Bajaj Fashions Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 3635/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7766 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-06-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 04-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Rejection of books of accounts; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING : 16.06.09 DRAFTED ON: 22.06.09 ITA NOS.3635 & 3636/AHD/2008 ASSESSMENT YEARS: 2004-05 & 2005-06 RESPECTIVELY BAJAJ FASHIONS PVT.LTD. 310, METRO TOWER NR.KINNARY CINEMA RING ROAD SURAT VS. THE DCIT CIRCLE-1 SURAT PAN/GIR NO. : AAACB 9520 B (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI P.M. MEHTA RESPONDENT BY: SHRI JAYANT JHAVERI, SR.DR O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE SEPARATE ORDERS OF THE LD.CIT(APPEALS)-I SURA T, DATED 21/08/2008 PASSED IN ASSESSMENT YEARS 2004-05 & 200 5-06. IN BOTH THE APPEALS, THE ASSESSEE HAS TAKEN COMMON ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 2 - GROUNDS OF APPEAL AND EXCEPT FOR CHANGE IN FIGURES THE GROUNDS, READS AS UNDER:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE CIT(A) HAS ERRED IN UPHOLDING REJECTION OF BOOKS OF ACCOUNTS PARTICULARLY LOOKING TO THE NATURE OF BUSINESS CARRIED ON BY THE APPELLANT COMPANY, METHOD OF ACCOUNTING & VALUATION OF STOCK CONSISTENTLY FOLLOWED AND ACCEPTED IN PAST BY ORDER U/S. 143(3) OF THE ACT FOR SEVERAL ASSESSMENT YEARS. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN UPHOLDING ADDITION(S) OF RS.5,38,976/- (FOR ASSESSMENT YEAR 2004-05) AND RS.6,29,355/- (FOR ASSESSMENT YEAR 2005-06) FOR CLOSING STOCK OF WORK IN PROGRESS MADE BY THE ASSESSING OFFICER. 3. ASSESSING OFFICER ERRED IN MAKING VALUATION OF WORK IN PROGRESS ON ESTIMATED BASIS ON ASSUMPTION & PRESUMPTION, SAME MAY BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE CIT(A) SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO WORK OUT VALUE OF OPENING STOCK OF WORK IN PROGRESS AND SHOULD HAVE ALLOWED THE SAME. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OF DURING THE COURSE OF HEARING OF THE APPEAL. ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 3 - 2. SINCE THE FACTS AND ISSUES INVOLVED IN THE ABOVE GROUNDS OF APPEAL ARE IDENTICAL, THEY ARE BEING DEC IDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER FOUND THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF DYEING AND PRINTING OF CLOTHS ON JOB WO RK BASIS. THERE WAS A SURVEY OPERATION U/S.133A DATED 16.02.2004. AS A RESULT OF SURVEY, THE ASSESSEE SUR RENDERED INCOME OF RS.55 LACS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD NOT SHOWN ANY WORK-IN-PROGRESS IN THE CLOSING STOCK. ON BEING ASKED WHY THE ASSESSEE STAT ED THAT THERE WAS NO PRACTICE TO SHOW WORK-IN-PROGRESS AND THIS POLICY WAS CONSISTENTLY FOLLOWED BY THE ASSESS EE. THE ASSESSEE STATED THAT IF THE WORK-IN-PROGRESS ADDED IN THE CLOSING STOCK, THE SAME SHOULD BE CONSIDERED IN OPE NING STOCK ALSO. THE ASSESSING OFFICER DID NOT ACCEPT T HIS EXPLANATION, SAYING THAT OPENING STOCK COMES FROM ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 4 - CLOSING STOCK OF LAST YEAR AND HENCE OPENING STOCK CANNOT BE CHANGED. WITH RESPECT TO THE CLOSING STOC K, THE ASSESSING OFFICER STATED THAT