M/s. Panasonic India Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2548/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7492 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 31-08-2016
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI , ! ' # $' # % . &' , ( ! )* BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2548/MDS/2016 / ASSESSMENT YEAR :2010-11 PANASONIC INDIA PVT. LTD., SPIC BUILDING ANNEXE, 6 TH FLOOR, 88, MOUNT ROAD, GUINDY, CHENNAI 600 032. [PAN: AADCP 9391B] VS. DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(1), CHENNAI 600 032. ( +, /APPELLANT ) ( -.+, / RESPONDENT ) / APPELLANT BY : SHRI PRADEEP DINODIA, C.A / RESPONDENT BY : SHRI M.SRINIVASA RAO, CIT / DATE OF HEARING : 05.01.2017 /DATE OF PRONOUNCEMENT : 17.03.2017 / / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3 DATED 30.06. 2016 (CIT(A)) FOR SHORT) PASSED UNDER SECTION 143(3) OF THE INCOME TA X ACT, 1961 [ACT IN SHORT], FOR THE ASSESSMENT YEAR (AY) 2010-11. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2548 2548 2548 2548/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 2 2. THE ONLY GRIEVANCE IN THIS APPEAL IS WITH REGARD TO CONFIRMING AN ADDITION OF RS. 19,91,45,000/- BY CIT(A) IN VALUIN G CLOSING STOCK OF SLOW MOVING ITMES. 2.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE PROVISION FOR AN AMOUNT OF RS. 19,91,45,000/- TOWARDS SLOW MOVING I TEMS OF CLOSING STOCK. THE ASSESSING OFFICER FOLLOWING THE JUDGMENT OF JUR ISDICTION HIGH COURT IN THE CASE OF ARCOT DISTRICT CO-OPERATIVE SUPPLY AND MARKETING SO CIETY LTD., V. CIT 165 ITR 653 (MAD) DISALLOWED THE CLAIM BY HOLDING THAT IT IS A CONTINENT LIABILITY. AGAINST THIS ASSESSEE CARRIED AN APPEA L TO CIT(A), THE LD. CIT(A) CONFIRMED ORDER OF THE AO. AGAINST THIS, THE ASSES SEE IS IN APPEAL BEFORE US. 3. THE LD. AR SUBMITTED THAT THE AO HAS APPLIED WRO NG DECISION IN REJECTING THE METHOD FOLLOWED BY THE ASSESSEE IN VA LUING THE CLOSING STOCK WITH REFERENCE TO SLOW MOVING ITEMS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF NORTH ARCO T DISTRICT CO-OPERATIVE SUPPLY & MARKETING SOCIETY LTD. VS. CIT 165 ITR 623 (MADRAS) AND FOUND THAT FACTS ARE NOT EXACTLY THE SAME AS OF APPELLAN T'S CASE. HOWEVER, THE PRINCIPLE LAID DOWN IN THE JUDGMENT WITH REGARD TO THE CLAIM OF DEDUCTION ON DEFICIT STOCK WITHOUT WRITING IT OFF IS NOT ALLOWAB LE CLAIM IS STILL APPLICABLE TO I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2548 2548 2548 2548/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 3 THE FACTS OF THE APPELLANT'S CASE. FURTHER, LD. AR HAS TAKEN THE SUPPORT OF DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE VI DE ITA NOS 476 & 477/MDS/2015 TO SUBSTANTIATE HIS ARGUMENTS. WE HAVE PERUSED THE ORDER OF TRIBUNAL IN ASSESSEE'S OWN CASE AND NOTICED THAT A PASSING OBSERVATION WAS MADE BY THE BENCH WITH REGARD TO APPLICATION OF R ATION LAID DOWN BY MADRAS HIGH COURT IN THE CASE OF NORTH ARCOT DISTRICT CO-O PERATIVE SUPPLY & MARKETING SOCIETY LTD. VS. CIT 165 ITR 623 (MADRAS) . FURTHER, THE COORDINATE BENCH HAD THE OCCASION TO DEAL WITH THE ISSUE OF REVISION POWERS OF CIT U/S. 263 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE WITH A DIRECTION TO THE AO TO RE-EXAMINE THE ISSUE OF VALU ATION OF STOCK ON SLOW MOVING ITEMS OF THE APPELLANT. THEREFORE, IN OUR CONSIDERED OPINION THE RELIANCE PLACED BY THE LD. AR ON COORDINATE BENCH DECISION DOES NOT COME TO THE HELP OF APPELLANTS CASE. 4. FURTHER LD.AR SUBMITTED THAT THE APPELLANT H AS BEEN CONSISTENTLY FOLLOWING SAME METHOD OF VALUATION OF THE CLOSING STOCK YEAR AFTER YEAR WHICH IS AS PER WELL ACCEPTED ACCOUNTING PRINCIPLE NAMELY AS 2 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND RECOGNISED BY SECTION 145A IN THE INCOME TAX ACT. IN OUR OPINIO N, THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK EITHER AT COST PRICE OR MARKET PRICE WHICHEVER IS LOWER. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2548 2548 2548 2548/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 4 5. FURTHER, THE LD. AR SUBMITTED THAT THE VALUE OF THE CLOSING STOCK MUST BE THE VALUE OF OPENING STOCK IN THE SUCCEEDING YEA R. HOWEVER, WHICHEVER THE METHOD APPELLANT ADOPTS IT SHOULD DISCLOSE THE TRUE PICTURE OF ITS PROFITS AND GAINS. IF IT DOES NOT DISCLOSE THE TRUE STATE O F AFFAIRS FOR DETERMINATION OF TAX THEN IT IS THE DUTY OF THE AO TO ADOPT ANY SUCH COMPUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF TRUE IN COME OF THE APPELLANT. THE RELIANCE IS PLACED ON THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD 188 ITR 44, 52 (SC ). ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE ARTIFICIALLY REDUCED THE PROFIT TO THE TUNE OF ` 19,91,45,000/- BY ADJUSTING IN CLOSING STOCK. IN OUR OPINION, UNLESS THE AO BOUGHT ON RE CORD ANY EVIDENCE TO SHOW THAT ASSESSEE HAS FOLLOWED DUBIOUS METHOD TO R EDUCE THE PROFIT, WE CANNOT APPRECIATE THE ARGUMENT OF LD.D.R. 6. IT IS NOTICED THAT, IN THE INSTANT CASE, APPELL ANT HAS VALUED ITS CLOSING STOCK PERTAINING TO SLOW MOVING, NON-MOVING, DAMAGE D PRODUCTS, DEMO PRODUCTS AND SPARES AND OBSOLETE STOCK ITEMS WHICH WERE LYING IN THE STOCK AS PER NET REALIZABLE VALUE WHICH IS IN ACCORDANCE WITH THE ACCOUNTING STANDARD AS-2. 7. IT IS ALSO BROUGHT TO OUR NOTICE BY THE ID. AR T HAT VALUATION OF CLOSING STOCK IS REVENUE NEUTRAL BECAUSE CLOSING STOCK OF O NE YEAR WILL BECOME OPENING STOCK OF SUBSEQUENT YEAR. THIS ARGUMENT OF ID. AR WAS NOT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2548 2548 2548 2548/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 5 APPRECIATED BY LD CIT(A) ON THE REASON THAT ASSES SEE HAS SHOWN CLOSING STOCK AT LESSER VALUE AS COMPARED TO OPENING STOCK OF THAT PARTICULAR YEAR. IN THE RESULT, THE PROFIT TO THE EXTENT OF DIMINUTION OF VALUE OF CLOSING STOCK WILL THUS GET AFFECTED. THIS CONTENTION OF LD CIT(A) IS NOT CORRECT AS OPENING AND CLOSING STOCK NEED IN PARTICULAR ASSESSMENT YEAR NO T BE SAME FIGURE AND THERE IS EVERY CHANCE OF DIFFERENCE IN THESE TWO S TOCK FIGURES. 8. IT IS OBSERVED THAT IN EARLIER YEAR ALSO THE ASSESSEE HAS VALUED CLOSING STOCK ON THE SAME BASIS AS IN THIS ASSESSMENT YEAR AND THIS METHOD WAS ACCEPTED BY A.O IN THE ASSESSMENT YEARS 2008-09 AND 2009-10. HOWEVER, IT WAS SUBJECT MATTER OF REVISION BY CIT VIDE HIS O RDER DATED 23.02.2015. THIS ORDER OF CIT PASSED U/S. 263 WAS SUBJECT MATT ER OF APPEAL BEFORE THIS TRIBUNAL. THE TRIBUNAL IN ITA NO.476 AND 477/MDS/20 15 VIDE ORDER DATED 09 MARCH, 2016 HELD AS UNDER: WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSE D THE MATERIALS AVAILABLE ON RECORD. AS POINTED BY THE LEARNED AUTHORIZED REPRES ENTATIVE THE VALUE OF THE CLOSING STOCK TO BE REFLECTED IN THE PROFIT AND LOSS STATEM ENT SHOULD BE THE ACTUAL COST OR THE MARKET PRICE WHICHEVER IS LESS AS ON THE LAST DATE OF THE FINANCIAL YEAR IN ORDER TO ARRIVE AT THE CORRECT PROFIT I LOSS OF THE ASSESSEE FOR TH E RELEVANT PREVIOUS YEAR. HOWEVER, THE ESTIMATE OF THE MARKET VALUE HAS TO BE MADE ON SOME REASONABLE BASIS. IN THE CASE OF THE ASSESSEE, IT APPEARS THAT THE LEARNED ASSESSING OFFICER HAS NOT LOOKED INTO THE VALUATION MADE BY THE ASSESSEE WITH RESPECT TO ITS SLOW MOVING OBSOLETE INVENTORY. THE AMOUNT OF PROVISION MADE BY THE ASSESSEE IS ALSO QU ITE SIGNIFICANT. THEREFORE, WE ARE OF THE OPINION THAT THE LEARNED COMMISSIONER OF INCOME TAX WAS JUSTIFIED IN INVOKING HIS POWERS UNDER SECTION 263 OF THE ACT. HOWEVER, HE HA S ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO DISALLOW THE ENTIRE AMOUNT OF DIMINUTION IN THE VALUE OF CLOSING STOCK. THE RELIANCE PLACED BY THE LEARNED COMMISSIO NER OF INCOME TAX IN THE CASE OF NORTH MARKETING SOCIETY VS. CIT SUPRA DOES NOT APPE AR TO THE APPLICABLE TO THE CASE OF THE ASSESSEE BECAUSE THE ISSUE IN THAT CASE IS 'RES ERVE FOR DEFICIT STOCK', HOWEVER THE CASE OF THE ASSESSEE IS WITH RESPECT TO 'DIMINUTION IN THE VALUE OF SLOW MOVING INVENTORY'. NEVERTHELESS, WE HEREBY UPHOLD THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX FOR INVOKING THE PROVISIONS OF SECTION 2 63 OF THE ACT FOR THE ABOVE MENTIONED REASONS, AND AT THE SAME BREATH WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO EXAMINE THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE IN VALUING ITS SLOW MOVING OBSOLETE STOCK AND THEREAFTER DECIDE THE ISS UE BY DISALLOWING OR ALLOWING THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .2548 2548 2548 2548/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 6 DIMINUTION IN VALUE OF SLOW MOVING OBSOLETE INVENTO RY AS DEDUCTION ACCORDING TO MERITS OF THE CASE AND AS PER LAW. IN THE RESULT, APPEALS OF THE ASSESSEES ARE PARTL Y ALLOWED AS INDICATED HEREIN ABOVE . 10. IN OUR OPINION, IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL IN ASSESSEE OWN CASE, IT IS APPROPRIATE TO GIVE SAME DIRECTION TO A.O AND TO DECIDE THE ISSUE AFRESH. ACCORDINGLY, WE REMIT THE ISSUE IN DI SPUTE TO THE FILE OF A.O AND THE ASSESSING OFFICER HAS TO EXAMINE IN DETAIL T HE METHOD OF VALUATION OF THE CLOSING STOCK FOLLOWED BY ASSESSEE AND TO SEE WHETHER THE ASSESSEE HAS FOLLOWED SAME METHOD OF VALUATION OF CLOSING STOCK FROM YEAR TO YEAR AND TO DECIDE THEREUPON AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 12. IN THE RESULT, THE ASSESSEE APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 17 TH MARCH, 2017 AT CHENNAI. SD/- SD/- (DUVVURU RL REDDY) JUDICIAL MEMBER (CHANDRA POOJARI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 17.03.2017 EDN !' #$ %$ /COPY TO: 1. /APPELLANT, 2. / RESPONDENT, 3. & ( )/CIT(A), 4. & /CIT, 5. $'( ) /DR & 6. (* + /GF.