE ANY FAULT OF THE ASSESSE E MERELY ON THE REASONING THAT THE ASSESSEE HAS NOT VALUED ITS CLOS ING STOCK AS PER THE PROVISIONS OF SECTION 145A OF THE ACT. 12. IN VIEW OF THE ABOVE, WE CONCUR WITH THE VIEW O F THE LD. CIT(A) AND ACCORDINGLY DECLINE TO INTERFERE IN HIS ORDER. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 13. IN THE RESULT, REVENUES APPEAL STANDS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18/02/2018 SD/- SD/- (MS.MADHUMITA ROY) (WASEEM AH MED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 18/02/2019 &.., .(.. / T.C. NAIR, SR. PS ITA NO.2197/AHD/2016 ACIT VS. M/S.LUBI ELECTRONICS ASST .YEAR - 2008-09 - 7 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-7, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 5.2.2019 (DICTATION PAD 13-PAG ES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06.02.2019 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.20.2.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.2.19 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