MULJI DEVSHI & CO, MUMBAI V. ASST CIT CIR 17(2), MUMBAI

ITA 2622/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6723 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 11-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SRIVASTAVA
• Assessee Lawyers: VINOD VASA
• Keywords: Business income; Opportunity of being heard; Assessment record
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAVISH SOOD, JM ITA NO. 2622 /MUM/ 2017 (ASSESSMENT YEAR: 2013 - 14 ) M/S. MULJI DEVSHI & CO. 116, KESHAVJI NAIK ROAD, CHICH BUNDER, MUMBAI - 400 009 VS. ACIT, CIRCLE - 17(2), 1 ST FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 PAN/GIR NO. AAAFM 8247 R ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI VIPUL JOSHI & SHRI VINOD VASA RESPONDENT BY : SHRI A. K. SRIVASTAVA DATE OF HEARING : 25.10.2018 DATE OF PRONOUNCEMENT : 22.01 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 28, MUMBAI (LD.CIT(A) FOR SHORT) DATED 01.02.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2013 - 14. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1 THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.32,43,956/ - MADE BY THE A.O. TO THE RETURNED BUSINESS INCOME BY REVALUING THE CLOSING STOCK TO THAT EXTENT BY ADDING TO TH E VALUE OF THE CLOSING STOCK, COST OF IMPORT DUTY AND EXPENSES STATED TO BE IN PROPORTION TO THE TOTAL IMPORT DUTY BILL FOR THE YEAR DISREGARDING THE EXPLANATION PROVIDED FOR NOT INCLUDING SUCH COST IN THE VALUE OF THE CLOSING STOCK. 2 THE LEARNED CIT ERRED IN CONFIRMING THE APPLICATION BY A.O. OF THE PROPORTIONATE METHOD OF ALLOCATION OF TOTAL IMPORT DUTY COST INCURRED DURING THE YEAR WHEN ACTUAL CONSIGNMENT WISE IMPORT DUTY PAYMENTS WERE PROVIDED TO HER ALONGWITH THE SUBMISSIONS FU LLY REPORTED IN THE ORDER. SUCH IMPORT DUTY ON THE STOCK IN HAND WAS RS.15,77,919/ - AS AGAINST ADDITION MADE OF RS.32,43,956/ - . 2 ITA NO. 2622/MUM/2017 3 THE LEARNED CIT(A) ERRED IN IGNORING THE ALTERNATE SUBMISSION THAT THE A.O. ERRED IN ADOPTING PROPORTIONATE METHOD OF DISALL OWING EXPENSES WHEN IN FACT THE PART OF THE EXPENSES WERE NOT INCURRED AND NOT CLAIMED AS EXPENSES AT ALL DURING THE YEAR BY YOUR APPELLANT AND WERE THEREFORE OUTSIDE THE PREVIEW OF SECTION 145A(A)(II). 4 THE LEARNED CIT(A) ERRED WHILE HOLDING THAT THE A LTERNATE PLEA IS NOT AN ISSUE ARISING OUT OF THE ORDER OF THE A.O. AND IN THE CASE OF THE STATISTICAL ERROR, OPTION OF SECTION 154 IS OPEN TO THE APPELLANT, FAILED TO GIVE CLEAR CUT DIRECTION TO RECTIFY THE ORDER U/S.154 WHEN HE WAS INFORMED THAT AN APPLIC ATION U/S.154 FOR RECTIFYING ERRONEOUS ORDER HAS ALREADY BEEN FILED. 5 THE LEARNED CIT(A) FURTHER ERRED IN NOT GIVING DIRECTION TO A.O. TO GIVE TELESCOPIC EFFECT OF ADDITION IN THE INCOME OF CURRENT YEAR TO THE INCOME OF THE FOLLOWING ASSESSMENT YEAR. 'I T IS THEREFORE PRAYED THAT THE ADDITION MADE BY THE A.O. OF RS.32,43,956/ - BE FULLY CANCELLED. WITHOUT PREJUDICE TO SUCH PRAYER AND IN THE ALTERNATIVE SUCH DISALLOWANCE MAY BE RESTRICTED TO RS.15,77,919/ - WITH DIRECTION TO GIVE TELESCOPIC EFFECT OF SUCH AD DITION TO THE INCOME OF THE FOLLOWING YEAR'. 3. BRIEF FACTS ARE THAT IN THIS CASE THE ASSESSING OFFICER (A.O. FOR SHORT) NOTED THAT F ROM THE ASSESSMENT RECORDS, IT WAS SEEN THAT DURING THE YEAR UNDER REFERENCE, ASSESSEE HAS IMPORTED MOONG AND GINGER AND P AID IMPORT DUTY AND EXPENSES TO THE TUNE OF RS.84,45,682/ - FOR PURCHASE OF 6.23.92,091/ - DURING THE YEAR UNDER REFERENCE. FROM THE ABOVE AMOUNT OF RS.1,47,23,400/ - REFLECTED AS CLOSING STOCK OF MOONG AND GINGER. THE ASSESSEE HAS NOT DEBITED THE PROPORTION A MOUNT OF IMPORT DUTY AND IMPORT EXPENSES WHICH HAVE BEEN DIRECTLY ATTRIBUTABLE TO THE IMPORT/PURCHASE OF MOONG AN D GINGER. MOONG GINGER PURCHASE 9,72,200KG 2,40,029 KG SAFE 8,57,200 KG 1,22,150KG CLOSING STOCK 1,15,000KG 1,17,879KG IMPORT DUTY + EXPENSES PAID 24,23,486/ - 60,22,196/ - PROPORTION AMOUNT OF IMPORT DUTY 2,86,4 56/ - 29,57,500/ - 3 ITA NO. 2622/MUM/2017 4. THE A.O. FURTHER NOTED THAT T HE PROPORTIONATE AMOUNT OF IMPORT DUTY AND EXPENSES IS NOT CONSIDERED FOR VALUATION OF CLOSING STOCK BUT THE SAME HAS BEEN DEBITED TO THE TRADING/PROFIT AND LOSS A CCOUNT AND CLAIMED BY ASSESSEE. THE RELEVANT PART OF EXPLANATION OF APPELLANT BEFORE AO IS AS FOLLOWS : 'AS WAS EXPLAINED IT IS A BUSINESS PRACTICE OF THE FIRM NOT TO ALLOCATE ANY IMPORT DUTY WHILE VALUING THE STOCK IN TRADE AND CHARGE THE SAME FULLY TO THE ACCOUNT AS AND WHEN PAID WITHOUT ANY DEMURE TO THE CLOSING STOCK. THIS HAS BEEN CONSISTENT PRACTICE OVER LAST MORE THAN 8 O YEARS OF EXISTENCE OF THE FIRM. AS THE SALE IS BOOKED AT THE FULL PRICE AS AND WHEN EFFECTE D, THIS DOES NOT HAVE ANY EFFECT ON THE PROFIT OF THE FIRM ALBEIT TO THE EXTENT OF THE DUTY ELEMENT IN THE CLOSING STOCK. PROFIT WILL BE BOOKED IN THE YEAR OF SALE AND NOT IN THE YEAR OF IMPORT. BY FOLLOWING THIS PRACTICE THERE IS NO LOSS TO THE REVENUE AS FULL PROFITS ARE DECLARED THOUGH IN A DIFFERENT YEAR. MOREOVER ANY DISTURBANCE TO VALUATION OF CLOSING STOCK WILL HAVE A CASCADING EFFECT IN THEFOHOWING YEAR IN AS MUCH AS THE OPENING STOCK OF THE NEXT YEAR WILL HOVE TO BE RE - VALUED AND SET OFF OF THE PRO FITS CONSIDERED IN THE CURRENT YEAR WILL HAVE TO BE GIVEN IN THE FOLLOWING YEAR IN AS MUCH AS OPENING STOCK OF THE NEXT FOLLOWING YEAR WILL HOVE TO BE REVISED UPWARDS.' THE AO HELD HOWEVER THAT THE VALUATION IS NOT IN ACCORDANCE WITH SECTION 145A(A) (II) OF THE ACT AND EXPENDITURE DIRECTLY ATTRIBUTABLE TO CLOSING STOCK WAS ADDED. 5. THE ASSESSEE APPEALED AGAINST THE ABOVE BEFORE THE LD. CIT(A). THE ASSESSEE CONTESTED IN THE ALTERNATIVE THAT THE COMPUTATION OF ADDITION ALSO WAS WRONG AS TH E EXPENSES ATTRI BUTABLE TO S TOCK - IN - HAND WAS RS.15 , 77 , 919/ - AS AGAINST THE ADDITION MADE OF RS.32,43,956/ - . 6. T HE LD. C IT(A) UPHELD THE A.O.S ACTION BY REFERRING TO PROVISIONS OF SECTION 145A(A)(II) AND PLACING RELIANCE UPON THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF BRITISH PAINTS INDIA LTD . [1991] 188 ITR 44 . (SC) HE DISTINGUISHED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS. CIT 266 ITR 99 (SC). HE DID NOT ADJUDICATE THE A LTERNATIVE PLEA OF THE ASSESSEE. 4 ITA NO. 2622/MUM/2017 7 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 8 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE UPON THE SEVERAL CASE LAWS IN SUPPORT OF THE FOLLOWING PROPOSITION CANVASSED BY HIM: I. CONSISTENT METHOD OF ACCOUNTING NOT TO BE DISTURBED: 1. CIT V/S. BILAHARI INVESTMENT P. LTD. - [(2008) 299 ITR 1 (SC)] 2. CIT V/S. REALEST BUILDERS & SERVICES LTD. - [(2008) 307 ITR 202 (SC)] 3. CIT V/S. WOODWARD GOVERNOR INDIA P. LTD. - [(2009) 312 ITR 254 (SC)] 4. CIT V/S. EXCEL INDUSTRIES LTD - [(2013) 358 ITR 295 (SC)] 5. CIT V/S. CITIBANK N.A. - [(1994) 208 ITR 930 (BOM)] 6. CIT V/S JAGATJIT INDUSTRIES LTD - [(2010) 339 ITR 382 (DEL)] 7. DY. CIT V/S. LURGI INDIA CO. LTD. - [(2008) 114 ITD 1 (DEL)] 8. DY. CIT V/S. STUP CONSULTANTS (P) LTD. - [(2012) 13 ITR (T) 468 (MUM)] 9 ; DY. CIT V/S. OTIS ELEVATOR CO. (I) LTD - [(2006) 99 ITD 73 (MUM)] II. OPENING STOCK VIS - A - VIS CLOSING STOCK 1. CIT V. MAHALAXMI GLASS WORKS (P.) LTD. - [(2009) 318 ITR 116 (BORA)] 2. CIT V/S. MAHAVIR ALLUMINIUM LTD. - [(2008) 297 ITR 77 (DEL)] 3. K.G. KHOSLA & CO. (P.) LTD. V/S. CIT - [(1975) 99 ITR 574 (DEL)] 4. ZENITH RUBBER & PLASTIC WORKS V/S. ITO - [(1989) 35 TTJ 259 (BOM)] 5. JINDAL IRON & STEEL COMPANY LTD. V/S. DY CIT - [(2013) 21 ITR(T) 414 (MUM)] 6. BAYER CROP SCIENCE LTD. V/S. ADDL. CIT - [(2014)62 SOT 109 (MUM)] III. NO REJECTION OF BOOK RESULT WHEN THERE IS NEUTRALIZING EFFECT ON TAX 1. CIT V/S. BILAHARI INVESTMENT PVT. LTD. - [(2008) 299 ITR 1 (SC)] 2. CIT V/S. REALEST BUILDERS AND SERVICES LTD. - [(2008) 307 ITR 202 (SC)] 3. CIT V/S. EXCEL INDUSTRIES - [(2013) 318 ITR 295 (SC)] 4. CIT V/S. NAGRI MILLS CO. LTD. - [(1957) 33 ITR 681 (BOM)] 5. CIT V/S. TRIVENI ENGG. & INDUSTRIES LTD. - [(2011) 336 ITR 374 (DEL)] 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (LD. DR FOR SHORT) RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. UPON CAREFUL CONSIDERATION, WE NOTE THAT A CONSISTENT METHOD OF S TOCK VALUATION IS BEING DISTURBED ON THE TOUCHSTONE OF SECTION 145(A)(II). THE SAID SECTION READS AS UNDER: 5 ITA NO. 2622/MUM/2017 ''(A) THE VALUATION 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 - (I) (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.' NOW ABOVE HAS TO BE CONSIDERED ON THE ANVIL OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF BRITISH PAINTS INDIA LTD . (SUPRA) RELIED UPON BY THE LD. CIT(A) HIMSELF. HEAD NOTES FROM THE SAID CASE LAW READS AS UNDER: ACCOUNTS VALUATION OF STOCK FINISHED GOODS AND GOODS - IN - PROGRESS VALUED BY ASSESSEE CONSISTENTLY TO THE ENTIRE EXCLUSION OF OVERHEAD EXPENSES REJECTION OF SUCH METHOD JUSTIFIED SUCH A METHOD IS APT TO DIMMISH TAXABLE PROFITS BY SHIFTING PROFITS TO NEXT YEAR AND INCOME CANNOT PROPERLY BE DEDUCED IN SUCH CASES, ASSESSING OFFICER HAS NOT ONLY THE RIGHT BUT A DUTY TO EXERCISE POWER UNDER PROVISO TO S. 145, NOTWITHSTANDING THE FACT THAT SAME METHOD HAD BEEN ACCEPTED IN PAST . FROM THE ABOVE, IT IS EVIDENT THAT THE HONBLE APEX COURT HAS EXPOUNDED THAT IF THE METHOD OF S TOCK VALUATION AIMS AT S HIFTING PROFIT TO NEXT YEAR AND INCOME CANNOT BE PROPERLY DEDUCTED, THE METHOD CAN BE REJECTED. 11. HE RE WE NOTE THAT THE EARLIER METHOD WAS BEING CONS ISTENTLY FOLLOWED. HOWEVER, IT IS ALSO TRUE T HAT THE METHOD OF VALUATION SHOULD BE CONSISTENT WITH THE PROVISIONS OF THE ACT. IF BY INVOKING SECTION 145A (A) (II) , THE A.O. IS INCLINED TO CHANGE THE METHOD OF VALUATION BY ADDING THESE E XPENSES TO THE COST OF CLOSING STOCK, C ORRESPONDING ADJUSTMENT SHOULD ALSO BE DONE IN THE OPENING STOCK TO DETERMIN E THE PROFIT LIABLE FOR TAXATION IN THIS YEAR. THIS , IN OUR CONSIDERED OPINION , WILL BE JUST AND EQUITABLE. 6 ITA NO. 2622/MUM/2017 12. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE A.O. TO REWORK THE OPENING STOCK OF THIS YEAR IN ACCORDANCE WITH THE METHOD HE IS ADOPTING FOR CLOSING STOCK. THEREAFTER, THE PROFIT FOR THE YEAR SHOULD BE ASCERTAINED . IF THE DIFFERENCE IS MATERIAL, THE SAME MAY BE BROUGHT TO TAX AS PER LAW, AND AS PER THE RATIO OF HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. [2013] 358 ITR 295 (SC) . NEEDLESS TO ADD, THE ASSESSEE S HOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 13. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 . 0 1 . 2 0 1 9 S D / - S D / - ( RAVISH SOOD ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 2 2 . 0 1 . 2 0 1 9 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI