Chemat Chemicals Ltd., Ahmedabad V. The Dy.CIT.,(OSD)Range-1, Ahmedabad

ITA 220/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6504 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S A BOHRA
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM CHEMAT CHEMICALS LTD., 82/1, PHASE-1, GIDC, VATVA, AHMEDABAD. VS. DY. C.I.T., RANGE-1, ABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. N. DIVETIA, AR RESPONDENT BY:- SHRI S. A. BOHRA, SR.DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- 1.1 THE ORDER PASSED U/S.250 OF THE ACT ON 7,10.20 08 FOR A.Y,2004- 05 BY CIT(A)-VI, IS WHOLLY ILLEGAL, UNLAWFUL AND AG AINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UP HOLDING THE ADDITION OF RS.4,35,923 WITHOUT CONSIDERING FULLY AND PROPERLY THE EXPLANATION OFFERED AND EVIDENCE, PRODUCED BY LINE AP PELLANT, 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LA W AND/OR ON FACTS IN UPHOLDING THAT THE CLOSING STOCK WAS UNDERVALUED TO THE EXTENT OF RS.4,35,923/- 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD, CIT(A) OUGHT NOT TO HOVE UPHELD THAT THE DOSING STOCK WAS UNDERVALUED BY RS,4,35,923. ITA NO.220/AHD/2009 ASST. YEAR 2004-05 ITA NO.220/AHD/2009 ASST. YEAR 2004-05 2 2.3 THE LD, CIT(A) HAS FAILED TO APPRECIATE THAT TH E APPELLANT HAD VALUED CLOSING STOCK AT COST OR MARKET PRICE WHICHE VER IS LOWER AND WHILE VALUING THE SOME, THE COST TOWARDS PACKING MA TERIAL, FUEL, OCTROI ETC. WAS NOT INCLUDIBLE, UNLESS THE FINISHED GOODS WAS IN PACKED CONDITION. THE LD. AO HAS ALSO FAILED TO APP RECIATE THAT THE MARKET PRICE OF AGRI. PRODUCTS WAS LOWER IN MARCH B EING A OFF SEASON PERIOD. 3.1 IN THE ALTERNATIVE, THE LD. CIT(A) OUGHT TO HAV E DIRECTED AO TO RE- COMPUTE THE OPENING FOR A.Y. 2004-05 AND THE ADDITI ON SHOULD HAVE BEEN RESTRICTED TO THE DIFFERENCE BETWEEN THE RECOMPUTED OPENING AND CLOSING STOCK. THE AO SHOULD HAVE BEEN DIRECTED TO ADOPT THE OPENING STOCK FOR A.Y,2005-06 AT THE RECO MPUTED VALUE. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS ADDITIO N OF RS.4,35,923/- ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. 3. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASS ESSEE IS LIMITED COMPANY ENGAGED IN MANUFACTURING DIFFERENT TYPES OF CHEMICALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED T HAT ASSESSEE IS SHOWING SEVERAL ITEMS IN THE CLOSING STOCK AT A VAL UE WHICH IS MUCH LESS THAN ITS COST OF PRODUCTION AND SALE PRICE. SINCE A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, STOCK IS REQUIRED TO BE VALUED EITHER AT COST OR AT MARKET RATE. THE ASSESSEE GAVE CERTAIN E XAMPLES AND SUBMITTED THAT THE COST INCURRED SO FAR TILL THE END OF ACCOU NTING YEAR HAS ONLY BEEN TAKEN INTO ACCOUNT WHILE VALUING THE CLOSING STOCK. THE VALUE SHOWN AGAINST STOCK IS TAKEN AS PURCHASE VALUE WHICH IS W ITHOUT USING PACKING MATERIAL FOR MAKING THE SAME SALEABLE. THE AO, HOWE VER, DID NOT AGREE WITH THE ABOVE REASONING. HE HELD THAT IT IS NOT CL EAR WHAT IS EXACTLY THE ITA NO.220/AHD/2009 ASST. YEAR 2004-05 3 ASSESSEE IS DOING AND AT WHAT STAGE PACKING IS DONE . THE AO ACCORDINGLY REJECTED THE RATES AT WHICH ASSESSEE HAD VALUED THE STOCK. HE INSTEAD ADOPTED THE SALE PRICE OR PRODUCTION COST WHICH EVE R IS LOW WHICH RESULTED IN A DIFFERENCE OF RS.4,35,923/- IN RESPECT OF 20 I TEMS AS MENTIONED BY THE AO ON PAGE 5 OF HIS ORDER. 4. THE LD. CIT(A) CONFIRMED THE ORDER OF AO BY HOLD ING THAT ONCE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM IT HAS TO V ALUE THE STOCK EITHER ON PRODUCTION COST OR MARKET PRICE WHICHEVER IS LOW. 5. THE LD. AR SUBMITTED THAT STOCK HAS BEEN VALUED ON THE BASIS OF COST INCURRED UPTO THE STAGE OF HEAPS IN THE CLOSIN G STOCK. FURTHER COST FOR PACKING THE CLOSING STOCK WOULD BE INCURRED SUBSEQU ENTLY WHICH WOULD FALL IN NEXT FINANCIAL YEAR. THERE IS NO OTHER COST INCURRED EXCEPT WHAT IS TAKEN INTO ACCOUNT IN VALUING THE STOCK. THE AO HAS ERRONEOUSLY CONSIDERED THE COST OF PACKING MATERIAL PRESUMING T HAT ENTIRE STOCK HAS BEEN PACKED AND IS READY FOR SALE. THIS IS NOT CORR ECT. THE STOCK WAS LYING ONLY IN THE HEAPS AND WAS ONLY READY FOR PACKING. T HEREFORE, COST ON PACKAGING AS IT IS NOT INCURRED, CANNOT BE INCLUDED IN THE CLOSING STOCK. 6. THE LD. DR ON THE OTHER HAND, SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. ITA NO.220/AHD/2009 ASST. YEAR 2004-05 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE AUTHORITIES B ELOW HAVE NOT EXAMINED THE ISSUE AS TO HOW MUCH COST ASSESSEE HAS ACTUALLY INCURRED ON THESE 20 ITEMS WHICH ARE SUBJECT MATTER OF ADDITION ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK. THE COMPARISON OF THE C OST WITH SALE PRICE COULD BE DONE ONLY WHEN SUCH COST HAS BEEN ACTUALLY INCURRED BY THE ASSESSEE FOR BRINGING THE GOODS TO THE STAGE AT WHI CH THEY ARE LYING IN THE CLOSING STOCK AT THE END OF THE YEAR. ANY FURTHER C OST, SUCH AS ON PACKAGING ETC., CANNOT BE INCLUDED IN THE CLOSING S TOCK UNLESS ACTUALLY INCURRED. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF AO FOR EXAMINING AFRESH AS TO HOW MUCH COST ASSESSEE HAS ACTUALLY IN CURRED ON THESE 20 ITEMS FOR BRINGING THE STOCK AT THE LEVEL WHERE THE Y WERE KEPT IN CLOSING STOCK. THE AO SHOULD EXAMINE THE BOOKS OF ACCOUNT A ND FIND OUT WHETHER ASSESSEE HAS INCURRED EXPENDITURE ON PACKAGING THES E 20 ITEMS OR WHETHER SUCH EXPENDITURE HAS BEEN INCURRED IN SUBSEQUENT YE AR. ACCORDINGLY ONLY THAT COST WHICH HAS BEEN ACTUALLY INCURRED MUST ONL Y FORM PART OF THE VALUATION OF CLOSING STOCK AND IT SHOULD BE COMPARE D WITH MARKET RATE: AND THEREAFTER WHICHEVER IS LOW SHOULD BE ADOPTED A S FINAL VALUATION OF CLOSING STOCK. WITH THE ABOVE DIRECTION, WE RESTORE THE MATTER TO THE AO. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED BUT FOR STATISTICAL PURPOSES. ITA NO.220/AHD/2009 ASST. YEAR 2004-05 5 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 27/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 27/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 12/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 20/5/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .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 ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..