DCIT - 8(3), MUMBAI V. M/S S.M.ENERG TEKNIK AND ELECTRONICS LIMITED, MUMBAI

ITA 2663/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3965 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 02-03-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 145; 27

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 2663 /MUM/2013 ( / ASSESSMENT YEAR : 2003-04) DEPUTY COMMISSIONER OF INCOME TAX 8(3), R. NO. 217, AAYAKAR BHAWAN, M.K. MARG, MUMBAI 400 020. / V. M/S S.M. ENERGY TEKNIK AND ELECTRONICS LIMITED, SM CENTRE, ANDHERI KURLA ROAD, MAROL NAKA, ANDHERI (E), MUMBAI 400 059 ./ PAN : AAACS7312L ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI RITESH MISRA D.R. ASSESSEE BY : NONE / DATE OF HEARING : 07-03-2016 / DATE OF PRONOUNCEMENT : 16-05-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 2 663/MUM/2013, IS DIRECTED AGAINST THE ORDER DATED 04-01-2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 18, MUMBAI (HEREINAFTER CA LLED THE CIT(A) ), FOR THE ASSESSMENT YEAR 2003-04, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE PENALTY ORDER DATED 25-3-2009 PAS SED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE A.O.) U NDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961(HEREINAFTER CALLED THE ACT). ITA 2663/MUM/2013 2 2. THE GROUNDS RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READS AS UNDER:- ON THE FACTS' AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S.2 71(1)(C) ON UNDERVALUATION OF WIP BY RS.1,95,00,000, WITHOUT APPRE CIATING THE FACT THAT BY DOING SO THE ASSESSEE HAS DEVIATED FROM THE METH OD OF ACCOUNTING CONSISTENTLY FOLLOWED BY IT TO LOWER ITS TAXA BLE INCOME FOR THE YEAR UNDER CONSIDERATION. ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S.271(1 )(C) ON UNDERVALUATION OF WIP BY RS.1,95,00,000, WITHOUT APPRE CIATING THE FACT THAT WIP HAS TO BE VALUED AT COST WHEREAS THE METHOD ADO PTED BY THE ASSESEE IS ARBITRARY AND ADHOC. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/AC/DCIT BE RESTORED. 3. AT THE TIME OF HEARING BEFORE US, NONE APPEARED ON BEHALF OF THE ASSESSEE COMPANY WHEN THE APPEAL WAS CALLED FOR HEA RING. THERE WAS ALSO NO APPEARANCE BY THE ASSESSEE COMPANY ON THE EARLIER O CCASION WHEN THE APPEAL WAS FIXED FOR HEARING ON 09-07-2014. THE NOTICES WE RE DULY SERVED ON THE ASSESSEE COMPANY EVEN THROUGH THE LD. DR . THE LD. COUNSEL FOR THE ASSESSEE COMPANY FILED LETTER FOR ADJOURNMENT ON THE HEARING FIXED ON 02-03-2015, HOWEVER, THE BENCH DID NOT FUNCTION ON 02-03-2015 . WE ARE PROCEEDING TO DISPOSE OF THIS APPEAL AFTER HEARING THE LD. D.R. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE PROCESSING MACHINERIES. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2003-04 ON 24.11.2003 DECLARING TOTAL LOSS OF RS.3,44,59,98 0/- . THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT ON 29.11.2003. THEREAFTER, SCRUTINY ASSESSMENT WAS COMPLETED U/S 143(3) READ WITH SECTI ON 143(2) OF THE ACT AFTER MAKING CERTAIN DISALLOWANCES/ADDITIONS WHEREB Y THE AO DETERMINED THE ITA 2663/MUM/2013 3 REDUCED LOSS AT RS. 58,10,321/- , VIDE ASSESSMENT O RDERS DATED 31.01.2006 PASSED U/S 143(3) OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT , IT WAS OBSERVED BY THE A.O. THAT THE CLOSING WORK-IN-PROGRESS OF RS . 65,77,000/- WAS NET OF DIMINUTION IN THE VALUE OF THE INVENTORIES BY RS. 1.95 CRORES. THE ASSESSEE COMPANYS CONTENTION WAS THAT CLOSING WIP AS AT 31- 03-2003 HAD BEEN REVALUED AFTER TECHNICAL EVALUATION OF THE MATERIAL S OBTAINED BY THE ASSESSEE COMPANY WHICH WERE IN THE POSITION TO BE SENT FOR D ELIVERY BUT WERE NOT ACCEPTED BY THE CUSTOMERS DUE TO NON-FULFILLMENT OF COMMITMENTS BY THE BUYER OWING TO LEAN PERIOD IN THE TEXTILE INDUSTRY AND THE ASSESSEE COMPANY IS TRYING TO UTILIZE THE MATERIAL IN OTHER SIMILAR JOBS AND ACCORDINGLY STOCK HAS BEEN CARRIED AT NET REALIZABLE VALUE WHICH IS IN CO MPLIANCE WITH ACCOUNTING STANDARDS AS-2 PRESCRIBED BY THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA. THE CONTENTION OF THE ASSESSEE COMPANY WAS REJECTED BY THE A.O. IN THE QUANTUM ASSESSMENT PROCEEDINGS ON THE GROUND THAT T HE ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING CONSIS TENTLY AND NO CHANGE HAS BEEN ADOPTED DURING THE YEAR. THERE WAS NO MENTION IN THE TAX AUDIT REPORT REGARDING THE CHANGE IN THE METHOD OF VALUATION OF THE WIP. IN SUPPORT, THE A.O. RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF BRITISH PAINTS INDIA LTD., (1993) 199 ITR 44(SC). THE A.O. ALSO REFERRED TO SECTION 145 OF THE ACT AND DISALLOWED DIMINUTION OF WIP BY RS. 1.95 CRORES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE COMPANY , VI DE ASSESSMENT ORDERS DATED 31.01.2006 PASSED U/S. 143(3) OF THE ACT. THE ASSESSEE COMPANY CARRIED THE MATTER TO THE LEAR NED CIT(A) BY FILING THE FIRST APPEAL AGAINST THE QUANTUM ASSESSMENT ORDERS DATED 31.01.2006 PASSED U/S 143(3) OF THE ACT, WHICH WAS DECIDED IN FAVOUR OF THE REVENUE BY THE LEARNED CIT(A) VIDE APPELLATE ORDERS DATED 20 TH DECEMBER, 2007. THE SAID ORDERS OF THE LEARNED CIT(A) DATED 20.12.2007 WERE ACCEPTED BY THE ASSESSEE ITA 2663/MUM/2013 4 COMPANY AND IT ATTAINED FINALITY AS THE ASSESSEE CO MPANY CHOSE NOT TO FILE SECOND APPEAL WITH THE TRIBUNAL. DURING THE COURSE OF THE PENALTY PROCEEDINGS U/S 27 1(1)(C ) OF THE ACT, THE A.O. HELD THAT CLAIMING EXCESSIVE DEDUCTION AMOUNTS TO CONCEALMENT OF INCOME AND EITHER SUPPRESSION OF RECEIPTS OR EXAGGE RATION OF EXPENDITURE ARE ATTEMPTS TO REDUCE THE TAXABLE INCOME AND PENALTY U /S 271(1)(C) OF THE ACT IS IMPOSABLE IN THE INSTANT CASE