ADDL CIT RG 22(2), NAVI MUMBAI V. MACHINE FABRIK, MUMBAI

ITA 240/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88500 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BOA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO. 240/MUM/2011 (ASSESSMENT YEAR: 2006-07) DY. CIT - 22(2) VS. M/S. MACHINE FABRIK 4TH FLOOR, TOWER NO. 6 VASHI RLY. STN. COMPLEX VASHI, NAVI MUMBAI B-1, ARJUN CENTRE, B.S. DEVSHI MARG, GOVANDI MUMBAI 400088 PAN - AAAFM7543C APPELLANT RESPONDENT APPELLANT BY: SHRI VIVEK BOA RESPONDENT BY: NONE DATE OF HEARING: 02.03.2015 DATE OF PRONOUNCEMENT: 02.03.2015 O R D E R PER D. MANMOHAN, V.P. THIS IS AN APPEAL FILED AT THE INSTANCE OF THE REVE NUE AND IT PERTAINS TO A.Y. 2006-07. 2. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MA NUFACTURING OF PHARMACEUTICAL MACHINERY AND HOSPITAL PRODUCTS. IN THE YEAR UNDER CONSIDERATION IT DECLARED TOTAL INCOME OF ` 70,29,348/-. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT THE ASSESS EE MAINTAINED DAY TO DAY RECORD OF RAW MATERIAL CONSUMED AND WHILE VALUI NG ITS WORK-IN-PROGRESS ASSESSEE WAS TAKING ONLY RAW MATERIAL COST INTO ACC OUNT, I.E. WITHOUT ACCOUNTING FOR THE LABOUR AND OTHER MANUFACTURING E XPENSES WHILE VALUING THE CLOSING STOCK. WHEN SHOW CAUSED, ASSESSEE SUBMI TTED THAT IT WAS FOLLOWING THIS METHOD SINCE INCEPTION OF ITS BUSINE SS; IN VIEW OF THIS POLICY, DETERMINING PROPORTIONATE PART OF MANUFACTURING EXP ENSES AND ADDING THEM TO CLOSING W.I.P., WITHOUT GIVING CORRESPONDING EFF ECT IN OPENING W.I.P., WILL GIVE WRONG FINANCIAL RESULTS. ITA NO. 240/MUM/2011 M/S. MACHINE FABRIK 2 3. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E. HE OBSERVED THAT AS PER THE NORMAL ACCOUNTING PRACTICE CLOSING STOCK HAS TO BE VALUED AT COST AND COST INCLUDES RAW MATERIAL AS WELL AS OTHE R DIRECT MANUFACTURING EXPENSES. THEREFORE, CLOSING W.I.P. OF THE ASSESSEE SHOULD BE VALUED AFTER INCLUDING MANUFACTURING EXPENSES. HE ALSO OBSERVED THAT ADJUSTMENTS MADE TO CLOSING STOCK SHOULD NOT AFFECT THE OPENING STOC K VALUE IN THE LIGHT OF THE FOLLOWING DECISIONS: - I. MELMOULD CORPORATION 202 ITR 789 (BOM) II. MOPEDS INDIA LTD. 173 ITR 347 (AP) III. TRIVEDI ENGINEERING WORKS LTD. 167 ITR 742 (ALL) IN SHORT, THE CASE OF THE AO IS THAT MISTAKE CANNOT BE RECTIFIED BY RAISING VALUATION OF OPENING STOCK. 4. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LEARNED CI T(A) THAT IT WAS CONSISTENTLY FOLLOWING THE PRACTICE OF VALUING CLOS ING WORK-IN-PROGRESS BY TAKING INTO ACCOUNT ONLY COST OF RAW MATERIAL WHILE EXCLUDING THE DIRECT MANUFACTURING EXPENSES. IF AT ALL ANY ADJUSTMENTS W ERE TO BE MADE TO THE CLOSING STOCK THE SAME ARE REQUIRED TO BE MADE IN T HE OPENING STOCK OF THE SAME YEAR. 5. THE LEARNED CIT(A) FOLLOWED THE LATEST DECISION OF THE HON'BLE BOMBAY HIGH COURT (MAHALAXMI GLASS WORKS P. LTD. INCOME TAX APPEAL NO. 192 OF 2009) WHEREIN THE COURT OBSERVED THAT WHEN THE CLOS ING STOCK VALUATION IS ALTERED WITHOUT MAKING SINGLE ALTERNATION TO THE OP ENING STOCK, REAL PROFIT CANNOT BE DEPICTED AND ADJUSTMENTS HAVE TO BE MADE BOTH TO THE OPENING STOCK AS WELL AS CLOSING STOCK. RESPECTFULLY FOLLOW ING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) THE AO WAS DIRECT ED TO ASK FOR DETAILS OF DIRECT EXPENSES FOR THE PURPOSE OF INCLUSION IN OPE NING STOCK AND TO ADD ONLY THE NET EFFECT OF THE TWO FIGURES. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. AT THE T IME OF HEARING THE LEARNED D.R. MAINLY RELIED UPON THE JUDGEMENT OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF MELMOULD CORPORATION (SUPRA) B UT DID NOT PLACE THE CASE LAW BEFORE US. THOUGH, IN THE GROUND OF APPEAL THE REVENUE SUBMITS THAT THE CIT(A) ERRED IN RELYING ON THE JUDGMENT IN THE CASE OF MAHALAXMI ITA NO. 240/MUM/2011 M/S. MACHINE FABRIK 3 GLASS WORKS (P) LTD. 318 ITR 116 (BOM) THE LEARNED D.R. DID NOT BRING THE JUDGEMENT TO SHOW AS TO HOW THE CASE LAW IS DISTING UISHABLE ON FACTS VIS-A- VIS THE FACTS AND CIRCUMSTANCES OF THIS CASE. IN FA CT HE HAS NOT DISPUTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE ME THOD OF NOT INCLUDING COST OF LABOUR AND MANUFACTURING EXPENSES IN THE CL OSING WORK-IN-PROGRESS. IF THE CLOSING WORK-IN-PROGRESS IS ALTERED, IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS P. LTD., THE OPENING WORK-IN-PROGRESS SHOULD ALSO BE SUITABL Y ALTERED. EXCEPT READING THE GROUNDS OF APPEAL THE LEARNED D.R. HAS NOT ASSISTED THE BENCH IN ANY MANNER TO SHOW THAT THE CASE LAW IS DISTINGU ISHABLE AND THE CASES WHICH WERE RELIED UPON BY THE AO WILL HOLD THE FIEL D. 7. WE HAVE HEARD THE LEARNED D.R. AND CAREFULLY PERUSE D THE RECORD. THE LEARNED CIT(A), WHO IS SUPERIOR TO THE AO IN RANK, HAS TAKEN INTO CONSIDERATION THE LATTER DECISION OF THE HON'BLE BO MBAY HIGH COURT TO HOLD THAT WHENEVER THE CLOSING-WORK-IN-PROGRESS IS ALTER ED THE OPENING-WORK-IN- PROGRESS SHOULD ALSO BE ALTERED. IN SUCH A SCENARIO THE ONUS IS ON THE APPELLANT, I.E. REVENUE, TO SHOW THAT THE LATEST DE CISION OF THE HON'BLE BOMBAY HIGH COURT IS DISTINGUISHABLE ON FACTS. SINC E THE LEARNED D.R., IN HIS INIMITABLE STYLE, HAS NOT EVEN PLACED BEFORE US THE EARLIER DECISION OF THE HON'BLE BOMBAY HIGH COURT AND THE SUBSEQUENT DECISI ON TO MAKE OUT A CASE THAT AO IS CORRECT, WE HAVE NO OTHER ALTERNATI VE BUT TO HOLD THAT THE ORDER PASSED BY THE LEARNED CIT(A), WHICH IS IN CON SONANCE WITH THE DECISION TAKEN BY THE HON'BLE BOMBAY HIGH COURT, DOES NOT CA LL FOR ANY INTERFERENCE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2015. SD/- SD/- ( CHANDRA POOJARI ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 2 ND MARCH, 2015 ITA NO. 240/MUM/2011 M/S. MACHINE FABRIK 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 33, MUMBAI 4. THE CIT 22, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.