Lakshmi Steel Rolling Mills (Unit-II), Bhavnagar V. The Jt. CIT, Range-2, Bhavnagar

ITA 2590/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8162 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 19-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B R POPAT
• Section: 143(3)

Judgement Text

ITA NO. 2590/AHD/2014 LAKSHMI STEEL ROLLING MILLS VS. JCIT ASSESSMENT YEAR: 2010-11 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] ITA NO. 2590/AHD/2014 ASSESSMENT YEAR: 2010-11 LAKSHMI STEEL ROLLING MILLS (UNIT-II) ........... .......APPELLANT 241, MADHAV DARSHAN, WAGHAWADI ROAD, BHAVNAGAR [PAN : AAAFL 7116 L] VS. THE JOINT COMMISSIONER OF INCOME-TAX ...........................RESPONDENT RANGE-2, BHAVNAGAR APPEARANCES BY: BR POPAT FOR THE ASSESSEE MUDIT NAGPAL FOR THE REVENUE DATE OF CONCLUDING THE HEARING : 05.03.2018 DATE OF PRONOUNCING THE ORDER : 06.06.2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 28.08.2014 IN THE MATT ER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSME NT YEAR 2010-11. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOW S:- THE LEARNED CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN 1. CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUN T FOR THE REASON AS STATED IN THE ORDER; 2. CONFIRMING THE ADDITION TO THE EXTENT OF RS.17,5 0,000/- OUT OF THE TOTAL ADDITION OF RS.35,00,000/- MADE BY THE AO BY HOLDIN G THAT THERE IS ABNORMAL DECREASE IN GROSS PROFIT AND HIGHER SHORTAGE AND TH EN BY ATTRIBUTING THE SAME TO THE ALLEGED SALE OF CERTAIN MACHINERY ITEMS OUT OF BOOKS FOR THIS AMOUNT; 3. CONFIRMING THE ACTION OF THE AO IN MAKING AN ADD ITION OF RS.51,55,133/- BY DISTURBING THE VALUATION OF CLOSING STOCK AND BY HO LDING THAT SINCE THE CLOSING STOCK PREDOMINANTLY CONSISTED OF DG SETS AND MACHIN ERIES, WHICH HAD GENERATED SUBSTANTIALLY HIGHER PRICE IN THE SUCCEED ING YEAR, THE SAME OUGHT TO HAVE BEEN VALUED AT THE ACTUAL PRICE REALIZED AS REDUCED BY THE OVERALL GROSS PROFIT MARGIN; ITA NO. 2590/AHD/2014 LAKSHMI STEEL ROLLING MILLS VS. JCIT ASSESSMENT YEAR: 2010-11 PAGE 2 OF 3 4. CONFIRMING THE ADDITION TO THE EXTENT OF RS.4,00 ,000/- OUT OF THE TOTAL ADDITION OF RS.8,29,783/- ORIGINALLY MADE BY THE AO BY ARBITRARILY HOLDING THAT THE DIFFERENCE BETWEEN THE ESTIMATED QUANTITY OF OI L THAT WAS AVAILABLE AT THE TIME OF BOARDING OF VESSEL AND THE CORRESPONDING QU ANTITY RECOVERED AND SOLD REPRESENTS UNACCOUNTED SALES; 5. CONFIRMING THE ADDITION TO THE EXTENT OF RS.5,0 00/- OUT OF THE TOTAL ADDITION OF RS.28,725/- MADE BY THE AO BY DISALLOWING 1/5 TH OF THE TELEPHONE AND VEHICLE RUNNING & MAINTENANCE EXPENSES. 3. SO FAR AS GROUND NUMBERS 1 AND 4 ARE CONCERNED, LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTS THAT THESE ISSUES ARE COVER ED AGAINST THE ASSESSEE AND DOES NOT PRESS THE SAME. AS REGARDS GROUND NO.5, L EARNED COUNSEL ACCEPTS OUR SUGGESTION OF NOT PRESSING THE SAME ON ACCOUNT OF S MALLNESS OF AMOUNT. GROUND NOS. 1, 4 & 5 ARE THUS DISMISSED AS NOT PRESSED. 4. WE TAKE UP GROUND NO.2 WHICH IS DIRECTED AGAINST LEARNED CIT(A) SUSTAINING THE ADDITION TO THE EXTENT OF RS.17,50,000/- IN RES PECT OF ALLEGED SALE OF CERTAIN MACHINERY OUT OF BOOKS OF ACCOUNTS. 5. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS I SSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO-ORDINATE BENCH DECISION IN THE CASE OF P. PATEL SHIP BREAKING CO. VS. JCIT AND VICE-VERSA (ITA NO.2102 A ND 2276/AHD/2014; ORDER DATED 31.01.2018) WHEREIN THE ADDITION HAS BEEN RESTRICTE D TO THE PROFIT ELEMENT, ESTIMATED AT 4.5%, OF THE ALLEGED SALES. THE CO-ORDINATE BEN CH HAS, INTER ALIA, OBSERVED AS FOLLOWS:- 10. NOW COMES TO EQUALLY IMPORTANT LATTER QUESTION AS TO WHETHER THE CIT(A) OUGHT TO HAVE AFFIRMED THE IMPUGNED DISALLOWANCE OF RS.55LACS IN ENTIRETY OR TO THE TUNE OF LUMP SUM FIGURE OF RS.10LACS ONLY. T HE REVENUE'S CASE IS THAT IT IS ENTIRE DISALLOWANCE AMOUNT WHICH SHOULD HAVE BEE N CONFIRMED IN LOWER APPELLATE PROCEEDINGS WHEREAS THE ASSESSEE SEEKS TO ADD ONLY GP COMPONENT THEREIN. WE FIND IN THIS BACKDROP THAT A CO-ORDINATE BENCH ORDER IN M/S. MADHAV STEELS VS JCIT ITA NOS. 1963 & 2274/AHD /2014 HAS RESTRICTED AN IDENTICAL DISALLOWANCE OF UNACCOUNTED SALES OF M ACHINERY/ENGINE SETS TO THE EXTENT OF PROFIT ELEMENT EMBEDDED THEREIN ONLY THAN THE ENTIRE AMOUNT. WE ACCORDINGLY SUPPORT THERE FROM TO REJECT REVENUE 'S GRIEVANCE IN SUPPORTING ASSESSING OFFICER'S ACTION ADDING THE EN TIRE SUM OF ESTIMATE SALE PRICE. MR. HEMANI HIGHLIGHTS ASSESSEE'S NP IN THE I MPUGNED ASSESSMENT YEAR @2.65% ONLY. WE FIND NO SUBSTANCE IN THE INSTANT AP PEAL FOR THE REASON THAT PROFIT ELEMENT IN ACCOUNT AND UNACCOUNTED SALES FIG URES MAY NOT BE UNIFORM ON PRESUMPTION BASIS. WE THEREFORE DIRECT THE ASSES SING OFFICER TO COMPUTE THE IMPUGNED ADDITION BY TAKING NP @4.5% QUA THE AD DITION AMOUNT OF RS.55LACS. THE ASSESSEE GETS PART RELIEF IN ITS SEC OND SUBSTANTIVE GROUND. 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW THAN TH E VIEW SO TAKEN BY THE CO- ORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, D IRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO PROFIT ELEMENT @ 4.5% IN THE ALLEGED SUPPRESSED SALE. TO THIS EXTENT, GRIEVANCE OF THE ASSESSEE IS UPHELD . 7. GROUND NO.2 IS THUS PARTLY ALLOWED. ITA NO. 2590/AHD/2014 LAKSHMI STEEL ROLLING MILLS VS. JCIT ASSESSMENT YEAR: 2010-11 PAGE 3 OF 3 8. SO FAR AS GROUND NO.3 IS CONCERNED, THE MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN THE CLOSING STOCK OF MV MOL AT R S.16,98,133 (BY APPLYING RATE OF 13,585 PER MT ON 125 MT) BUT AS THE SUBSEQUENT S ALE INDICATES, IT WAS WORTH RS.17,79,820/- - MUCH MORE THAN THE RATE WORKED OUT ON THE BASIS OF 3.20% PROFIT. ON THIS BASIS, THE ASSESSING OFFICER MADE AN ADDITI ON OF RS.51,55,133/- TO THE VALUE OF CLOSING STOCK. IN APPEAL, LEARNED CIT(A) HAS CO NFIRMED THE ADDITION. NOT SATISFIED, ASSESSEE IS IN SECOND APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND NO MERITS IN THE IMPUGNED ADDITION. THE MER E FACT THAT THE STOCK HAS SUBSEQUENTLY BEEN SOLD AT A SUBSTANTIALLY HIGHER PR ICE CANNOT BE A GROUND ENOUGH TO MAKE ADDITION IN THE VALUE OF CLOSING STOCK. THE A SSESSEE HAS BOUGHT THE SHIP/MATERIAL ON WEIGHT BASIS AND THE STOCK HAS BEE N VALUED ON THAT BASIS. AS LONG AS THE COST OF PURCHASES IS NOT DOUBTED, AND THE FA CT OF SHIP HAVING BEEN BOUGHT ON WEIGHT BASIS IS NOT DOUBTED, THERE CANNOT BE AN OCC ASION TO DISTURB THE VALUE OF STOCK. SOME PARTS OF THE SHIP MAY FETCH A HIGHER PR ICE ON SALE, AS IN THE PRESENT CASE, BUT THAT DOES NOT DISTURB THE COST OF ACQUISI TION AND THE STOCK CAN ONLY BE VALUED ON THE BASIS OF COST PRICE OR MARKET PRICE W HICHEVER IS LESS. WHATEVER BE THE CERTAINTY OF REALISING A HIGHER VALUE OF PURCHASE, THE INCOME IN RESPECT OF THE SAME CANNOT BE BOOKED AT A POINT OF TIME EARLIER THAN AC TUAL SALE OF STOCK, AS IS THE MANDATE OF PRINCIPLE OF CONSERVATISM IN ACCOUNTANCY DULY RECOGNIZED BY HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT (24 ITR 481). IN VIEW OF THESE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE, AND, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS.51,55,133/-. 10. GROUND NO.3 IS THUS ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 6 TH JUNE, 2018 SD/- SD/- RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 6 TH DAY OF JUNE, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD