The Dy. CIT, Circle-6, Ahmedabad V. Shri Ashish Sureshbhai Shah, Ahmedabad

ITA 2259/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6075 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: P M MEHTA; GM THAKOR
• Keywords: Gift; Depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 2259/AHD/2014 ( ASSESSMENT YEAR: 2008-09) DCIT, CIRCLE-6, AHMEDABAD APPELLANT VS. SHRI AASHISH SURESHBHAI SHAH PROP. OF LA PHARMACEUTICALS, 465, PHASE-II, GIDC ESTATE, VATVA, AHMEDABAD - 382445 RESPONDENT PAN: ACDPS9782L /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /BY ASSESSEE : SHRI P. M. MEHTA & SHRI G. M . THAKOR, A.R. /DATE OF HEARING : 19.12.2017 /DATE OF PRONOUNCEMENT : 19.02.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 ARISES AGAINST THE CIT(A)-XI, AHMEDABADS ORDER DATED 15.05.2014, IN C ASE NO. CIT(A)-XI/13/ACIT, CIR-6/13-14, DELETING ADDITION OF RS.59,91,122 ON A CCOUNT OF REJECTION OF VALUATION OF CLOSING STOCK OF FINISHED GOODS AS MADE BY THE A SSESSING OFFICER, IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. WE NOTICE AT THE OUTSET THAT THE CIT(A)S ORDER UNDER CHALLENGE DISCUSSES AT LENGTH ALL THE RELEVANT FACTS, ASSESSMENT FINDINGS AS WELL AS ASSESSEES CONTENTION AS FOLLOWS: ITA NO. 2259/AHD/14 [DCIT VS. SHRI AASHISH S. SHAH ] A.Y. 2008-09 - 2 - 4.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE AN ADDITION OF RS. 59,91,122/- TO THE INCOME OF THE YEAR AS, IN HIS OP INION THE CHANGE IN METHOD OF VALUATION OF CLOSING STOCK WAS DONE WITH THE INTENT ION TO REDUCE PROFIT. THE APPELLANT USED TO EARLIER VALUE THE OPENING AND CLO SING STOCK BY REDUCING THE PROFIT MARGIN FROM THE SALE PRICE OF THE STOCK, HOWEVER FR OM THE CURRENT YEAR ONWARDS THE APPELLANT HAS STARTED VALUING THE CLOSING STOCK ON ACTUAL COST BASIS. THE AO HAS HELD THAT IN THIS CASE A SURVEY WAS CONDUCTED WHERE IN THE APPELLANT HAD ADMITTED AN ADDITIONAL INCOME OF RS. 65 LACS. IT WAS HELD BY HIM THAT THE CHANGE OF VALUATION WAS TO NULLIFY THE ADDITIONAL INCOME ADMI TTED AND TO REDUCE THE EXCESS TAX BURDEN. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IT CHANGED THE METHOD OF VALUATION OF CLOSING STOCK AS THE EARLIER METHOD RE VEALED ONLY ON ESTIMATED VALUE OF CLOSING STOCK WHICH WAS ALWAYS OPEN TO QUESTION. TH E NEW METHOD IS NOW BEING FOLLOWED WAS STRICTLY IN ACCORDANCE WITH THE ACCOUN TING STANDARD (AS-2) PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA AND GIVES THE EXACT AND PRECISE VALUE OF CLOSING STOCK LEADING TO DETER MINATION OF CORRECT PROFIT. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THE FINISHED G OODS WERE VALUED AFTER CONSIDERING THE QUANTITY OF RAW MATERIAL CONSUMED F OR A SPECIFIC PRODUCT, THE COST OF PURCHASE INCLUSIVE OF ALL TAXES AND DUTIES IS AL SO APPLIED TO THE BASIC RAW MATERIAL QUANTITY WHICH IS CONSUMED IN THE PRODUCTI ON AND THERE AFTER THE OVER HEAD COST, PECKING COST, PECKING COST, OTHER DIRECT EXPENSES AS WELL AS EXCISE DUTY ARE ALSO ALLOCATED TO ARRIVE AT THE CORRECT COST OF FINISHING GOODS. IT HAS ALSO BEEN SUBMITTED BY THE APPELLANT THAT SI MILAR METHOD HAS BEEN ADOPTED IN THE SUBSEQUENT YEARS AND THE APPELLANT H AS PAID DUE TAXES IN THE SUBSEQUENT ASSESSMENT YEAR IS ALSO. IT HAS BEEN SUB MITTED BY THE APPELLANT THAT THE CLOSING STOCK OF THE CURRENT YEAR WOULD BE THE OPEN ING STOCK OF NEXT FINANCIAL YEAR AND BECAUSE OF CHANGE IN THE METHOD OF STOCK VALUAT ION, IF THE GROSS PROFIT IS LOWER IN CURRENT YEAR THAN AUTOMATICALLY THE GROSS PROFIT OF NEXT YEAR WOULD BE HIGHER. ACCORDINGLY THERE WOULD NOT BE ANY CONSEQUENTIAL TA X EFFECT. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT IN THE SUBSEQUENT YEAR THE AP PELLANT HAS SHOWN INCOME OF RS. 1.86 CRORES FROM THE BUSINESS AND A TOTAL INCOME OF RS. 2.13 CRORES AND PAID TAXES OF RS. 71.53 LAKHS. IT HAS ACCORDINGLY BEEN SUBMITT ED BY THE APPELLANT THAT THERE WAS NO INTENTION ON THE PART OF THE APPELLANT TO RE DUCE TAXABLE INCOME OF THE CURRENT ASSESSMENT YEAR BY RS. 59.91 LACS AS ALLEGE D BY THE A.O., MORE PARTICULARLY WHEN THE APPELLANT HAD ITSELF PAID HUG E TAXES IN THE CURRENT ASSESSMENT YEAR AS WELL AS SUBSEQUENT ASSESSMENT YEARS. I HAVE CAREFULLY CONSIDERED THE FACTUAL MATRIX. IT IS NOTED THAT THE APPELLANT HAS CHANGED THE METHOD OF VALUATION OF CLOSING STOC K. THE CURRENT METHOD ADOPTED BY THE APPELLANT APPEARS TO BE MORE SCIENTIFIC AND LOGICAL. THE METHOD OF REDUCING THE PROFIT MARGIN, THOUGH ADOPTED BY THE APPELLANT IN EARLIER YEARS, WAS NOT A SCIENTIFIC METHOD AND ALSO WAS NOT IN ACCORDANCE WI TH THE PRESCRIBED ACCOUNTING STANDARDS. REGARDING THE OBSERVATION OF THE AO THAT IT HAD MADE A DISCLOSURE IN SURVEY WHICH HAS NOT BEEN ACCOUNTED FOR, IT IS NOTE D THAT THE APPELLANT HAS SEPARATELY ACCOUNTED FOR THE DISCLOSURES MADE DURIN G THE COURSE OF SURVEY IN DIFFERENT ITEMS SUCH AS UNACCOUNTED EXPENSES TOWARD S CONSTRUCTION, UNACCOUNTED ITA NO. 2259/AHD/14 [DCIT VS. SHRI AASHISH S. SHAH ] A.Y. 2008-09 - 3 - CASH, UNACCOUNTED RECEIVABLES, UNACCOUNTED EXPENSES TOWARDS GIFTS ARTICLES, UNACCOUNTED SALES PACKING MATERIAL, UNACCOUNTED WAG ES AND DIFFERENCE IN VALUATION OF RAW MATERIAL AND PACKING MATERIALS. TH EREFORE, IT WOULD BE INCORRECT TO SAY THAT THE APPELLANT HAS NOT HONOURED THE DISC LOSURE MADE DURING THE COURSE OF SURVEY. THIS ISSUE HAS ALREADY BEEN CONSIDERED IN T HE EARLIER ROUND OF ASSESSMENT. THE ONLY ISSUE WHICH IS NOW TO BE DECIDED IS WHETHE R THE CHANGE OF METHOD OF VALUATION OF STOCK WAS BONA FIDE OR WAS DONE TO RED UCE PROFIT OF THE APPELLANT. IT IS NOTED FROM THE FACTS AVAILABLE BEFORE ME THAT THE APPELLANT HAS MADE A TURNOVER OF RS. 4.84 CRORES DURING THE CURRENT ASSE SSMENT YEAR AND HAS DISCLOSED AIL INCOME OF RS. 1.92 CRORES IN SUBSEQUENT ASSESSM ENT YEAR I.E. 2009-10, THE APPELLANT MADE A TURNOVER OF 4.84 CRORES AND DISCLO SED AN INCOME OF RS. 2.13 CRORES. IN BOTH THE YEARS THE APPELLANT HAD DISCLOS ED INCOME FROM BUSINESS AT RS. 1.66 CRORES AND 1.86 CRORES RESPECTIVELY. IT IS THE REFORE, APPARENT FROM THESE FIGURES THAT THE APPELLANT HAS NOT TRIED TO SUPPRES S OR REDUCE THE PROFIT OF THE CURRENT YEAR IN ORDER TO REDUCE THE TAX LIABILITY. HAD IT NOT CHANGED THE METHOD OF VALUATION, THE PROFIT FOR NEXT YEAR WOULD HAVE BEEN LESS BY AN AMOUNT OF RS. 59.22 LACS. THE APPELLANT IS PAYING TAX AT THE MAXIMUM MA RGINAL RATE, I.E. THE HIGHEST SLAB OF TAXATION AND IT WOULD NOT HAVE MADE ANY DIF FERENCE IN THE REVENUE COLLECTED BY THE DEPARTMENT. MOREOVER, THE METHOD ADOPTED IS MORE SCIENTIFIC AND IT WILL HELP IN DETERMINING THE PROFIT OF THE APPELLANT IN A BET TER AND ACCURATE MANNER RESULTING IT PROPER TAX COLLECTION. ACCORDINGLY, THE AO WAS N OT JUSTIFIED IN MAKING AN ADDITION OF RS. 59,91,122/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT WAS A SKED TO JUSTIFY THE METHOD OF VALUATION AND TO EXPLAIN AS TO HOW THE OVERHEAD COS TS HAVE BEEN ALLOCATED. THE APPELLANT HAS EXPLAINED THAT THE OVERHEAD EXPENSES ARE EQUALLY APPORTIONED AMONG THE QUANTITY OF TABLETS MANUFACTURED. ACCORDINGLY A LL THE OVERHEAD EXPENSES ARE CALCULATED ON THE BASIS OF THE NUMBER OF TABLETS MA NUFACTURED AND IS ACCORDINGLY ALLOCATED TO THE TYPE OF MEDICINE MANUFACTURED IN P ROPORTION TO THE NUMBER OF TABLETS MANUFACTURED. IT WAS HOWEVER, NOTED THAT TH E ACCOUNTING STANDARD-2 PRESCRIBES THAT ALL OVER AT COST INCLUDING THE DEPR ECIATION SHOULD ALSO BE APPORTIONED TO THE VALUATION OF CLOSING STOCK, BUT THE SAME WAS NOT DONE BY THE APPELLANT WHILE VALUING THE STOCK. THE APPELLANT HA S SUBMITTED THAT IF THE ALLOCATION OF DEPRECIATION IS ALSO TAKING INTO ACCOUNT A FURTH ER INCREASE OF RS. 1,98,230/- SHALL HAVE TO BE MADE IN THE VALUE OF CLOSING STOCK. THE WORKING GIVEN BY THE APPELLANT IN RELATION TO THE ALLOCATION OF DE PRECIATION IS AS UNDER: - PARTICULARS AMOUNT DEPRECIATION ON PLANT & MACHINERY 5,92,315 QUANTITY MANUFACTURED DURING THE YEAR (STRIPS) 54,7 8,565 RATE OF DEPRECIATION ARRIVED TO QUANTITY MANUFACTUR ED 0.11 CLOSING STOCK 18,33,511 VALUE OF DEPRECIATION ON P/M ON CLOSING STOCK 1,98, 230 THEREFORE, THE VALUATION MADE BY THE APPELLANT IS L ESS TO THE EXTENT INDICATED ABOVE AS THE APPELLANT HAS NOT ALLOCATED THE COST O F DEPRECIATION ON PLANT AND MACHINERY, WHICH SHOULD HAVE BEEN DONE IN ACCORDANC E WITH THE AS-2. ACCORDINGLY, THE VALUATION OF THE CLOSING STOCK IS HEREBY ENHANCED BY AN AMOUNT OF RS. 1,98,230/-. ITA NO. 2259/AHD/14 [DCIT VS. SHRI AASHISH S. SHAH ] A.Y. 2008-09 - 4 - IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT TH E APPELLANT WAS JUSTIFIED IN CHANGING THE METHOD OF VALUATION BY ADOPTING ACTUAL COST METHOD. THE ADDITION MADE BY THE AO IS ACCORDINGLY, RESTRICTED TO RS. 1, 98,230/- ON ACCOUNT OF NON- ALLOCATION OF DEPRECIATION TO THE CLOSING STOCK AS DISCUSSED ABOVE. THE GROUND OF APPEAL IS ACCORDINGLY, PARTLY ALLOWED . 3. HEARD RIVAL CONTENTIONS. CASE FILE PERUSED. TH IS IS THE SECOND ROUND OF LITIGATION BETWEEN THE PARTIES IN THE IMPUGNED ASSE SSMENT YEAR. THE ASSESSEE HAS EARLIER FILED ITA NO. 216/AHD/2012 AGAINST THE CIT S SECTION 263 ORDER DATED 19.12.2009 (SUPRA). LEARNED CO-ORDINATE BENCHS OR DER UPHOLDING THE CITS REVISION DIRECTIONS IN PRINCIPLE COMPRISE PAGES 45 TO 48 OF THE PAPER BOOK. THERE IS NO DISPUTE THAT THE ASSESSEES AUDITOR HAD MADE SPE CIAL NOTE IN ITS AUDIT REPORT FORM 3CD STATING IT TO HAVE BEEN VALUING CLOSING STOCK O F FINISHED GOODS AT COST THEREBY REDUCING PROFIT AND MARGIN FROM SALE PRICE IN ARRIV ING AT THE RELEVANT COSTS FIGURES. HE THEN CLARIFIED THAT ALL THIS WAS STATED TO HAVE RESULTED IN THE IMPUGNED DIFFERENCE IN STOCK VALUATION OF RS.59,91,122/- HAVING NECESSA RY BEARING OF THE PROFITS HAVE BEEN INCREASED FOR THIS AMOUNT. IT ALSO READ THAT OPENING STOCK VALUATION AND ACTUAL COSTS WOULD HAVE RESULTED IN LESS OF SUCH EFFECT. THE ASSESSING OFFICERS ASSESSMENT ORDER DATED 25.02.2013 OBSERVED THAT THE ABOVE AS-2 REQUIRED SUCH A MODIFICATION IN BOTH OPENING AND CLOSING STOCK THAN IN LATTER INSTANCE ONLY. HE THEREFORE ADDED THE IMPUGNED DIFFERENTIAL SUM OF RS .59,91,122/- AS DELETED IN LOWER APPELLATE PROCEEDINGS UNDER CHALLENGE. 4. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY C ONTENDS THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN REVERSING A SSESSING OFFICERS ACTION MAKING THE IMPUGNED ADDITION OF CLOSING STOCK VALUATION. HE HOWEVER FAILS TO DISPUTE THE CLINCHING FACT THAT THE ASSESSEES IMPUGNED CLOSING STOCK VALUATION IS VERY MUCH BONAFIDE ONE IN TUNE WITH ACCOUNTING STANDARD NO.2 ADOPTING FOR THE FIRST TIME IN THE CURRENT ASSESSMENT YEAR. HONBLE JURISDICTIONAL HI GH COURTS JUDGMENT IN (2002) 255 ITR 85 (GUJ) CIT VS. ATUL PRODUCTS LTD. HOLDS T HAT SUCH AN ADDITION OF SUM DIFFERENCE REDUCING TAXABLE INCOME IN CASE OF CHANG E IN STOCK VALUATION METHOD IS NOT SUSTAINABLE AS A RESULTANT EFFECT. LEARNED DEP ARTMENTAL REPRESENTATIVE NEXT REFERS TO ASSESSEES SURVEY STATEMENT. THIS LATTER PLEA IS NOT FOUND GERMANE TO THE ITA NO. 2259/AHD/14 [DCIT VS. SHRI AASHISH S. SHAH ] A.Y. 2008-09 - 5 - INSTANT ISSUE SINCE THE CIT(A) HAS ALREADY CONCLUDE D IN HIS OPERATIVE PART THAT THE PRECEDING ROUND OF ASSESSMENT HAD ALREADY DEALT WIT H THIS SURVEY STATEMENT ASPECT. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE CI T(A)S FINDINGS EXTRACTED HEREINABOVE DELETING THE IMPUGNED ADDITION. THE REV ENUES SOLE SUBSTANTIVE GRIEVANCE FAILS ACCORDINGLY. 5. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 19 TH DAY OF FEBRUARY, 2018.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 19/02/2018 S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0