AND IN SUPPORT THE FO LLOWING DECISIONS HAVE BEEN RELIED UPON:- 1. CIT V. INDIA SEA FOODS, 105 ITR 708 (KER) 2. NAGINCHAND SHIV SAHAI V. CIT, 61 ITR 534 3. CIT V. GATES FOAM & RUBBER CO., 91 ITR 467 (KER) . THE AO HELD THAT THE ASSESSEE BEING A COMPANY IS RE QUIRED TO MAINTAIN ITS BOOKS OF ACCOUNTS WHICH REFLECT TRUE PICTURE OF THE TRANSACTION. THE A.O. ALSO RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COU RT IN THE CASE OF L.K. SHEIKH MOHAMMED BROS V. CIT (1977) 110 ITR 808 (MAD RAS). THE ONUS WAS ON THE ASSESSEE COMPANY TO PRODUCE GENUINENESS OF T HE EXPENSES OR JUSTIFICATION OF THE ALLOWANCE CLAIMED IN THE RETUR N OF INCOME. THE ASSESSEE COMPANY HAVING NOT PRODUCED ANY EVIDENCE AND NON-FU RNISHING OF EVIDENCES AND JUSTIFICATION TO THE EXPENSES CLAIMED IN THE RE TURN OF INCOME DURING THE ASSESSMENT AND THE FIRST APPELLATE PROCEEDINGS IN Q UANTUM AND ALSO DURING THE PENALTY PROCEEDINGS , AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE A.O. RELIED UPON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF UOI V. DHARMENDRA TEXTILE PROCESSORS, (2008 ) 306 ITR 277(SC) AND IN THE CASE OF GOLD COIN HEALTH FOODS P. LTD. V. CIT, (2008) 172 TAXMAN 386(SC)(CIVIL APPEAL NO. 5065 OF 2008 (AHMEDABAD)), AND THE PENALTY WAS LEVIED OF RS. 71,66,250/- (WITH RESPECT TO THE AFOR E-STATED ADDITION OF RS.1.95 ITA 2663/MUM/2013 5 CRORES) BY THE AO VIDE PENALTY ORDERS DATED 25.03.2 009 PASSED U/S 271(1)(C) READ WITH EXPLANATION 1 OF THE ACT. 5.AGGRIEVED BY THE PENALTY ORDERS DATED 25.03.2009 PASSED BY THE AO U/S 271(1)(C) OF THE ACT LEVYING , INTER-ALIA, PENALTY OF RS. 71,66,250/- (WITH RESPECT TO THE AFORE-STATED ADDITION OF RS.1.95 CRO RES) ON THE ASSESSEE COMPANY, THE ASSESSEE COMPANY FILED FIRST APPEAL BE FORE THE LEARNED CIT(A). 6. BEFORE THE LEARNED CIT(A) , THE ASSESSEE COMPANY SUBMITTED THAT THE GOODS WERE IN A POSITION TO BE SENT TO THE CUSTOMER FOR DELIVERY BUT WERE NOT ACCEPTED BY THE CUSTOMERS WHICH IS MAINLY OWING TO THE TEXTILE INDUSTRY GOING THROUGH LEAN PERIOD SINCE LAST FEW YEARS AND THE CU STOMERS HAVE NOT FULFILLED THEIR COMMITMENT BY REFUSING TO TAKE DELIVERIES , H ENCE THE VALUE OF THE CLOSING WIP AS AT THE YEAR END AS ON 31-03-2003 AS SHOWN IN THE BOOKS OF ACCOUNTS WAS REDUCED BY RS.1.95 CRORES BASED ON TEC HNICAL EVALUATION OBTAINED BY THE ASSESSEE COMPANY REGARDING VALUATIO N OF THE MATERIAL BASED ON NET REALIZABLE VALUE WHICH IS CONSISTENT WITH AC COUNTING STANDARDS AS-2 ISSUED BY THE ICAI. THE ASSESSEE COMPANY SUBMITTE D THAT THE CLAIM MADE OF THE REDUCED WIP AS AT 31-03-2003 BY RS.1.95 CRORES WAS DULY DECLARED IN THE RETURN OF INCOME FILED WITH THE REVENUE AND COMPLET E FACTS WERE DISCLOSED IN THE AUDIT REPORT AS UNDER:- THE AMOUNT INCLUDES REDUCTION FOR DIMINUTION IN VA LUE OF INVENTORIES RS. 19,500 THOUSANDS (PREVIOUS YEAR RS. 43,468 THOUSANDS) SHOWN UNDER SCHEDULE 'II'. WORK-IN-PROGRESS INCLUDES VARIOUS JOBS UNDERTAKEN B Y THE COMPANY FOR CUSTOMERS. AS THE TEXTILE INDUSTRY IS P ASSING THROUGH A LEAN PERIOD SINCE LAST FEW YEARS, THE CUS TOMERS HAVE NOT FULFILLED THEIR COMMITMENTS AND HAVE NOT TAKEN DELIVERIES. THE COMPANY IS TRYING TO UTILIZE THE MATERIALS IN OTHER SIMILAR JOBS AND HAS OBTAINED THE TECHNICAL EVALUATION REGARDING THE VALUATION ITA 2663/MUM/2013 6 OF THESE MATERIALS AND ACCORDINGLY STOCKS HAVE BEEN CARRIED AT NET REALIZABLE VALUE. REDUCTION FOR DIMINUTION IN VALUE OF INVENTORIES RS .19,500 THOUSANDS AND DOUBTFUL ADVANCES WRITTEN OFF RS.5,90 0 THOUSANDS HAVE BEEN CONSIDERED IN SCHEDULE 'II' OF THE BALANCE SHEET. THE ASSESSEE COMPANY SUBMITTED THAT THERE IS NO CHA NGE IN THE METHOD OF VALUATION OF INVENTORY AND THE DEDUCTION IN THE VAL UE OF THE INVENTORY WAS NECESSITATED BY THE MANDATORY PROVISIONS OF AS-2 IS SUED BY THE ICAI AND SECTION 145 OF THE ACT. THE SAID REDUCED VALUE OF WIP HAS BEEN DISCLOSED IN THE ACCOUNTS AND THERE IS NO CONCEALMENT OF FACTS. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT V. RELIANCE PETRO PRODUCTS PRIVATE LIMITED , (2010) 18 9 TAXMAN 322(SC) AND THE DECISION OF PUNE BENCH OF ITAT IN THE CASE OF TETRA PACKS INDIA LIMITED IN WHICH 49 PETITIONS HAVE BEEN DISPOSED OF VIDE ORDER S DATED 24/07/2012. THE CIT(A) OBSERVED THAT THE GOODS SENT TO THE CUST OMERS WERE NOT ACCEPTED BY THE CUSTOMERS AND THE VALUE OF THE GOODS HAS BEE N REDUCED DUE TO REJECTION BY THE CUSTOMERS. THE ASSESSEE COMPANY H AS DULY DISCLOSED ALL THE MATERIAL FACTS IN THE RETURN OF INCOME FILED WITH T HE REVENUE AS ALSO IN THE AUDITED BALANCE SHEET AS WELL IN AUDITORS REPORT. THE ASSESSEE COMPANY HAS NOT CONCEALED ANY FACT NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME BUT IT WAS CLAIMED THAT THE ASSESSEE COMPANY HAS RE DUCED THE VALUE OF STOCK BECAUSE IT WAS NOT ACCEPTED BY THE CUSTOMERS. AS F AR AS THE QUANTUM ADDITION IS CONCERNED, THE AO HAS RIGHTLY MADE THE ADDITIONS WHICH WAS CONFIRMED BY THE LEARNED CIT(A), BUT THE PENALTY U/ S 271(1)(C) OF THE ACT LEVIED BY THE A.O. ON THE AMOUNT OF RS. 1.95 CRORES IS NOT SUSTAINABLE AND ACCORDINGLY THE PENALTY LEVIED BY THE AO WAS DELETE D BY THE LEARNED CIT(A) , VIDE ORDERS DATED 04-01-2013. THE LEARNED CIT(A) RE LIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PRIVATE ITA 2663/MUM/2013 7 LIMITED(SUPRA) AND HELD THAT THE FACTS OF THE INSTA NT CASE ARE SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF RELIANCE PETRO PRODUCTS PRIVATE LIMITED(SUPRA). 7. AGGRIEVED BY THE ORDERS DATED 04-01-2013 OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. D.R. SUBMITTED THAT THE QUANTUM ADDITION HAS BEEN SUSTAINED BY THE LEARNED CIT(A). NO APPEAL HAS BEEN FILED BY THE ASSESSEE COMPANY WITH RESPECT TO THE QUANTUM ASSESSMENT BEFORE THE TRIBUN AL AND HENCE THE ORDER OF THE LEARNED CIT(A) HAS ATTAINED FINALITY. THE L D. D.R. SUPPORTED THE ORDER OF THE A.O. 9. WE HAVE HEARD THE ARGUMENTS OF LD. D.R. AND PERU SED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON . WE HAVE OBSERVED FROM THE FACTS EMERGING FROM THE RECORDS THAT THE ASSESS EE COMPANY HAS REDUCED THE CLOSING WIP BY RS. 1.95 CRORES AS AT 31-03-2003 WHICH IS DUE TO THE DIMINUTION IN THE VALUATION IN THE INVENTORIES OWIN G TO THE REJECTION OF THE GOODS BY THE OVERSEAS CUSTOMERS BY NOT ACCEPTING TH E DELIVERIES OF GOODS AND NON-FULFILLMENT OF THEIR COMMITMENTS OWING TO LEAN PERIOD IN TEXTILE INDUSTRY, HENCE THE CLOSING WIP BEING INVENTORIES WERE DEVALU ED BY THE ASSESSSEE COMPANY BY RS.1.95 CRORES BASED ON THE TECHNICAL EV ALUATION OBTAINED WITH RESPECT TO THE VALUATION OF THESE INVENTORIESS ON N ET REALIZABLE VALUE WHICH WAS LOWER THAN THE COST BY RS.1.95 CRORES , THE GOO DS WERE BEEN MANUFACTURED BY THE ASSESSEE COMPANY AS TO THE CLI ENT SPECIFICATIONS. THERE IS A PROPER DECLARATION OF THE ADOPTION OF SAID RED UCED CLOSING WIP BY RS.1.95 CRORES IN THE RETURN OF INCOME FILED WITH THE REVEN UE AND ALSO IN THE AUDITED BALANCE SHEET AS ALSO IN THE AUDIT REPORT FILED WIT H THE REVENUE. THE QUANTUM ADDITIONS OF RS.1.95 CRORES HAVE BEEN MADE BY THE REVENUE WITH RESPECT TO DEVALUATION OF THE CLOSING WIP BY RS.1.9 5 CRORES, WHICH WERE ITA 2663/MUM/2013 8 CONFIRMED BY THE LEARNED CIT(A) AGAINST WHICH THE A SSESSEE COMPANY HAS NOT FILED SECOND APPEAL WITH THE TRIBUNAL AND THE SAME ATTAINED FINALITY. BUT THE MERE ACCEPTANCE OF QUANTUM ADDITIONS BY THE TAX-PAY ER ARE NOT SUFFICIENT ENOUGH TO FASTEN AND SADDLE THE TAX-PAYER WITH THE PENALTY U/S 271(1)(C) OF THE ACT IS NOW THE SETTLED PROPOSITION OF LAW. THE REVENUE HAS TO PROVE THAT THE TAX-PAYER HAS FURNISHED IN-ACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME AND THE TAX-PAYER OFFERS NO EXPLANATION OR THE EXPLANATION IS FOUND TO BE FALSE , OR SUCH PERSON O FFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE T HAT SUCH EXPLANATION IS BONA-FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, AS PER THE MANDATE OF SECTION 271(1)(C) OF THE ACT READ WITH E XPLANATION. THE ASSESSEE COMPANY HAS MADE PROPER DISCLOSURE WITH RESPECT TO THE VALUATION OF CLOSING WIP IN THE RETURN OF INCOME FILED WITH THE REVENUE AND ALSO IN THE AUDITED BALANCE SHEET AND THE AUDIT REPORT FILED WITH THE R ETURN OF INCOME WITH THE REVENUE. DURING THE ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION 143(2) OF THE ACT, PROPER EXPLANATIONS WERE GIVEN B Y THE ASSESSEE COMPANY AS WELL DURING APPELLATE PROCEEDINGS WITH THE LEARNED CIT(A) DURING QUANTUM, ALTHOUGH THE SAME DID NOT FOUND FAVOUR WITH THE REV ENUE , WHICH ALSO ATTAINED FINALITY AFTER CONFIRMATION BY THE LEARNED CIT(A) IN QUANTUM PROCEEDINGS . THE ASSESSEE COMPANY HAS GIVEN BONA F IDE EXPLANATIONS AND WAS ALSO ABLE TO SUBSTANTIATE WITH RESPECT TO DEVAL UATION OF CLOSING WIP BY RS. 1.95 CRORES OWING TO NOT ACCEPTANCE OF THE GOODS BY THE CUSTOMERS DUE TO NON-FULFILLMENT OF THEIR COMMITMENTS OWING TO LEAN PERIOD IN TEXTILE INDUSTRY. THE SAID GOODS BEING CLOSING WIP (INVENTORIES) WERE DEVALUED AS PER TECHNICAL EVALUATION OBTAINED BY THE ASSESSEE COMPANY BASED O N THE NET REALIZABLE VALUE WHICH WAS LOWER THAN THE COST BY RS.1.95 CROR ES, WHICH METHOD OF VALUATION OF INVENTORIES IS CONSISTENT WITH THE AC COUNTING STANDARD AS-2 PRESCRIBED BY THE ICAI . THE GOODS WHICH WERE MADE BY THE ASSESSEE COMPANY AS TO THE SPECIFICATION OF THE CUSTOMERS AND WHICH WERE NOT ACCEPTED FOR ITA 2663/MUM/2013 9 DELIVERY DUE TO NON FULFILLMENT OF COMMITMENTS BY T HE BUYERS WILL IN THE NORMAL CIRCUMSTANCES HAVE LOWER VALUE AS THE GOODS WERE MANUFACTURED AS PER THE SPECIFIC REQUIREMENTS OF A SPECIFIC CLIENTS WHICH MAY NOT FOUND ACCEPTABILITY WITH THE OTHER CLIENTS, WHICH IN ANY CASE WERE VALUED BY THE ASSESSEE COMPANY AFTER OBTAINING TECHNICAL EVALUATI ON KEEPING IN VIEW NET REALIZABLE VALUE WHICH WAS LOWER THAN COST, WHICH METHOD OF VALUATION OF INVENTORIES IS CONSISTENT WITH THE ACCOUNTING STAND ARD AS-2 WHICH STIPULATE THAT THE INVENTORIES SHALL BE VALUED AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER .THE REVENUE HAS NOT CONTROVERTED THE SAID TE CHNICAL EVALUATION OBTAINED BY THE ASSESSEE COMPANY WITH ANY COGENT AD VERSE MATERIAL TO PROVE THAT THERE WAS AN DELIBERATE ATTEMPT MADE BY THE AS SESSEE TO EVADE TAXES OR DEFRAUD REVENUE , BY CONCEALING PARTICULARS OF INCO ME OR FURNISHING OF IN- ACCURATE PARTICULARS OF INCOME. THE ASSESSEE COMPAN Y MADE A BONA-FIDE CLAIM WHICH ULTIMATELY DID NOT FOUND FAVOUR WITH TH E REVENUE . PROPER DISCLOSURES WERE MADE IN THE RETURN OF INCOME FILED WITH THE REVENUE AND IN THE AUDITED BALANCE SHEET AND THE AUDITOR REPORT . THE SAID EXPLANATIONS WERE ALSO FURNISHED DURING THE ASSESSMENT AND THE F IRST APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) IN QUANTUM ADDITIONS ALBE IT NOT ACCEPTED. THE ASSESSEE COMPANY HAS DISCHARGED ITS PRIMARY ONUS SO FAR AS PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE CONCERNED BY BRINGING FORTH BONA-FIDE EXPLANATION DULY SUBSTANTIATED BY THE REASONS FOR D EVALUING CLOSING WIP BEING INVENTORIES BY RS.1.95 CRORES AS PER REASONS SET OUT ABOVE, WHICH IS NOT REBUTTED BY THE REVENUE WITH COGENT INCRIMINATING O R ADVERSE MATERIAL OR TO SHOW THAT THERE WAS AN DELIBERATE ATTEMPT ON PART O F THE ASSESSEE COMPANY TO EVADE TAXES OR DEFRAUD REVENUE. THE SAID CLAIM OF R EDUCED CLOSING WIP BY RS.1.95 CRORES MADE BY THE ASSESSEE COMPANY BACKED WITH TECHNICAL EVALUATION OBTAINED ON NET REALIZABLE VALUE BEING L OWER THAN COST , IS CONSISTENT WITH ACCOUNTING STANDARDS AS-2 ISSUED BY ICAI BACKED WITH PROPER DECLARATION IN THE RETURN OF INCOME, AUDITED BALANCE SHEET AND AUDITORS REPORT WHICH CLAIM DID NOT ULTIMATELY FOUN D FAVOUR WITH THE ITA 2663/MUM/2013 10 REVENUE , WILL NOT MAKE THE ASSESSEE COMPANY EXIGIB LE FOR PENALTY U/S 271(1)(C) OF THE ACT. MERELY BECAUSE THE ASSESSEE C OMPANY IN THE INSTANT CASE HAS ACCEPTED THE ADDITION IN THE QUANTUM ASSESSMENT PROCEEDINGS WHICH HAD ATTAINED FINALITY , WILL NOT MAKE THE ASSESSEE AUTO MATICALLY LIABLE FOR PENALTY U/S 271(1)(C) OF THE ACT WHEREBY PROPER AND BONAFID E EXPLANATIONS BACKED BY SOUND REASONING AND DECLARATIONS AS SET OUT ABOVE A RE FURNISHED BY THE ASSESSEE COMPANY , AND MORE-SO THE REVENUE IMPACT I N QUANTUM ADDITIONS IS TAX NEUTRAL AS THE CLOSING WIP OF RELEVANT PREVIOUS YEAR SHALL BE OPENING WIP OF IMMEDIATELY SUCCEEDING FINANCIAL YEAR AND ANY AD JUSTMENT TO CLOSING WIP HAS TO BE NECESSARILY FOLLOWED BY CORRESPONDING ADJ USTMENT TO OPENING WIP OF IMMEDIATELY SUCCEEDING FINANCIAL YEAR MAKING IT TAX NEUTRAL WHEREBY NO PREJUDICE IS CAUSED TO THE REVENUE. MOREOVER, THE C LAIM OF THE ASSESSEE COMPANY IS BEING MADE BY FOLLOWING ACCOUNTING STAN DARD AS-2 WHICH REQUIRES CLOSING INVENTORY TO BE VALUED AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER AND THE CLOSING WIP BEING VALUED ON NET REALIZABLE VALUE WHICH WAS LOWER THAN THE COST IN THE INSTANT CASE . THE RATIO OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PE TRO PRODUCTS PRIVATE LIMITED (SUPRA) IS SQUARELY APPLICABLE IN THE INSTA NT CASE. WE DO NOT FIND ANY INFIRMITY IN THE WELL REASONED AND DETAILED ORDER D ATED 04-01-2013 PASSED BY THE LEARNED CIT(A) DELETING THE PENALTY OF RS.71,66 ,250/- (WITH RESPECT TO THE AFORE-STATED ADDITION OF RS.1.95 CRORES) LEVIED BY THE A.O. AND WE UPHOLD THE SAME. THUS, WE ORDER THE DELETION OF THE PENALTY OF RS.71,66,250/- (WITH RESPECT TO THE AFORE-STATED ADDITION OF RS.1.95 CRO RES) LEVIED U/S 271(1)(C) OF THE ACT BY THE AO WITH RESPECT TO THE DEVALUATION O F THE CLOSING WIP BEING INVENTORIES BY RS.1.95 CRORES BY THE ASSESSEE COMPA NY VIDE OUR DETAILED DISCUSSIONS AND REASONING AS SET OUT ABOVE. WE ORDE R ACCORDINGLY. 10 . IN THE RESULT, THE APPEAL FILED BY THE REVENU E IN ITA N0. 2663/MUM/2013 FOR THE ASSESSMENT YEAR 2003-04 IS DI SMISSED. ITA 2663/MUM/2013 11 ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MAY , 2016. # $% &' 16-05-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 16-05-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI