The Income tax Officer, Faridkot V. M/s. Farid Cotton Ginning Factory, Faridkot

ITA 349/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5691 (ITAT-AMRITSAR)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J K GUPTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR. BEFORE SHRI H.L. KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER. I.T.A. NO.349(ASR)/2010. (ASSESSMENT YEAR: 2007-08) THE INCOME TAX OFFICER, M/S.FARID COTTON GINNING FACTORY, WARD III(4), FARIDKOT. BHOLUWALA ROAD, FARIDKOT. (APPELLANT) VS. (RESPONDENT) AND C.O.NO.21(ASR)/2010. (ARISING OUT OF ITA NO.349(ASR)/2010) ASSESSMENT YEAR: 2007-08. M/.FARID COTTON GINNING FACTORY, THE INCOME TAX OFF ICER, BHOLUWALA ROAD, FARIDKOT WARD III(4), FARIDKOT. (CROSS OBJECTOR) VS. (RESPONDENT) ASSESSEE BY: SHRI J.K. GUPTA, ADV. DEPARTMENT BY: SHRI TARSEM LAL, D.R. ORDER PER H.L. KARWA, VICE PRESIDENT. THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A), BHATI NDA DATED 31-5-2010, RELATING TO THE ASSESSMENT YEAR 2007-08. 2. FIRST WE WILL TAKE UP REVENUES APPEAL AND GROUN D NO.1 OF THE APPEAL READS AS UNDER:- 2 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,6 0,302/- MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN STAFF SALARY, BARDANA AND REPAIR ETC. 2.1 WHILE FRAMING THE ASSESSMENT, THE A.O. MADE THE ADDITION OF RS.1,60,302/- ON ACCOUNT OF DIFFERENCE IN STAFF SAL ARY, BARDANA, REPAIR AND CASH DISCOUNT ON THE BASIS OF DIFFERENCE IN THE AUD IT REPORT AND THE COPY OBTAINED FROM THE BANK. 2.2 ON APPEAL, THE CIT(A) DELETED THE ADDITION AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 2.3 SHRI TARSEM LAL, THE LEARNED D.R. SUBMITTED THA T THE ADDITION OF RS.1,60,302/- WAS RIGHTLY MADE BY THE A.O. ON ACCOU NT OF DIFFERENCE, WHICH WAS NOT NOTICED BY HIM ON COMPARISON WITH THE COPY OF ACCOUNT RECEIVED FROM THE BANK. HE, THEREFORE, SUBMITTED THAT THE C IT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 2.4. ON THE OTHER HAND, SHRI J.K. GUPTA, ADVOCATE, THE LEARNED COUNSEL FOR THE ASSESSEE, REITERATED THE SUBMISSIONS MADE BEFOR E THE LOWER AUTHORITIES. 2.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ONE OF THE ARGUMENTS RAISED BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS BROUGHT TO THE NOTICE OF THE A. O. THAT THE AUDIT REPORT SENT BY THE C.A. WAS CORRECT AS THE SAME WAS RECORD ED IN THE BOOKS OF ACCOUNT, MAINTAINED BY THE ASSESSEE, AND THAT THE S AME WAS CORRECTED ON THE SAME DATE, I.E. 30-10-2007, WHEN THE MISTAKE INCLUD ING THIS ONE CAME TO THE KNOWLEDGE OF THE PARTNER OF THE FIRM. IN OUR VIEW, THE A.O. SHOULD HAVE ACCEPTED THE AUDIT REPORT TO BE CORRECT AND ACCORDI NG TO THE BOOKS OF ACCOUNT. IN OUR VIEW, THE LEARNED CIT(A) HAS COR RECTLY OBSERVED THAT THE 3 ASSESSMENT IS REQUIRED TO BE MADE ACCORDING TO THE BOOKS OF ACCOUNT, SO THE AUDIT REPORT OBTAINED FROM THE CA, WHICH WAS ACCORD ING TO THE BOOKS OF ACCOUNT AND THE SAME WAS CORRECTED ON THE SAME DAT E SHOULD HAVE BEEN ACCEPTED. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. 3. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.5,45,415/- AS AGAINST THE ADDITION OF RS.9,01,844/- MADE BY THE AO ON ACCOUNT OF VARIATION IN CAPITAL ACCOUNTS OF PARTNERS. 3.1 THE A.O. HAS DISCUSSED THIS ISSUE IN PARAS 11.7 , 11.7A AND 11.7B OF THE ASSESSMENT ORDER, WHICH READ AS UNDER:- 11.7 THERE IS AN ADDITION OF RS.1,18,000/- IN THE CAPITAL ACCOUNT OF SMT. GURINDER KAUR AND OF RS.2,38,429.00 IN THE CA PITAL ACCOUNT OF SH. RAMANDEEP SINGH AS PER AUDIT REPORT FILED BY TH E CA. HOWEVER, AS PER COPY OF AUDIT REPORT OBTAINED FROM BANK SMT . GURINDER KAUR HAS INTRODUCED NOTHING DURING THE YEAR AND SH. RAMA NDEEP SINGH HAS INTRODUCED JUST RS.38,429/- IN HIS CAPITAL ACCOUNT. ANNEXURE-I CAPITAL ACCOUNT OF GURINDER KAUR. OPENING BALANCE ADDITION DRAWINGS INTEREST SALARY PROFIT CLOSING BALANCE AS PER COPY OF AUDIT REPORT OF SINGH KULJIT & ASSOCIATES 758694.66 118000.00 45400.00 0.00 0.00 83938.41 915233.07 AS PER COPY OF AUDIT REPORT OF STATE BANK 983969.04 0.00 152674.38 0.00 0.00 83938.41 915233.07 4 OF PATIALA, MAIN BRANCH, FARIDKOT. ANNEXURE-I CAPITAL ACCOUNT OF RAMANDEEP SINGH. OPENING BALANCE ADDITION DRAWINGS INTEREST SALARY PROFIT CLOSING BALANCE AS PER COPY OF AUDIT REPORT OF SINGH KULJIT & ASSOCIATES 447170.65 239429.00 50077.00 0.00 36000.00 83938.41 755461.06 AS PER COPY OF AUDIT REPORT OF STATE BANK OF PATIALA, MAIN BRANCH, FARIDKOT. 672818.05 38429.00 75724.40 0.00 36000.00 83938.41 755461.06 HENCE THE ADDITIONS ARE MADE AS FROM UNEXPLAINED SO URCES OF THE FOLLOWING AMOUNTS:- NAME OF THE PARTNER OPENING BALANCE DIFFERENCE ADDITIONS DRAWINGS TOTAL SMT. GURINDER KAUR 2,25,275/- 1,18,000/- 1,07,274/- 4,50,549/- SH. RAMANDEEP SINGH 2,25,648/- 2,00,000/- 25,647/- 4,51,295/- TOTAL 9,01,844/- 5 THEREFORE, AN ADDITION OF RS.9,01,844/- IS MADE. 11.7A IN THE OBJECTION FILED, IT IS STATED THAT BO TH THE PARTNERS HAVE MADE ADDITIONS INTO THEIR CAPITAL ACCOUNTS F ROM THEIR AGRICULTURAL INCOME AND THE GENUINENESS OF TRANSACT IONS IS TO BE PROVED ON THE NEXT DATE OF HEARING. 11.7B IN THE OBJECTIONS THAT THE BASIS ON WHICH TH ESE ADDITIONS WERE MADE HAVE NOT BEEN APPRECIATED. ADDITIONS WER E PROPOSED AS THERE WERE TWO DIFFERENT BALANCE SHEETS STATING DIF FERENT FACTS. IN ONE OF THE BALANCE SHEETS GURINDER KAUR HAS MADE ADDITI ON OF RS.1,18,000/- BUT AS PER OTHER IT IS NIL. SIMILAR LY, IN CASE OF OTHER PARTNER ONE BALANCE SHEET STATES ADDITIONS OF RS.2, 38,429/- WHEREAS OTHER STATES RS.39,429/- ONLY. SIMILAR IS THE POSI TION OF DRAWINGS. HENCE, THE ADDITIONS WERE CORRECTLY PROPOSED AND AR E CONFIRMED. [ADDITION RS.9,01,844/-] 3.2 ON APPEAL, THE CIT(A) DELETED THE ADDITION OF R S.5,45.450/- AND SUSTAINED THE ADDITION OF RS.3,56,429/-. 3.3 BEFORE US, SHRI TARSEM LAL, THE LEARNED D.R., S UBMITTED THAT THE A.O. HAS RIGHTLY MADE ADDITION OF RS.9,.01,844/- WHEN HE NOTICED THAT THERE WAS TWO DIFFERENT BALANCE SHEETS STATING DIFFERENT FACT S. ACCORDING TO THE LEARNED D.R., IN ONE OF THE BALANCE SHEETS SMT. GURINDER KA UR HAS MADE THE ADDITION OF RS.1,80,000/- BUT AS PER THAT IT WAS NIL. SIMIL ARLY, IN THE CASE OF OTHER PARTNER, ONE BALANCE SHEET STATES ADDITION OF RS.2, 38,429/- WHEREAS OTHER STATES RS.39,429/- ONLY AND SIMILAR WAS THE POSITIO N OF DRAWINGS AND ALSO THE DIFFERENCE IN THE OPENING BALANCE IN RESPECT OF THE TWO PARTNERS WAS NOTICED AT RS.2,25,275/- AND RS.2,25.648/-. SHRI TARSEM LA L, THE LEARNED D.R. SUBMITTED THAT WHILE DECIDING THIS ISSUE, THE LEARN ED CIT(A) HAS NOT APPRECIATED THE FACTS THAT BROUGHT ON RECORDS BY TH E A.O. AND WRONGLY ALLOWED A RELIEF OF RS.5,45,415/- TO THE ASSESSEE. 6 3.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ONE OF THE ARGUMENT RAISED BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE AUDIT REPOR T SENT BY THE C.A. WAS CORRECTED ON THE SAME DATE I.E.30-10-2007 AFTER MIS TAKES WERE FOUND IN THE AUDIT REPORT SENT TO THE BANK. THE NEXT CONTENTION OF THE ASSESSEE WAS THAT THE ADDITION ON ACCOUNT OF DIFFERENCE CANNOT BE MA DE AS CLOSING BALANCE OF THE CAPITAL OF THE PARTNERS IS THE OPENING BALANCE IN THE NEXT YEAR. THAT WITHOUT CORRECTING THE CLOSING BALANCE OF THE PARTN ERS IN THE PREVIOUS YEAR, NO ADDITION CAN BE MADE. IT WAS ALSO STATED BEFORE THE LOWER AUTHORITIES THAT THE CLOSING BALANCE HAS BEEN CORRECTED AS PER BOOKS OF ACCOUNT BY MAKING ADDITIONS AND THE WITHDRAWING, SO THIS WAS A CLEARL Y MISTAKE CREPT IN WHILE PREPARING THE AUDIT REPORT AND THAT THE SAME WAS IM MEDIATELY CORRECTED. WE ALSO FIND THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE INFORMED THE A.O. THAT THE AUDIT REPORT SENT BY C.A . WAS CORRECT ONE AND THAT THE SAME WAS ACCORDING TO THE BOOKS OF ACCOUNT, MAI NTAINED BY THE ASSESSEE FIRM. IN OUR VIEW, THE LEARNED CIT(A) OBSERVED THAT THE ADDITION OF THE AMOUNT ON ACCOUNT OF DIFFERENCE IN THE OPENING BALA NCE CANNOT BE MADE WITHOUT DISTURBING THE CLOSING BALANCE OF THE PREV IOUS YEAR, WHICH THE A.O. HAS NOT DONE AT ALL. WE, THEREFORE, HOLD THAT THE ADDITION OF RS.5,45,415/- HAS CORRECTLY BEEN DELETED BY THE CIT(A). ACCORDIN GLY, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 OF THE APPEAL OF THE REVENUE. 4. GROUND NO.3 OF THE REVENUES APPEAL READS AS UN DER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELEING THE ADDITION OF RS.5,58,592/- MADE BY THE AO ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF RICE AND THE LD. CIT(A) HAS NOT APPRECIATED THE FACTS THAT RICE OF 641.10 Q NTLS. PURCHASED BY THE ASSESSEE DURING THE YEAR SHOULD HAVE BEEN VALUE D @ RS.950/- PER QTL. (THE RATE AT WHICH PURCHASED) WHICH GIVES VALU E OF RS.6,09,407/- AS AGAINST THE VALUATION MADE AT RS.5,12,880/- BY T HE ASSESSEE, AS SUCH 7 ADDITION TO THE EXTENT OF RS.96,527/- SHOULD HAVE B EEN CONFIRMED BY THE LD. CIT(A). 4.1 THE A.O. HAS DISCUSSED THIS ISSUE IN PARA 6 OF THE ASSESSMENT ORDER. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE THE SALES OF RS.20,60,335/- AND HAS CLOSING STOCK OF RS .79,24,962/-. THE A.O. NOTICED THAT THE CLOSING STOCK VALUATION SHOWED THA T 3723.95 QNTL. OF RICE WAS VALUED RS.800/- PER QUINTAL AT RS.29,79,160/- W HEREAS PURCHASE OF 641.10 QUINTALS OF RICE HAS BEEN SHOWN @ RS.950/- A T RS.6,09,407/-. THE A.O., THEREFORE, ENHANCED THE VALUATION OF CLOSING STOCK OF RICE BY RS.150/- PER QUINTAL RESULTING AN ADDITION OF RS.5,58,592/-. 4.2 ON APPEAL, THE CIT(A) DELETED THE ADDITION STAT ING THAT THERE IS SOME FORCE IN THIS ARGUMENT OF THE ASSESSEE THAT THE OPE NING STOCK OF RICE IS OUT OF THREE PREVIOUS FINANCIAL YEARS I.E. WHY IT HAS NOT BEEN SOLD AND MIGHT HAVE DAMAGED BY THE PASSAGE OF FOUR YEARS. ACCORDINGLY, THE ASSESSEE FIRM HAS CORRECTLY VALUED THE CLOSING STOCK RS.800/- PER QUI NTAL AND ACCORDINGLY, THE ADDITION OF RS.5,58,592/- IS LIABLE TO BE DELETED. HE, THEREFORE, DELETED THE ADDITION. 4.3 BEFORE US, SHRI TARSEM LAL, THE LEARNED D.R., S TATED THAT NO REASON HAS BEEN MENTIONED FOR VALUING THE RICE @ RS.800/- PER QUINTAL WHEN THE SAME WAS PURCHASED @ RS.950/- PER QUINTAL. ACCORDING TO THE LEARNED D.R. RICE OF 641.10 QUINTALS (PURCHASED DURING THE YEAR) CAN BE SAID TO BE OUT OF OPENING STOCK OF RICE. HE, THEREFORE, SUBMITTED TH AT THE ASSESSEE SHOULD HAVE VALUED THE CLOSING STOCK OF RICE WEIGHING 641.10 QU INTALS @ RS.950/- PER QUINTAL (THE RATE AT WHICH PURCHASED), THE VALUE OF WHICH WORKED OUT AT RS.6,09,407/- AGAINST WHICH THE ASSESSEE VALUED THE SAME AT RS.5,12,880/-. HE, THEREFORE, SUBMITTED THAT ADDITION OF RS.96,527 /- WAS, THEREFORE, REQUIRED TO BE MADE IN THIS CASE. 8 4.4 WE HAVE THE RIVAL SUBMISSIONS AND HAVE ALSO PER USED THE MATERIAL AVAILABLE ON RECORD. IT IS APPARENT FROM THE RECOR DS THAT THE ASSESSEE WAS HAVING OPENING STOCK OF RICE OF RS.4,440.70 QUINTAL S OUT OF BALANCE STOCK OUT OF PREVIOUS FINANCIAL YEARS 2002-03, 2004-05 AND 20 05-06 AND DURING THE YEAR 641.10 QUINTALS WERE PURCHASED AND SOLD 1357.8 5 QUINTALS INCLUDING 641.10 QUINTALS PURCHASED DURING THE FINANCIAL YEAR 2006-07 AND BALANCE REMAINED AT 3723.95 QUINTALS AND HAS VALUED THE SAM E AT RS.800/- PER QUINTAL, WHICH IS STATED TO HAVE BECOME DAMAGED DUE TO PASSAGE OF TIME AND UNFIT FOR HUMAN CONSUMPTION. IN THE INSTANT CASE, THE A.O. HAS NOT DOUBTED THE METHOD OF VALUATION OF CLOSING STOCK, WHICH WAS COST OR MARKET PRICE, WHICHEVER IS LESS. IN OUR VIEW, THERE IS MERIT IN T HIS OBSERVATION OF THE CIT(A) THAT THE OPENING STOCK OF RICE WAS OUT OF PR EVIOUS FINANCIAL YEARS, WHICH HAS NOT BEEN SOLD AND MIGHT HAVE BEEN DAMAGED BY PASSAGE OF FOUR YEARS. ACCORDINGLY, THE ASSESSEE FIRM HAS CORRECTL Y VALUED THE CLOSING STOCK @ RS.800/- PER QUINTAL. CONSIDERING THE ENTIRE FAC TS AND THE CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE FI NDINGS GIVEN BY THE CIT(A) ON THIS ISSUE WERE CORRECT AND NO INTERFERENCE IS C ALLED FOR. WE DISMISS GROUND NO.3 OF THE APPEAL. 5. GROUND NO.4 OF THE REVENUES APPEAL READS AS UN DER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,29,858/- MADE BY THE AO ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF RICE BRAN AS THE LD. CIT(A) HAS NOT APPRECIATED THE FACTS OF THE CASE BR OUGHT ON RECORD BY THE AO THAT IT HAD SHOWN OPENING STOCK OF RICE BRAN WEIGHING 1171.71 QTLS. FOR RS.4,10,000/- WHICH GIVES AN AVERAGE RATE OF RS.350/- PER QTL. AND SALE OF RICE BRAN HAD BEEN SHOWN @ RS.414/- PER QTL. ALTHOUGH, THE RICE BRAN WAS RETAINED AS BYE-PRODUCTS ON MILLI NG OF GOVT. PADDY, YET IT IS NOT BELIEVABLE THAT RICE BRAN WHICH WAS S OLD @ RS.414/- PER QTL. WAS HAVING VALUE @ RS.360/- PER QTL. 9 5.1 WHILE FRAMING THE ASSESSMENT, THE A.O. MADE THE ADDITION OF RS.1,29,858/- STATING THAT THE CLOSING STOCK OF RIC E BRAN OF 3246.46 QUINTALS HAS BEEN VALUED AT RS.11,68,726/- BY APPLYING THE R ATE OF RS.360/- PER QUINTAL. ACCORDING TO THE A.O., RICE BRAN A BY-PRO DUCT OF SHELLING DONE FOR GOVT. AGENCIES. THE A.O. OBSERVED THAT WHEN THE SA LE PRICE OF RICE BRAN HAS BEEN TAKEN ON THE AVERAGE OF RS.414.72 PER QUINT AL FOR 559 QUINTALS OF RICE BRAN SOLD DURING THE YEAR, IT IS NOT UNDERSTANDABLE WHY THE CLOSING STOCK HAS BEEN VALUED AT RS.360/- PER QUINTAL. THE A.O. ADOPT ED THE VALUATION OF CLOSING STOCK AT RS.400/- PER QUINTAL AND ACCORDING LY MADE AN ADDITION OF CLOSING STOCK OF RS.1,29,858/-. 5.2 ON APPEAL, THE CIT(A) TOOK THE VIEW THAT THE AS SESSEE FIRM HAS CORRECTLY VALUED THE CLOSING STOCK @ RS.360/- PER QNTL. 5.3 BEFORE US, SHRI TARSEM LAL, THE LEARNED D.R., V EHEMENTLY ARGUED THAT ALTHOUGH, THE RICE BRAN WAS A BY-PRODUCT OF SHELLI NG DONE, YET IT IS NOT BELIEVABLE THAT THE RICE BRAN WHICH WAS SOLD @ RS.4 00/- PER QUINTAL WAS BEING VALUED AT RS.360/- PER QUINTAL. HE, THEREFOR E, SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS APPARENT FROM T HE RECORD THAT IT WAS CLAIMED BY THE ASSESSEE THAT IT WAS HAVING OPENING STOCK OF RICE BRAN OF 1011.71 QUINTALS OUT OF BALANCE STOCKS OF PREVIOUS FINANCIAL YEARS 2003-04, 2004-05 AND 2005-06 AND THE PRODUCTION WAS OF 2793. 75 QUINTALS DURING THE YEAR AND SOLD 559 QUINTALS AND BALANCE REMAINED AT 3246.46 QUINTALS AND HAS VALUED AT RS.360/- PER QUINTAL WHICH HAS BECOME DAM AGED DUE TO THE PASSAGE OF TIME AND UNFIT FOR HUMAN CONSUMPTION. I N OUR CONSIDERED VIEW, THE LEARNED CIT(A) HAS CORRECTLY OBSERVED THAT THE ASSESSEE FIRM HAS CORRECTLY VALUED THE STOCK @ RS.360/- PER QUINTAL. IN VIEW OF THE ABOVE, WE 10 DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CI T(A) ON THIS ISSUE AND ACCORDINGLY, WE UPHOLD THE SAME AND DISMISS GROUND NO.4 OF THE APPEAL. 6. GROUND NO.5 OF THE REVENUES APPEAL READS AS UND ER:- 5. THAT THE LD. CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.6,34,930/- MADE BY THE AO ON ACCOUNT OF UNDERVAL UATION OF CLOSING STOCK OF KHUDI PHAK AS THE LD. CIT(A) WHILE DELEING THE ADDITION ON THIS ISSUE, HAS NOT APPRECIATED THE FAC TS BROUGHT ON RECORD BY THE AO THAT THE ASSESSEE ITSELF SOLD KHUDI PHAK @ RS.474.46 PER QTL. WHEREAS IT HAS VALUE THE CLOSING STOCK OF KHUD I PHAK @ RS.225/- PER QTL. WHICH WAS NOT REALISTIC ONE AND THE AO COR RECTLY ADOPTED THE RATE OF RS.450/- PER QTL. AFTER GIVING DUE WEIGHTAG E FOR THE PROFIT. \\ 6.1 WHILE FRAMING THE ASSESSMENT, THE A.O. MADE THE ADDITION OF RS.6,34,930/- STATING THAT 2821.91 QUINTALS OF KHUD I PHAK HAS BEEN VALUED AT RS.6,34,930/- IN THE CLOSING STOCK BY APPLYING RATE OF RS.225/- PER QUINTAL IN THE CLOSING STOCK. THE A.O. OBSERVED THAT DURING T HE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD 704.70 QUINTAL S OF KHUDI PHAK FOR RS.3,34,357/- @ RS.474.46 PER QUINTAL. THE A.O. TOO K THE VIEW THAT THE VALUATION OF CLOSING STOCK @ RS.225/- PER QUINTAL I S NOT REALISTIC AND IS TOO LOW. THE A.O. ADOPTED THE RATE OF KHUDI PHAK AT RS. 450/- PER QUINTAL AFTER GIVING DUE WEIGHTAGE FOR THE PROFITS AND ADDITION O F RS.6,34,930/- WAS MADE INTO THE VALUATION OF CLOSING STOCK OF KHUDI PHAK. 6.2 ON APPEAL, THE CIT(A) DELETED THE ADDITION STAT ING THAT THE METHOD OF VALUATION OF THE ASSESSEE FIRM IS COST OR MARKET PR ICE, WHICHEVER IS LESS. HE ALSO ACCEPTED THIS PLEA OF THE ASSESSEE THAT THE OP ENING STOCK OF RICE IS OUT OF PREVIOUS FINANCIAL YEAR THAT IS WHY IT COULD NOT BE SOLD AND MIGHT HAVE BEEN DAMAGED BY THE PASSAGE OF 2 YEARS. HE, THEREFORE, OPINED THAT THE ASSESSEE FIRM HAS CORRECTLY VALUED THE CLOSING STOCK @ RS.22 5/- PER QUINTAL AND DIRECTED THE A.O. TO DELETE THE IMPUGNED ADDITION. 11 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. 6.4 SHRI TARSEM LAL, THE LEARNED D.R. SUBMITTED THA T ALTHOUGH, THE KHUDI PHAK WAS OBTAINED AS BY-PRODUCT OF SHELLING DONE, YET IT IS NOT BELIEVABLE THAT THE KHUDI PHAK WHICH WAS SOLD @ RS.474.76 PER QUINTAL WAS BEING VALUED AT RS.225/- PER QUINTAL. HE, THEREFORE, SUB MITTED THAT THE ORDER OF THE CIT(A) IS NOT CORRECT ON THIS ISSUE. 6.5 ON THE OTHER HAND, SHRI J.K. GUPTA, ADVOCATE, T HE LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE FIRM WAS HAVING OPENING STOCK OF KHUDI PHAK 1581.76 QUINTALS OUT OF BALANCE STOCK O UT OF PREVIOUS FINANCIAL YEAR 2005-06 AND PRODUCED 1944.85 QUINTALS DURING T HE YEAR AND SOLD 704.70 QUINTAL OUT OF THE NEW PRODUCTION IN THE FINANCIAL YEAR 2006-07 AND BALANCE REMAINED AT 2821.91 QUINTALS AND HAS VALUED AT RS.2 25/- PER QUINTAL WHICH HAS BECOME DAMAGED DUE O THE PASSAGE OF TIME AND UN FIT FOR HUMAN CONSUMPTION. 6.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO GONE THROUGH THE ORDER OF THE CIT(A). IN OUR VIEW, THERE IS FOR CE IN THE SUBMISSIONS OF SHRI J.K. GUPTA, ADVOCATE, THE LEARNED COUNSEL FOR THE ASSESSEE. WE ALSO AGREE WITH THIS OBSERVATION OF THE CIT(A) THAT THE OPENING STOCK OF KHUDI PHAK IS OUT OF PREVIOUS FINANCIAL YEAR THAT IS WHY IT COULD NOT BE SOLD AND MIGHT HAVE BEEN DAMAGED BY THE PASSAGE OF 2 YEARS. IN THAT VIEW OF THE MATTER, THE ASSESSEE HAS CORRECTLY VALUED THE CLOSI NG STOCK @ RS.225/- PER QUINTAL. WE DO NOT SEE ANY INFIRMITY IN THE FINDI NGS OF THE CIT(A) AND, THEREFORE, THE SAME IS CONFIRMED. 7. C.O. NO.21(ASR)/2010 (ARISING OUT OF ITA NO.349( ASR)/2010):- THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 12 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A), BHATINDA ERRED IN GIVING SANCT ION FOR FILING SECOND APPEAL AS HE HIMSELF HAS DECIDED THE APPEAL IN FAVOUR OF THE RESPONDENT ASSESSEE AS CIT(A), BHATIN DA. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) SHOULD HAVE DELETED THE ADDITIO NS IN THE CAPITAL ACCOUNT BY THE PARTNERS OF THE FIRM IN THE HANDS OF THE FIRM AND SHOULD HAVE BEEN CONSIDERED IN THE ASSESSM ENT OF THE PARTNERS IN THEIR INDIVIDUAL CASES. 3.. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) SHOULD HAVE DELETED THE BALANCE ADDITION OF RS.87670/- IN BARDANA A/C AS THE RELIEF GIVEN BY HIM IS ON THE LOWER SIDE. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) SHOULD HAVE DELETED THE BALANCE ADDITION OF RS.50000/- OUT OF THE VARIOUS EXPENSE ITS RELIEF GI VEN BY HIM IS ON THE LOWER SIDE. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) SHOULD HAVE ALLOWED THE SET OFF OF THE TRADING ADDITIONS WITH THE CASH CREDIT THAT TOO ON PEAK BASIS. THIS IS THE CONSISTENT VIEW OF THE HONBLE AMRITSAR BENCH OF ITAT IN MANY CASES. 8. AT THE TIME OF HEARING, SHRI J.K. GUPTA, ADVOCAT E, THE LEARNED COUNSEL FOR THE ASSESSEE, DID NOT PRESS ALL THE GROUNDS RAI SED IN THE CROSS OBJECTION KEEPING IN VIEW THE SMALLNESS OF THE AMOUNT INVOLVE D. HE HAS ALSO PUT A NOTE ON THE CASE FILE AS UNDER:- I DO NOT PRESS THE C.O. SD/- 8-6-11. (JITENDER KUMAR GUPTA) 13 8.1 IN VIEW OF THE ABOVE, WE DISMISS THE CROSS OBJ ECTION FILED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2011. SD/- SD/- (MEHAR SINGH) (H.L. KARWA) ACCOUNTANT MEMBER. VICE PRESIDENT. DATED: 22 ND JUNE, 2011. KC/- COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE:M/S.FARID COTTON GINNING FACTORY, BHOL UWALA ROAD, FARIDKOT. (2) THE ITO, WARD III(4), FARIKOT. (3) THE CIT, BHATINDA. (4) THE CIT(A), BHATINDA. (5) THE SR.D.R., ITAT, ASR. TRUE COPY BY ORDER ASSTT. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, AMRITSAR.