ACIT, Tirunelveli V. M/s. Rm. K.V. Silks, Tirunelveli

ITA 2705/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3984 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! ' ! # . $% , & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . /ITA NOS. 2706/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, TIRUNELVELI. ( /APPELLANT) V. M/S. RM.K.V. ASSOCIATES, 63, NORTH CAR STREET, TIRUNELVELI 6. PAN AABFR2789Q (/ RESPONDENT) . /ITA NOS. 2705/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, TIRUNELVELI. ( /APPELLANT) V. M/S. RM.K.V. SILKS, 176F, TRIVANDRUM ROAD, TIRUNELVELI 627 003. PAN AABFR1307C (/ RESPONDENT) . /ITA NOS. 2469/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S, RM.K.V.SILKS, (FORMERLY RMK VISWANAHAPILLAI & SONS), 176F, TRIVANDRUM ROAD, TIRUNELVELI 627 003. PAN AABFR1307C ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(1), CHENNAI. (/ RESPONDENT) ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 2 . /ITA NOS. 2704/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(1), CHENNAI. ( /APPELLANT) V. M/S. RM.K.V. FABRICS, 176F, TRIVANDRUM ROAD, TIRUNELVELI 627 003. PAN AAHFB7067M (/ RESPONDENT) . /ITA NOS. 2471/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S. RM.K.V. FABRICS, 176F, TRIVANDRUM ROAD, TIRUNELVELI 627 003. PAN AAHFB7067M ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-1(1), CHENNAI. (/ RESPONDENT) DEPARTMENT BY : SHRI K. RAVI, JCIT ASSESSEES BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE ' # $ %&' / DATE OF HEARING : 08.06.2017 () $ %&' / DATE OF PRONOUNCEMENT: 26.07.2017 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY DIFFERENT ASSESSEES AND BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS O F THE CIT(APPEALS) FOR THE ASSESSMENT YEAR 2012-13. 2. THE COMMON GROUND IN REVENUES APPEAL IN ITA NOS.2706, ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 3 2705, & 2704/MDS/2016 IS AS UNDER : 2. THE CIT(A) HAD ERRED IN DELETING THE ADDITION O F 47,86,462/- MADE UNDER THE HEAD OF BONUS REDEMPTION EXPENSES. THE CIT(APPEALS) FAILED TO SEE THE FACT THAT THE LIABILITY INCURRED BY THE ASS ESSEE WAS IN THE NATURE OF CONTINGENT LIABILITY AND FULLY DEPENDENT UPON THE UNCERTAIN FUTURE VISIT AND OPTIO N OF THE CUSTOMERS AND IS NOT A KNOW LIABILITY. 3. AFTER HEARING THE PARTIES, WE ARE OPINION THAT S IMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSES SEES OWN GROUP CASES IN ITA NO.1093/MDS/2016 TO 1099/MDS/201 6 ETC., DATED 8.2.2017, WHEREIN THE TRIBUNAL VIDE PARA 21.1 . & 22 HELD AS UNDER:- 21.1 AFTER CONSIDERING THE FINDING OF THE AO AND T HE EXPLANATION GIVEN BY THE ASSESSEE ABOUT THE DEDUCTI BILITY OF THE PROVISION MADE TOWARDS BONUS CARD, THE CIT(APPEALS) OBSERVED THAT THE CRITERIA FOR ALLOWING DEDUCTION ON ACCOUN T OF A PROVISION IS THAT THE LIABILITY TO INCUR THE EXPENDITURE WHICH I S CLAIMED BY WAY OF A PROVISION SHOULD BE CERTAIN AND SECONDLY QUANTIFI CATION OF SUCH A LIABILITY SHOULD BE SCIENTIFIC/REASONABLE. ACCORDI NG TO THE CIT(APPEALS), AS PER THE TERMS OF ISSUE OF LOYALITY CARDS, THE ACCUMULATION OF POINTS, THE CUSTOMERS WERE FREE TO ENCASH IN SUBSEQUENT PURCHASES. THE ASSESSEE IS LEGALLY BOUN D TO PROVIDE EQUIVALENT OF REWARD POINTS IN CASH OR KIND. THE L OYALITY POINTS ARE GIVEN IN THE FORM OF DISCOUNT IN THE SUBSEQUENT PUR CHASES. ACCORDING TO THE CIT(APPEALS), THE FACT THAT THE CU STOMERS DID NOT VISIT THE SHOP FOR SUBSEQUENT PURCHASES WILL NOT MA KE THE CLAIM FOR SUCH A CLAIM AS ACCRUED LIABILITY. THE LIABILITY O F THE ASSESSEE IN SO FAR AS ACCUMULATED POINTS ARE CONSIDERED AS CERTAIN AND HE ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 4 DIRECTED THE AO TO DELETE THE ADDITION. AGAINST TH IS, THE REVENUE IS IN APPEAL BEFORE US. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.A.R STRONGLY PLACED RELIANCE ON THE JUDGEMENTS OF SUPREME COURT IN THE CASE OF ROTORK CONTROLS IND IA P. LTD VS. CIT REPORTED IN [2009] 314 ITR 62 (SC) AND IN THE CASE OF BHARAT EARTH MOVERS VS. CIT IN [2000] 245 ITR 428 ( SC). IN THE PRESENT CASE, THE ASSESSEE BEING A RETAILER IN TEXT ILE GOODS, FLOATED SCHEME OF GIVING 1% DISCOUNT, WHICH MAKES A PURCHAS E OF ` 100/- AND ABOVE, HE IS ELIGIBLE FOR DISCOUNT OF 1% IN THE NEXT PURCHASE. THE FLOATED SCHEME IS AS FOLLOWS:- I) THAT THE MINUTE A CUSTOMER MAKES A PURCHASE OF 100 AND ABOVE IS ELIGIBLE FOR DISCOUNT OF 1% OF THE SAME FR OM THE NEXT PURCHASE FROM THE NEXT DAY. II) SUCH A FACILITY CAN BE AVAILED BY THE CUSTOMER IN ANY TIME IN FUTURE. AS PER THE ABOVE SCHEME, THE ASSESSEE MADE A CLAIM OF ` 1,99,32,784/-. IN OUR OPINION, THERE IS AN ACCRUAL OF LIABILITY IN THE ACCOUNTING YEAR UNDER CONSIDERATION, THOUGH THE LIA BILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED IN A SUBSEQUENT ASS ESSMENT YEAR. IN OTHER WORDS, INCURRING OF LIABILITY IS A CERTAIN , THE SAME IS NOT A CONTINGENT LIABILITY. BUT IT IS A LIABILITY IN PRA ESENTI, THOUGH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. THE FACT OF DISCHARGED AT A LATER DATE DOES NOT MAKE ANY DIFFERENCE IN COMING T O THE CONCLUSION THAT THE LIABILITY AS ARISING IN THE PRE VIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE CASES RELIED BY THE ASSESSEES COUNSEL CITED SUPRA, THE SUPREME COURT P OINTED OUT THAT IF SUCH A LIABILITY CAN BE WORKED OUT ON A SCI ENTIFIC BASIS, THE AMOUNT SO DETERMINED HAS TO BE ALLOWED IN COMPUTIN G THE INCOME. IN THE PRESENT CASE, THE AO HAS RAISED THE POINT THAT THE ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 5 ASSESSEE HAS RECEIVED THE VALUE OF FIRST PURCHASE A ND DISCOUNT OF 1% WOULD BE GIVEN ONLY TO A SUBSEQUENT PURCHASE AND THE LIABILITY ACCRUES ONLY ON WHEN THE CUSTOMER VISITS FOR SECON D TIME AND ONLY AT THAT POINT OF TIME, WHEN THE CUSTOMERS VISI TS THE SECOND TIME AND MAKES A PURCHASE, THE DISCOUNT ON SECOND P URCHASE ACCRUES TO THE ASSESSEE. IN THIS CONTENTION, WE DO NOT FIND ANY MERIT, THE ASSESSEE HAS PROVIDED THE LIABILITY AS S OON AS THE FIRST CUSTOMER MADE FIRST PURCHASE, 1% OF THE FIRST PURCH ASE VALUE AND LIABILITY TO GIVE DISCOUNT TO THE CUSTOMER ACCRUED AS SOON AS THE FIRST PURCHASE WAS MADE. THE ONLY PASSING OF DISCO UNT TO THE CUSTOMERS IS ONLY AT SECOND PURCHASE. THE ASSESSEE IS LEGALLY BOUND TO PASS THE REWARD OR DISCOUNT TO THE CUSTOME R AS SOON AS THE FIRST PURCHASE WAS MADE AND IF THE CUSTOMER DOE S NOT MAKE CLAIM FOR SUCH A DISCOUNT, THE ACCRUAL LIABILITY NO T STOPPED, THE ASSESSEE IS BOUND TO HONOUR ITS CLAIM. BEING SO, T HE QUANTIFICATION OF SUCH LIABILITY IS ALREADY DETERMINED. THERE IS N O DISPUTE REGARDING QUANTIFICATION OF SUCH LIABILITY. IN SUCH CIRCUMSTANCES, THE RATIO LAID DOWN BY SUPREME COURT IN THE CASE OF BHA RAT EARTH MOVERS VS. CIT (SUPRA) IS DIRECTLY APPLICABLE TO TH E FACTS OF THE PRESENT CASE. ACCORDINGLY, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE. HENCE, TH IS GROUND OF REVENUE STANDS DISMISSED. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES GROUP CASES IN ITA NOS.1093 TO 1099/MDS/ 2016, WE DISMISS THIS GROUND OF APPEAL. ACCORDINGLY, ITA NO S.2706, 2705 & 2704/MDS/2017 ARE DISMISSED. ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 6 4. THE COMMON GROUND RAISED BY THE ASSESSEES IN ITA NOS.2471 & 2469/MDS/2016 IS AS UNDER : 2.1 THE CIT(APPEALS) ERRED IN CONFIRMING THE ORDE R OF THE ASSESSING OFFICER IN MAKING AN ADDITION TOWARDS VALUATION OF CLOSING STOCK. 5. THE FACTS OF THE CASE, WHICH ARE NARRATED FROM I .T.A NO.2471/MDS./16 (A.Y 2012-13), ARE THAT AS SEEN FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE IS F OUND TO BE VALUING THE CLOSING STOCK IN RESPECT OF CERTAIN ITE MS AT A LESSER VALUE ON ADHOC BASIS I.E. BY REDUCING THE VALUE OF THE STOCK BY A CERTAIN PERCENTAGE. FROM A.Y 2006-07 ONWARDS, THE A SSESSEE HAS BEEN ADOPTING THIS METHOD. FROM A CHART OF SALE OF SLOW MOVING/NON-MOVING GOODS FILED BY THE ASSESSEE REVEA LED THAT THE METHOD ADOPTED BY THE ASSESSEE IS NOT CORRECT. FROM THE CHART FILED ON 18.02.2015, IT IS SEEN THAT THE GOOD S WHICH THE ASSESSEE HAS ADOPTED A VALUE OF ` 100/- WERE SOLD MUCH HIGHER THAN THE REVALUATION AMOUNT. THIS VALUATION OF CLOS ING STOCK DOES NOT GIVE THE TRUE AND CORRECT STATUS OF BUSINE SS AND PROFIT. THE MATTER RELATING TO ALLOWABILITY OF THIS METHOD OF STOCK ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 7 VALUATION HAS NOT BEEN ACCEPTED BYT HE DEPARTMENT I N PAST AND ACCORDINGLY, THIS YEAR ALSO ADDITION IS MADE TO THE EXTENT THE CLOSING STOCK IS EFFECT. THE ASSESSEE FILED A CHART SHOWING THE EFFECT OF REVALUATION OF STOCK ON THE PROFIT OF FIR M AS ON 07.01.2012. THIS CHART SHOWS THAT STOCK HAS BEEN UN DER-VALUED BY ` 2,51,214/-. HENCE, THE LEARNED ASSESSING OFFICER DISALLOWED THE SUM OF ` 2,51,214/-. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD. LEARNED COMMISSIO NER OF INCOME TAX(A). ON APPEAL, THE LD. LEARNED COMMISSIO NER OF INCOME TAX(A) PLACING EARLIER ORDER OF THE TRIBUNAL IN ITA NOS.1093 TO 1099/MDS/2016 CONFIRMED THE ORDER OF TH E LEARNED ASSESSING OFFICER. AGAINST THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX(A), THE ASSESSEE IS IN A PPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE CAME FOR CONSID ERATION BEFORE THE TRIBUNAL IN ITA NOS.1093 TO 1099/MDS/2016 ETC. DATED 08.02.2017, WHEREIN THE TRIBUNAL FOLLOWING ITS EARL IER ORDER IN ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 8 ASSESSEES OWN GROUP IN ITA NOS.1769 TO 1772/MDS/20 14 ETC. HELD AS UNDER : WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEE HAS VALUED THE UNSOLD STOCK B Y DISCOUNTING PURCHASE PRICE AT FIXED PERCENTAGE CONS IDERING THE AGE OF THE STOCK. HOWEVER, THIS METHOD OF REDUCTIO N IS NOT FOLLOWING YEAR BY YEAR. FOR EXAMPLE, AS SEEN FROM THE ABOVE TABLE, IN THE ASSESSMENT YEAR 2009-10, THE ASSESSEE ADOPTED THE REDUCTION OF VALUE OF PURCHASE PRICE AT 25%, WH EN THE STOCK IS ONE YEAR OLD. HOWEVER, FOR THE ASSESSMENT YEAR 2008-09, IT WAS 50%, FOR THE ASSESSMENT YEAR 2007-0 8 AGAIN 25% AND FOR THE ASSESSMENT YEAR 2006-07, THE SAME W AS 50%. THERE IS NO EXPLANATION FOR SUCH KIND OF ARBI TRARY REDUCTION OF EITHER 25% OR 50%. THERE IS NO CONSIS TENCY IN THE METHOD FOLLOWED BY THE ASSESSEE FOR VALUING THE CLOSING STOCK. THE CLOSING STOCK IS TO BE VALUED AT MARK ET PRICE OR COST WHICHEVER IS LESS AND THAT SHOULD BE CONSISTEN T FROM YEAR TO YEAR. THE ASSESSEE IS NOT DISPUTED THAT IT HAS BEEN FOLLOWED THE SAME METHOD. HOWEVER, CONSEQUENT TO S EARCH ACTION, THE ASSESSEE WANTED TO CHANGE THE METHOD OF STOCK VALUATION FOR THE FIRST TIME, WHICH IS NOTHING BUT AN AFTER- THOUGHT SO AS TO REDUCE THE INCOME WHICH CANNOT BE PERMITTED ITA 2703, 2704, 2705, 2471 & 2469/MDS/16 9 AT THIS POINT OF TIME. ACCORDINGLY, THIS GROUND IN ALL THESE APPEALS IS REJECTED. ACCORDINGLY, THIS GROUND OF ASSESSEE STANDS DISMISS ED. 6. IN THE RESULT, ALL THE APPEALS RAISED BY THE RE VENUE AS WELL AS BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 26 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( ' * ' + . , -./ ) ( 0 1 2 3& ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) < => /JUDICIAL MEMBER -' =>/ACCOUNTANT MEMBER 0-< # /CHENNAI, D= /DATED, THE 26 TH JULY, 2017. K S SUNDARAM =-E $ %FG H-G% / COPY TO: 1 . / APPELLANT 3. ' I% () / CIT(A) 5. GJK % L / DR 2. / RESPONDENT 4. ' I% / CIT 6. K/ M# / GF