INU EXPORTS P.LTD, MUMBAI V. ITO 3(2)(1), MUMBAI

ITA 2394/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8540 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G KUTTY
• Keywords: Cost of acquisition; Reasonable cause; Corroborative evidences
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $% # $% # $% # $% , ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 2394/MUM./2010 ( &( ) '*) / ASSESSMENT YEAR : 200607 ) M/S. INU EXPORTS PVT. LTD. 51, BAROCH STREET 1 ST FLOOR, KAPADIA CHAMBERS MASJID, MUMBAI 400 009 .. +, / APPELLANT ( V/S INCOME TAX OFFICER WARD3(2)(1), MUMBAI .... -.+, / RESPONDENT !+ . / PERMANENT ACCOUNT NUMBER AAACI6806M &( )0 1 2 / ASSESSEE BY : MR. RAJIV KHANDELWAL !' 1 2 / REVENUE BY : MR. K.G. KUTTY (' 1 / DATE OF HEARING 11.10.2012 $ 34* 1 / DATE OF ORDER 19.10.2012 $ $ $ $ / ORDER # $% # $% # $% # $% , ,, , & ! & ! & ! & ! 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL PREFERRED BY THE ASSESSEE, IS DI RECTED AGAINST THE IMPUGNED ORDER DATED 7 TH JANUARY 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS)VII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT M/S. INU EXPORTS PVT. LTD. 2 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), FOR ASSESSMENT YEAR 200607. 2. THE ONLY ISSUE INVOLVED IN THE PRESENT APPEAL IS, W HETHER OR NOT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN CONFIRMING THE ADDITION OF ` 19,66,536, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATION OF CLOSING STOCK. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS AND ON PERUSAL OF THE QUANTI TATIVE DETAILS OF THE CLOSING STOCK OF VANASPATI OIL, THE ASSESSING OFFIC ER FOUND THAT THE ASSESSEE HAS VALUED THE CLOSING STOCK OF ` 131.848 MTS OF VANASPATI OIL AT ` 26,34,978, WHICH WORKED OUT @ ` 19,984 PER MT. HE FURTHER OBSERVED THAT THE VALUE OF ` 1467.217 MTS OF VANASPATI OIL WAS SHOWN TO HAVE PURCHASED FOR ` 5,12,06,087, @ ` 34900.150 PER MT. THUS, THERE WAS A HUGE DIFFERENCE BETWEEN THE RATE OF PURCHASE COST A ND THE RATE AT WHICH THE CLOSING STOCK WAS VALUED. ACCORDINGLY, THE ASSE SSEE WAS REQUIRED TO SUBSTANTIATE THE SAME WITH SUPPORTING EVIDENCE. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER:- IN THIS CONNECTION, WE HAVE TO SUBMIT THAT THE SAI D STOCK OF VANASPATI WAS PURCHASE AND AFTER PURCHASE, THE PURC HASE QUALITY GOT DETERIORATE AND SINCE IT BEING A PERISH ABLE PRODUCT, THE COLOUR INCREASED AND THE GRAINS WAS ALSO DESTRO YED. THE STOCK BECAME YELLOW AND PASTY WHICH IS INFERIOR AND IS GENERALLY NOT PREFERRED BY THE HOUSEHOLD CONSUMER A S THEY PREFER THE VANASPATI WHICH IS WHITE AND GRAINY. FURTHER, THE REALIZATION OF THE VANASPATI IN STOCK WAS ALSO AFFECTED DUE TO THE FACT THAT THE CONSUMER PACKING WAS DAMAGED DURING STORAGE WHICH COMPELLED THE ASSESSEE TO GET PACKED VANASPATI DECONTAINED ANTI WAS EMPTIED OUT. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLANATION ON THE FOLLOWING REASONS:- M/S. INU EXPORTS PVT. LTD. 3 1. BEING IN THE SAME LINE OF BUSINESS FOR THE PAST YEA RS, IT SHOULD BE WELL AWARE OF THE STORAGE LIFE OF THE VAN ASPATI OIL. IT IS ALSO TO BE NOTED THAT THE ASSESSEE COULD NOT POINT OUT ANY SPECIFIC REASON DUE TO WHICH THE QUAL ITY WAS AFFECTED. 2. THE ASSESSEE HAS CLAIMED IN THEIR LETTER THAT COPY OF OFFER LETTER FOR THE RATE QUOTED BY THE BROKERS HAS BEEN ENCLOSED WITH. IN FACT NO SUCH OFFER LETTER COULD B E FILED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. 5. ACCORDINGLY, HE VALUED THE CLOSING STOCK AND ADDED THE DIFFERENCE OF ` 19,16,648, AS PER THE CALCULATION GIVEN AT PAGE-2 OF THE ASSESSMENT ORDER. 6. BEING AGGRIEVED BY THE ORDER SO PASSED BY THE ASSES SING OFFICER, THE ASSESSEE WENT IN FIRST APPEAL, BUT WITHOUT ANY SUCC ESS. THE ASSESSEE, BEFORE THE COMMISSIONER (APPEALS), PRODUCED THE BRO KERS NOTE TO JUSTIFY THAT THE QUALITY OF VANASPATI OIL IN THE CLOSING ST OCK WAS OF VERY INFERIOR QUALITY WHICH HAD GOT DETERIORATED. HOWEVER, SUCH A N EVIDENCE WAS NOT ACCEPTED / ADMITTED BY THE COMMISSIONER (APPEALS). THE RELEVANT FINDINGS AND OBSERVATIONS OF THE COMMISSIONER (APPEALS) FOR REJECTING THE ASSESSEES CONTENTION ARE REPRODUCED HEREIN BELOW:- AT THE TIME OF THE HEARING OF APPEAL, THE AR FOR TH E APPELLANT ADMITTED THAT THE PURCHASE BILLS COULD NOT BE PRODU CED BEFORE THE AO AND SUBMITTED THAT THE APPELLANT COMPANY IS CONSISTENTLY VALUING ITS INVENTORY AT LEAST OF COST OR MARKET PRICE METHOD. FOR THIS PURPOSE COST IS DETERMINED O N FIFO BASIS AND INCLUDES ALL EXPEN$ES DIRECTLY INCURRED T O BRING THE GOODS TO ITS PRESENT CONDITION. THE MARKET VALUE OF CLOSING STOCK OF VANASPATI WAS LESS THAN THE COST DETERMINE D ON FIFO BASIS AS ON 31.03.2006 AND ACCORDINGLY CLOSING STOC K OF VANASPATI WAS VALUED AT MARKET PRICE. IT WAS ALSO S TATED THAT THE MARKET PRICE WAS LESS AS COMPARED TO COST PRICE BECAUSE THE QUALITY OF GOODS IN STOCK DETERIORATED AND THE PACKING WAS ALSO CIAMAGED AND SINCE THE SAME BEING A PERISHABLE PRODUCE. THE APPELLANT RELIEDF ON CERTAIN COURT CAS ES INCLUDING CIT VS. BRITISH PAINT INDIA LTD. 188 ITR 44, AND CI T VS. HINDUSTAN ZINC LTD. 291 ITR 391 (SC) WHEREIN THE CO URTS HAVE THE RULE OF COMMERCIAL PRACTICE AND ACCOUNTANC Y THAT THE CLOSING STOCK HAD TO BE VALUED AT COST OR MARKE T VALUE M/S. INU EXPORTS PVT. LTD. 4 WHICHEVER IS LOWER. I HAVE CONSIDERED THE SUBMISSIO NS OF THE APPELLANT AND THE FINDINGS OF THE AO AND OBSERVE TH AT THE APPELLANT COULD NOT SUBSTANTIATE ITS CLAIM BEFORE T HE AC THAT THE METHOD ADOPTED BY THE APPELLANT WAS THAT OF LEAST O F COST OR MARKET PRICE FOR THE PURPOSE OF VALUING OF ITS CLOS ING STOCK. THE APPELLANT ADMITTED THAT IT COULD NOT PRODUCE PURCHA SE BILLS BEFORE THE AC TO SUBSTANTIATE ITS CLAIM. SIMPLY STATING TH AT DETERIORATION IN THE QUALITY OF GOODS BEING PERISHABLE WAS THE SOLE REASON FOR DRASTIC FALL IN THE VALUE OF CLOSING STOCK CANNOT B E ACCEPTED WITHOUT EVIDENCE LIKE TEST REPORTS CERTIFYING THE DETERIORA TION OF THE PRODUCT FROM RECOGNIZED FOOD LABORATORIES. THE EVIDENCE OF LOWER RATE QUOTED BY THE BROKERS FOR POOR QUALITY OF VANASPATI COULD NOT BE PRODUCED BEFORE THE AC THOUGH ONE SUCH OFFER FROM O NE HARDIK & COMPANY DATED 31.03.2006 STATING THE RATE OF THE AP PELLANTS PRODUCT AT RS.18,000/- PER TON HAS BEEN FILED. THIS ISOLATED EVIDENCE HAS BEEN FILED FOR THE FIRST TIME. NO SUCH EVIDENCE WAS FILED BEFORE THE AC. BEING FRESH EVIDENCE FILED AT THE TIME OF HEARING OF APPEAL, THE SAME CANNOT BE ADMITTED AT T HIS STAGE IN VIEW OF RULE 46A OF THE INCOME-TAX RULES AS THE APP ELLANT HAD NO REASONABLE CAUSE OF NOT PRODUCING THE SAME BEFORE T HE AC. SINCE THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM THAT IT HAD FAIRLY ADOPTED THE METHOD OF LEAST OF COST OR MARKE T PRICE FOR VALUATION OF ITS CLOSING STOCK, THE ADDITION MADE B Y THE AO BASED ON THE AVERAGE VALUE OF THE COST PRICE APPEARS TO B E REASONABLE AND ACCORDINGLY THE SAME IS SUSTAINED. 7. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE STOCK OF VANASPATI OIL AS STATED BEFORE THE AUTHORI TIES BELOW, HAVE DETERIORATED AND HENCE, VALUE OF THE SAID VANASPATI OIL WAS FAR LESS AND THE COMMISSIONER (APPEALS) HAS ERRED IN LAW IN NOT ACCE PTING THE EVIDENCE IN THE FORM OF BROKERS NOTE. HE FURTHER SUBMITTED THA T THE SAID OIL HAS BEEN SOLD IN THE SUBSEQUENT YEAR AND THE VALUE OF THE SA ME HAS BEEN ACCEPTED BY THE DEPARTMENT AS THE ASSESSEES CASE FOR THE SU BSEQUENT ASSESSMENT YEAR I.E., ASSESSMENT YEAR 2007-08, HAS BEEN DONE U NDER SCRUTINY PROCEEDINGS UNDER SECTION 143(3), (A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES-14 AND 15). HE ALSO DREW OUR AT TENTION TO PAGES-16 AND 18 OF THE PAPER BOOK WHICH IS THE QUANTITATIVE DETAILS FOR THE RELEVANT PREVIOUS YEAR AND ALSO FOR THE SUBSEQUENT YEAR TO H IGHLIGHT THAT THE OPENING STOCK OF THE SUBSEQUENT YEAR REMAINED THE S AME WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER IT WAS SOLD AT A LESSER PRICE. M/S. INU EXPORTS PVT. LTD. 5 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT THE VALUATION OF CLOSING STOCK, AS D ONE BY THE ASSESSING OFFICER, IS NOT SUPPORTED BY ANY EVIDENCE AND REASO NS GIVEN BY THE ASSESSING OFFICER FOR NOT ACCEPTING THE ASSESSEES EXPLANATION IS ABSOLUTELY CORRECT. HE STRONGLY RELIED ON THE FINDINGS OF THE COMMISSIONER (APPEALS) AS WELL AS OF THE ASSESSING OFFICER. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSEES EXPLANATION FOR VALUING THE CLOSING STOCK OF VANASPATI OIL HAS BEEN THAT THE COST AT WH ICH THE VANASPATI OIL WHICH WAS PURCHASED, GOT DIMINISHED AS THE SAID STO CK GOT DETERIORATED AND SINCE IT IS A PERISHABLE PRODUCT, ITS VALUE COU LD NOT BE TAKEN AT THE COST PRICE AND THE MARKET VALUE OF THE SAME WAS VERY LES S. HOWEVER, WE FIND THAT IN SUPPORT OF THIS CLAIM, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE IN THE FORM OF SALE BILLS OF THE SUBSEQUENT SALE AS THE MAIN CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN THAT THE SOME OF THE QUANTITY HAS BEEN SOLD IN THE SUBSEQUENT YEARS. THE SALE BILLS OF THE SUBSEQUENT YEARS COULD BE OF VERY VITAL PIECE OF EV IDENCE TO SUBSTANTIATE THE CLAIM THAT THE MARKET PRICE OF THE DETERIORATED VANASPATI OIL WAS __________ THE SAME VALUE WHICH HAS BEEN VALUED BY THE ASSESS EE. IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED O PINION THAT THIS MATTER NEEDS BACK TO BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER, WHO WILL, IN TURN, EXAMINE THE SALE BILLS OF THE SUBSEQUENT YEAR AND ALSO ANY OTHER SUPPORTING EVIDENCE TO SHOW THAT THE VALUATION OF T HE STOCK AT THE YEAR END TAKEN BY THE ASSESSEE IS IN CONSONANCE WITH THE RATE AT WHICH THE ASSESSEE HAS SOLD THE SAID STOCK IN THE SUBSEQUENT YEAR OR THE RATE AT WHICH IT HAS BEEN VALUED IS SUBSTANTIATED BY ANY OT HER EVIDENCE. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE ALL THE RELEVA NT RECORDS AND EVIDENCES IN THE FORM OF SALE BILLS OF THE SUBSEQUENT YEAR OR SUBSTANTIATE ITS CLAIM FOR ITS VALUATION OF THE CLOSING STOCK. THE GROUND TAKE N BY THE ASSESSEE IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. M/S. INU EXPORTS PVT. LTD. 6 10. 0 8 &( )0 1 91 :;< # !' = 1 >? @ 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. $ 1 4* A B (8 19 TH OCTOBER 2012 4 1 @ ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER 2012 SD/- . .. . . .. . ! ! ! ! P.M. JAGTAP ACCOUNTANT MEMBER SD/- # # # # $% $% $% $% & ! & ! & ! & ! AMIT SHUKLA JUDICIAL MEMBER MUMBAI, B ( B ( B ( B ( DATED: 19 TH OCTOBER 2012 $ 1 -&#C DC* / COPY OF THE ORDER FORWARDED TO : (1) &( )0 / THE ASSESSEE; (2) !' / THE REVENUE; (3) E () / THE CIT(A); (4) E / THE CIT, MUMBAI CITY CONCERNED; (5) C'H -&&( , , / THE DR, ITAT, MUMBAI; (6) I) J / GUARD FILE. .C -& / TRUE COPY $( / BY ORDER - . KL / PRADEEP J. CHOWDHURY '0M &( K' / SR. PRIVATE SECRETARY : / > / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI