DCIT, New Delhi V. M/s Indraprastha Gas Ltd., New Delhi

ITA 3206/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52574 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 14-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H L DIHANA
• Assessee Lawyers: H P AGGARWAL; RAJAT JAIN C AS
• Keywords: Reasonable cause
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 3206(DEL)/2011 ASSESSMENT YEAR: 2005-06 DEPUTY COMMISSIONER OF INDRAPR ASTHA GAS LTD., INCOME-TAX, CIRCLE 11(1), VS. PLOT NO . 4, IGL BHAWAN, R.K. PURAM, NEW DELHI. SECTOR-IX, NEW DELHI. PAN-AAACI5076R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.L. DIHANA, CIT, DR RESPONDENT BY : SHRI H.P. AGGARWAL & SHRI RAJAT JAIN, C.AS ORDER PER K.G. BANSAL : AM THE FACTS OF THE CASE ARE THAT THE ORIGINAL A SSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961, AT TOTAL INCOME OF RS. 133,68,40,385/-. THIS ORDER TRAVELED UP TO THE T RIBUNAL AND IN ORDER ITA NO. 471(DEL)/2009 DATED 22.04.2009, THE MATTER REGARDING QUANTIFICATION OF CLOSING STOCK OF NATURAL GAS WA S RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION IN LINE WITH THE DECIS ION OF THE TRIBUNAL IN THE ITA NO. 3206(DEL)/2011 2 CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2002- 03 TO 2004-05. THE RELEVANT PARAGRAPH NO. 3 OF THE DECISION IS REP RODUCED BELOW:- 3. IN REGARD TO THE 2 ND GROUND WHICH IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE ON A CCOUNT OF CLOSING STOCK OF NATURAL GAS, IT WAS FAIRLY AG REED BY BOTH THE SIDES THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESS EES OWN CASE IN ITA NO. 989(DEL)/2006 DATED 25.7.2008 FOR ASS ESSMENT YEAR 2002-03 AND ITA NO. 4455 AND 4456(DEL)/2007 DATED 5.9.2008 FOR THE ASSESSMENT YEAR 2003-04 AND 200 4-05 WHEREIN THIS TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO FOR RE-DECIDING THE ISSUE AFRESH IN THE LIGHT OF THE OBSERVATIONS CONTAINED THEREIN. RESPECTFULLY FOLLO WING THE DECISION OF HONBLE COORDINATE BENCH OF THIS TRIB UNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 200 2-03, 2003- 04 AND 2004-05, THIS ISSUE IS RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION IN LINE WITH THE DECISION OF TH IS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002 -03, 2003- 04 AND 2004-05 REFERRED TO SUPRA. 1.1 ACTING ON THIS DIRECTION, THE AO PASSED THE OR DER U/S 143(3) READ WITH SECTION 254 ON 15.10.2010, COMPUTING THE TOTAL INCOME AT RS. 133,63,97,326/-. WHILE COMPLETING THIS ASSESSME NT, THE DIFFERENCE IN CLOSING STOCK OF NATURAL GAS OF RS. 6,56,14,607/- WAS ADDED TO THE TOTAL INCOME. IN THIS CONNECTION, IT IS MENTIONED THAT INSTEAD OF SHOWING GAS IN THE PIPE LINES AS A PART OF THE INVENTORY, T HE ASSESSEE HAS SHOWN THIS STOCK AS RECONCILIATION DIFFERENCE. THE ASSESSE E WAS REQUESTED TO PROVIDE THE DETAILS OF LENGTH OF THE PIPE LINES AND THE WEIGHT OF NATURAL GAS STORED THEREIN. THIS HAS NOT BEEN DONE. THEREFORE, IT H AS BEEN HELD THAT IT IS NOT ITA NO. 3206(DEL)/2011 3 FEASIBLE TO ESTIMATE THE WEIGHT AND VALUE OF THE GAS IN THE PIPE LINES, WHICH SHOULD BE INCLUDED IN THE VALUE OF CLOSING STOCK. IN VIEW THEREOF, THE RECONCILIATION DIFFERENCE, QUANTIFIED AT RS. 6,56,14,607/-, HAS BEEN ADDED TO THE TOTAL INCOME. 1.2 IN THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, THE ASSESSEE FURNISHED QUANTITATIVE DETAILS OF RECONCILIATION DIFFERENCES IN FINANCIAL YEARS 2001-02 TO 2004-05, WHICH ARE 4.01%, 4.32%, 4.47% AND 3.46% RESPECTIVELY, BEING THE LEAST IN THIS YEAR. HOWE VER, THE LD. CIT(APPEALS) MENTIONED THAT HE DOES NOT HAVE EXPERTISE IN T HE SUBJECT AND IT WOULD HAVE BEEN BETTER ON THE PART OF THE AO TO TAKE EX PERT OPINION FROM THE OFFICIALS OF GAIL AND ONGC LTD. THE DIFFERENCE IS LOWEST IN THIS YEAR AND IT IS WITHIN THE PRESCRIBED LIMIT MENTIONED BY THE TRIBUNAL. THE AO HAS ALSO NOT BROUGHT ON RECORD ANY CONTRARY EVI DENCE AND, THEREFORE, THE ADDITION MADE BY THE AO HAS BEEN DELETED. 2. BEFORE US, THE LD. DR REFERRED TO THE FINDING O F THE AO TO THE EFFECT THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF QUANTITY OF GAS AVAILABLE IN THE PIPE LINES AND VALUE THEREOF. THEREFORE, IT IS NOT FEASIBLE TO ESTIMATE THE CLOSING STOCK IN SO FAR AS THE NATURAL GAS IN THE PIPE LINES ITA NO. 3206(DEL)/2011 4 IS CONCERNED. IN THE LIGHT OF THIS FACT HE DI SALLOWED THE RECONCILIATION DIFFERENCE IN COMPUTING THE TOTAL INCOME. HE H AS ALSO REFERRED TO THE ACCOUNTING STANDARDS-2, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, ON VALUATION OF INVENTORY. IT IS MENTIO NED THAT INVENTORIES ARE ASSETS HELD FOR SALE IN THE ORDINARY COURSE OF BUSINESS; IN THE PROCESS OF PRODUCTION; OR IN THE FORM OF MATERIALS AND SUP PLIES TO BE CONSUMED IN PRODUCTION PROCESS OR IN RENDERING OF SERVICES. A CCORDINGLY, THE NATURAL GAS HELD IN PIPE LINES WOULD FORM PART OF THE IN VENTORY OF CLOSING STOCK, WHICH OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT FOR TH IS PURPOSE. ON THE BASIS OF THESE FINDINGS, IT IS ARGUED THAT SINCE THE ASSESSEE FAILED TO PROVIDE ANY INFORMATION IN THE MATTER, THE AO WAS JUSTIFIED IN DISALLOWING THE RECONCILIATION LOSS. THE LD. CIT(APPEALS) MADE OB SERVATIONS ABOUT EXPERT OPINION, BUT THE SAME HAS NOT BEEN OBTAINED AND TH E RELIEF HAS BEEN GIVEN ON THE BASIS OF OBSERVATION OF THE TRIBUNAL THAT THE LOSS OF 4% WAS REASONABLE AND THE LOSS IN THIS YEAR IS LOWER THAN THIS PERC ENTAGE. HOWEVER, HE DID NOT CARRY THE MATTER FURTHER TO OBTAIN APPROPRIATE EX PERT VIEW FROM THE OFFICIALS OF GAIL OR ONGC LTD. WITH A VIEW TO SETTLE THE IS SUE ONCE AND FOR ALL. THEREFORE, SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS AS PER THE ORDER OF THE TRIBUNAL, NAMELY, WHETHER THE PERCEN TAGE OF LOSS AT ABOUT 3.46% OF PURCHASES HAD TO BE SUBJECTED TO VERIFI CATION, AS REASONABLE ITA NO. 3206(DEL)/2011 5 LOSS. ACCORDINGLY, IT IS ARGUED THAT THE ADDIT ION MADE BY THE AO MAY BE RESTORED. 2.1 IN REPLY, THE LD. COUNSEL REFERRED TO THE FI NDING OF THE TRIBUNAL IN ITS CASE FOR ASSESSMENT YEAR 2002-03. IN THIS ORDER , IT HAS BEEN MENTIONED THAT THE RECONCILIATION DIFFERENCE AS PERCENTAGE OF PURCHASES VARIES BETWEEN 4.01% TO 4.47% IN ASSESSMENT YEARS 2000-01 TO 2004-05, WHICH IS AN INFORMATION BASED ON BALANCE-SHEET OF THE ASSE SSEE. THE PERCENTAGE OF LOSS WHICH WORKS OUT TO BE 4% OF THE PURCHASES D URING THE YEAR UNDER CONSIDERATION APPEARS TO BE REASONABLE, SUBJECT TO VERIFICATION. THE INTENT OF THESE OBSERVATIONS WAS TO FIND OUT THE PERCENTAG E OF LOSS AND EVALUATE IT AGAINST ACCEPTABLE LOSS OF 4%. THIS HAS NOT BEEN DONE. IN FACT, IN THIS YEAR THE LOSS IS ONLY 3.4%, WHICH IS LOWER THAN 4% A ND, THEREFORE, THE AO SHOULD HAVE ACCEPTED THE LOSS. IN THESE CIRCUMSTA NCES, THE LD. CIT(APPEALS) RIGHTLY DELETED THE ADDITION MADE BY THE AO NOTW ITHSTANDING THE FACT THAT EXPERT OPINION WAS NOT OBTAINED FROM GAIL OR ONG C ETC. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE ARE OF THE VIEW THAT THE AO WAS BO UND TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL FURNISHED FOR THIS YEAR IN DECISION DATED 22.4.2009, IN WHICH IT IS MENTIONED THAT THE MAT TER HAS ALREADY BEEN ITA NO. 3206(DEL)/2011 6 RESTORED TO THE FILE OF THE AO FOR ASSESSMENT YEA RS 2002-03 TO 2004-05. ACCORDINGLY, THE MATTER WAS ALSO RESTORED TO THE FILE OF THE AO FOR THIS YEAR. HOWEVER, IN THE ORDER FOR ASSESSMENT YEAR 2002-03 DATED 25.07.2008, A CLEAR FINDING WAS GIVEN THAT LOSS OF ABOUT 4% OF PURCHASES IS REASONABLE SUBJECT TO VERIFICATION. INSTEAD OF VERIFYING THE PERCENTAGE OF LOSS, THE AO REPRODUCED HIS EARLIER ORDER. THE L OSS OF 3.4% IS BORNE OUT BY AUDITED ACCOUNTS, WHICH IS LOWER THAN THE AVERAG E LOSS OF ABOUT 4%. THEREFORE, THERE SEEMS TO BE NO REASONABLE CAUSE TO MAKE THE DISALLOWANCE OF RECONCILIATION LOSS BY STATING THAT THE DETA ILS OF STOCK LYING IN PIPE LINES WERE NOT FURNISHED IN QUALITATIVE OR QUANTITATIVE TERMS. WHAT HAD TO BE VERIFIED WAS WHETHER THE LOSS WAS IN THE VICINITY OF 4%, WHICH HAS BEEN HELD TO BE REASONABLE BY THE TRIBUNAL. IN THESE C IRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(APPEAL S) WHICH REQUIRES CORRECTION FROM US. 4. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 .08.2011 SOON AFTER THE CONCLUSION OF THE HEARING. SD/- SD/- (C.L. SETHI)) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 23.08.2011. SP SATIA ITA NO. 3206(DEL)/2011 7 COPY OF THE ORDER FORWARDED TO:- INDRAPRASTHA GAS LTD., NEW DELHI. DCIT, CIRCLE 11(1), NEW DELHI. CIT CIT(APPEALS) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.