DCIT 1(1)(1), MUMBAI V. CONCORDE MOTORS (INDIA) LTD, MUMBAI

ITA 2333/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6065 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rule of consistency; Question of law; Revised return; Set aside
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 2333/MUM/2017 (ASSESSMENT YEAR 2012-13 ) ACIT- 1(1)(1) 579, AAYAK AR BHAWAN, M. K. ROAD, MUMBAI-400020. VS. M/S. CONCORDE MOTORS (INDIA) LTD., 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMY MODI STREET, HUTATMA CHOWK, MUMBAI-400001. PAN: AAACM0154A APPELLANT RESPONDE NT APPELLANT BY : SHRI ABI RAMA KARTHIKEYAN (SR DR) RESPONDENT BY : SHRI RAJAN VORA WITH SHRI NIKHIL TIWARI (AR ) DATE OF HEARING : 05.09.2019 DATE OF PRONOUNCEMEN T : 01.10.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(A)-2, MUMBAI DATED 16.12.2016, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER DATED 07.12.2016 PASSED UNDER SECTION 143(3) FOR ASSESSMENT YEAR 2012-13.THE REVENUE HAS RAISED THE FOLLOWING G ROUNDS OF APPEAL: (1) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS 6,16,55,83 8/- BEING DIMINUTION IN THE VALUE ~ OF CLOSING STOCK AND CLAIMING DEPRECIAT ION THEREON, WITHOUT APPRECIATING THAT THE A.O. HAS GIVEN CATEGORICAL FI NDING IN THE ASSESSMENT ORDER ON THE SAID ISSUE?' (2) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) WAS RIGHT IN DELETING THE ADDITION OF RS 6,16,55,83 8/- BY RELYING ON THE JUDGEMENT IN THE CASE OF ALFA LAVAL (INDIA) LTD. 29 5 ITR 451 IS TOTALLY ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 2 DISTINGUISHABLE ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, AS IN THE SAID CASE,' THE ISSUE WAS THAT THE ASSESSEE HAD REDUCED THE VALUE AT A FIXED RATE OF 10% FROM THE COST IN RESPECT OF ITS OBSOLETE STO CK, WHICH IS NOT THE CASE IN HAND?' (3) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS 6,16,55,83 8/- BEING DIMINUTION IN THE VALUE OF CLOSING STOCK IN ARRIVING AT THE BOOK PROFIT, WITHOUT APPRECIATING THAT DIMINUTION IN THE VALUE OF STOCK IN TRADE IS TO BE ADJUSTED IN VIEW OF CLAUSE-I INSERTED IN EXPLANATION-1 TO SU B-SECTION 2 OF SECTION 115JB?' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SUBSIDIARY OF TATA MOTORS LTD. ENGAGED IN THE BUSINESS OF DEALERSHIP O F PASSENGER VEHICLES. THE ASSESSEE PURCHASES VEHICLE FROM ITS SUBSIDIARY I.E. TATA MOTORS LTD. IN THE CAPACITY OF DEALER AND SALES TO ITS CUSTOMER S. THE ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 29. 09.2012 DECLARING TOTAL LOSS OF RS. 8.94 LAKHS. THE ASSESSEE OFFERED INCOME UNDER SECTION 115JB AT RS. 1.30 CRORE (APPROX.). THE ASSESSEE THE REAFTER FILED REVISED RETURN OF INCOME ON 28.03.2014 DECLARING TOTAL INCO ME OF RS. 2,71,853/- AND OFFERED INCOME UNDER SECTION 115JB OF RS. 1.45 CRORE (APPROX.). THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSE SSMENT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBIT ED AN AMOUNT OF RS. 6,16,55,838/- AS STOCK DEPRECIATION FROM THE GROSS TOTAL OF CLOSING STOCK VALUE. THE ASSESSEE WAS GIVEN SHOW-CAUSE NOTICE TO EXPLAIN WHY THE CLOSING STOCK SHOULD NOT BE DISALLOWED. THE ASSESSE E FILED ITS REPLY DATED 05.03.2015, WHEREIN THE ASSESSEE STATED THAT CLOSIN G STOCK IS VALUED IN ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 3 ACCORDANCE WITH ACCOUNTING SLANDERED -2(AS-2), THE CLOSING STOCK WAS VALUED AT COST OR NET REALIZABLE VALUE (NRV), WHICH EVER IS LOWER. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSIN G OFFICER. THE ASSESSING OFFICER MADE ADDITION OF RS. 6,16,55,838/ - IN VALUATION OF STOCK AS ON 31.03.2012 (BEING DIFFERENCE BETWEEN TH E COST AND NRV) HOLDING THAT THE DEPRECIATION ON CLOSING STOCK IS N OT ALLOWABLE. THE ASSESSING OFFICER ALSO MADE ADDITION OF THE DISALLO WED AMOUNT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. ON APPEA L BEFORE THE LD. CIT(A), THE ACTION OF ASSESSING OFFICER WAS REVERSE D. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRES ENT APPEAL BEFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. DEPARTMENTAL RE PRESENTATIVE (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE ( AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROU ND NO.1 & 2 RELATES TO DELETION OF ADDITION OF RS. 6,16,55,838/-. THE L D. DR FOR THE REVENUE SUBMITS THAT ASSESSEE CLAIMED DIMINUTION OF VALUE A ND DEPRECIATION OF CLOSING STOCK. THE STOCK IS A CURRENT ASSET ON WHIC H DEPRECIATION CAN BE CLAIMED. THE ASSESSEE IS A TRADER OF AUTOMOBILES, A UTO PARTS AND ACCESSORIES AND ALSO PROVIDES SERVICE TO AUTOMOBILE S. THE ASSESSEE IS A SOLE TRADER/AGENT OF TATA MOTORS LTD. DURING THE AS SESSMENT, THE ASSESSEE CLAIMED THAT INVENTORY IS VALUED AT THE NR V AS SOME OF THE MODELS OF THE AUTOMOBILES IN ITS INVENTORY, MAY HAV E TURNED OUTDATED AND MAY FETCH A LESSER PRICE IN THE MARKET WHENEVER SHOWED. THE ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 4 ASSESSEE IS CLAIMING DOUBLE DEDUCTION BY WAY OF COS T OF PURCHASE AS WELL AS BY DIMINUTION OF VALUE. THE DIMINUTION OF V ALUE IS NOT RECOGNIZED IN ANY ACCOUNTING PRINCIPLE. THE LD. CIT (A) GRANTED RELIEF TO THE ASSESSEE IN A NON-SPEAKING ORDER BY ACCEPTING T HE VERSION OF THE ASSESSEE. THE LD. DR FOR THE REVENUE SUBMITS THAT T HE FINDING OF LD. CIT(A) MAY BE SET ASIDE BY RESTORING THE ORDER OF A SSESSING OFFICER. 4. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT THE VALUATION OF CLOSING STOCK WAS DONE AS PER AS-2. THE CLOSING STOCK VALUED BY AUDITOR IN FINANCIAL STATEMENT CANNOT BE REJECTED W ITHOUT ANY BASIS. INVENTORY WISE SUMMARY OF VALUATION OF CLOSING STOC K AS ON 31.03.2012 IN RESPECT OF EACH CATEGORY OF CLOSING STOCK WAS FU RNISHED. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE BREAKUP OF DEPRECI ATION CLAIMED WAS FURNISHED BY ASSESSEE TO THE LOWER AUTHORITIES. THE LD. CIT(A) HAS RECORDED THE BREAKUP OF THE DEPRECIATION IN PARA-3. 1 OF HIS ORDER. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT AS PER AS-2 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS IN INDIA (ICAI), VALUATION OF STOCK IS TO BE DONE AT THE COST OR NRV WHICHEVER IS LOWER, T HE RELEVANT EXTRACT OF AS-2 IS PLACED ON RECORD. THE ASSESSEE IS CONSISTEN TLY VALUING ITS CLOSING STOCK AT LOWER OF THE COST OR NRV SINCE PAST SEVERA L YEARS FOLLOWING THE RULE OF CONSISTENCY. THE DEDUCTION IN VALUE OF COST OF INVENTORY REPRESENTS THE WEAR AND TEAR OF THE STOCKS OVER TIM E WHICH IS LYING IN INVENTORY. IT WAS SUBMITTED THAT PRICING OLD MODELS OF CARS/VEHICLES ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 5 REDUCED, DUE TO TIME GAP, TECHNOLOGY UPGRADATION AN D LAUNCH OF NEW MODELS AND IN COST COMPETITION DUE TO OTHER VARIOUS EXTERNAL FACTORS. TO SUPPORT ITS SUBMISSION THAT VALUATION OF CLOSING ST OCK IS TO BE DONE AT LOWER OF THE COST OR NRV ON THE FOLLOWING DECISION: UNITED COMMERCIAL BANK (240 ITR 355) (SC). HUGHES COMMUNICATION INDIA LTD. (215 TAXMAN 136) (D EL HC). INDIAN SUGAR & GEN. INDUSTRY EXPORT IMPORT (349 ITR 38) (DEL HC). ALFA LAVAL (INDIA) LTD. (133 TAXMAN 740) (HOM HC). EDELWEISS CAPITAL LTD. (ITA NO. 5324/MUM/2007). EDEL COMMODITIES LTD. (170 ITD 402) (MUM TRIB.). 5. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE LD. CIT (A) WHILE GRANTING RELIEF TO THE ASSESSEE FOLLOWED THE DECISION OF ALF A LAVAL (INDIA) LTD. (SUPRA). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE ASSESSMENT , THE ASSESSING OFFICER MADE ADDITION OF RS. 6,16,55,838/- BY DISAL LOWING DEPRECIATION ON CLOSING STOCK HOLDING THAT THE DEPRECIATION ON T HE CLOSING STOCK IS NOT ELIGIBLE DEDUCTION. BEFORE THE LD. CIT(A), THE ASSE SSEE GIVEN THE BREAKUP OF DEPRECIATION ON VARIOUS INVENTORY, DEMO-VEHICLES , ACCESSORIES AND CONSUMABLE AUTO PARTS IN THE FOLLOWING MANNER: SR. NO. DESCRIPTION COST NRV COST/NRV WHICHEVER IS LOWER A. INVENTORIES/DEMO - VEHICLES SUB - TOTAL 1,20,75,65,762 1,15,19,43,005 1,15,19,43,005 B. ACCESSORIES, CONSUMABLES AND ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 6 PARTS SUB-TOTAL 12,27,19,312 11,66,86,232 11,6,86,232 C. SERVICE WIP-TML SUB-TOTAL 1,33,46,22,303 1,27,29,66,467 1,27,29,66 ,467 7. ON THE BASIS OF AFORESAID TABULATION, THE ASSESSEE EXPLAINED THAT THERE IS A DIFFERENCE OF RS. 6,16,55,838/- REPORTED IN THE C OST PRICE AND NRV. THE LD. CIT(A) ACCEPTED THE CONTENTION OF ASSESSEE HOLDING THAT THE ASSESSEE HAS NOT CLAIMED THE DEPRECIATION AS CONCEI VED BY ASSESSING OFFICER. IT IS A CLASSIFICATION OF CLOSING STOCK BO TH THE AT THE COST AS WELL AS NRV AS PER ASSESSEES COST PRICE OR MARKET PRICE , WHICHEVER IS LOWER WHICH IS CORRECTLY MADE BY ASSESSEE. THE LD. CIT(A) ALSO CONCLUDED THAT THE ASSESSING OFFICER NOT APPRECIATED THE FACT THAT IT IS NOT AT ALL DEBITED IN THE PROFIT & LOSS A/C AND ADDITION MADE IS NOT J USTIFIABLE AND DELETED THE ADDITION. 8. THE HONBLE SUPREME COURT IN UNITED COMMERCIAL BANK (SUPRA) HELD THAT IT IS AN ESTABLISHED RULE OF COMMERCIAL PRACTI CE IN ACCOUNTANCY THAT CLOSING STOCK CAN BE VALUED AT COST OR MARKET PRICE , WHICHEVER IS LOWER. IT WAS HELD THAT UNDER THE INCOME TAX ACT, THE TAXA BLE IS REAL INCOME ACCRUED OR ARISEN INCOME. ON THE BASIS OF METHOD AC COUNTANCY REGULARLY IMPLIED BY THE ASSESSEE, THE REAL INCOME IS POINTED OUT IN THE INCOME-TAX RETURN WHICH CANNOT BE IGNORED BY HOLDING THAT IN A BALANCE-SHEET WHICH IS REQUIRED TO BE STATUTORILY MAINTAINED IN A PARTI CULAR FORM, MARKET VALUE OF THE SHARE AND SECURITIES IS NOT MENTIONED IN BRACKETS. FOR THE PURPOSE OF INCOME TAX, WHICHEVER METHOD IS ADOPTED BY ASSESSEE IS A ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 7 TRUE PICTURE OF THE PROFIT AND GAINS, I.E. TO SAY, REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENT RIES IN THE BALANCE- SHEET REQUIRED TO BE MAINTAINED IN THE STATUTORY FO RM, MAY NOT BE DECISIVE OR CONCLUSIVE. IN SUCH CASE, IT IS NOT OPE N TO ASSESSING OFFICER AS WELL AS TO THE ASSESSEE TO POINT OUT THE TRUE AN D PROPER INCOME WHILE SUBMITTING RETURN. IT WAS FURTHER HELD THAT FOR VAL UING THE CLOSING STOCK, IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE, WHICHEVER IS LOWER, A METHOD OF ACCOUNTING ADOPTED BY TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY T HE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR VALUATION. 9. THE HONBLE DELHI HIGH COURT IN CIT VS. HUGHES COMM UNICATION INDIA LTD. (SUPRA) HELD THAT THE DIMINUTION OF CLOSING ST OCK ON ACCOUNT OF IMPAIRMENT AND EFFECT IS ALLOWABLE, IF THE SAME MET HOD OF VALUATION CONSISTENTLY FOLLOWED. 10. FURTHER, THE HONBLE DELHI HIGH COURT IN CIT VS. IN DIAN SUGAR & GEN. INDUSTRY EXPORT IMPORT (SUPRA) WHILE CONSIDERING TH E QUESTION OF LAW WHETHER THE FINDING OF INCOME-TAX APPELLATE TRIBUNA L WAS RIGHT IN ACCEPTING THE NRV AS DECLARED BY RESPONDENT/ASSESSE E AND WAS RIGHT IN NOT ADOPTING THE COST PRICE FOR COMPUTATION OF CLOS ING STOCK HELD THAT THE ASSESSEE COULD HAVE ADOPTED THE NRV METHOD FOR VALU ATION OF CLOSING STOCK AND WHETHER IT IS MANDATORY TO VALUE THE COST ON COST BASIS, IT WAS ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 8 HELD THAT HONBLE APEX COURT IN VARIOUS DECISIONS A ND OBSERVATION THAT CLOSING STOCK CAN BE VALUED ON COST PRICE OR MARKET PRICE, IF THE MARKET PRICE IS LESS THAN THE COST. HOWEVER, THE SAID PRIN CIPLE DOES NOT APPLY, IF THE MARKET VALUE OF THE CLOSING STOCK IS MORE THAN THE COST, AS PROFIT CANNOT BE BROUGHT TO TAX ON NOTIONAL BASIS. 11. THE HONBLE BOMBAY HIGH COURT IN ALFA LAVAL (INDIA) LTD. (SUPRA) ALSO HELD THAT WHEN ASSESSEE IS VALUED THE CLOSING STOCK ON OBSOLETE ITEMS AT 10% OF THE COST. AUDITORS REPORT JUSTIFYING THE VA LUATION. THE ITEMS WERE IN FACT SOLD IN THE SUBSEQUENT YEAR AT A PRICE LESS THAN 10% OF THE COST. IT COULD NOT BE SAID THAT VALUATION OF OBSOLE TE ITEM MADE BY ASSESSEE WAS NOT PROPER. 12. IN VIEW OF THE AFORESAID DISCUSSION, WE AFFIRM THE ORDER OF LD. CIT(A). THE LD. DR OF THE REVENUE WAS NOT ABLE TO DIFFERENT IATE THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN ALFA LAVAL (INDIA) LTD. (SUPRA). HENCE, GROUND NO. 1 & 2 IS DISMISSED. 13. GROUND NO.3 RELATES TO MAKING ADJUSTMENT ON ADDITIO N OF RS. 6,16,55,838/- IN BOOK PROFIT UNDER SECTION 115JB. T HE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. 14. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT THE LD. CIT(A) DELETED THE ADDITION UNDER SECTION 115JB, IN CASE T HE ACTION OF THE LD CIT(A) IS AFFIRMED, THE ADJUDICATION OF THIS GROUN D OF APPEAL WOULD BECOME ACADEMIC. ITA NO.2333/MUM/2017- M/S. CON CORDE MOTORS (INDIA) LTD. 9 15. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES. WE FIND THAT WE HAVE AFFIRMED THE FINDING OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 6,16,55,838/-. THEREFORE, THE ADDITION WHICH WAS CO NSEQUENTIAL TO THE ADDITION OF SUBJECT MATTER OF GROUND NO.1. THEREFOR E, THIS GROUND OF APPEAL IS ALSO DISMISSED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COU RT ON 01/10/2019. SD/- SD/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 01.10.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI