Asstt. Comm. Of Income Tax Circle 2, Margao V. M/s. V. M. Salgaocar & Brothers P. Ltd., Margao

ITA 220/PAN/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72067 (ITAT-PANAJI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 29-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Business income; Double taxation relief; Services rendered outside India; Capital expenditure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 206 /PNJ/2013 : (ASST. YEAR : 200 6 - 07 ) M/S. V.M. SALGAOCAR & BRO. PVT. LTD., SALGAOCAR HOUSE, VASCO - DA - GAMA, GOA PAN : AAACV5950B (APPELLANT) VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2, MARGAO , GOA. (RESPONDENT) ITA NO. 220/PNJ/2013 : (ASST. YEAR : 2006 - 07) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2, MARGAO, GOA. (APPELLANT) VS. M/S. V.M. SALGAOCAR & BRO. PVT. LTD., SALGAOCAR HOUSE, F.L. GOMES ROAD, VASCO - DA - GAMA, GOA PAN : AAACV5950B (RESPONDENT) ITA NO. 207/PNJ/2013 : (ASST. YEAR : 2007 - 08) M/S. V.M. SALGAOCAR & BRO. PVT. LTD., SALGAOCAR HOUSE, VASCO - DA - GAMA, GOA PAN : AAACV5950B (APPELLANT) VS. ADDL. COMMISSIONER OF INCOME TAX, MARGAO RANGE - GOA. (RESPONDENT) ITA NO. 221/PNJ/2013 : (ASST. YEAR : 2007 - 08) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2, MARGAO, GOA. (APPELLANT) VS. M/S. V.M. SALGAOCAR & BRO. PVT. LTD., SALGAOCAR HOUSE, F.L. GOMES ROAD, VASCO - DA - GAMA, GOA PAN : AAACV5950B (RESPONDENT) ASSESSEE BY : P.J. PARDIWALL A , SR. ADV. REVENUE BY : SMT. ASHA DESAI , DR DATE OF HEARING : 31 / 1 0/2013 DATE OF PRONOUNCEMENT : 23 / 1 2 /2013 O R D E R PER P.K. BANSAL : THE SE CROSS - APPEALS HAVE BEEN FILED AGAINST THE ORDER OF CIT(A) FOR A.Y. 2006 - 07 AND 2007 - 08 . THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL IN A.Y .2006 - 07 : 2 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 2. THE HON'BLE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO PASS A SPEAKING ORDER WHEREIN IT WOULD BE MENTIONED THAT THE ASSESSEE BE ALLOWED TO REDUCE ITS CLOSING S TOCK BY THE AMOUNT OF STOCK (WHICH IT HAD INCORPORATED IN THE CLOSING STOCK POST THE SURVEY) RETUNED TO THE THIRD PARTY IN THE ASSESSMENT YEAR IN WHICH IT IS RETURNED. THIS IS BECAUSE THE ISSUE HAS TO BE DECIDED AFRESH IN THE ASSESSMENT YEAR IN WHICH THE ASSESSEE RETURNS THE STOCK TO THE THIRD PARTY. THE DEDUCTION FROM THE STOCK & ITS QUANTUM WOULD BE CONSIDERED TAKING IN VIEW ALL RELEVANT FACTS AS AND WHEN ASSESSEE CHOSES TO RETURN THE STOCK. THEREFORE IT WILL NOT BE PROPER TO PASS JUDGEMENT REGARDING A NY FUTURE ASSESSMENT YEAR AS THAT ASSESSMENT YEAR IS AN INDEPENDENT ASSESSMENT YEAR. 3. THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT M/S. MARRIOTT INTERNATIONAL INC. USA WAS NOT ASSESSABLE IN INDIA CONTRARY TO THE BELIEF OF THE DDIT (INTERNATIONAL TAXATIO N) - 4(1), MUMBAI ON WHOSE ORDER THE ASSESSING OFFICER HAD RELIED. 4. THE HON'BLE CIT(A) HAS ERRED IN ALLOWING THE ARGUMENT OF THE ASSESSEE THAT THE INDO - US DTAA EXEMPTS THE ASSESSEE FROM DEDUCTING TAX AT SOURCE AS THE PAYMENT MADE TO M/S. MARRIOTT INTERNAT IONAL INC. IS NOT TOWARDS FEES FOR INCLUDED SERVICES AND FOR ROYALTY EVEN THOUGH THE ASSESSEE HAD ITSELF CLUBBED ONE HALF OF THE PAYMENT UNDER THE HEAD ROYALTIES & DEED RENT AND THE OTHER HALF OF THE PAYMENT WAS FOR SERVICES IN THE NATURE OF INCLUDED SERVICES AS EXHIBITED BY THE AGREEMENT BETWEEN THE ASSESSEE AND M/S MARRIOTT INTERNATIONAL INC. AS PER THE PRAGRAPHS NO. 2.01, 2.02 & 2.03 OF THE AGREEMENT DATED 05.02.1998. THE SERVICE GIVEN BY M/S MARRIOTT INTERNATIONAL INC. ARE IN THE NATURE OF MAKE A VAILABLE, EXPERIENCE, SKILL, KNOW HOW. THEREFORE M/S. MARRIOTT WAS DULY ASSESSABLE IN INDIA AND THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE AT THE TIME OF MAKING PAYMENT TO M/S MARRIOTT . IN THE A.Y. 2007 - 08, REVENUE HAS TAKEN AFORESAID GROUND NOS. 3 & 4 AS GROUND NO.2 & 3 AND NO OTHER EFFECTIVE GROUNDS OF APPEAL THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL IN A.Y.2006 - 07 : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.4,91,26,733 TO THE CLOSING STOCK OF ROM AND SCREE NED FINES, BEING THE DIFFERENCE BETWEEN THE VALUE OF STOCK SHOWN IN THE BOOKS OF ACCOUNTS AS PER THE HIGH COURT ORDER AND THE CURRENT COST OF PRODUCTION, ON THE GROUNDS THAT THE PRICE FIXED BY THE HIGH COURT CANNOT BE TERMED AS MARKET PRICE. 2. THE LEARNED C IT(A) ERRED IN HOLDING THAT THE APPELLANT HAD INCORRECTLY VALUED ITS STOCK, BY NOT VALUING IT AT COST OR MARKET VALUE, WHICHEVER IS LOWER AND THAT SINCE IN 3 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) THE APPELLANTS CASE, THE COST WAS LOWER THAN THE MARKET VALUE, THE ASSESSING OFFICER HAD CORRECTLY ADOPTED COST TO VALUE THE STOCK OF IRON ORE OF THE APPELLANT. 3. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS, WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW; A) THE PRICE FIXED BY THE HON'BLE HIGH COURT CANNOT BE TERMED AS MARKET PRICE AS MARKET PRICE IS FIXED BY MARKET FORCES DEPENDING UPON THE DEMAND - SUPPLY QUOTIENT. B) THE DISPUTE WAS SETTLED BY THE HON'BLE HIGH COURT IN MARCH 1990 AND TILL DATE, EVEN AFTER 23 YEARS, THE ASSESSEE COMPANY HAS N OT HONOURED THE DECISION OF THE HIGH COURT ON THIS ISSUE. C) THE LIABILITY ARISING ON ACCOUNT OF HIGH COURT ORDER IS NOT A BUSINESS LIABILITY OF THE APPELLANT COMPANY AS THIS LIABILITY HAS NOT OCCURRED DURING THE COURSE OF BUSINESS. IT IS A SETTLEMENT AND DI STRIBUTION OF PROPERTIES BETWEEN FAMILIES. THE LIABILITY ARISING ON ACCOUNT OF THIS SETTLEMENT IS PURELY PERSONAL IN NATURE AND NOT A BUSINESS LIABILITY FOR ALLOWING IT AS EXPENDITURE. D) THE LOSS WHICH HAS ARISEN BECAUSE OF HIGHER COST OF PRODUCTION COMPARE D TO THE CONSIDERATION RECEIVABLE ON TRANSFER OF STOCK TO M/S. SALGAOCAR MINING INDUSTRIES LTD. AND M/S. SALITHO ORES LTD. HAS TO BE REDUCED FROM THE CAPITAL ACCOUNT OF THE APPELLANT COMPANY WITHOUT AFFECTING THE BUSINESS PROFITABILITY OF THE ASSESSEE COMP ANY IN ANY MANNER. E) WHENEVER APPELLANT TRANSFERS THE STOCK OF IRON - ORE TO THESE TWO CONCERNS, THE CORRESPONDING LOSS NEEDS TO BE GIVEN EFFECT IN THE CAPITAL ACCOUNT WITHOUT DISTURBING THE BUSINESS PROFITS. THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS MA DE BY THE LEARNED CIT(A). 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO CORRESPONDINGLY ADJUST THE OPENING STOCK OF ROM AND SCREENED FINES FOR THE CURRENT ASSESSMENT YEAR 2006 - 07 I.E. 1 APRIL 2005, IN CONSEQUENCE TO MAKING AN ADJUSTMENT TO THE CLOSING STOCK AS ON 31 MARCH 2006. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO CORRESPONDINGLY ADJUST THE OPENING STOCK OF ROM AND SCREENED FINES FOR THE SUB SEQUENT ASSESSMENT YEAR 2007 - 08 I.E. 1 APRIL 2006, IN CONSEQUENCE TO MAKING AN ADJUSTMENT TO THE CLOSING STOCK AS ON 31 MARCH 2006. IN THE A.Y.2007 - 08, THE ASSESSEE HAS TAKEN FOLLOWING EFFECTIVE GROUND OF APPEAL: - 1. THE LEARNED CIT(A) ERRED IN NOT DI RECTING THE ASSESSING OFFICER TO CORRESPONDINGLY ADJUST THE OPENING STOCK OF ROM AND SCREENED FINES AS ON 1 APRIL 2006, IN CONSEQUENCE TO HIS CONFIRMING THE ADDITION OF RS.4,91,26,733/ - TO THE CLOSING STOCK OF ROM AND SCREENED FINES AS ON 31 MARCH 2006. 4 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) ITA NO. 220/PNJ/2013 & ITA NO. 22 1 /PNJ/2013 2. GROUND NOS. 1 & 5 IN ITA NO.220 & GROUND NO. 1 AND 4 IN ITA NO.221 ARE GENERAL IN NATURE, THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. 3. GROUND NO. 2 IN REVENUES APPEAL FOR ASSESSMENT YEAR 2006 - 07 RELATES TO THE DIRECTION GIVEN BY CIT(A) THAT THE ASSESSEE BE ALLOWED TO REDUCE ITS CLOSING STOCK BY THE AMOUNT OF THE STOCK RETURNED TO THIRD PARTY IN THE ASSESSMENT YEAR IN WHICH IT IS RETURNED. THE BRIEF FACTS OF THIS GROUND ARE THAT DURING THE YEAR E NDED THERE HAD BEEN SURVEY U/S 133(3A) IN THE CASE OF THE ASSESSEE ON 7.12.2005. THE ASSESSEE HAS INCLUDED AS PER DISCUSSION WITH ACIT, CIRCLE - 2, MARGAO VALUED THE STOCK OF 2 86,365 TONS OF IRON ORE BELONGING TO THIRD PARTY AMOUNTING TO RS. 4 , 69 , 86 , 7 6 9 IN I TS TOTAL INCOME WITH THE CONDITION THAT APPROPRIATE DEDUCTION SHALL BE ALLOWED TO THE ASSESSEE FROM ITS TOTAL INCOME IN THE YEAR IN WHICH THE AFORESAID STOCK OF IRON ORE BELONGING TO THIRD PARTY IS RETURNED BACK. THE AO ADDED THE SAID STOCK IN THE INCOME OF THE ASSESSEE BUT DID NOT GIVE DIRECTION AS THE DECLARATION MADE BY THE ASSESSEE WAS CONDITIONAL. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A). CIT(A) GAVE APPROPRIATE DIRECTION TO THE AO IN THIS REGARD. 3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY CONSIDERED THE SAME. WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF CIT(A) GIVING THE DIRECTION IN THIS REGARD. THE FACT THAT THE ASSESSEE MADE DECLARATION WITH THE CONDITION IS APPARENT FROM THE LETTER AS HAS BEEN REPRODUCED AT PG. 25 OF CIT(A)S ORDER. NO CONTRARY EVIDENCE OR MATERIAL WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY COMPEL US TO TAKE A VIEW DIFFERENT FROM WHAT CIT(A) HAS 5 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) TAKEN. WE, THEREFORE, DISMISS THE GROUND TAKEN BY THE REVENUE. THUS, THIS GROUND IS DISMISSED. 4. GROUND NO . 3 IN ASSESSMENT 2006 - 07 AND GROUND NO. 2 IN ASSESSMENT YEAR 2007 - 08 RELATE TO THE FINDING OF THE CIT(A) THAT M/S MARRIOTT INTERNATIONAL INC. USA WAS NOT ASSESSABLE IN INDIA. 4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. BEFORE US, THE LD. DR WAS FAIR ENOUGH TO CONCEDE THAT THE CIT(A) HAS NOT HELD ANYWHERE IN THE ORDER THAT MARRIOTT INTERNATIONAL WAS NOT ASSESSABLE IN INDIA. THEREFORE, THIS GROUND, IN OUR OPINION, DOES NOT ARISE OUT OF THE ORDER OF CIT(A). WE HAVE GONE THROUGH THE ORDER OF CIT(A) BUT WE DID NOT FIND ANY SUCH FINDING BEING GIVEN BY THE CIT(A). IN VIEW OF THIS FACT, WE DISMISS THE GROUND TAKEN BY THE REVENUE AS NOT ARISING OUT OF THE O RDER OF CIT(A) IN BOTH THE ASSESSMENT YEARS . 5. GROUND NO. 4 IN ASSESSMENT YEAR 2006 - 07 AND GROUND NO. 3 IN ASSESSMENT YEAR 2007 - 08 RELATE TO THE FINDING OF CIT(A) THAT THE PAYMENT MADE TO MARRIOTT INTERNATIONAL ARE NOT TOWARDS FEES FOR INCLUDED SERVICES AND ARE FOR ROYALTY AND THUS ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT TO MARRIOTT . SINCE THE ISSUE INVOLVED IS COMMON IN BOTH THE YEARS, WE THEREFORE DECIDING THIS ISSUE AFTER CONSIDERING THE FACTS RELATING TO THE ASSESSMENT YEAR 2006 - 07. 5.1 THE BRIEF FACTS RELATING TO THIS GROUND FOR A.Y 2006 - 07 ARE THAT THE AO DISALLOWED MARKETING SERVICE FEE OF RS.58,50,487/ - AND REIMBURSE MENT OF EXPENSES OF RS.58,52,133/ - PAID TO MARRIOTT INTERNATIONAL INVOKING PROVISIONS OF SEC. 40(A)(IA ). ERSTWHILE M/S. PALM HOTELS (INDIA) LTD. (NOW AMALGAMATED WITH THE ASSESSEE W.E.F. 1.4.2003) ENTERED INTO INTERNATIONAL SALES & MARKETING 6 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) AGREEMENT WITH MARRIOTT INTERNATIONAL. IN ACCORDANCE THEREWITH, MARRIOTT IS PROVIDING SALES AND MARKETING SERVICES TO THE ASSESSEE FROM OUTSIDE INDIA. THESE SERVICES INCLUDE INTERNATIONAL SALES AND MARKETING SERVICES, SPECIAL CHAIN SERVICES, RESERVATION SYSTEM AND SPECIAL ADVERTISEMENT COSTS. THE ASSESSEE PAID SALES AND MARKETING FEES AMOUNTING TO RS.58,50,487/ - AND REIMBURSED EXPENSES TO THE EXTENT OF RS. 58,52,133/ - WITHOUT DEDUCTING ANY TAX THEREON. ON THE BASIS OF THE CERTIFICATE ISSUED BY THE C.A, THE ASSESSEE HAS REMITTED THE MONEY. THE AO DISALLOWED THE AFORESAID MONEY HOLDING THAT UNLESS ASSESSEE OBTAINS CER TIFICATE U/S 195 FROM THE AO, DEDUCTION OF THE TAX IS MANDATORY. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A). BEFORE CIT(A) THE ASSESSEE TOOK THE PLEA THAT ONLY IF THE INCOME IS CHARGEABLE TO TAX IN RESPECT OF WHICH PAYMENT IS MADE, SEC. 195 WILL APPLY. I F THE PAYMENT DOES NOT CONTAIN ELEMENT OF INCOME, THE PAYER CANNOT BE MADE LIABLE FOR TAX. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. (327 ITR 456) AND THAT OF TRANSMISSION CORPORATIO N OF A.P. LTD. AND ANR. VS. CIT, 239 ITR 587 (SC). THE ASSESSEE TOOK THE PLEA THAT THE SERVICES RENDERED BY MARRIOTT ARE NEITHER IN NATURE OF ROYALTY NOR IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS PROVISION OF INTERNATIONAL SALES AND MARKETING SERVIC ES NEITHER INVOLVE TRANSFER OF ALL OR ANY RIGHTS NOR DOES IT INVOLVE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. EVEN SINCE MARRIOTT INTERNATIONAL IS NON - RESIDENT, IT IS ENTITLED TO CLAIM BENEFIT UNDER INDO - US DTAA. THE TERM FEES FOR INCLUDED SERVICES INCLUDE ONLY THOSE PAYMENT S WHICH MAKE AVAILABLE THE TECHNICAL KNOWLEDGE FOR WHICH THE PAYMENT IS MADE. RELIANCE WAS ALSO PLACED IN THIS REGARD ON THE DECISION OF RAYMOND LTD., 86 ITD 791 IN WHICH THE BOMBAY TRIBUNAL HAS INTERPRETED TH E TERM MAKE AVAILABLE AND OBSERVED THAT MERE RENDERING OF THE SERVICES IS NOT ROPED IN, UNLESS THE PERSON UTILIZING THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL KNOWLEDGE ETC. BY HIMSELF IN HIS BUSINESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURSE TO THE PERFORMER OF THE SERVICES IN FUTURE. THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. MUST REMAIN 7 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) WITH THE PERSON UTILIZING THE SERVICES EVEN AFTER RENDERING OF THE SERVICES HAS COME TO AN END. THUS, IT WAS CONTENDED THAT IN ASSESSEES CASE RENDERING OF INTERNATIONAL SALES AND MARKETING SERVICES TO THE ASSESSEE DOES NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. TO THE ASSESSEE NOR DOES IT INVOLVE TRANSFER OF ANY TECHNICAL PLAN AND DESIGN AND HENCE THE SERVICES DOES NOT FALL UNDER THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS PROVIDED UNDER INDO - US DTAA. IN RESPECT OF REIMBURSEMENT OF EXPENSES OF RS. 58,51,427/ - TO MARRIOTT INTERNATIONAL, IN ADDITION TO THE ABOVE SUBMISSION IT WAS SUBMITTED THAT THEY WERE MERELY REIMBURSEMENT OF THE COST AND IT DOES NOT HAVE ANY INCOME OR PROFIT ELEMENT AND THEREFORE NO TAX CAN BE DEDUCTED U/S 195. CIT(A) GOING THROUGH THE SUBMISSIONS OF THE ASSESSEE NOTED THAT THE PAYMENT MADE BY THE ASSESSEE WERE NOT CHARGEABLE TO TAX. THEREFORE, HE DIRECTED THE AO TO DELETE THE DISALLOWANCE MADE U/S 40(A)(IA). 5.2 BEFORE US, THE LD. DR RELIED ON THE ORDER OF T HE AO WHILE THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED THAT TWO TYPES OF PAYMENTS HAVE BEEN MADE BY THE ASSESSEE TO MARRIOTT INTERNATIONAL; ONE RELATES TO THE SERVICES RENDERED BY MARRIOTT INTERNATIONAL OUTSIDE INDIA AND THE OTHER RELATES TO THE REIMBURSEMENT OF THE EXPENSES. 5.3.1 THE SERVICES RELATE TO SALES AND MARKETING SERVICES. SALES AND MARKETING SERVICES CANNOT BE REGARDED TO BE ROYALTY U/S 9 (1)( VI ) . SEC. 9(1)(VI) DEFINES THE ROYALTY TO INTER ALIA INCLUDE CONSIDERATION FOR TRANSFER OF ALL OR ANY RIGHTS (INCLUDING GRANTING OF A LICENCE) AND THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROP ERTY AND THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR 8 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) SCIENTIFIC WORK AS WELL AS CONSIDERATION FOR RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB - CLAUSES (I) TO (V) TO EXPLANATION 2 TO SEC. 9(1)(VI). IN VIEW OF THE AFORESAID DEFINITION , THE SALES AND MARKETING SERVICES RENDERED OUTSIDE INDIA CANNOT BE REGARDED TO BE ROYALTY. 5.3.2 FEES FOR TECHNICAL SERVICES IS ALSO DEFINED U/S 9(1)(VII) TO INTER ALIA MEAN ANY CONSIDERATION FOR RE NDERING OF ANY MANAGERIAL , TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL). THE SERVICES RENDERED BY MARRIOTT INTERNATIONAL DOES NOT INVOLVE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERV ICES RENDERED IN INDIA AND THEREFORE IT CANNOT BE REGARDED TO BE FEES FOR TECHNICAL SERVICES. IN VIEW OF THIS, THE INCOME RECEIVED BY MARRIOTT INTERNATIONAL CANNOT BE DEEMED TO ACCRUE AND ARISE IN INDIA. UNDER THE INDO - US DTAA AS PER ARTICLE 12, FEES FO R INCLUDES SERVICES IS DEFINED TO INTER ALIA MEAN PAYMENT OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES IF SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR TECHNICAL DESIG N. THIS IS A FACT THAT MARRIOTT INTERNATIONAL WAS NOT MAKING AVAILABLE THE SALES AND MARKETING SERVICES TO THE ASSESSEE AS PER THE INTERPRETATION GIVEN BY THE BOMBAY TRIBUNAL IN THE CASE OF RAYMOND LTD. ( SUPRA ) FOR THE TERM MAKE AVAILABLE. THIS DECISION HAS BEEN FOLLOWED SUBSEQUENTLY EVEN BY THE SPECIAL BENCH OF THE BOMBAY TRIBUNAL IN MAHINDRA & MAHINDRA LTD., 313 ITR 263 (AT) . NO CONTRARY DECISION AS BROUGHT TO OUR KNOWLEDGE. IN VIEW OF THIS, IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN TH E ORDER OF CIT(A). EVEN THE COPY OF THE AGREEMENT DT. 5.2.1998 WAS NOT PLACED BY THE REVENUE BEFORE US SO AS TO STRESS PART OF THE GROUND RELATING TO PARAGRAPH 2.01, 2.02 & 2.03 OF THE AGREEMENT DT. 5.2.1998 ENTERED INTO BETWEEN THE ASSESSEE AND MARRIOTT INTERNATIONAL. IN VIEW OF THIS, WE DISMISS GROUND NO. 4 IN ASSESSMENT YEAR 2006 - 07 AND GROUND NO. 3 IN ASSESSMENT YEAR 2007 - 08 TAKEN BY THE REVENUE. 9 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) ITA NO. 206/PNJ/2013 6. THE ONLY ISSUE INVOLVED IN GROUND NOS. 1 TO 4 IS THE VALUATION OF THE CLOSING STOCK OF ROM AND SCREENED FINES. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THERE HAD BEEN A SURVEY IN THE CASE OF THE ASSESSEE CONDUCTED ON 7.12.2005. THE AO NOTED THAT THE ASSESSEE HAS VALUED CERTAIN STOCK AS PER TH E HON'BLE HIGH COURTS ORDER DT. 14.3.1990. WHEN INQUIRED BY THE AO, THE ASSESSEE SUBMITTED THAT THOUGH THE COURTS ORDER IS PASSED IN 1990 THERE WAS NO INTENTION OF THE ASSESSEE NOT TO IMPLEMENT THE COURTS ORDER. THE DELAY OF 18 YEARS IN IMPLEMENTING TH E COURTS ORDER IS THAT THE TWO GROUPS IN THE LITIGATION HAD TO IMPLEMENT VARIOUS DIRECTIONS OF THE COURT ON THE ISSUES ADJUDICATED BY THE COURT. THE ASSESSEE SUBMITTED THAT HE HAS VALUED THE CLOSING STOCK AS PER THE NET REALIZABLE VALUE AT THE CLOSE OF F INANCIAL YEAR. A CERTAIN PART OF THE STOCK HAS TO BE DISPOSED OFF TO CERTAIN PARTIES AT A PRICE AS DIRECTED BY THE COURT. THEREFORE, THE STOCK TO THAT EXTENT HAD TO BE VALUED AT THAT PRICE. THE AO REJECTED THE SUBMISSION AS THE ASSESSEE HAS NOT BEEN ABL E TO ESTABLISH, IN HIS OPINION, THAT THE ORE EARMARKED FOR SALE AT A DEFINITE PRICE AS DIRECTED BY THE COURT IS THE SAME LOT WHICH WAS THE SUBJECT MATTER OF THE ISSUE BEFORE THE LITIGATION COMMENCED. THE AO WAS OF THE VIEW THAT OVER A LONG PERIOD OF 18 YE ARS THE QUANTITY OF ORE TO BE TRANSFERRED TO THIRD PARTY HAS NOT REMAINED THE SAME BUT THE QUANTITY HAS BEEN MAINTAINED OVER A PERIOD OF TIME WITH CONSTA NT REPLENISHMENT AT THE COST AS INCURRED BY THE ASSESSEE YEAR AFTER YEAR. THEREFORE, THE ASSESSEE CANNOT CLAIM THAT THE CLOSING STOCK FIGURE SHOULD NOT BE DISTURBED AS THE ORE HAS TO BE SOLD AT A PARTICULAR RATE AND THAT SUCH RATE IS ITS NET REALIZABLE VALUE. THE AO, THEREFORE, RE - VALUED THE STOCK AND MADE THE ADDITION OF RS. 4, 91,26,733/ - . THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SURVEY PROCEEDINGS, ISSUE RELATING TO THE VALUE OF CLOSING STOCK WAS DISCUSSED. ONE OF THE ISSUE 10 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) PERTAINS TO VALUATION OF THE STOCK IN PURSUANCE OF HIGH COURT ORDER DT. 14.3.1990 AND ACCORDINGLY SUBMITTED THAT PART OF THE ROM AND PART OF THE SCREENED FINES WHICH ARE TO BE SOLD TO SALGAOCAR MINING INDUSTRIES LTD. HAS BEEN VALUED @ RS.38.66 PER TON. THE OTHER PART OF ROM WHICH AR E TO BE SOLD TO SALITHO ORES LTD. HAVE BEEN VALUED @ RS. 53.35 PER TON. THE ASSESSEE ALSO SUBMITTED THAT HE IS CONSISTENTLY FOLLOWING THE ACCOUNTING POLICY OF VALUING THE STOCK OF IRON ORE AT COST OR MARKET PRICE, WHICHEVER IS LOWER. THE ASSESSEE BROUGHT THE ATTENTION OF THE CIT(A) TOWARDS ORDER OF THE HIGH COURT AND THE RELEVANT CLAUSE 87 (C) TO 89 AND CONTENDED THAT SINCE THE VALUE OF THE SAID STOCK WAS AS PER HIGH COURT ORDER, IT IS LOWER THAN ITS PRESENT COST OF PRODUCTION. THE SAME ALSO CANNOT FETCH ANY HIGHER VALUE THAN THAT AS PER THE HIGH COURT AND THEREFORE, THE ASSESSEE HAD VALUED THE SAID STOCK AT THE MARKET VALUE AS PER THE HIGH COURT ORDER . RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN K. MOHD. ADAM SAHIB VS. CIT (56 ITR 360) IN WHICH IT WAS HELD THAT IN THE ABSENCE OF THE MARKET FOR LOCAL SALE, VALUATION OF THE STOCK AT NIL IS JUSTIFIED. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHANKAR SSK LTD. VS. DCIT (63 TTJ 158) I N WHICH THE TRIBUNAL HAS OBSERVED THAT SINCE THE ASSESSEE HAS BEEN CONSISTENTLY AND REGULARLY FOLLOWING THE PRACTICE OF VALUING THE CLOSING STOCK OF BAGASSE AT NIL VALUE AND CREDITING ITS SALES PROCEEDINGS TO THE PROFIT & LOSS ACCOUNT AS AND WHEN BAGASSE I S SOLD, THERE IS NO JUSTIFICATION FOR MAKING ANY ADDITION. RELIANCE WAS ALSO PLACED ON THE VARIOUS DECISIONS FOR THE PROPOSITION OF LAW THAT THE STOCK HAS TO BE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESS. AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE, THE CIT(A) DISMISSED THE GROUND TAKEN BY THE ASSESSEE AND CONFIRMED THE ORDER OF AO ON THIS ISSUE BY OBSERVING AS UNDER : 5.4. ENTIRE SUBMISSION OF THE APPELLANT AND ITS RELIANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS IS BASED ON THE PREMISE THAT RAT E FIXED BY THE HONBLE HIGH COURT IS THE MARKET PRICE FOR THAT QUANTITY OF STOCK OF IRON ORE. WHAT IS MATERIAL HERE IS TO ANALYSE THIS PREMISE OF THE APPELLANT. THE PRICE FIXED BY THE HONOURABLE HIGH COURT CANNOT BE TERMED AS MARKET PRICE AS MARKET PRICE I S FIXED BY MARKET FORCES 11 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) DEPENDING UPON THE DEMAND - SUPPLY QUOTIENT. OBVIOUSLY, HONORABLE COURT DID NOT TAKE INTO ACCOUNT MARKET FORCES, WHILE FIXING THE PRICE FOR APPELLANT. IT IS IMPORTANT TO ANALYSE THE ORDER OF THE COURT TO UNDERSTAND THE REAL NATURE O F THE COURT ORDER. THE ORDER OF THE HONOURABLE HIGH COURT WAS PASSED PURSUANT TO DISPUTE ARISING OUT OF FAMILY DIVISION/ SETTLEMENT. THE HONBLE COURT TOOK UP MANY ISSUES, BUT ALL OF THEM INTENDED TOWARDS DIVISION OF THE ASSETS AND LIABILITIES BELONGING TO THE UNDIVIDED FAMILY. THE COURT ORDER, UNDISPUTEDLY, IS INTENDED TOWARDS EQUITABLE FAMILY SETTLEMENT. THE COURT DIVIDED THE ASSETS OF THE FAMILY, THE NET WORTH AMONG THE SUCCESSORS AND IN THAT DIVISION, THEY DIVIDED THE STOCK OF IRON ORE AT THAT POINT OF TIME AS WELL. THE DISPUTE WAS SETTLED BY THE HONBLE HIGH COURT IN MARCH 1990 AND TILL DATE, EVEN AFTER 23 YEARS, THE ASSESSEE COMPANY HAS NOT HONOURED THE DECISION OF THE HIGH COURT ON THIS ISSUE. THE LIABILITY ARISING ON ACCOUNT OF HIGH COURT ORDER IS NO T A BUSINESS LIABILITY OF THE APPELLANT COMPANY AS THIS LIABILITY HAS NOT OCCURRED DURING THE COURSE OF BUSINESS. IT IS A SETTLEMENT AND DISTRIBUTION OF PROPERTIES BETWEEN FAMILIES. THE LIABILITY ARISING ON ACCOUNT OF THIS SETTLEMENT IS PURELY PERSONAL IN NATURE AND NOT A BUSINESS LIABILITY FOR ALLOWING IT AS EXPENDITURE. THE HONOURABLE HIGH COURT HAS NOWHERE DECREED THAT THIS IS TO BE ALLOWED AS EXPENDITURE IN THE HANDS OF THE APPELLANT COMPANY IN COMPUTING BUSINESS INCOME UNDER THE PROVISION OF I.T. ACT. BY NO STRETCH OF IMAGINATION, THE HONOURABLE COURT INTENDED TO DECIDE AS TO HOW THESE COMPANIES WILL CARRY OUT THEIR BUSINESS IN TIMES TO COME. IN ESSENCE, WHAT THE COURT DIVIDED AMONG SUCCESSORS WAS THE CAPITAL, AND NOT THE MANNER IN WHICH BUSINESS HAD TO BE CARRIED OUT. THERE WAS STOCK AND THE STOCK HAD TO BE DIVIDED. BUT THE DIVISION OF STOCK SHOULD NOT BE CONFUSED WITH THE PROFITABILITY OF THE BUSINESS. IN COMPANIES BOOKS, THERE CANNOT BE ANY LOSS IN ITS P&L ACCOUNT BECAUSE OF THE ORDER OF THE HONOURAB LE HIGH COURT. THE LOSS... WHICH HAS ARISEN BECAUSE OF HIGHER COST OF PRODUCTION COMPARED TO THE CONSIDERATION RECEIVABLE ON TRANSFER OF STOCK TO M/S. SALGAOKAR MINING INDUSTRIES LTD. AND M/S SALITHO ORES LTD., HAS TO BE REDUCED FROM THE CAPITAL ACCOUNT OF THE APPELLANT COMPANY WITHOUT AFFECTING THE BUSINESS PROFITABILITY OF THE ASSESSEE COMPANY IN ANY MANNER. ORDER OF THE HONBLE COURT SHOULD NOT BE CONFUSED WITH THE MARKET PRICE, AS THE COURT WAS DIVIDING ASSETS AND LIABILITIES AND NOT DECIDING THE MANNER IN WHICH BUSINESS HAD TO BE CARRIED OUT. FURTHER FOR ALLOWING THE LIABILITY U/S 37, FOLLOWING CONDITIONS MUST BE FULFILLED: A) EXPENDITURE NOT SPECIFIED IN SEC. 30 TO 36. B) NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE C) NOT BEING IN THE NATURE OF PERSONAL EXPENSES. D) SHOULD BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. E) EXPENDITURE WHAT IS PAID OUT OR PAID AWAY IS SOMETHING WHICH IS GONE AWAY IRRETRIEVABLY. 12 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) THESE PROVISIONS REGARDING ALLOWABILITY OF EX PENDITURE ALSO GETS SUPPORTED BY THE DECISIONS IN THE CASES OF J.K. COTTON MFRS. LTD. VS. CIT (SC) 101 ITR 221 AND CIT VS. INDIAN MOLASSES CO. (P) LTD. (SC) 78 ITR 474. F) A MERE LIABILITY TO SATISFY AN OBLIGATION IS NOT EXPENDITURE; A MERE FORBEARANCE TO REALISE A CLAIM IS NOT EXPENDITURE - CIT VS. NATIONAL BANK LTD. (SC) 62 ITR 638. 5.5. IN VIEW OF THE ABOVE DISCUSSION, IN MY OPINION, THE APPELLANT HAD INCORRECTLY VALUED ITS STOCK, BY NOT VALUING THE STOCK AT COST OR MARKET VALUE, WHICHEVER IS LOWER. IN THE INSTANT CASE, THE COST IS LOWER THAN THE MARKET VALUE, AND THE A.O. HAS CORRECTLY, ADOPTED THE COST TO VALUE THE STOCK OF IRON ORE OF THE APPELLANT. WHENEVER APPELLANT TRANSFERS THE STOCK OF IRON - ORE TO THESE TWO CONCERNS, THE CORRESPONDING LOSS NEEDS TO BE GIVEN EFFECT IN THE CAPITAL ACCOUNT WITHOUT DISTURBING THE BUSINESS PROFITS. THE ORDER OF THE A.O. ON THIS ISSUE IS CONFIRMED, ACCORDINGLY AND THE APPEAL OF THE APPELLANT IS REJECTED. 6.1 THE LD. AR BEFORE US CONTENDED THAT THE ASSESSEE IS CONSISTE NTLY VALUING THE CLOSING STOCK IN RESPECT OF ITEMS WHICH ARE TO BE SOLD BY THE ASSESSEE TO THE VARIOUS PARTIES AT THE PRE - DETERMINED RATE AS PER ORDER OF THE HON'BLE HIGH COURT DT. 14.3.1990 . IN THE CASE OF THE ASSESSEE THERE HAD BEEN A FAMILY LITIGATION AMONG THE MEMBERS OF THE PROMOTERS OF THE COMPANY. ULTIMATELY, A PETITION FOR OPPRESSION AND MISMANAGEMENT WAS FILED U/S 397 & 398 OF THE COMPANIES ACT. SUBSEQUENTLY, A COMPROMISE DECREE WAS PASSED BY THE HON'BLE BOMBAY HIGH COURT, GOA BENCH VIDE ORDER D T. 14.3.1990. AS PER THE SAID ORDER , THE ASSESSEE HAS TO SELL THE AGGREGATE QUANTITY OF 334127 MT OF IRON ORE AT AN AGGREGATE PRICE OF RS. 1,29,17,000/ - TO RESPONDENT NO. 14 BEING M/S. SALGAONCAR MINING INDUSTRIES LTD. THE ASSESSEE IS ALSO REQUIRED TO SE LL 2,99,880 MT OF ROM AT AN AGGREGATE PRICE OF RS. 1,60,00,000/ - TO RESPONDENT NO. 29, M/S. SALITHO ORES LTD. THE ASSESSEE HAS SOLD 160900 MT IRON ORE FOR A SUM OF RS. 62,20,225/ - TO M/S. SALGAONCAR MINING INDUSTRIES LTD. TO WHICH THE BALANCE QUANTITY OF 1,73,227 MT ARE TO BE SOLD AT THE STIPULATED PRICE WHICH HAS NOT BEEN LIFTED SO FAR BY THE PURCHASER. SIMILARLY, IN THE CASE OF M/S. SALITHO ORES LTD., THE ASSESSEE HAS SOLD 1,08,559 MT OF ROM AND THE BALANCE QUANTITY OF 1,91,321 MT HAS TO BE SOLD. THE A SSESSEE, THEREFORE, VALUED THE BALANCE QUANTITY OF IRON 13 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) ORE AT THE STIPULATED PRICE. FOR THIS , OUR ATTENTION WAS DRAWN TOWARDS PARAGRAPH 87 & 88 OF THE ORDER OF THE HON'BLE HIGH COURT AND NOTE NO. 10(A ) AND 10( B) OF THE SCHEDULE 23 OF THE AUDITED BALANCE SHEET A ND PROFIT & LOSS ACCOUNT. REFERENCE WAS ALSO INVITED TOWARDS THE DETAILS OF THE VALUATION OF IRON ORE STOCK AS ON 31.3.2006. IT WAS POINTED OUT THAT THE ROM OF 93,387 MT AND 1,91,321 MT WAS VALUED AT RS. 38.66/MT AND RS. 53.35/MT RESPECTIVELY. SI MILARLY, THE SCREENED FINES OF 79,840 MT WAS VALUED AT RS. 38.66/MT. WHEN THE LD. AR WAS QUESTION DURING THE COURSE OF THE HEARING THAT THE ASSESSEE WAS ALLOTTED AS PER PARA 87(A) OF THE HON'BLE HIGH COURT ORDER AGGREGATE QUANTITY OF 3,34,127 MT CONSISTIN G OF ROM NIL, LUMPY ORE 93,387 MT AND FINES 2,40,740 MT, HOW THE ASSESSEE CAN VALUE THE ROM AT THE PRICE AT WHICH THE ASSESSEE HAS TO SELL IT TO M/S. SALITHO ORES LTD. IN THIS REGARD, A CLARIFICATION WAS SUBMITTED BY THE ASSESSEE AS PROMISED VIDE LE TTER DT. 2.11.2013 THAT THE COMPANY HAS STOCK OF R OM WHICH IS AVAILABLE FOR CONVERSION. THE COMPANY FROM THE BEGINNING INTENDED TO SUPPLY THE QUANTITY OF 93,387 MT OF LUMPY FROM THE AVAILABLE QUANTITY OF ROM AFTER CONVERSION AND THEREFORE THE SAID EARMARK ED STOCK OF ROM HAS BEEN VALUED AT THE PRICE AS STIPULATED BY THE HON'BLE HIGH COURT. THE ASSESSEE HAS CONSISTENTLY VALUED THE INVENTORIES OF THESE ITEMS FOR THE LAST SO MANY YEARS AT THE SAME VALUE AND DEPARTMENT HAS ALSO ACCEPTED THE SAME. HOWEVER, UND ER PROTEST AND WITHOUT PREJUDICE TO THE LEGAL SUBMISSIONS IN ASSESSEES LETTER DT. 23.2.2006, IN ORDER TO BUY PEACE AND IN ORDER TO AVOID PROTRACTED LITIGATION , BASED ON THE DISCUSSION THE ASSESSEE HAD WITH THE ADDL. CIT AS WELL AS CIT THE ASSESSEE AGREED TO REVISE VALUATION OF CLOSING STOCK AS ON 31.3.2006. IT WAS CONTENDED THAT THE ASSESSEE IS CONTINUOUSLY MAINTAINING THE SAME STOCK SO THAT WHENEVER THE RESPONDENT NOS. 14 & 29 AS PER THE HON'BLE HIGH COURT ORDER ASK FOR THE BALANCE QUANTITY, IT CAN BE SO LD TO THEM. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BANNARI AMMAN SUGAR MILLS LTD., 349 ITR 709 IN WHICH IT WAS HELD THAT THE CLOSING STOCK OF INCENTIVE SUGAR HAS TO BE 14 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) VALUED AT THE LEVY PRICE WHICH WA S LESS THAN THE COST PRICE AS THE ASSESSEE HAS TO SELL 60% OF THE SUGAR MANUFACTURED BY HIM AT THE LEVY PRICE. RELIANCE WAS ALSO PLACED ON THE DECISION OF SANJEEV WOOLEN MILLS VS. CIT, 279 ITR 434 IN WHICH IT WAS HELD THAT NO PRINCIPLE CAN JUSTIFY THE VAL UATION OF THE CLOSING STOCK AT A MARKET RATE HIGHER THAN THE COST. VALUATION OF THE CLOSING STOCK AT MARKET RATE IS PERMISSIBLE ONLY IF THE MARKET VALUE OF THE STOCK IS LOWER THAN THE COST OF THE STOCK. ATTENTION WAS ALSO DRAWN TO PG. 437 FOR THE FACTS O F THE CASE AND TO PG. 441 & 442 FOR THE PROPOSITION OF LAW THAT THE ASSESSEE MAY EMPLOY WHICHEVER BASIS OF VALUATION OF THE STOCK IN HAND. IT MUST ADHERE TO THAT CONSISTENTLY YEAR AFTER YEAR. CASUAL DEPARTURE OF THE VALUATION OF THE TRADING STOCK IN HAND AT COST OR MARKET VALUE IS NOT PERMISSIBLE. REGULAR METHOD OF ACCOUNTING ADOPTED CANNOT BE REJECTED BY THE AO MERELY ON THE BASIS OF PROFIT EARNED OR LOSS SUFFERED BY THE ASSESSEE IN A PARTICULAR YEAR. BUT THAT CAN BE CERTAINLY A REASON FOR THE AO TO MAKE DEEPER PROBE OF THE ACCOUNTS TO FIND OUT WH ETHER THE ACCOUNTS REFLECTS THE REAL INCOME, PROFIT & LOSS OF THE ASSESSEE. ATTENTION WAS ALSO DRAWN TOWARDS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM V. COMMISSIONER OF INCOME - TAX , 24 ITR 481. RELIANCE WAS ALSO PLACED O N THE DECISION OF K. MOHD. ADAM SAHIB VS. CIT, 56 ITR 360 ( SUPRA ) FOR THE PROPOSITION OF LAW THAT IF THE GOODS DO NOT HAVE ANY DEMAND, THE ASSESSEE IS ENTITLED TO VALUE THE GOODS AT NIL . IT WAS POINTED OUT THAT IN THE TAX AUDIT REPORT THERE IS NO QUALIFIC ATION IN RESPECT OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE OR WHETHER THERE IS A CHANGE IN THE METHOD OF ACCOUNTING. 6.1.1 ALTERNATELY, IT WAS SUBMITTED THAT IN CASE THE BENCH DOES NOT AGREE, THE OPENING STOCK SHOULD ALSO BE RE - VALUED SO AS TO ASCERTAIN THE REAL PROFIT CHARGEABLE TO TAX FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD, RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS : 15 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) CIT VS. AHMEDABAD NEW COTTON MILLS CO. LTD., [1929] 4 ITC 245 (PC) CIT VS. BENGAL JUTE MILLS CO. LTD., (1992) 107 CTR (CAL) 34 RADHESHYAM AGRAWAL & CO. VS. CIT, 220 ITR 564 (MP) CIT VS. MAHAVIR ALUMINIUM LTD., 297 ITR 77 (DEL) 6.2 THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW. HIS CONTENTION WAS THAT IT IS NOT A CASE OF VALUING THE STOCK AT MARKET VALUE OR NET REALIZABLE VALUE. IT IS A CASE WHERE THE ASSESSEE AS PER THE FAMILY ARRANGEMENT GOT THE CONS ENT DECREE FROM THE HON'BLE HIGH COURT AND ASSESSEE HIMSELF SPECIFIED THE PARTICULAR VALUE AT WHICH THE STOCK HAD TO BE TRANSFERRED TO THE OTHER PARTIES BELONGING TO ONE PART OF THE LARGER FAMILY. THE MARKET VALUE IS THE PRICE AT WHICH THE WILLING BUYER I S READY TO BUY AND THE WILLING SELLER IS READY TO SELL. THE STOCK HAS BEEN VALUED BY THE ASSESSEE AT A PRICE WHICH IS NEITHER THE COST NOR THE MARKET VALUE. THE ASSESSEE HAS NOT COMPLIED WITH THE ORDER OF THE HON'BLE HIGH COURT FOR THE LAST OVER 23 YEARS AND THERE IS NO INTENTION TO COMPLY WITH THE ORDER OF THE HON'BLE HIGH COURT. IF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT CORRECT, THEN, THE AO WILL BE FREE TO VALUE THE STOCK IN ACCORDANCE WITH THE CORRECT METHOD OF ACCOUNTING. RELIANCE WA S PLACED ON THE ORDER OF CIT(A). IN RESPECT OF THE ALTERNATE PLEA, IT WAS SUBMITTED THAT NO ADJUSTMENT IN THE OPENING STOCK HAS TO BE MADE IN VIEW OF THE DECISION OF THE JURISDICTION HIGH COURT IN THE CASE OF MELMOULD CORPORATION VS. CIT, 202 ITR 789. RELIANCE WAS ALSO PLACED IN THIS REGARD ON THE FOLLOWING DECISIONS : CIT VS. MOPEDS INDIA LTD., 173 ITR 347(AP) KANTILAL CHANDULAL DHARIA VS. CIT, 104 ITR 487 (BOM) 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS WHICH WERE CITED BEFORE US. AS PER AS - 2 AS HAS BEEN 16 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) ANNOUNCED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ( ICAI ) , STOCK HAS TO BE VALUED AT COST OR MARKET VALUE, W HICHEVER IS LESS. U/S 145 OF THE INCOME TAX ACT INCOME CHARGEABLE UNDER THE HEAD PROFIT & GAINS OF BUSINESS AND PROFESSION HAS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THERE IS NO DISPUTE THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. SEC. 145(2) EMPOWERS THE CENTRAL GOVERNMENT TO NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THESE ACCOUNTING STANDARDS ARE MANDATORY TO BE FOLLOWED IN VIEW OF THE PROVISIONS OF SEC. 145(3). IN EXERCISE OF THE POWERS GIVEN U/S 145(2), THE CENTRAL GOVERNMENT NOTIFIED TWO ACCOUNTING STANDARDS; FIRST ACCOUNTING STANDARD DEALS W ITH THE DISCLOSURE OF THE ACCOUNTING POLICIES. THE AS - 2 DEALS WITH THE DISCLOSURE OF THE PRIOR PERIOD AND EXTRAORDINARY ITEMS AND CHANGE IN THEIR ACCOUNTING POLICIES. PARA 4 OF THE AS - 1 LAYS DOWN AS UNDER: 4. ACCOUNTING POLICIES ADOPTED BY AN ASSESSE E SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AND APPLICATION OF ACCOUNTING POLICIES ARE FOLLOWING, NAMELY : - (I) PRUDENCE PROVISIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT B E DETERMINED WITH CERTAIN TY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. (II) SUBSTANCE OVER FORM THE ACCOUNTING TREATMENT AND PRESENTATION IN FINANCIAL STATEMENTS OF TRANSACTIONS AND EVENTS SHOULD BE GOVERNED BY THEIR SUBSTANCE AND NOT MERELY BY THE LEGAL FORM; (III) MATERIALITY - FINANCIAL STATEMENTS SHOULD DISCLOSE ALL MATERIALS ITEMS, THE KNOWLEDGE OF WHICH MIGHT INFLUENCE THE DECISIONS OF THE USER OF THE FINANCIAL STATEMENTS. 17 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 6.3.1 ON THE BASIS OF PARA GRAPH 4, THE ACCOUNTING POLICIES SELECTED BY THE ASSESSEE MUST BE BASED ON PRUDENCY, SUBSTANCE OVER FORM AND MATERIALITY. THIS PARAGRAPH RECOGNIZES PRUDENCY TO BE ONE OF THE MAJOR CONSIDERATIONS FOR APPLYING THE ACCOUNTING POLICIES. THIS REQUIRES THAT PROVISION SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF THE AVAILABLE INFORMATION . THUS, IT RECOGNIZES ANTICIPATE ALL THE LOSSES BUT DO NOT PROVIDE FOR THE PROFIT UNTIL AND UNLESS THEY ARE REALIZED. VALUING THE C LOSING STOCK AT COST OR MARKET VALUE, WHICHEVER IS LESS IS A WELL - ESTABLISHED METHOD OF ACCOUNTING AND THIS METHOD, IN OUR OPINION, IS BASED ON THE PRINCIPLES OF PRUDENCY. THE HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM V. COMMISSIONER OF INCOME - TAX , 24 ITR 481 ( SUPRA ) AS RELIED BY THE LD. AR, IN OUR OPINION, ACCEPTED THIS PRINCIPLE AS WE NOTED THAT THE HON'BLE SUPREME COURT EXPLAINED THE REASONS IN THE SAID DECISION FOR THE SAID PRACTICE AT PG. 485 AS UNDER : IT IS WRONG TO ASSUME THAT THE VALUATION OF THE CLOSING STOCK AT MARKET RATE HAS, FOR ITS OBJECT, THE BRINGING INTO CHARGE ANY APPRECIATION IN THE VALUE OF SUCH STOCK. THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COUR SE OF THE YEAR SHOWING THE PROFIT OR LOSS ACTUALLY REALISED ON THE YEARS TRADING. AS POINTED OUT IN PARAGRAPH 8 OF THE REPORT OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDING OF TRADING STOCKS, 1919. AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED, WHICH HAVE NOT BEEN SOLD, IT SHOULD NECESSARILY REPRESENT THE COST OF THE GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN THE EFFECT IS TO STATE THE PROFIT ON THE GOODS WHIC H ACTUALLY HAVE BEEN SOLD AT THE INCORRECT FIGURE. FROM THIS 18 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) RIGID DOCTRINE, ONE EXCEPTION IS VERY GENERALLY RECOGNISED ON PRUDENTIAL GROUNDS AND IS NOW FULLY SANCTIONED BY CUSTOM, VIZ., THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF T HAT VALUE IS LESS, THAN COST. IT IS OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON THOSE GOODS IN THE FOLLOWING YEAR, AND MAY EVEN HAVE THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEARS RESULTS A GREATER AMOUNT OF PROFIT T HAN THE DIFFERENCE BETWEEN THE ACTUAL SALE PRICE AND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION (EXTRACTED IN PARAGRAPH 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFIT PRESENTED TO BRITISH PARLIAMENT IN APRIL, 1951). WHILE ANTICIP ATED LOSS IS THUS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED PROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY UNDE RLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER THE LOWER IS, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. AS PROFIT FOR INCOME - TAX PURPOSES ARE TO BE COMPUTED IN CONFORMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS OF COURSE, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, UNREALISED PROFITS IN THE SHAPE OF APPRECIATED, VALUE OF GOODS REMAINING UNSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEARS ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALISED. AS TRULY OBSERVED BY ONE OF THE LEARNED JUDGES IN WHIMSTER AND CO. V. COMMISSIONERS OF INLAND REVENUE [1926] 12 TC 813,827. UNDER THIS LAW (REVENUE LAW) THE PROFITS ARE THE PROFITS REALISED IN THE COURSE OF THE YEAR. WHAT SEEM S AN EXCEPTION IS RECOGNISED WHERE A TRADER PURCHASED AND STILL HOLDS GOODS OR STOCKS WHICH HAVE FALLEN IN VALUE. NO LOSS HAS BEEN REALISED. LOSS MAY NOT OCCUR. NEVERTHELESS, AT THE CLOSE OF THE YEAR HE IS PERMITTED TO TREAT THESE GOODS OR STOCKS AS OF THE IR MARKET VALUE. 19 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 6 .3.2 THE ICAI IN THEIR AS - 2 HAVE RECOGNISED COST OR NET REALISABLE VALUE, WHICHEVER IS LESS TO BE THE METHOD FOR VALUING THE CLOSING STOCK. THE HON'BLE SUPREME COURT ALSO RECOGNISED THE METHOD OF VALUATION OF CLOSING STOCK AT COST O R MARKET VALUE, WHICHEVER IS LESS IN THE CASE OF SANJEEV WOOLEN MILLS V. CIT , 279 ITR 435 ( SUPRA ) WHEREIN IT WAS HELD THAT ON NO PRINCIPLE CAN ONE JUSTIFY THE VALUATION OF THE CLOSING STOCK AT MARKET RATE HIGHER THAN THE COST. PERMISSIBILITY OF THE VALUAT ION OF THE STOCK ON MARKET VALUE WOULD BE ONLY IF THE MARKET VALUE OF THE STOCK IS LOWER THAN THE COST OF THE STOCK. NO DOUBT, CHOICE OF THE METHOD OF THE ACCOUNTING LIES WITH THE ASSESSEE, BUT THE ASSESSEE IS REQUIRED TO SHOW THAT HE HAS FOLLOWED THE CHOS EN METHOD REGULARLY AND THE METHOD ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH THE LAW. THE ASSESSEE IN THE CASE BEFORE US CLAIMS THAT HE HAS VALUED THE STOCK IN RESPECT OF IRON ORE AT THE NET REALIZABLE VALUE, PART OF WHICH HAS BEEN DETERMINED IN ACCOR DANCE WITH THE ORDER OF THE GOA BENCH OF THE HON'BLE BOMBAY HIGH COURT DT. 14.3.1990 . 6.3.3 NOW, THE QUESTION BEFORE US IS WHETHER THE VALUE ADOPTED BY THE ASSESSEE FOR PART OF THE STOCK IN ACCORDANCE WITH THE ORDER OF THE HON'BLE BOMBAY HIGH COURT CAN BE REGARDED TO BE THE MARKET VALUE. THE ASSESSEE ALSO CLAIMS THAT THE ASSESSEE IS VALUING THAT PART OF THE STOCK CONSISTENTLY AT THE RATE AT WHICH THAT STOCK IS TO BE SOLD BY THE ASSESSEE AS PER THE ORDER OF THE HON'BLE BOMBAY HIGH COURT. IN OUR OPINION, IF THE METHOD ADOPTED FOR DETERMINING THE MARKET VALUE AS PER THE HON'BLE BOMBAY HIGH COURT ORDER IS CORRECT AND THE ASSESSEE HAS CONSISTENTLY AND REGULARLY ADOPTED THE SAME METHOD, THE AO CANNOT CHANGE THE METHOD. BUT IF THE METHO D ADOPTED BY THE ASSESSEE IN RESPECT OF PART OF THE INVENTORY FOR DETERMINING THE MARKET VALUE IS NOT CORRECT, IN OUR OPINION, THE AO CAN ASK THE ASSESSEE TO DETERMINE THE VALUE OF THAT PART OF THE STOCK IN ACCORDANCE WITH THE MARKET VALUE IT IF IS LOWER T HAN COST . OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD., 188 ITR 44. IN THAT DECISION, THE AO NOTED THAT THE 20 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) SYSTEM OF VALUATION OF THE STOCK IN TRADE AT COST WAS NOT CO RRECT AS THE COST WAS NOT PROPERLY DETERMINED. IF THE MARKET VALUE OF THE STOCK IN TRADE, IN OUR OPINION, HAS NOT BEEN CORRECTLY DETERMINED, IT CANNOT BE SAID THAT THE ACCOUNTS OF THE ASSESSEE ARE CORRECT OR COMPLETE. 6.3.4 WE NOTED THAT THE PANAJI BENCH OF THE HON'BLE BOMBAY HIGH COURT IN COMPANY PETITION NO. 1 OF 1983 IN THE CASE OF ANIL VASUDEVA SALGAONCAR & ORS. VS. V.M. SALGAONCAR & ORS. IN RESPECT OF SELLING OF THE ROM LUMP ORES AND FINES HAS IN PARA 87 AND 88 OF ITS ORDER DT. 14.3.1990 ON A COMPROM ISE DECREE HELD AS UNDER : 87.(A) ORDERED AND DECREED THAT THE FOLLOWING QUANTITIES OF IRON ORE SHALL BE ALLOTTED TO THE G ROU P OF PETITIONERS N O. 1, 2 & 3: VMSB SALLITHO (RESPONDENT NO. 8) (RESPONDENT NO. 29) R.O.M. - 2,71,233 M.T. LUMPY ORE 93,387 1,02,991 FINES 240,740 -- (B) OUT OF THE ABOVE QUANTITIES, THE QUANTITY OF ORE BELONGING TO RESPONDENT NO.29 W I LL CONTINUE TO REMAIN WITH R E S PONDENT NO.29, THE SHAREHOLDING OF WHICH HAS BEEN ORDERED TO BE TRANSFERRED TO THE GROUP OF PETITIONERS NO. 1, 2 & 3. (C) THE AGGREGATE QUANTITY OF 334127) TONNES OF ORE BELONGING TO RESPONDENT NO.8 S HALL BE SOLD TO RESPONDENT NO. 14 A T OR FOR THE AGGREGATE PRICE OF R S .1,29,17,000/ - . (D) OUT OF THE ABO VE QUANTITIES OF IRON ORE, THE FOLLOWING QUANTITIES ARE IN POSSESSION OF RESPONDENT NO. 8 : R.O.M 63,300 METRIC TON N ES LUMPY ORE 32,200 FINES 16,600 THIS ORE SHALL CONTINUE TO BE RETAINED BY RESPONDENT NO. 8 A N D SHALL BE DEALT WITH AS DIRECTED HEREINBELOW. 21 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 88. ORDERED AND DECREED THAT RE S PPON D ENT NO. 8. SHALL SELL 299,88 0 METRIC TO NN ES OF ROM TO RE S POND N ENT NO.29 AT AN AGGREGATE PRICE OF RS.1,60,00,000/ - . THE ORE SHALL BE SOLD AND DELIVERED AT VAGUS IN CONVENIE NT LOTS AGAINST PAYMENT OF PRICE IN RESPECT OF EACH SUCH LOT AS MAY BE DETERMINED BY RESPONDENT NO.8 . WE NOTED THAT IN SCHEDULE XXIII FORMING PART OF THE AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS GIVEN FOLLOWING NOTES : 10.A) AS PER THE ORDER DATED 14TH MARCH,1990, THE COMPANY IS REQUIRED TO SELL AGGREGATE QUANTITY OF 334,127 TONS OF IRON ORE AT AN AGGREGATE PRICE OF RS.12,917,000 SUBJECT TO THE CONDITIONS STIPULATED IN THE ORDER. OUT OF THE SAID QUANTITY 160,900 TONS HAVE BEEN SOLD AT THE AGGREGATE PRICE OF RS.6,220,225 AT THE STIPULATED RATES. BALANCE QUANTITY OF 173,227 TONS TO BE SOLD AT THE AFORESAID STIPULATED PRICE HAS NOT TILL DATE BEEN LIFTED BY THE PURCHASER OR DELIVERED BY THE COMPANY. THE AFORESAID QUANTITY OF THE IRON ORE HAS BEEN INCLUDED IN THE CLOSING STOCK AT THE AFORESAID STIPULATED PRICE. B) AS PER THE ORDER DATED 14TH MARCH, 1990, THE COMPANY IS REQUIRED TO SELL 299,880 METRIC TONS OF R.O.M. AT AN AGGREGATE PRICE OF RS. 16,000,000 AGAINST PAYMENT OF THE AFORESAID STIPULATED PRICE. ACCORDINGLY, THE COMPANY HAS SOLD 108,559 TONS OF R.O.M. IN TH E EARLIER YEARS AND THE BALANCE QUANTITY 191,321 METRIC TONS OF R.O.M. WILL BE ACCOUNTED AS AND WHEN SUCH SALE TAKES PLACE. IN THE SAME SCHEDULE, THE ASSESSEE HAS DISCLOSED THE ACCOUNTING POLICY IN RESPECT OF THE INVENTORIES THAT THE STOCK IN TRADE OF IR ON ORE IS VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESSER. WE HAVE ALSO NOTED THAT THE ASSESSEE HAS VALUED THE IRON ORE STOCK AS ON 31.3.2006 IN THE FOLLOWING MANNER : SR. NO PARTICULARS LOCATION QUANTITY TONS RATE AMOUNT RS. PS. 1. R.O.M (LESS: REJECTION & TAILINGS) - RS.156.22+RS.7.86 VAGUS PLOT 600,629 164.08 98,551,206.32 - DO - 93,387* 38.66*** 3,610,243.94 - DO - 191,321** 53.35*** 10,207,869.81 2. CHIPS (LESS: REJECTION & TAILINGS) - RS.156.22+RS.7.86 - DO - 362,880 164.08 59,541,350.40 3. SCREENED FINES - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 388,729 241.94 94,049,094.26 - DO - 79,840* 38.66*** 3,086,531.06 22 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 4. IRON ORE LYING AT HOSPTE/YESHWANT NAGAR 18,450 16,593,467.79 5. SCREENED FINES A) LOANED TO M/S. SALGAOCAR MIN. IND. LTD. - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 49,159 241.94 11,893,528.46 B) LOANED TO M/S. SALGAOCAR MIN. IND. LTD. - RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 29,880 241.94 7,229,167.20 C) LOANED TO OTHERS RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 10,052 241.94 2,431,980.88 6. LUMPY LOANED TO OTHERS RS.156.22+RS.7.86+RS.58.22+RS.19.64 - DO - 2,303 241.94 557,187.82 7. SCREENED FINES RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.57. 5 0 BERTH NO. 9 40,400 299.44 12,097,376.00 8. LUMPY RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.57. 5 0 BERTH NO. 9 4,000 299.44 1,197,760.00 1,871,030 321,046,763.94 LESS: 9. LOANED BY OTHERS TO US SCREENED FINES (NET) RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.5 5 . 5 0 BERTH NO. 9 29,591 299.44 8,860,729.04 LUMPY (NET) RS.156.22+RS.7.86+RS.58.22+RS.19.64+RS.5 5 . 5 0 BERTH NO. 9 (539) 299.44 (161,398.16) 29,052 8,699,330.88 ADD: VALUE OF 168.636 TONS CONSIDERED AS TAILINGS 164.08 27,669,794.88 1,841,978 340,017,227.94 * QUANTITY EARMARKED FOR SALE TO SMIL AS PER ORDER DATED 14 TH MARCH, 1990 ** QUANTITY EARMARKED FOR SALE TO SOL AS PER ORDER DATED 14 TH MARCH, 1990 *** AVERAGE RATE AS PER THE ORDER FROM PARA 87(A) OF THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, IT IS APPARENT THAT THE ASSESSEE WAS ALLOTTED FOLLOWING QUANTITIES OF IRON ORE : ROM - NIL LUMPY ORE - 93387 TONS FINES - 240740 TONS TOTAL 334127 TONS A S PER PARA 87(C), THE SAME IRON ORE WHICH CONSISTS OF LUMPY ORE AND FINES HAS TO BE SOLD BY THE ASSESSEE FOR THE AGGREGATE PRICE OF RS.1,29,17,000/ - TO THE OTHER GROUP COMPANY, VIZ. M/S. SALGAOCAR MINING INDUSTRIES LTD. WE NOTED THAT AS PER NOTE NO. 10(A) OF SCHEDU LE XIII, THE ASSESSEE HAS SOLD 160900 TONS OUT OF 23 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) 334127 TONS FOR RS. 62,20,225/ - TO M/S. SALGAONCAR MINING INDUSTRIES LTD. AND THE BALANCE QUANTITY OF 173227 TONS IS TO BE SOLD BY THE ASSESSEE TO THE SAID COMPANY. THE ASSESSEE HAS VALUED THIS 173227 TONS IN THE FOLLOWING MANNER AS PER THE VALUATION OF THE IRON ORE STOCK AS ON 31.3.2006 : ROM - 93387 TONS @ RS.38.66 SCREENED FINES 79840 TONS @ RS.38.66 IN THE VALUATION DETAILS OF THE IRON ORE, WE NOTED THE ASSESSEE HAS LUMPY ORE OF ONLY 2303 TONS WHI CH HAS BEEN VALUED @ RS.241.94 PER TON . THESE DETAILS PROVE THAT THE ASSESSEE IS NOT MAINTAINING THE SAME CATEGORY OF THE IRON ORE IN EACH OF THE YEAR FOR SELLING TO M/S. SALGAONCAR MINING INDUSTRIES LTD. THE ASSESSEE IS SUPPOSED TO SELL LUMPY ORE (93387 TONS) BUT THE ASSESSEE HAS VALUED THE ROM 93387 TONS @ RS.38.66. THE ASSESSEE IS NOT HAVING THE STOCK IN RESPECT OF THE LUMPY ORE TO THE EXTENT OF 93387 TONS. THE STOCK OF LUMPY ORE IS ONLY 2303 TONS WHICH HAS ALSO BEEN LOANED BY THE ASSESSEE TO OTHER S ALTHOUGH AT BERTH NO. 9 THE ASSESSEE HAS SHOWN LUMPY ORE OF 4000 WHICH WAS VALUED AT RS. 299.44. WE HAVE ALSO NOTED FROM PARA 87(D) OF THE HON'BLE BOMBAY HIGH COURT ORDER THAT THE ASSESSEE WAS HAVING IN HIS POSSESSION THE FOLLOWING CATEGORIES OF IRON OR E : - ROM - 63300 TONS LUMPY ORE - 32200 TONS FINES - 16600 TONS AS PER PARA 88 OF THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, ASSESSEE HAS TO SELL AND DELIVER ROM MEASURING 299880 MT TO M/S. SALITHO ORES LTD. AT A PRICE OF RS.1,60,00,000/ - . IN NOTE NO. 10(B) TO THE SCHEDULE XXIII WE NOTED THAT THE ASSESSEE HAS ALREADY SOLD 108559 MT OF ROM TO M/S. SALITHO ORES LTD. AND THE BALANCE QUANTITY OF 191321 MT HAS TO BE SOLD BY THE ASSESSEE TO THE SAID 24 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) COMPANY. THUS, THE ASSESSEE AS ON THE DATE OF THE HIGH COUR T ORDER WAS NOT HAVING 299880 MT OF ROM AND ASSESSEE WAS HAVING ONLY 63300 MT OF ROM. THE BALANCE QUANTITY OF ROM HAS TO BE SOLD BY THE ASSESSEE AND DELIVERED AT VAGUS IN CONVENIENT LOTS AGAINST THE PAYMENT OF THE PRICE IN RESPECT OF EACH SUCH LOTS. WE A LSO NOTED FROM THE VALUATION OF THE IRON ORE STOCK THAT THE ASSESSEE HAS VALUED 191321 MT OF ROM @ RS. 53.35. THE ORDER OF THE HON'BLE BOMBAY HIGH COURT DID NOT STATE THAT THE ASSESSEE HAS TO SEGREGATE AND KEEP THE STOCK OF THIS MUCH ROM. WHENEVER THE SA LES WILL TAKE PLACE, THE ASSESSEE HAS TO ACCOUNT FOR IT AT THE TIME IN HIS BOOKS OF ACCOUNTS. IN VIEW OF THIS FACT, AS FOUND BY US, WE DO NOT AGREE WITH THE ASSESSEE THAT THE ASSESSEE WAS CONTINUOUSLY MAINTAINING THE ROM TO THAT EXTENT. EVEN IF WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE PRICE AS HAS BEEN ORDERED BY THE HON'BLE BOMBAY HIGH COURT IS THE MARKET PRICE IN RESPECT OF THAT PART OF THE IRON ORE, THE ASSESSEE CANNOT VALUE THE ROM MEASURING 93387 MT @ RS. 38.66 AS THE ASSESSEE HAS TO DELIVER THE LUMPY AND SCREENED FINES TO M/S. SALGAONCAR MINING INDUSTRIES LTD. SIMILARLY, IN RESPECT OF ROM OF 191321 MT TO BE SOLD TO M/S. SALITHO ORES LTD, THE ASSESSEE CANNOT VALUE IT AT THE RATE OF RS.53.35 AS ON THE DATE OF THE DECISION OF THE HON'BLE BOMBA Y HIGH COURT WHATEVER STOCK THE ASSESSEE HAD IN HIS POSSESSION, THE SAME HAS BEEN DELIVERED TO IT. THE LOSS IN THIS REGARD WILL ACCRUE TO THE ASSESSEE ONLY WHEN THE SALE WILL TAKE PLACE, NOT PRIOR TO THAT. THEREFORE, IN OUR OPINION, THE ASSESSEE HAS NOT CORRECTLY VALUED THE IRON ORE STOCK IN RESPECT OF ROM OF 93387 MT AND 191321 MT @ RS.38.66/MT AND RS.53.35/MT RESPECTIVELY AS THESE QUANTITIES HAVE TO BE DELIVERED SUBSEQUENT TO THE ORDER OF THE HON'BLE BOMBAY HIGH COURT AND THE RATE AS HAS BEEN MENTIONED BY THE HON'BLE BOMBAY HIGH COURT WILL NOT APPLY TO THESE QUANTITIES OF ROM. 6.3.5 NOW, THE QUESTION ARISES BEFORE US IS WHETHER THE PRICE FIXED BY THE HON'BLE BOMBAY HIGH COURT B E REGARDED TO BE THE MARKET PRICE. THE MARKET 25 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) VALUE MEANS WHAT THE WILLING P URCHASER WOULD PAY TO THE WILLING SELLER FOR A PARTICULAR COMMODITY HAVING DUE REGARD TO ITS EXISTING UTILITY, ADVANTAGE. THE MARKET VALUE IS WHAT SOMETHING WOULD BRING IF IT WERE FOR SALE IN THE OPEN MARKET. IT IS USUALLY FIXED BY THE MARKET FORCES DEPE NDING UPON THE DEMAND AND SUPPLY. THE HON'BLE BOMBAY HIGH COURT PASSED THE ORDER IN PURSUANCE OF THE DISPUTE ARISING OUT OF THE FAMILY ARRANGEMENT/SETTLEMENT. THE VARIOUS ISSUES TAKEN BEFORE THE HON'BLE BOMBAY HIGH COURT WAS TOWARDS THE DIVISION OF THE A SSETS AND LIABILITIES BELONGING TO THE UNDIVIDED FAMILY AND IT IS INDISPUTABLY FOR MAKING EQUITABLE FAMILY SETTLEMENT. THE ASSETS OF THE FAMILY ARE DIVIDED AMONG THE VARIOUS FAMILY MEMBERS. EVEN THE STOCK OF IRON ORE AT THAT TIME WAS ALSO DIVIDED. THE L IABILITY ARISING DUE TO THE ORDER OF THE HON'BLE BOMBAY HIGH COURT, IN OUR OPINION, CANNOT BE A BUSINESS LIABILITY AS THE PRICE REALIZED BY THE ASSESSEE CAN ALSO NOT BE THE MARKET PRICE BUT THE PRICE PUT BY THE HON'BLE BOMBAY HIGH COURT IS FOR THE PURPOSE OF SETTLING THE DISPUTE MUTUALLY AMONG THE FAMILY MEMBERS AND DISTRIBUTE THE VARIOUS ASSETS AND LIABILITIES BY PUTTING CERTAIN VALUE TO THEM . IT CANNOT BE REGARDED TO BE SALE AT THE OPEN MARKET. IF ANY LOSS IS INCURRED BY THE ASSESSEE, THAT CANNOT BE REG ARDED TO HAVE BEEN INCURRED DURING THE COURSE OF THE BUSINESS. 7. NOW COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT OPENING STOCK OF THE IMPUGNED ASSESSMENT YEAR SHOULD ALSO BE RE - VALUED ON THE BASIS AT WHICH THE CLOSING STOCK HAS BEEN RE - VALUED SO AS TO ASCERTAIN THE REAL PROFIT CHARGEABLE TO TAX FOR THE YEAR UNDER CONSIDERATION. W E HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THIS REGARD AND WE NOTED THAT JURISDICTION HIGH COURT IN THE CASE OF MELMOULD CORPORATION VS CIT (MUM.) 202 ITR 789 EVEN AFTER CONSI DERING THE DECISION OF THE PRIVY - COUN CI L IN THE CASE OF CIT VS AHM EDABAD NEW COTTON MILL S CO. LTD . , 4 ITC 245 (PC) TOOK THE VIEW THAT THE CHANGE HAS TO BE EFFECTIVE BY ADOPTING THE NEW METHOD FOR VALUING THE CLOSING STOCK WHICH WILL, IN ITS TURN, BECOME THE VALUE OF OPEN ING STOCK OF THE NEXT YEAR. IF, INSTEAD, A PROCEDU RE IS 26 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) ADOPTED FOR CHANGING THE VALUE OF THE OPENING STOCK ALSO, IT WILL LEAD TO A CHAIN REACTION OF CHANGES IN THE SENSE THAT THE CLOSING VALUE OF THE STOCK OF THE YEAR PRECEDING WILL ALSO HAVE TO CHANGE AND CORRESPONDINGLY THE VALUE OF THE OPENING STOCK OF THAT YEAR AND SO ON. SIMILAR VIEW HAS BEEN ADOPTED BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS MOPEDS INDIA LTD, 173 ITR 347. BEFORE THE ANDHRA PRADESH HIGH COURT, THE ASSESSEE WAS VALUING ITS CLOSING STOCK, IN THE PAST YEARS, BY WHAT IS KN OWN AS TOTAL COST METHOD IN WHICH THE PROPORTIONATE OVERHEADS FOR ADMINISTRATIVE EXPENSES, SELLING EXPENSES AND INTEREST IN STOCK VALUATION, WERE TAKEN INTO ACCOUNT. FOR THE ASSESSMENT YEAR IN QUESTION, THE ASSESSEE ADOPTED THE WORKS COST SYSTEM WHERE THE ADMINISTRATIVE OVERHEADS WERE NOT TAKEN INTO ACCOUNT. THE COURT HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE C OMMISSIONER (APPEALS) WAS NOT CORRECT IN DIRECTING THE INCOME - TAX OFFICER TO REVALUE THE OPENING STOCK ALSO CONSISTENTLY ALONG WITH THE CLOSING STOCK WHEN THE ASSESSEE WANTED TO ADOPT THE WORKS COST METHOD FOR THE RELEVANT ASSESSMENT YEAR. 8. WE ALSO NOTED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI HIGH COURT IN THE CASE OF KANTILAL CHANDULAL DARIA VS CIT, 104 ITR 487 (MUM) ALT HOUGH THE DECISION WAS RENDERED ON THE PECULIAR FACTS OF THAT CASE. IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT WE ARE OF THE PRIMA FACIE VIEW THAT THE OPENING STOCK NEED NOT BE RE - VALUED BUT WE NOTED THAT THIS ISSUE HAS NOT BEEN RAISED BY THE ASSESSEE BEFORE THE CIT(A). EVEN NO GROUND OF APPEAL IN THIS REGARD HAS BEEN TAKEN BEFORE THE CIT(A). THE ISSUE RAISED BY THE LD. SR. COUNSEL OF THE ASSESSEE IS A LEGAL ISSUE AND IN OUR OPINION CAN BE RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE T HE TRIBUNAL EVEN IF IT HAS NOT BEEN TAKEN BEFORE THE AUTHORITIES BELOW. WE THEREFORE, IN THE INTEREST OF THE JUSTICE AND FAIR PLAY TO BOTH THE PARTIES RESTORE THE ISSUE RELATING TO GROUND NO.4 BEFORE THE CIT(A) WITH THE DIRECTION THAT THE CIT(A) WILL DECID E THIS ISSUE AFTER CONSIDERING THE SUBMISSIONS MADE BY BOTH THE PARTIES IN ACCORDANCE WITH THE LAW AND CASE LAWS 27 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) AS MAY BE CITED BY BOTH THE PARTIES. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF THE M.P HIGH COURT IN THE CASE OF CIT VS TOLLARAM HASSOMAL, 298 ITR 22 (MP). 9. WE ACCORDINGLY DISMISS THE GROUND NO. 1 TO 3 AND ALLOW GROUND NO.4 STATISTICALLY. 10. GROUND NO. 5 RELATE TO THE DIRECTION TO BE GIVEN TO THE ASSESSING OFFICER TO TAKE THE OPENING STOCK OF ROM AND SCREENED FINES FOR THE AS SESSMENT YEAR 2007 - 08 IN CONSEQUENCE OF MAKING AN ADJUSTMENT TO THE CLOSING STOCK AS ON 31.3.2006. 11. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE AGREE WITH THE LD. SR. COUNSEL THAT THE VALUE OF THE CLOSING STOCK OF THE IMPUGNE D ASSESSMENT YEAR WILL BECOME THE VALUE OF THE OPENING STOCK OF THE SUCCEEDING ASSESSMENT YEAR. SINCE THE APPEAL BEFORE US RELATE TO THE ASSESSMENT YEAR 2006 - 07 OUR JURISDICTION ARE LIMITED TO GIVE THE FINDING IN RESPECT OF THE GROUND OF APPEAL RELATING TO THE IMPUGNED ASSESSMENT YEAR WE CANNOT DECIDE THE GRIEVANCE OF THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 2007 - 08. THIS ISSUE CAN BE TAKEN BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2007 - 08 IN ACCORDANCE WITH THE LAW BEFORE THE APPROPRIATE AUTHORITIES. WE THEREFORE, DISMISS THIS GROUND. ITA NO. 207/PNJ/2013 12. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATE TO NOT GIVING THE CONSEQUENTIAL DIRECTION BY THE CIT(A) IN CONFIRMING THE ADDITION IN THE CLOSING STOCK AS ON 31.3.2006 IN THE ASSESSMENT YEAR 2006 - 07. ON THIS ISSUE WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE AGREE WITH THE LD. SR. COUNSEL THAT THE CLOSING STOCK OF THE PRECEDING YEAR WILL BECOME THE OPENING STOCK OF THE SUCCEEDING. THE SAME VIEW HAS BEEN TAKEN AS REFERRED TO US BY WHILE DISPOSING OF THE APPEALS FOR THE ASSESSMENT YEAR 2006 - 07 BY THE HONBLE 28 ITA NOS.206 ,207,220&221/PNJ/2013 (ASST. YEARS :2006 - 07 & 2007 - 08) MUMBAI HIGH COURT IN THE CASE OF MELMOULD CORPORATION VS CIT, 202 ITR 789. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE BY THE LD. D.R. IN VIEW OF THIS , SINCE , WE HA VE ALREADY CONFIRMED THE ADDITION IN THE VALUATION OF THE CLOSING STOCK FOR THE A.Y 2006 - 07, WE DIRECT THE ASSESSING OFFICER TO TAKE THE SAME VALUE OF THE OPENING STOCK AS ON 1.4.2006 FOR DETERMINING THE PROFITS AND GAINS OF THE BUSINESS OF THE ASSESSEE FO R COMPUTING THE TAXABLE INCOME. THUS, THIS GROUND IS ALLOWED. 13 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE REVENUE STANDS DISMISSED WHILE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHILE THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 . 12 .2013. SD/ - SD/ - (D.T. GARASIA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 23 .12 .2013 *A* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT, PANAJI (4) CIT(A), PANAJI (5) D.R (6) GUARD FILE BY ORDER