DCIT, Circle - 1, Kolkata, Kolkata V. M/s. Stone India Limited, Kolkata

ITA 2200/KOL/2010

• Counselvise Citation: 220023514 RSA 2010
• Duration Of Justice: 4 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRIDHAR BHATTACHARYYA
• Assessee Lawyers: D S DAMLE

Judgement Text

I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 2200/KOL/ 2010 ASSESSMENT YEAR : 2007-2008 DEPUTY COMMISSIONER OF INCOME TAX,................. ...............APPELLANT CIRCLE-1, KOLKATA, AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. STONE INDIA LIMITED,.......................... .........................RESPONDENT 16, TARATALA ROAD, KOLKATA-700 088 [PAN : AAECS 4155 K] APPEARANCES BY: SHRI SRIDHAR BHATTACHARYYA, JCIT, SR. D.R., FOR THE DEPARTMENT SHRI D.S. DAMLE, FCA , FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : NOVEMBER 04, 2015 DATE OF PRONOUNCING THE ORDER : NOVEMBER 18, 2015 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 30.08.2010 FOR THE ASSESSMENT YEAR 2007-08, AND THE SOLITARY ISSUE ARISING OUT OF THE SAME FOR OUR CONSIDERATION RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.40,73,440/- MADE BY THE ASSES SING OFFICER BY WAY OF ADJUSTMENT IN THE VALUE OF CLOSING STOCK PURPORTEDL Y AS PER THE PROVISION OF SECTION 145A OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF EQUIPMENTS FOR RAILWAYS AND DEFENCE. THE RETURN OF INCOME FOR THE YEAR UNDER CO NSIDERATION WAS FILED I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 2 OF 6 BY IT ON 31.10.2007 DECLARING A LOSS OF RS.63,72,29 0/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE VALUATION OF CLOSING STOCK AS SHOWN BY THE ASSESSEE WAS EXAMINED BY THE ASSESSING OFFICER. ON SUCH EXAMINATION, HE WAS OF THE VIEW THAT THE CST AND VAT COMPONENT PAID ON THE RAW MATERIAL TO THE EXTENT, THE SAME WAS LYING IN CLOSING STOCK WAS NOT INCLUDED BY THE ASSESSEE IN THE VALUE OF STOCK AS REQUIRED BY THE P ROVISIONS OF SECTION 145A. HE, THEREFORE, INVOKED THE SAID PROVISIONS AN D INCLUDED THE VALUE OF CST AND VAT IN THE OPENING AS WELL AS THE CLOSING S TOCK OF RAW MATERIAL, WHICH RESULTED IN THE ADDITION OF RS.40,73,440/-. 3. THE ADDITION OF RS.40,73,440/- MADE BY THE ASSES SING OFFICER BY WAY OF ADJUSTMENT IN THE VALUE OF STOCK BY INVOKIN G THE PROVISION OF SECTION 145A WAS DISPUTED BY THE ASSESSEE IN THE AP PEAL FILED BEFORE THE LD. CIT(APPEALS). DURING THE COURSE OF APPELLATE PR OCEEDINGS BEFORE THE LD. CIT(APPEALS), IT WAS SUBMITTED BY THE ASSESSEE, INTER ALIA, THAT SINCE NO SET OFF WAS PERMISSIBLE ON ACCOUNT OF CST PAID O N RAW MATERIAL, THE SAME WAS RECOGNIZED AS EXPENDITURE OF THE YEAR UNDE R CONSIDERATION AND IT WAS ALSO INCLUDED IN THE VALUE OF STOCK OF RAW M ATERIAL. AS REGARDS VAT, IT WAS SUBMITTED THAT THE ASSESSEE WAS ENTITLED TO SET OFF THE VAT PAID ONLY ON RAW MATERIAL AGAINST VAT RECOVERED BY IT ON SALES AND THE SAME, THEREFORE, WAS NOT DEBITED TO THE PROFIT & LOSS ACC OUNT AND CONSEQUENTLY WAS NOT INCLUDED IN THE VALUE OF STOCK OF RAW MATER IAL. IT WAS CONTENDED THAT IF AT ALL THE VAT WAS TO BE INCLUDED IN THE VA LUE OF OPENING AS WELL AS CLOSING STOCK AS DONE BY THE ASSESSING OFFICER IN A CCORDANCE WITH THE PROVISIONS OF SECTION 145A, THE SAME SHOULD BE DONE EVEN IN RESPECT OF PURCHASES AND SALES AND IF IT IS SO DONE, THERE WOU LD BE NO IMPACT ON PROFIT AND LOSS OF THE YEAR UNDER CONSIDERATION AS CERTIFIED BY THE AUDITORS. 4. LD. CIT(APPEALS) FOUND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND DELETED THE ADDITION OF RS.40,73,4 40/- MADE BY THE ASSESSING OFFICER ON THIS ISSUE FOR THE FOLLOWING R EASONS GIVEN IN PARAGRAPHS NO. 4 TO 6 OF HIS IMPUGNED ORDER:- I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 3 OF 6 4. I HAVE CAREFULLY CONSIDERED THE AO'S FINDINGS; THE SUBMISSIONS OF THE A/R HAVE PERUSED AND HAVE THROUG H THE ANNEXURE-A OF THE TAX AUDIT REPORT WHEREIN THE AUDI TOR CERTIFIED ADJUSTMENTS CARRIED OUT TO THE VALUE OF O PENING STOCK, PURCHASES, SALES AND CLOSING STOCK ON ACCOUNT OF IM PACT OF VAT & CENVAT PAID ON THE PURCHASES OF THE RELEVANT YEAR. ON CONSIDERATION OF THE SUBMISSIONS AND DOCUMENTS ON R ECORD, I FIND MERITS IN THE A/R'S SUBMISSIONS. THE AO DUE TO A PO SSIBLE MIS- APPRECIATION OF THE LEGAL PROVISIONS CONCERNING CST & VAT MADE ADJUSTMENTS ONLY TO THE OPENING & CLOSING INVENTORY . IT APPEARS FROM THE ASSESSMENT ORDER THAT THE VALUE OF BOTH OP ENING & CLOSING STOCK WAS INCREASED BY THE AO @ 8%; ON THE GROUND THAT THE ASSESSEE WAS LIABLE TO PAY CST AS WELL AS VAT @ 4% EACH. APPARENTLY, THERE IS NO VALID BASIS FOR AO'S ASSUMP TION. CENTRAL SALES TAX IS PAID IN RESPECT INTER-STATE SALES, WHE RE TAX IS PAID ON INTRA STATE PURCHASES. ON ANY SALE/PURCHASE TRAN SACTION TAX IS THEREFORE PAID EITHER BY WAY OF CST OR VAT AND N OT BOTH. I THEREFORE AGREE WITH THE SUBMISSIONS OF THE LD. A/R THAT THE VAT & CST ARE MUTUALLY EXCLUSIVE AND CANNOT CO-EXIST. T HE AO WAS THEREFORE IN ERROR IN CONSIDERING BOTH CST & VAT TO TALLING 8% FOR THE PURPOSE OF MAKING ADJUSTMENTS TO THE VALUE OF THE OPENING & CLOSING STOCK. A WRONG UNDERSTANDING OF P ROVISIONS OF CST & VAT HAS RESULTED IN AN EXCESSIVE ADDITION BEC AUSE OF THE OPENING & CLOSING INVENTORY WHICH COULD HAVE ARISEN EITHER OUT OF INTER-STATE SATE OR INTRA-STATE SALE ON WHICH EI THER CST OR VAT WAS PAYABLE AND NOT BOTH. 5) AS RIGHTLY POINTED OUT BY THE LD. A/R, A DEALER IS NOT ENTITLED TO SET OFF CST PAID ON 'INPUT' AGAINST THE DEALER'S LIABILITY TO PAY CST OR VAT ON HIS OWN SALES. IN TH E CIRCUMSTANCES, THE CST PAID ON MATERIAL PURCHASE IS PART OF THE MATERIAL CONSUMPTION COST AND IS CHARGED TO PROFIT & LOSS ETC IN THE YEAR OF PURCHASE. IT IS IN RESPECT OF INTRA-STA TE PURCHASE THE VAT IS PAID BY A DEALER WHO IS ENTITLED TO SET OFF THE SAME AGAINST HIS LIABILITY TO PAY VAT ON HIS OWN SALES. SINCE VAT IS PAYABLE ON THE MATERIALS PURCHASED AND IS ALLOWED C REDIT AGAINST THE DEALERS' OWN LIABILITY TO PAY VAT ON IT S SALES:- VAT ON INPUT MATERIAL IS NOT CONSIDERED AS EXPENDITURE & THEREFORE NOT DEBITED TO THE P&L A/C. AS PER THE ACCOUNTING P RACTICE RECOMMENDED BY THE ICAI, VAT & CENVAT FOR WHICH INP UT CREDIT IS ALLOWED ARE NOT TREATED AS PART OF MATERIAL CONS UMPTION COST & AND THEREFORE NOT DEBITED TO P&L A/C. FOR THIS RE ASON IN VALUATION OF INVENTORY; VAT & CENVAT ON THE MATERIA L IN STOCK IS NOT INCLUDED IN THE VALUE OF STOCK. AS PER THE JUDG MENT OF THE APEX COURT REFERRED TO BY THE A/R IN HIS WRITTEN SU BMISSION THE VALUE OF CLOSING STOCK IS CREDITED IN THE PROFIT & LOSS A/C ONLY TO CANCEL OUT THE EFFECT OF DEBIT ENTRIES IN THE PROFI T & LOSS A/C RELATABLE TO GOODS REMAINING IN STOCK ON THE BALANC E-SHEET DATE. SINCE VAT & CENVAT ARE NOT DEBITED TO THE PROFIT & LOSS A/C AND THE COST OF MATERIAL CONSUMPTION DEBITED IN P&L A/C IS 'NET' OF THESE TAXES, VALUE OF CLOSING STOCK CREDITED IN THE P/L A/C ALSO DOES NOT INCLUDE THE COMPONENT OF VAT & CENVAT. I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 4 OF 6 6. SEC. 145A OF THE INCOME TAX ACT HOWEVER PROVIDES FOR INCLUSION OF VAT & CENVAT IN THE VALUE OF INVENTORY . REFERENCE TO SUCH SEC. 145A(A)(B) HOWEVER SHOWS THAT THE ADJU STMENT OF VAT & CENVAT ARE TO BE MADE ONLY TO THE VALUE OF OP ENING & CLOSING STOCK BUT ALSO TO THE PURCHASES AND SALES O F THE RELEVANT PREVIOUS YEAR. THE A/R IN HIS SUBMISSIONS POINTED O UT THAT IN ANNEXURE-A OF TAX AUDIT REPORT THE TAX AUDITOR HAD CERTIFIED THE ADJUSTMENTS ON ACCOUNT OF VAT AND CENVAT TO PUR CHASE, SALES AND OPENING AND CLOSING INVENTORY AS PER WHIC H 'NET EFFECT' OF THE ADJUSTMENTS SPECIFIED IN S. 145A ON THE PROF IT OR LOSS FOR THE YEAR WAS 'NIL'. IN THE IMPUGNED ORDER, THE AO H OWEVER CONSIDERED THE IMPACT OF VAT ONLY WITH RESPECT OF O PENING AND CLOSING INVENTORY BUT HE DID NOT CARRY OUT ANY ADJU STMENTS TO PURCHASE AND SALES DURING THE YEAR BECAUSE OF WHICH ADDITION WAS MADE. I FIND THAT IN THE TAX AUDIT REPORT, THE AUDITOR CONSIDERED THE IMPACT OF VAT & CENVAT ON THE VALUE OF PURCHASE SALE AND OPENING & CLOSING STOCK AND THEN CERTIFIED THAT PROFIT OR LOSS FOR THE YEAR WAS NOT IMPACTED EVEN AFTER CARRY ING OUT ADJUSTMENTS FOR PAYMENT OF VAT & CENVAT ON MATERIAL S PURCHASED. IN SO FAR AS CST PAID ON THE INTER-STATE PURCHASES THIS WAS CONSIDERED BY THE APPELLANT IN THE REVISED ACCO UNTS AS PART OF THE MATERIAL CONSUMPTION COST AND IN VALUATION O F CLOSING INVENTORY SUCH COST OF MATERIAL WAS TAKEN INTO ACCO UNT AND THEREFORE NO SEPARATE ADDITION ON A/C. OF CST WAS N ECESSARY. ON THESE FACTS, THEREFORE, I HOLD THAT THE ADDITION OF RS.40,73,440/- WAS NOT JUSTIFIED AND ACCORDINGLY THE AO IS DIRECTE D TO DELETE THE ADDITION OF RS.40,73,440/-. IN CONCLUSION THE APPEAL STANDS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US, LD. D.R. RELIE D ON THE ORDER OF THE ASSESSING OFFICER IN SUPPORT OF THE REVENUES CASE ON THE ISSUE INVOLVED IN THIS APPEAL. 7. LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) AND TOOK US THROUGH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE T HE LD. CIT(APPEALS) TO EXPLAIN THE ACCOUNTING TREATMENT GIVEN BY THE ASSES SEE IN ITS BOOKS OF ACCOUNT FOR CST AND VAT AS WELL AS FOR THE PURPOSE OF VALUATION OF STOCK. HE CONTENDED THAT THIS TREATMENT GIVEN BY THE ASSES SEE WAS NOT I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 5 OF 6 UNDERSTOOD BY THE ASSESSING OFFICER, WHILE THE LD. CIT(APPEALS) HAS APPRECIATED THE SAME IN THE RIGHT PERSPECTIVE AND H AS GIVEN RELIEF TO THE ASSESSEE ON SUCH APPRECIATION. 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE CST PAID BY THE ASSESSEE ON THE RAW MATERIAL PURCHASED WAS CLAI MED AS EXPENDITURE BY DEBITING THE SAID AMOUNT TO THE PROFIT & LOSS A/ C, AS THE ASSESSEE WAS NOT ENTITLED TO CLAIM IN SET OFF FOR THE SAME AND T HE SAME WAS INCLUDED IN THE VALUE OF CLOSING STOCK AS FOUND BY THE LD. CIT( APPEALS). THE VAT WAS, HOWEVER, WAS NOT CLAIMED BY THE ASSESSEE AS EXPENDI TURE AS THE ASSESSEE WAS ENTITLED TO SET OFF THE SAME AGAINST THE VAT CO LLECTED BY IT AND IT WAS, THEREFORE, NOT INCLUDED EITHER IN THE VALUE OF OPEN ING STOCK OR IN THE VALUE OF CLOSING STOCK. THE VAT PAID THUS WAS KEPT IN THE SEPARATE ACCOUNT BY THE ASSESSEE AND THE SAME WAS ADJUSTED A GAINST THE VAT COLLECTED BY IT ON SALE. THE EXCLUSIVE METHOD IN RE SPECT OF THE VAT THUS WAS FOLLOWED BY THE ASSESSEE AND AS RIGHTLY HELD BY THE LD. CIT(APPEALS), IF THE INCLUSIVE METHOD WAS TO BE ADOPTED AS PER TH E PROVISIONS OF SECTION 145A OF THE ACT, THE SAME SHOULD HAVE BEEN APPLIED IN RESPECT OF PURCHASES AND SALES ALSO IN ADDITION TO THE OPENING AND CLOSING STOCK. AS CERTIFIED BY THE AUDITORS, IF SUCH ADJUSTMENTS ARE MADE AS PER THE PROVISION OF SECTION 145A ON ACCOUNT OF VAT IN RESP ECT OF OPENING AND CLOSING STOCK AS WELL AS PURCHASES AND SALES, THE I MPACT ON PROFIT AND LOSS OF THE YEAR UNDER CONSIDERATION WAS GOING TO BE NIL , CALLING FOR NO ADDITION TO THE TOTAL INCOME OF THE ASSESSEE ON THI S ISSUE. WE, THEREFORE, FIND THAT AS PER THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN RESPECT OF CST AND VAT, NO ADDITION TO ITS TOTAL INCOME WAS REQUIRED TO BE MADE ON ACCOUNT OF ADJUSTMENT, IF ANY, MADE IN THE VALUE OF STOCK AS PER THE PROVISION OF SECTION 145A. IT APPEARS THAT THIS ACC OUNTING TREATMENT GIVEN BY THE ASSESSEE, HOWEVER, WAS NOT PROPERLY APPRECIA TED BY THE ASSESSING OFFICER, WHEREAS THE LD. CIT(APPEALS) HAS APPRECIAT ED THE SAME IN THE RIGHT PERSPECTIVE WHILE DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSUE, AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE I.T.A. NO. 2200/KOL./2010 ASSESSMENT YEAR: 2007-2008 PAGE 6 OF 6 ASSESSEE. WE, THEREFORE, FIND NO INFIRMITY IN THE I MPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS THIS APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 18, 2015. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 18 TH DAY OF NOVEMBER, 2015 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, KOLKATA, AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. STONE INDIA LIMITED, 16, TARATALA ROAD, KOLKATA-700 088 (3) COMMISSIONER OF INCOME-TAX (APPEALS)- I, KOLK ATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.