Rice Lake Weighing Systems India Ltd., Kancheepuram V. ACIT, CHENNAI

ITA 2424/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3853 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 22-08-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R T VIJAYA RAGHAVAN
• Section: 143(3); 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, CHENNAI , . ' #, $ #% BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ITA NO. 2424 /MDS/201 6 $ 2 32 / ASSESSMENT YEAR : 2011-12 RICE LAKE WEIGHING SYSTEMS INDIA LIMITED, A-27/1, SIPCOT INDUSTRIAL GROWTH CENTRE, MATHUR VILLAGE AND POST, ORAGADAM, TAMIL NADU 602 105 [PAN : AAJCS 7011H] (56/ APPELLANT ) VS. ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5 (4) CHENNAI. (7856/ RESPONDENT ) 56 9 : / APPELLANT BY : SHRI RT VIJAYARAGHAVAN, CA 7856 9 : /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT ' 9 ; /DATE OF HEARING : 21.11.2016 <3 9 ; /DATE OF PRONOUNCEMENT : 29.11.2016 / O R D E R PER SANJAY ARORA, ACCOUNTANT MEMBER : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI (CI T(A) FOR SHORT) DATED 30.03.2016, PARTLY ALLOWING ITS APPEAL CONTESTING I TS ASSESSMENT U/S. 143(3) OF THE 2 I.T.A NO.2424/MDS/2016 RICE LAKE WEIGHING SYSTEMS INDIA LTD. VS. ACIT INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR ASS ESSMENT YEAR (AY) 2011-12 DATED 24.01.2014. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS W HETHER THE ASSESSE HAD, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, CORRECTLY REVERSED ITS SALES TO THE EXTENT OF RS. 83.93 LAKHS AND, THEREBY, THE COR RESPONDING INCOME OF RS. 32.36 LAKHS, VALUING THE RELEVANT GOODS, SINCE DISPATCHED TO ITS CUSTOMERS, AS PART OF THE CLOSING INVENTORY, AT RS.51.57 LACS. THE ASSESSE-CO MPANY, IN THE MANUFACTURE OF ELECTRONIC WEIGHING; MATERIAL HANDLING; AND BATCHIN G AND BLENDING SYSTEMS, DISPATCHED WEIGHING MACHINES AND SPARES TO DIFFEREN T CUSTOMERS VIDE INVOICES RAISED ON DIFFERENT DATES FROM 28.03.2011 TO 31.03. 2011, RECORDING THE CORRESPONDING SALES AT RS. 83,93,188/-. THE SUPPLIE S WERE ON FOR DESTINATION BASIS (PB PAGE 2). HOWEVER, AS THE GOODS WERE DELIVERED T O THE RESPECTIVE PARTIES ONLY FROM APRIL 01, 2011 TO APRIL 18, 2011, I.E., IN THE NEXT YEAR, THE SALE ENTRIES WERE REVERSED AND THE CORRESPONDING GOODS VALUED AT COST (RS.51,57,071/-), RESULTING IN DECLINE IN INCOME TO THE EXTENT OF THE DIFFERENCE. THE REVENUE FOUND THIS UNACCEPTABLE AS THE ASSESSEES ACCOUNTING POLICY, C ONSISTENTLY FOLLOWED, IN RESPECT OF RECOGNITION OF INCOME BY WAY OF SALES IS UPON DI SPATCH OF GOODS TO CUSTOMERS; THE RELEVANT POLICY STATEMENT READING AS UNDER: 2.6 SALES ARE RECOGNIZED UPON DISPATCH TO CUSTOMER S, WHICH GENERALLY COINCIDES WITH THE TRANSFER OF OWNERSHIP AND ARE STATED INCLUSIVE OF EXCISE DUTY AND EXCLUSIVE OF SALES TAX , REBATES AND DISCOUNTS. THE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING, INCOME BY WAY OF SALE HAD ACCRUED ONCE THE GOODS WERE DISPATCHED TO THE CUSTOMERS, EVEN AS STATED IN THE ASSESSEES OWN ACCOUNTING POLICY IN T HE MATTER. THE ASSESSEES CASE, ON THE OTHER HAND, IS THAT THE OWNERSHIP OF GOODS I S NOT TRANSFERRED UNLESS THE SAME ARE RECEIVED BY THE BUYER AND EFFECTIVE CONTROL TRA NSFERRED, WHICH CONTINUES TO BE WITH IT AS AT THE END OF THE RELEVANT YEAR, I.E., M ARCH 31, 2011. 3 I.T.A NO.2424/MDS/2016 RICE LAKE WEIGHING SYSTEMS INDIA LTD. VS. ACIT 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 3.1 TRANSFER OF MOVABLE PROPERTY IS UPON DELIVERY. T HE EFFECTIVE CONTROL OVER GOODS, AND THE RISK (AND REWARD) ASSOCIATED WITH OW NERSHIP WOULD THUS PASS ON DELIVERY. BOTH IN THE STRICT LEGAL SENSE AS WELL AS UNDER THE ACCOUNTING NORMS, WHICH FIND EXPRESSION IN ACCOUNTING STANDARD (AS) 9 (ISSUED BY ICAI) THE TWO IN FACT BEING IN HARMONY IN-AS-MUCH AS THE DELIVERY OF GOODS GENERALLY SIGNIFIES TRANSFER OF ALL SIGNIFICANT RISKS AND REWARDS ASSOC IATED WITH THE OWNERSHIP OF GOODS, SALES AND, THUS, INCOME WOULD ACCRUE TO THE SELLER ONLY ON THEIR DELIVERY . IT IS ONLY UPON DELIVERY TO AND THE ACCEPTANCE OF GOODS BY THE CORRESPONDING PARTY THAT A DEBT IN FAVOUR OF THE TRANSFEROR INURES AND INCOME EMBEDDED IN THE CONSIDERATION FOR TRANSFER ACCRUES. EVEN IF THEREFORE THE SALES, BOOKED - AS IN THE INSTANT CASE, ON THE BASIS OF INVOICES RAISED, ARE NOT REVERSED IN I TS ACCOUNTS, AN ASSESSEE IS ENTITLED TO CLAIM A WITHDRAWAL OR REDUCTION IN INCOME AS PER BOOKS TO THE EXTENT OF THE PROFIT ON SALES NOT ACCOMPANIED BY DELIVERY OF TH E GOODS SOLD. THE ONLY ISSUE THAT WOULD ARISE IN THAT CASE IS IF IT HAD OFFERED INCOME FOR THE FOLLOWING YEAR IN-AS- MUCH AS NO SALES WOULD STAND TO BE RECORDED IN ITS ACCOUNTS FOR THAT YEAR. AND WHICH IS NOT SO IN THE INSTANT CASE (REFER GROUND 3 BEFORE US). THE RELIANCE BY THE ASSESSEE ON THE FOLLOWING DECISIONS IS APPOSITE, WI TH THE LD. CIT(A) FAILING TO MEET THE SAME EVEN AS MOST OF THEM WERE PRESSED BEFORE H IM: A) MORVI INDUSTRIES LIMITED VS. CIT [1971] 82 ITR 835 (SC) B) CIT V. EXCEL INDUSTRIES LTD . [2013] 358 ITR 295 (SC) C) CIT V. SHOORJI VALLABH DAS & CO . [1962] 46 ITR 144 (SC) D) CIT VS. BOKARO STEEL LTD. [1999] 236 ITR 315 (SC) E) CIT VS. INDO NIPPON CHEMICALS CO. LTD . [2003] 261 ITR 275 (SC) F) CIT VS. WOODWARD GOVERNOR [2009] 312 ITR 254 (SC) THE ISSUE THUS DOES NOT ADMIT OF TWO VIEWS OR OF ANY DISPUTE, I.E., IN PRINCIPLE. 3.2 COMING TO THE FACTS OF THE PRESENT CASE, THER E IS OSTENSIBLY NO SALE AGREEMENT/S IN-AS-MUCH AS THERE IS NO REFERENCE THERETO. THE GO ODS UNDER REFERENCE ARE UNDER TRANSIT AS ON 31.03.2011, THE LAST DATE OF THE RELE VANT PREVIOUS YEAR, AND THE PHYSICAL DELIVERY OF THE GOODS EFFECTED ONLY IN THE FOLLOWING YEAR. HOW, THEN, WE 4 I.T.A NO.2424/MDS/2016 RICE LAKE WEIGHING SYSTEMS INDIA LTD. VS. ACIT WONDER, COULD BE GOODS BE REGARDED AS SOLD IN/DURIN G THE CURRENT YEAR ? SURELY, IT COULD NOT MERELY BE ON THE BASIS OF RAISING SALE IN VOICES OR OF PASSING ENTRIES RECORDING SALES IN THE BOOKS OF ACCOUNT, WHICH MAY BE DONE AS A MATTER OF COURSE OR AS A MATTER OF EXPEDIENCY. WE SAY SO AS OTHERWIS E THE ASSESSEE SHALL HAVE TO, FOR EACH CONSIGNMENT OF GOODS DISPATCHED, ASCERTAIN THE EXACT DATE OF DELIVERY AND BOOK SALES ACCORDINGLY IN-AS-MUCH AS THE DATE OF DI SPATCH AND THE DATE OF DELIVERY WOULD INVARIABLY BE DIFFERENT. HOWEVER, AS THEY WOU LD ORDINARILY FALL WITHIN THE SAME ACCOUNTING YEAR, THE SAME WOULD BE TO NO CONSE QUENCE. THE WORD GENERALLY OCCURRING IN THE RELEVANT ACCOUNTING POLICY, IN OUR VIEW, IN THE ABSENCE OF ANYTHING TO THE CONTRARY, IS TO BE UNDERSTOOD IN THIS CONTEX T, EVEN AS EXPLAINED BY THE LD. A.R DURING HEARING, EMPHASIZING THAT NEITHER IN THE PAS T NOR IN THE FUTURE HAD SUCH A SITUATION OCCURRED. CLEARLY, SUCH A SITUATION WOULD OBTAIN ONLY WHERE DISPATCHES ARE MADE AT THE FAG END OF THE YEAR. WE AGREE THAT THE ACCOUNTING POLICY, USING THE WORK COINCIDE, IS NOT VERY APPROPRIATELY WORDED, BUT THEN THE SAME IS NOT TO BE READ STRICTLY, AS ONE WOULD READ A PROVISION OF LAW , GIVING DUE EMPHASIS TO EVERY WORD, BUT AS CONVEYING BROADLY THE INTENT, AS OF TRANSFER OF OWNERSHIP OF GOODS IN THE PRESENT CASE. THEN, AGAIN, COULD AN ACCOUNTING POLICY OVERRIDE SUBSTANCE WHEN NO SALE, EITHER IN LAW OR AS PER THE ACCOUNTING NOR MS, CAN BE SAID TO HAVE TAKEN PLACE? SURELY, NOT. ANOTHER ASPECT THOUGH NEEDS TO BE CONSIDER ED, I.E., IF IT A CASE OF CONSTRUCTIVE DELIVERY, AS WHERE THE GOODS ARE DELIVERED TO THE T RANSPORTER/SHIPPER FOR AND ON BEHALF OF THE BUYER AND THE RISK (AND REWARD) THAT STAGE ONWARDS IS TO THE ACCOUNT OF THE BUYER, OR NOT. SUCH AN UNDERSTANDING WOULD THOU GH NORMALLY BE ACCOMPANIED BY THE BUYER MAKING ARRANGEMENTS FOR THE INSPECTION OF GOODS AT THE POINT OF DISPATCH. THE FOR DESTINATION BASIS, SO THAT THE TRA NSPORTATION FARE IS PAYABLE UPON DELIVERY, ON WHICH THE GOODS ARE SUPPLIED IN THE IN STANT CASE, ALSO INDICATES THAT IT IS THE SELLER WHO UNDERTAKES THE RESPONSIBILITY FOR TH E DELIVERY OF GOODS TO THE BUYER, THOUGH THE COST THEREOF IS PERHAPS BORNE BY THE BUY ER, WHICH THOUGH IS NOT RELEVANT AS THE SELLER CAN ALWAYS ADJUST THE PRICE (OF THE G OODS) BY FACTORING THEREIN THE 5 I.T.A NO.2424/MDS/2016 RICE LAKE WEIGHING SYSTEMS INDIA LTD. VS. ACIT FREIGHT COST. IN FACT, THE LD. A.R WOULD ARGUE THAT EVEN INSTALLATION OF WEIGHING MACHINES IS THE ASSESSEE-SELLERSS RESPONSIBILITY. THOUGH THERE IS NOTHING ON RECORD TO SUBSTANTIATE THE SAME, WE CONSIDER THIS IS AS RE ASONABLE AS ANY BUYER WOULD ONLY WANT A FUNCTIONAL MACHINE, EVEN AS INSTALLATION BY THE SELLER MAY BE INSISTED UPON ONLY WHERE SOME TECHNICAL EXPERTISE IS REQUIRED. TH E SAME THOUGH DOES ENDORSE THE ASSESSEES CASE OF THE SUPPLIER BEING OBLIGED TO DE LIVER THE SAME AT THE BUYERS PREMISES. THEN, AGAIN, WHO HAS THE INSURABLE INTERE ST IN THE GOODS UNDER TRANSIT? WE FIND NO INQUIRY AND, ACCORDINGLY, NO FINDING IN THE MATTER, THOUGH, TO BE FAIR TO THE REVENUE, THERE IS EQUALLY NO ASSERTION BY THE A SSESSEE IN THIS REGARD AT ANY STAGE. WE CONSIDER THIS AS RELEVANT AND, IN FACT, A S CLINCHING THE ISSUE. IF THE INSURABLE INTEREST THEREIN IS OF THE ASSESSEE, THE PROPERTY IN THE GOODS HAS NOT TRANSFERRED AND IT CONTINUES TO BE TO THE OWNER OF THE GOODS TILL THEIR PHYSICAL DELIVERY. THE WORD DISPATCH IN ITS ACCOUNTING POL ICY IS IN SUCH A CASE, AS CONTENDED, A EUPHEMISM FOR DELIVERY, ASSUMED TO EA SE THE TEDIUM OF ACCOUNTING THAT WOULD OTHERWISE ARISE. IF, ON THE OTHER HAND, THE INSURABLE INTEREST IS OF THE BUYER, IT IS A CASE OF CONSTRUCTIVE DELIVERY, AND T HE TRANSFER OF GOODS TAKES PLACE AT THE POINT OF THEIR DISPATCH. IN THE UNLIKELY EVENT OF THE GOODS UNDER TRANSIT BEING NOT INSURED, THERE BEING NOTHING ON RECORD TO REPUD IATE THE ASSESSEES CLAIM, ITS CLAIM IN RESPECT OF THE REVERSAL OF SALES IS TO BE ACCEPTED. WE FURTHER OBSERVE THAT THE REVENUE HAS NOT RAISED ANY ISSUE QUA THE VALUATION OF THE GOODS UNDER REFERENCE, WHICH IS STATED BY THE LD. A.R. AS BEING IN CONFORMITY WITH THE METHOD OF VALUATION REGULARLY FOLLOWED, SO THE SAME CANNOT BE REGARDED AS OPEN FOR REVIEW. 3.3 THE MATTER, IN VIEW OF THE FOREGOING, SHA LL TRAVEL TO THE FILE OF A.O. FOR DETERMINATION ON THE TERMS AFORE-SAID, I.E., WITH R EFERENCE TO THE INSURABLE INTEREST IN THE GOODS UNDER TRANSIT AS AT THE YEAR-END. WE M AY ALSO CLARIFY THAT IN THE EVENT OF THE ASSESSEES CLAIM BEING NOT ALLOWABLE ON THE SAID TERMS; IT HAVING OFFERED THE INCOME UNDER REFERENCE TO TAX FOR THE FOLLOWING YEA R (GD. 3), IT IS AT LIBERTY TO PRESS ITS CLAIM FOR THE SAID YEAR U/S. 154 IN-AS-MUCH AS THE ISSUE AT HEART, THEREFORE, IS THE CORRECT YEAR OF ASSESSABILITY OF THE INCOME UNDER R EFERENCE; EACH YEAR BEING A 6 I.T.A NO.2424/MDS/2016 RICE LAKE WEIGHING SYSTEMS INDIA LTD. VS. ACIT SEPARATE AND INDEPENDENT UNIT OF ASSESSMENT (REFER: CIT V. BRITISH PAINTS INDIA LTD ., [1991] 188 ITR 44 (SC)). WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON NOVEMBER 29, 2016 AT CHENNAI . SD/- SD/- ( . ' #) ( ) ( G. PAVAN KUMAR ) ( SANJAY ARORA ) $ / JUDICIAL MEMBER / ACCOUNTANT MEMBER / CHENNAI, > / DATED, NOVEMBER 29, 2016 . EDN. ? 9 7$;@A BA3; / COPY TO: 1. 56 / APPELLANT 2. 7856 / RESPONDENT 3. ' C; () / CIT(A) 4. ' C; / CIT, 5. A DE 7$;$ / DR 6. EF2 G / GF.