RALLIES INIDA LTD, MUMBAI V. ADDL CIT RG 1(3), MUMBAI

ITA 2464/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8989 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 23-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2010
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Assessee Lawyers: SANDEEP CHETIWAL
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Tax effect
• Section: 50C; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. MANMOHAN (VP) & SHRI RAJENDRA SINGH (AM) I.T.A. NO. 2464/MUM/2010 (ASSESSMENT YEAR : 2006-07) M/S. RALLIS INDIA LIMITED C/O. KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 3 RD FLOOR, 148, MAHATMA GANDHI ROAD, FORT MUMBAI-400 001. VS. THE ADDL. CIT RANGE1(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. PAN/GIR NO. AABCR2657N (APPELLANT) .. (RESPONDENT) ASSESSEE BY : SHRI M.M. GOLVALA & SHRI SANDEEP CHETIWAL DEPARTMENT BY : MS. RUPINDER BRAR DATE OF HEARING : 23.8.2012 DATE OF PRONOUNCEMENT : 14.9.2012 O R D E R PER D. MANMOHAN (VP :- THIS APPEAL IS DIRECTED AGAINST THE ORDER, DATED 7. 1.2010, PASSED BY LEARNED CIT(A)-2, MUMBAI AND IT PERTAINS TO A.Y 2006-07. N UMBER OF GROUNDS WERE URGED BEFORE US WHICH ARE TAKEN UP IN SERIATIM. 2. VIDE GROUND NO. 1 THE ASSESSEE CONTENDS THAT LEA RNED CIT(A) ERRED IN CONFIRMING AN ADDITION TO CLOSING STOCK ON ACCOUNT OF PURCHASE TAX NOT INCLUDED THEREIN. THE ASSESSING OFFICER OBSERVED THAT THE A SSESSEE-COMPANY PURCHASED STOCK FROM UNREGISTERED DEALER AND PAID PURCHASE TAX AMOU NTING TO ` 53,71,399/-. IN THE TAX AUDIT REPORT IT WAS POINTED OUT THAT PURCHASE T AX WAS NOT INCLUDED IN THE VALUE OF CLOSING STOCK ON THE GOODS PURCHASED FROM UNREGISTE RED DEALER THOUGH THIS WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. SINCE PURCH ASE TAX HAD TO BE LOADED TO BE PURCHASES THE ASSESSING OFFICER ENHANCED THE VALUE OF PURCHASE BY ` 53,71,399/-. ON AN APPEAL FILED BY THE ASSESSEE, LEARNED CIT(A) OBS ERVED THAT UNDER IDENTICAL CIRCUMSTANCES IN ASSESSEES OWN CASE FOR A.Y. 2004- 05 HIS PREDECESSOR ADDED M/S. RALLIS INDIA LIMITED 2 PURCHASE TAX TO THE COST OF VALUE OF CLOSING STOCK AND BY RESPECTFULLY FOLLOWING THE SAME THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. 3. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. 4. LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT IN RESPECT OF A.Y. 2004-05 ITAT D BENCH, MUMBAI (ITA NO. 5257 & 5701/MUM/200 8 DATED 30.8.2011) UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER BY HOLDING THAT AS PER PROVISIONS OF SECTION 145A, THE VALUE OF PURCHASE TAX HAS TO BE TAKEN INT O ACCOUNT WHILE VALUING THE CLOSING STOCK. THE BENCH FURTHER OBSERVED THAT IN THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS P. LTD. (318 ITR 116) THE OPENING STOCK VALUATION SHOULD ALSO BE CORRESPONDINGLY ADJU STED. BY RESPECTFULLY FOLLOWING THE DECISION OF ITAT (SUPRA) WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO RE- COMPUTE IN LINE WITH THE VIEW TAKEN THEREIN. 5. VIDE GROUND NO. 2 THE ASSESSEE CHALLENGED THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER/LEARNED CIT(A) U/S. 14A READ WITH RULE 8D. AT THE TIME OF HEARING LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE-COMPANY IS NOT INTERESTED IN PURSUING THE ISSUE. LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION FOR THE SAME. UNDER THE CIRCUMSTANCES, WE REJECT GROUND NO. 2 ON THE GR OUND THAT IT IS NOT PRESSED BY THE ASSESSEE. 6. VIDE GROUND NO. 3 IT WAS CONTENDED THAT LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE TO CLOSING STOCK U/S. 145A ON ACCOUNT OF MODVAT CREDIT AMOUNTING TO ` 3,09,18,828/-. WITHOUT PREJUDICE TO THE ABOVE IT WA S CONTENDED THAT LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO INC REASE THE OPENING STOCK AND PURCHASES FOR THE YEAR UNDER CONSIDERATION BY APPLY ING SECTION 145A IN ITS ENTIRETY, IN THE LIGHT DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CABOT INDIA LTD. (IN ITA NO. 2123 OF 2009 DATED 16.10.2009). 7. FACTS NECESSARY FOR THE DISPOSAL OF THE ISSUE AR E STATED IN BRIEF. THE ASSESSING OFFICER NOTICED THAT UNUTILIZED MODVAT CREDIT/CENVA T CREDIT OUTSTANDING AT THE END OF M/S. RALLIS INDIA LIMITED 3 THE YEAR WORKS OUT TO ` 3,09,18,828/- WHICH DESERVES TO BE ADDED TO THE CL OSING STOCK AS PER THE PROVISIONS OF SECTION 145A. CASE OF THE ASSESSEE-COMPANY WAS THAT THE NET IMPACT IN PROFIT AND LOSS ACCOUNT IS NIL IF SUITABL E ADJUSTMENT IS MADE WITH REGARD TO CLOSING AND OPENING STOCK. IT WAS FURTHER SUBMITTED THAT IN THE LIGHT OF THE DECISION OF HON'BLE APEX COURT IN THE CASE OF INDO NIPPON CHEMI CALS CO. LTD. (261 ITR 275) WHATEVER METHOD THE ASSESSING OFFICER ADOPTS, THE M ETHOD HAS TO BE CONSISTENT WITH THE ACCEPTED PRINCIPLES OF ACCOUNTANCY. 8. THE ASSESSING OFFICER HOWEVER OBSERVED THAT THE PROVISIONS OF SECTION 145A HAS CAME INTO THE STATUE W.E.F. 1.4.1999 WHEREBY THE VA LUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE AND BY MAKING FURTHER ADJUSTMENT TO INCLUDE THE AMOUNT OF ANY TAX ACTUAL LY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AS ON THE DATE OF VALUATION. THEREFORE AS PER THE PROVISIONS OF SECTION 145A UNU TILISED CENVAT CREDIT AS ON 31.3.2006 IN RESPECT OF RAW MATERIAL IS ADDED TO TH E CLOSING STOCK U/S. 145A OF THE INCOME TAX ACT. ON AN APPEAL FILED BY THE ASSESSEE LEARNED CIT(A) OBSERVED THAT POST AMENDMENT SECTION 145A REQUIRES ALL SUCH AMOUNTS TO BE ADDED TO THE VALUE OF CLOSING STOCK FOR EVERY SUBSEQUENT YEAR; WHATEVER V ALUATION IS PUT TO THE CLOSING STOCK WILL SURFACE AS OPENING STOCK OF THE SUBSEQUENT YEA R AND CONSEQUENTLY THE CHANGE WILL HAVE NIL OR NEUTRAL TAX EFFECT OVER THE YEARS. HOWE VER IN THE INSTANT CASE EVEN PROVISIONS OF SECTION 145A WERE INTRODUCED LONG BAC K, ITS EFFECT WAS NOT GIVEN IN COMPUTATION OF INCOME. THEREFORE IN THE FIRST YEAR OF GIVING EFFECT TO THE PROVISIONS OF SECTION 145A, THERE IS BOUND TO BE A POSITIVE IMPAC T UPON THE INCOME OF THE ASSESSEE. IN THIS REGARD LEARNED CIT(A) RELIED UPON THE DECIS ION OF ITAT, MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS (103 ITD 19). 9. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. LEARNED COUNSEL FOR THE ASSESSEE ADVERTED OUR ATTENTION TO A NOTE ON CENVAT CREDIT ( PAGE 14 OF THE PAPER BOOK) TO SUBMIT THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLL OWING EXCLUSIVE METHOD OF ACCOUNTING I.E. PURCHASES ARE REDUCED BY THE MODVAT RECEIVABLE AT INCEPTION. THE M/S. RALLIS INDIA LIMITED 4 EFFECT OF THIS IS THAT THE PROFIT IS INCREASED AT T HE VERY INCEPTION BY CLAIMING A LOWER FIGURE IN RESPECT OF PURCHASES. IF THE ENTIRE AMOU NT OF MODVAT IS CREDITED TO PURCHASES AND THEREAFTER STOCKS ARE VALUED AT RATES WHICH ARE GROSS OF MODVAT, THEN IT AMOUNTS TO DOUBLE TAXATION OF THE AMOUNT OF MODVAT PERTAINING TO RAW MATERIALS LYING IN CLOSING STOCK. HE REFERRED TO THE DECISION OF HO N'BLE BOMBAY HIGH COURT IN THE CASE OF INDO-NIPPON CHEMICALS LTD. (245 ITR 384) TO SUBM IT THAT WHETHER ONE APPLIES THE NET METHOD OR GROSS METHOD THERE IS NO UNDERSTATEME NT OF PROFITS AND HENCE BY APPLYING INCLUSIVE METHOD, IF AT ALL IS TO BE APPLI ED, IT HAS TO BE APPLIED IN TOTALITY AND NOT IN PIECEMEAL I.E. IF THE CLOSING STOCK HAS TO B E VALUED U/S. 145A, PURCHASES ALSO TO BE VALUED ACCORDINGLY. LEARNED COUNSEL PLACED REL IANCE UPON THE DECISIONS IN THE CASE OF DCIT VS. CABOT INDIA LTD. AND OTHERS TO SUB MIT THAT ANY ADJUSTMENT TO THE CLOSING STOCK REQUIRES SUITABLE MODIFICATION TO THE OPENING STOCK, SINCE NET EFFECT OF ADJUSTMENT WILL NOT RESULT IN ANY TAX EFFECT. IT WA S ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION IN A.Y. 2008-09 A ND THEREAFTER. IN OTHER WORDS, ADDITION WAS CONFINED ONLY FOR 2 YEARS I.E. A.Y. 20 06-07 & 2007-08. IT WAS ALSO SUBMITTED THAT IN RESPECT OF A.Y. 2000-01 WHICH IS THE FIRST YEAR AFTER THE AMENDMENT THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION AN D THUS IN THE YEAR OF MAKING ADJUSTMENT THE ASSESSEE IS ENTITLED TO ADJUSTMENT O F OPENING STOCK AS WELL AS CLOSING STOCK IN WHICH EVENT, THERE WILL NOT BE ANY TAX IMP ACT. 10. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT SECTION 145A SPEAKS OF ONLY ADJUSTMENTS TO THE CLOSING STOC K AND HENCE OPENING STOCK NEED NOT BE REVALUED BY APPLYING INCLUSIVE METHOD. HOWEV ER HE FAIRLY ADMITTED THAT THE ISSUE IS COVERED BY THE DECISIONS CITED BY LEARNED COUNSEL, IN THE PAPER BOOK. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWED EXCLUSI VE METHOD AND BY VIRTUE OF INSERTION OF SECTION 145A THE ASSESSEE HAS TO FOLLO W INCLUSIVE METHOD IN WHICH EVENT, SIMILAR ADJUSTMENT HAS TO BE MADE TO THE OPENING ST OCK, PURCHASES, SALE AND CLOSING STOCK ALSO. EVEN IF THERE IS NO TAX IMPACT, SECTIO N 145A OF THE ACT HAS TO BE APPLIED FOR VALUATION OF OPENING STOCK, PURCHASES, SALE, AN D CLOSING STOCK, AS HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CABOT INDIA (IT AP PEAL NO. 2123 OF 2009) AND M/S. M/S. RALLIS INDIA LIMITED 5 NICHOLAS PIRAMAL INDIA LTD. (IT APPEAL NO. 8 OF 200 9). THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE ACCORDINGLY. 12. VIDE GROUND NO. 4 THE ASSESSEE-COMPANY CONTENDS THAT LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 21,01,380/- U/S. 50 READ WITH SECTION 50C OF THE A CT, IN RESPECT OF THE FLAT SOLD IN THE BUILDING CALLED NA NAK NIWAS. THE ASSESSEE-COMPANY DECLARED SHORT TERM CAPITAL GAINS ON SALE OF FLATS U/S. 50 OF THE ACT. OUT OF THE FLATS SOLD, THE COMPANY SOLD A FLAT IN NANAK NIWAS, SHYAM COP. HOUSING SOCIETY FOR A SALE CONSIDERATION OF ` 1,65,00,000/-. REGISTRATION WAS MADE ON 31.8.2005. THE ASSESSING OFFICER ADDRESSED A LETTER, U/S. 50C OF THE INCOME TAX ACT, TO JOINT SUB-REGISTRAR, DEPARTMENT OF STAMP AND REGISTRATION, WORLI TO FURN ISH THE VALUE ADOPTED BY THE STAMP VALUATION AUTHORITY. THE JOINT SUB-REGISTRAR INFORMED THAT THE STAMP VALUE OF THE SAID PROPERTY WAS ` 1,86,01,380/-. THEREFORE THE ASSESSING OFFICER SOU GHT TO TAKE INTO CONSIDERATION THE VALUE ADOPTED BY THE STAMP V ALUATION AUTHORITY IN PREFERENCE TO THE VALUE DECLARED IN DEED. IN OTHER WORDS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY AN AMOUNT OF ` 21,01,380/- SHOULD NOT BE ADDED FURTHER AS SHORT TERM CAPITAL GAINS ON THE SALE OF SAID FLAT. 13. THE CASE OF THE ASSESSEE WAS THAT IN RESPECT OF DEPRECIABLE ASSETS PROVISIONS OF SECTION 50 ARE APPLICABLE IN WHICH EVENT METHOD PRE SCRIBED UNDER 50C CANNOT BE INVOKED. IT WAS ALSO CONTENDED THAT THERE IS DEEMED SHORT TERM CAPITAL GAINS, IN THE INSTANT CASE, BY VIRTUE OF THE FACT THAT BLOCK OF A SSETS WERE EXHAUSTED UPON SALE OF NANAK NIWAS BUT THE FACT REMAINS THAT IT IS DEPRECI ABLE ASSET AND HENCE VALUATION ADOPTED BY STAMP VALUATION AUTHORITY SHOULD NOT BE TAKEN INTO CONSIDERATION. IT WAS FURTHER SUBMITTED THAT ON THE DATE OF SALE, PROPERT Y WAS MORE THAN 50 YEARS OLD AND AS PER THE STAMP DUTY READY RECKONER 50% DEPRECIATI ON HAS TO BE ADOPTED AND IF SUCH A METHOD IS ADOPTED VALUE AS PER THE STAMP ACT WORKS OUT TO ` 1.55 CRORES WHEREAS THE PROPERTY WAS SOLD FOR A CONSIDERATION O F ` 1.65 CRORES AND HENCE NO ADDITION IS CALLED FOR. IT WAS ALSO CONTENDED THAT IT WAS A MISTAKE ON THE PART OF THE BUYER WHO HAS TAKEN INTO CONSIDERATION 40% DEPRECIA TION AND WAS WILLING TO PAY HIGHER STAMP DUTY AS PER VALUE ADOPTED BY THE JOINT SUB-REGISTRAR. SINCE REGISTRATION AND STAMP CHARGES ARE PAYABLE BY THE BUYER, THE ASS ESSEE DID NOT CHALLENGE THE VALUE M/S. RALLIS INDIA LIMITED 6 ADOPTED BY THE JOINT SUB-REGISTRAR BUT FOR THE PURP OSE OF VALUE TO BE ADOPTED IN THE CASE OF SELLER, U/S. 50C OF THE INCOME TAX ACT, FAI R MARKET VALUE HAS TO BE ADOPTED. 14. THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE. SINCE SECTION 50C OF THE ACT SPEAKS OF TH E VALUE ADOPTED FOR STAMP DUTY PURPOSES AS THE BASIS ADDITION OF ` 21,01,380/- WAS MADE BY THE ASSESSING OFFICER AND THE SAME WAS CONFIRMED BY LEARNED CIT(A). 15. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. LEARNED COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT SECTION 50 IS APPLICABLE TO BUSINESS ASSETS. EVEN OTHERWISE THE VALUATION ADOPTED BY THE JOINT SUB-REGISTRAR, D EPARTMENT OF STAMP AND REGISTRATION CANNOT BE THE BASIS TO MAKE AN ADDITIO N IN THE HANDS OF THE ASSESSEE SINCE STAMP VALUATION AUTHORITY HAS NOT TAKEN THE C ORRECT DEPRECIATION AS PER THE STAMP VALUATION READY RECKONER. 16. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT U/S. 50C OF THE ACT THE LEGISLATURE HAS NOT PROVIDED FOR ANY RELAXATION IN THE CASE OF SELLER. PLAIN LANGUAGE OF THE SECTION GIVES NO ROOM FOR DOUBT THAT VALUE ADOP TED OR ASSESSED BY THE STAMP VALUATION AUTHORITY SHOULD BE DEEMED TO BE FULL VAL UE OF CONSIDERATION RECEIVED AND ONLY IN A CASE WHERE THIS VALUATION IS DISPUTED BEF ORE THE STAMP VALUATION AUTHORITY, THE MATTER CAN BE REFERRED TO VALUATION OFFICER. IN THE INSTANT CASE, THE ASSESSEE HAVING NOT CHALLENGED THE VALUE ADOPTED BY THE STAMP VALUA TION AUTHORITY; THERE IS NO CASE TO DISPUTE THE ADDITION MADE BY THE ASSESSING OFFICER. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ON AND PERUSED THE RECORD. WITH REGARD TO APPLICABILITY OF PROVISIONS OF SECTI ON 50C, IN THE CASE OF DEPRECIABLE ASSETS, THE ISSUE NOW STANDS SQUARELY COVERED BY TH E ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF UNITED MARINE ACADEMY (130 ITD 113) WHE REIN THE SPECIAL BENCH OBSERVED THAT SECTION 50 & 50C OPERATE IN TWO DIFFERENT FIEL DS AND IF THE VALUE ADOPTED BY THE STAMP VALUATION AUTHORITY IS ACCEPTED BY THE PURCHA SER/SELLER THERE CANNOT BE ANY VARIATION FOR LIMITED PURPOSES OF COMPUTING THE CON SIDERATION RECEIVED, U/S. 50C OF THE INCOME TAX ACT, 1961. IN THE LIGHT OF THE DECIS ION CITED (SUPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). WE THEREFORE UPHOLD THE ORDER OF LEARNED CIT(A) AND REJECT GROUND NO. 4 OF THE ASSES SEE. M/S. RALLIS INDIA LIMITED 7 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.9.2012. SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER SD/- (D.MANMOHAN) VICE PRESIDENT MUMBAI; DATED 14/09/2012 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( (( ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS