The ACIT, Khandwa V. Shri Sunil Kumar Basantilal, Barwani

ITA 349/IND/2011

• Counselvise Citation: 34922714 RSA 2011
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: P D NAGAR
• Section: 12A

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI R.C. SHARMA , AM ITA NO. 349/IND/2011 A.Y. 2007-08 ASSTT. COMMISSIONER OF INCOME TAX KHANDWA :: APPELLANT VS SUNIL KUMAR BASANTILAL BARWANI PAN ABCPA 4573D :: RESPONDENT APPELLANT BY SHRI ARUN DEWAN RESPONDENT BY SHRI P.D. NAGAR DATE OF HEARING 21 .05.2012 DATE OF PRONOUNCEMENT 2 4 .05.2012 O R D E R PER R.C. SHARMA, AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DA TED 16.9.2011 FOR THE ASSESSMENT YEAR 2007-08. 2 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO DEL ETION OF ADDITION OF RS. 9,88,363/- MADE ON ACCOUNT OF CHANG E IN METHOD OF VALUATION OF CLOSING STOCK. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FROM RECORD WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GINNING AND PRESSING OF COTTON. DURING THE COURS E OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE ME THOD OF VALUATION OF CLOSING STOCK WAS CHANGED FROM MARKET PRICE TO COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER WHICH RE SULTED INTO REDUCTION OF PROFIT BY RS. 9,88,363, THEREFORE, THE ASSESSING OFFICER ADDED THE DIFFERENCE TO THE RETURNED INCOME . 3. BY THE IMPUGNED ORDER, THE COMMISSIONER OF INCOM E TAX (APPEALS) DELETED THE ADDITION AFTER HAVING THE FOL LOWING OBSERVATIONS :- 4.1 GROUND NO. 1 IS AGAINST THE ADDITION OF RS.9,88,363/- ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. COPIES OF SUBMISSIONS MADE BEFORE THE A.O. ON THIS POINT VIDE ASSESSEES LETTER DATED 03.09.09 WITH ENCLOSURES WERE FILED. DETAILED SUBMISSIONS DATED 13.09.11 3 WERE ALSO FILED BY THE LEARNED A.R. IN THE COURSE OF APPEAL PROCEEDINGS. AS PER A.O.S ORDER, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD VALUED CLOSING STOCK AT COST PRICE WHICH IS A CLEAR DEVIATION FROM THE METHOD OF VALUATION DURING THE IMMEDIATELY PREVIOUS YEAR. ACCORDING TO THE A.O. THIS RESULTED INTO UNDER VALUATION OF CLOSING STOCK BY RS. 9,88,363/-. GIST OF ASSESSEES WRITTEN SUBMISSION BEFORE THE A.O. IS SUMMED UP BELOW : THE ABOVE DIFFERENCE IS EXPLAINED IN COLUMN 12A OF TAX AUDIT REPORT ON ACCOUNT OF CHANGE IN THE METHOD OF STOCK VALUATION. IN THE PRECEDING YEAR, THE METHOD WAS MARKET PRICE WHILE THIS YEAR, IT IS COST OR NET RELEASABLE VALUE WHICHEVER IS LESS. IT WAS MANDATORY UNDER THE AUDIT RULES TO DISCLOSE THIS ON CHANGE OF POLICY. IF THE VALUATION WERE MADE AT 4 COST, IT WOULD HAVE WORKED OUT LESS BY RS. 9,88,363/-. THIS MEANS THAT THE ASSESSEE HAS HIMSELF SHOWING EXCESS PROFIT OF RS. 9,88,363/- IN THE PRECEDING YEAR ITSELF. HENCE NO ADDITION COULD BE MADE ON THIS ACCOUNT THIS YEAR AS THE ASSESSEE HAS ALREADY PAID TAX THEREON IN THE PRECEDING YEAR ITSELF. DETAILED WORKING OF RS. 9,88,363/- IS ENCLOSED, NOTE ON INVENTORY VALUATION IS ENCLOSED AND COPY OF TAX AUDIT REPORT WITH INFORMATION RELATING TO STOCK VALUATION ARE ALSO ENCLOSED. IN HIS FINDING ON THE APPELLANTS REPLY, THE A.O. RECORDED IN THE ASSESSMENT ORDER THAT APPELLANTS ABOVE SUBMISSION IS NOT JUSTIFIABLE AS IT COULD NOT FULLY CONVINCE THE REASON FOR DEVIATION IN METHOD OF VALUATION OF CLOSING STOCK. THE APPELLANT HAVING GIVEN SUCH A COGENT EXPLANATION SUPPORTED BY RELEVANT 5 DETAILS, IT WAS FOR THE A.O. TO SPECIFICALLY STATE AS TO WHAT WAS WANTING IN THE APPELLANTS EXPLANATION AND WHILE IT WAS NOT JUSTIFIED OR AS TO HOW IT COULD NOT FULLY CONVINCE THE A.O. WITH THE REASON FOR DEVIATION IN THE METHOD OF VALUATION OF CLOSING STOCK. FOR THIS REASON, THE A.O.S ORDER AND FINDING IN THE MATTER IS NON- SPEAKING. ALONGWITH VOLUMINOUS DETAILS FILED BY THE LD. AR, COPY OF MY PREDECESSORS ORDER DATED 13.02.2004 IN APPEAL NO. IT-121/03- 04/474 IN THE CASE OF M/S SATYAM COTEX P(LTD.), A GROUP CONCERN FOR A.Y. 2001-02 IS ALSO FILED. AFTER TAKING NOTE OF ACCOUNTING STANDARD AS-2, MY LD. PREDECESSOR HAS IN PARA 1.4 OF HIS ABOVE ORDER, ALLOWED THE AFORESAID APPEAL ON THIS POINT AND THIS ORDER WAS CONFIRMED BY HON' I.T.A.T. INDORE BENCH, INDORE. THEREFORE, THE APPELLANTS EXPLANATION OF THE DIFFERENCE IN VALUATION OF CLOSING STOCK IS QUITE CLEAR, CONVINCING AND CONFORMABLE TO THE ACCOUNTING STANDARD AS-2 AND THERE IS NO 6 REASONS NOT BE ACCEPT THE SAME. FURTHER, THE A.O.S REJECTION OF THE APPELLANTS EXPLANATION IS NON-SPEAKING. THE IMPUGNED ADDITION OF RS.9,88,363/- IS ACCORDINGLY DIRECTED TO BE DELETED. 4. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FIND FROM RECORD THAT DURING THE YEAR, THE ASSESSEE HAS CHANG ED THE METHOD OF VALUATION OF CLOSING STOCK TO COMPLY WITH THE REQUIREMENTS OF REVISED ACCOUNTING STANDARD AS-2 (V ALUATION OF INVENTORIES) ISSUED BY ICAI WHEREIN IT HAS BEEN LAI D DOWN THAT INVENTORIES SHOULD BE VALUED AT THE LOWER OF THE C OST AND NET RELISABLE VALUE. EVEN IN THE TAX AUDIT REPORT, TH E ASSESSEE HAS PROPERLY DISCLOSED FACTUM OF CHANGE IN METHOD IN CO LUMN 12(B) OF THE TAX AUDIT REPORT. THUS, WE FIND THAT A BONAFID E CHANGE IN THE METHOD MUST BE ACCEPTED BY THE DEPARTMENT AND THE A SSESSEE NEED NOT TO REVALUE THE OPENING STOCK PROVIDED THE METHOD IS FOLLOWED REGULARLY THEREAFTER. VIDE NOTIFICATION D ATED 25.1.1996, THE CENTRAL GOVERNMENT HAS ALSO NOTIFIED THE ACCOUN TING 7 STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES U/S 145(2) OF THE ACT. SUB-PARA 9 OF SAID NOTIFICATION READS AS U NDER :- A CHANGE IN AN ACCOUNTING POLICY SHALL BE MADE ONLY IF THE ADOPTION OF A DIFFERENT ACCOUNTING POL ICY IS REQUIRED BY STATUTE OR IF IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PREPARATION OR PRESENTATION OF THE FINANCIAL STATEMENTS BY AN ASSESSEE. THUS, IT IS CLEAR THAT BONAFIDE CHANGE IN THE METHO D OF VALUATION OF CLOSING STOCK, AS SUGGESTED BY AS-2, HAS NOT BEE N DENIED ANYWHERE. THE DETAILED FINDING RECORDED BY COMMISSI ONER OF INCOME TAX (APPEALS) TO THE EFFECT THAT THE ASSESSE ES EXPLANATION OF THE DIFFERENCE IN VALUATION OF CLOSING STOCK IS QUITE CLEAR, CONVINCING AND COMFORTABLE TO THE ACCOUNTING STANDA RD AS-2 AND THERE IS NO REASON NOT TO ACCEPT THE SAME, HAS NOT BEEN CONTROVERTED BY DEPARTMENT BRINGING ANY POSITIVE MA TERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO I NTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APP EALS) RESULTING INTO DELETION OF ADDITION OF RS.9,88,363/ - ON ACCOUNT OF VALUATION OF CLOSING STOCK. 8 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24 TH MAY, 2012 SD SD (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER 24 TH MAY, 2012 DN/-