DYEING AND PRINT ING WORK OF THE ASSESSEE HAS FIVE DAYS CYCLE TO COMPLET E THE PROCESS. THE TOTAL WORKING DAYS OF THE ASSESSEE FOR THE YEAR WAS TAKEN AT 312 DAYS BY THE ASSESSING OFFICER HE STATED THAT THE FABRIC ON MACHINE WOULD BE CARRYING INPUTS OF COLOUR, CHEMICALS, DYES, WATER, POWER, FU EL, LABOUR, ETC., WHICH HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT, BUT CORRESPONDING INCOME WAS NOT SHOWN. TH E ASSESSING OFFICER STATED THAT AS PER THE ACCOUNTIN G PRINCIPLE THIS LEAD TO INCORRECT PROFIT. THE ASSESS ING OFFICER ALSO RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. (188-ITR- 44) TO SAY THAT CORRECT PROFIT HAS TO BE SHOWN. IN THIS DECISION, THE HON'BLE SUPREME COURT STATED AS UNDER:- 'THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BE BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE, SO THAT THE CANCELING OUT OF ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 5 - THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOSS ACTUALLY REALIZED ON THE YEAR'S TRADING...' 'IT IS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSESSI NG OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCORRECT TO SAY THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSES THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS.' 4. THE ASSESSING OFFICER, THEREAFTER, ADOPTED 31 2 WORKING DAYS IN A YEAR AND COMPUTED THE AVERAGE PROCESSING OF CLOTH PER DAY AT 28,145 METERS BY TAK ING AVERAGE OF 312 WORKING DAYS FOR WHOLE YEAR. THE ASSESSING OFFICER, THEREFORE, STATED THAT THE FABRI C FOR FIVE DAYS WOULD BE 140725 METERS, WHICH WOULD BE LYING O N THE MACHINE. THE ASSESSING OFFICER COMPUTED THE AVERAGE COST OF PROCESSING CHARGES AT RS.7.66 PER M ETER. HE ADOPTED 50% OF THIS AMOUNT AS COST OF WORK-IN- PROGRESS. HE, THEREFORE, MADE AN ADDITION OF RS.5,3 8,976/- ON THIS ISSUE. ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 6 - 5. SIMILARLY, IN ASSESSMENT YEAR 2005-06, THE ASSESSIN G OFFICER ADOPTED 312 WORKING DAYS IN A YEAR AND COMPUTED THE AVERAGE PROCESSING OF CLOTH PER DAY AT 31,947 METERS BY TAKING AVERAGE OF 312 WORKING DAYS FOR WHOLE YEAR. THE ASSESSING OFFICER, THEREFORE, STATE D THAT THE FABRIC FOR FIVE DAYS WOULD BE 159735 METERS, WH ICH WOULD BE LYING ON THE MACHINE. THE ASSESSING OFFICE R COMPUTED THE AVERAGE COST OF PROCESSING CHARGES AT RS.7.88 PER METER. HE ADOPTED 50% OF THIS AMOUNT AS COST OF WORK-IN-PROGRESS. HE, THEREFORE, MADE AN ADDITIO N OF RS.6,29,355/- ON THIS ISSUE. 6. WE FIND FROM THE ORDER OF THE LD. CIT(APPEALS ) THAT IN APPEAL BEFORE THE LD. CIT(APPEALS), THE ASSESSEE SUBMITTED AS UNDER:- 2.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS STATED THAT NO ADDITION SHOULD BE MADE BECAUSE THE ASSESSEE HAS BEEN FOLLOWING THIS METHOD FROM EARLIER YEARS. THE ASSESSEE STATED THAT IT HAS INVENTORISED ALL THE ITEMS OF COLOUR & ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 7 - CHEMICALS LYING ON THE FLOOR AS WELL AS ON MACHINE AND, THEREFORE, NO ADDITION SHOULD BE MADE. THE APPELLANT STATED THAT THIS METHOD HAS BEEN FOLLOWED IN EARLIER YEARS AND, THEREFORE ALSO NO ADDITION SHOULD BE MADE. 7. THE LD. CIT(APPEALS) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER:- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. THE INVENTORY OF CLOSING STOCK DOES NOT SHOW ANY WORK- IN-PROGRESS. THERE IS NO EVIDENCE PRODUCED BY THE APPELLANT THAT THE CLOSING STOCK OF COLOUR & CHEMICALS SHOWN BY THE APPELLANT INCLUDES CLOSING STOCK OF BOTH THE COLOUR & CHEMICALS REMAINING AND ALSO COLOUR & CHEMICALS USED ON THE FABRIC LYING ON THE MACHINE. HENCE, THIS ARGUMENT IS NOT ACCEPTABLE. AS STATED BY THE HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS LTD. (SUPRA) AS WELL AS ON THE BASIS OF ACCOUNTING PRINCIPLE, CLOSING STOCK OF WORK-IN-PROGRESS HAS TO BE SHOWN AS ARRIVE D BY CORRECT PROFIT. IN VIEW OF THIS REASON, THE GROU ND OF APPEAL IS DISMISSED AND THE ADDITION IS CONFIRME D. HOWEVER, THE ASSESSEE WILL GET BENEFIT IN THE NEXT YEAR OF THIS ADDITION MADE TO THE CLOSING STOCK BECAUSE THIS WOULD THEN BECOME THE OPENING STOCK OF NEXT YEAR. IN VIEW OF THE ABOVE DISCUSSION, THE APPEAL IS DISMISSED. 8. THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSE E REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD. ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 8 - CIT(APPEALS) AND RELIED ON THE ORDER OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EMA INDIA LTD. : R.K. AGRAWAL & RAJE SH KUMAR, JJ. IT REF. NO. 98 OF 1995 20TH JULY, 2005 ( 2008) 296 ITR 510 (ALL) : (2006) 157 TAXMAN 536 (ALL.), AND S UBMITTED THAT A SIMILAR ISSUE WAS DECIDED BY THE HONBLE HIG H COURT AS FOLLOWS:- ORDER BY THE COURT : THE TRIBUNAL, ALLAHABAD, HAS REFERRED THE FOLLOWING QUESTION OF LAW UNDER S. 256(2) OF THE IT ACT, 1961 ( THE ACT ) FOR OPINION OF THIS COURT : 'WHETHER, ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE VALUE OF WORK-IN-PROG RESS WAS TO BE TAKEN AT THE COST OF RAW MATERIAL CONSUMED AN D PART OF DIRECT LABOUR, OVERHEADS WAS ALLOCABLE TO I T AND THAT THE RATIO LAID DOWN IN CIT VS. BRITISH PAINTS INDIA LTD. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) DID NOT APPLY TO THE CASE ?' 2. THE PRESENT REFERENCE RELATES TO THE ASST. YR. 1 986-87. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS : ON FACT S, THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURING OF ELECTRONIC INDUCTION HEATING EQUIPMENT. THE TRIBUNA L FOUND THAT THE ASSESSEE HAD ADMITTEDLY BEEN MANUFACTURING GOODS WHICH WERE TAILOR-MADE FOR THE SPECIFIC REQUIREMENTS OF ITS CUSTOMERS AND UNLESS T HE WHOLE OF THE MACHINERY WAS COMPLETE, THE WORK-IN- PROGRESS BY ITSELF HAD NO OTHER UTILITY. THE ASSESS EE HAD ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 9 - SHOWN VALUE OF WORK-IN-PROGRESS AT RS. 11,37,495. T HE WORK-IN-PROGRESS WAS VALUED BY THE ASSESSEE AT COST OF RAW MATERIAL USED. THE OVERHEAD EXPENDITURE ATTRIBUTABLE TO THE MACHINERY COMPONENTS UNDER FABRICATION WERE NOT PROPORTIONATELY INCLUDED WHILE THE ALLEGED EXPENSES HAD BEEN CHARGED TO THE P&L A/C. CONSEQUENTLY THE AO, WHILE FRAMING THE ASSESSMENT, CAME TO THE CONCLUSION THAT THE REAL VALUE OF WORK- IN- PROGRESS WAS NOT SHOWN AND THEREBY A SUM OF RS. 9,7 8,000 WAS ADDED. 4. IN APPEAL, THE LEARNED CIT(A) VIDE HIS ORDER DT . 16TH MARCH, 1990 CONFIRMED THE ORDER OF THE AO IN PRINCI PLE BUT REDUCED THE ADDITION WITH A FINDING THAT OVERHE AD EXPENSES WERE ONLY TO THE EXTENT OF AROUND 25.2 PER CENT OF THE RAW MATERIAL CONSUMED AND, THUS, SUSTAINED A N ADDITION OF RS. 2,88,000. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE F ILED SECOND APPEAL BEFORE THE TRIBUNAL. TRIBUNAL ALLOWED THE APPEAL AND DELETED THE ADDITION. TRIBUNAL HELD AS F OLLOWS : 'WE HAVE HEARD THE PARTIES AT LENGTH AND HAVE ALS O PERUSED THE ENTIRE FACTS ON RECORD. IN THIS CASE FA CTS ARE NOT DISPUTED. IT IS ADMITTED THAT WORK-IN-PROGRESS WAS SHORT AND THE SAID WORK-IN- PROGRESS HAD BEEN VALUED BY T HE ASSESSEE ONLY ON THE BASIS OF THE RAW MATERIAL CONS UMED. IT IS ALSO ADMITTED THAT CERTAIN LABOUR CHARGES AND OVERHEAD EXPENSES HAD BEEN INCURRED IN THE SAID WOR K- IN-PROGRESS. ORDINARILY THE CORRECT VALUATION OF TH E WORK-IN- PROGRESS EVEN ON THE COST BASIS IS THE RAW MATERIAL CONSUMED AND THE EXPENSES ON THE LABOUR AND ALSO OVERHEAD EXPENSES ON THE SAME, YET IN CERTAIN CASES THE SAID ORDINARY PRINCIPLE HAS TO BE IGNORED. IN OUR O PINION, IN THIS CASE ADMITTEDLY THE ASSESSEE HAD BEEN MANUFACTURING GOODS WHICH ARE TAILOR-MADE FOR THE SPECIFIC REQUIREMENTS OF ITS CUSTOMERS. UNLESS THE MACHINE ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 10 - IS COMPLETE, THE WORK-IN-PROGRESS BY ITSELF HAS NO OTHER UTILITY. THE MARKET VALUE OF THE WORK-IN-PROGRESS C AN BE DETERMINED ONLY BY DISMANTLING THE ENTIRE WORK-IN- PROGRESS AND SEPARATELY, BECAUSE THE MACHINE WHICH IS IN PROGRESS IS THE WORK- IN-PROGRESS CANNOT BE SOLD AS IT IS. BESIDES THAT, UNLESS THE MACHINE IS COMPLETE AND APPROVED BY THE CUSTOMER, IT HAS NO VALUE EXCEPT TH E SCRAP VALUE WHICH MEANS ONLY THE RAW MATERIAL CONSUMED IN THE SAID MACHINE. UNDER THESE CIRCUMSTANCES, THE WORK-IN-PROGRESS ON THE BASIS OF RAW MATERIAL CANNOT BE SAID TO BE A COMPLETE ARBITRARY METHOD OF VALUATION OF THE WORK-IN-PROGRESS. THE HO NBLE SUPREME COURT IN THE CASE OF INVESTMENT LTD. (SUPRA ) HAS LAID A RATIO THAT A TAXPAYER IS FREE TO EMPLOY FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS AND FOR THAT PURPOSE OF VALUE HIS STOCK-IN -TRADE EITHER AT COST OR AT MARKET PRICE. A METHOD OF ACCO UNTING ADOPTED BY THE TRADER CONSISTENTLY AND REGULARLY CA NNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNT OR OF VALUATION. THE METHOD OF ACCOUNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY IF IN THE OPINION OF THE TAXING AUTHORITIES INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THEREFORM. THE SAI D PRINCIPLE HAS ALSO BEEN FOLLOWED BY THE HON BLE M ADRAS HIGH COURT IN THE CASE OF CIT VS. K. SANKARAPANDIA ASARI & SONS (SUPRA). EVEN COCHIN BENCH OF THE TRIBUNAL HAS ALSO FOLLOWED THE SAME IN THE CASE OF SREE PADMANABHA JEWELLERY MART (SUPRA). THE DECISION RELIED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT APPLY TO THE PRESENT CASE AS IN THE CASE OF BRITISH PAINTS INDIA (SUPRA). THE ARTICLES PREPARED WERE STANDARD GOODS WHILE IN THE PRESENT CASE THE GOODS MANUFACTURED WERE TAILOR-MAD E AND COULD NOT FIND A MARKET EXCEPT THE CUSTOMER WHO HAS PLACED THE ORDER. BESIDES THAT, DISTURBING THE SYSTEM OF VALUATION IN THIS CASE WILL CREATE FURTHER COMPL ICATIONS ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 11 - IN THE MAINTENANCE OF ACCOUNTS. ADMITTEDLY THE ASSE SSEE HAS BEEN FOLLOWING THIS SYSTEM FOR THE LAST 7 YEARS AND NO OBJECTION RAISED BY THE REVENUE AND HE HAS ALSO BEE N FOLLOWING THE SAME IN THE SUBSEQUENT YEARS. THE ASS ESSEE- COMPANY BEING A PROGRESSIVE ONE AND ADMITTEDLY GIVI NG OUT PROFITS ON PROGRESSIVE SCALE FROM YEAR TO YEAR, CANNOT ESCAPE FROM THE CLUTCHES OF THE REVENUE AND THE SAI D VALUE HAS TO BE REFLECTED IN HIS ACCOUNTS IN THE SUBSEQUENT YEARS AND THEREBY PAID THE TAX AS WELL. IN VIEW OF THE SPECIAL FACTS AND CIRCUMSTANCES WE FEEL THAT IT WILL BE AN EXERCISE IN FUTILITY TO CHANGE THE WH OLE SYSTEM OF VALUATION OF THE CLOSING WHICH HAS BEEN CONSISTE NTLY ADOPTED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE AS WELL IN THE EARLIER YEARS. UNDER THESE CIRCUMSTA NCES, WE HOLD THAT THE ADDITION ON THE BASIS UNDERVALUATION IF THE STOCK WHICH, IN FACT, IS NOT THE UNDERVALUATION BUT ONLY ADOPTING A DIFFERENT SYSTEM OF VALUATION IS UNCALLE D FOR IN THE CASE AND THE SAME IS DELETED. THE ISSUES ARE DE CIDED ACCORDINGLY.' 6. WE HAVE HEARD SRI A.N. MAHAJAN, LEARNED STANDING COUNSEL APPEARING ON BEHALF OF THE REVENUE AND SRI B.K. SRIVASTAVA, LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE-RESPONDENT ('ASSESSEE'). 7. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE TRI BUNAL. IT IS SETTLED PRINCIPLE OF LAW THAT THE STOCK CAN BE VALU ED AT THE COST OR AT MARKET RATE. ADMITTEDLY THE ASSESSEE HAD BEEN MANUFACTURING THE GOODS, WHICH WERE TAILOR-MAD E FOR SPECIFIC REQUIREMENTS OF ITS CUSTOMERS AND UNLE SS THE WHOLE OF THE MACHINERY IS COMPLETE, WORK-IN-PROGRES S BY ITSELF HAS NO OTHER UTILITY. ASSESSEE HAS VALUED TH E WORK-IN- PROGRESS ON THE BASIS OF RAW MATERIAL CONSUMED AT C OST PRICE. THIS METHOD HAS BEEN ADOPTED SINCE LAST SEVE N YEARS AND ALSO IN SUBSEQUENT YEARS. NO OBJECTION HA S BEEN RAISED BY THE REVENUE IN THE PREVIOUS YEARS TO SUCH ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 12 - VALUATION. IT WAS FOUND THAT ASSESSEE-COMPANY WAS A PROGRESSIVE COMPANY AND SHOWN OUT PROFITS ON PROGRESSIVE SCALE FROM YEAR TO YEAR AND CANNOT ESCA PE FROM THE CLUTCHES OF THE REVENUE. THE CLOSING STOCK OF THIS YEAR IS THE OPENING STOCK OF SUBSEQUENT YEAR AND, H ENCE, A CONSISTENT METHOD ADOPTED FOR VALUATION BY THE ASSESSEE SHOULD NOT BE DISTURBED. THEREFORE, THE SA ME METHOD ADOPTED IN THE YEAR UNDER CONSIDERATION FOR VALUING THE STOCK, AS HAS BEEN ADOPTED IN THE PREVI OUS YEARS, CANNOT BE SAID TO BE UNJUSTIFIED. 8. IN THE FACTS AND CIRCUMSTANCES, WE ANSWER THE QUESTION REFERRED TO US IN AFFIRMATIVE, I.E., IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, SUPPORTED THE ORDER OF THE LD. CIT(APPEALS). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIA LS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF DYEING & PRINTING OF CLO TH ON JOB-WORK BASIS. FOR THE ABOVE JOB-WORK, FABRIC IS SUPPLIED BY THE PARTIES. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WHILE FOLLOWING ITS CONSISTENT METHOD OF VALUATION OF CLOSING STOCK OF RAW-MATERIAL DOES NOT INCLUDE TH E VALUE ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 13 - OF CHEMICALS CONSUMED IN RESPECT OF THE FABRIC LYIN G ON THE MACHINE. THE ASSESSING OFFICER FINDING THE ABO VE ESTIMATED THE VALUE OF CHEMICALS AND COLOURS USED B Y THE ASSESSEE IN RESPECT OF FABRIC LYING ON THE MACH INE AS AT THE END OF THE YEAR AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. CONSEQUENTLY, RS.5,38,97 6/- WAS ADDED TO THE INCOME OF THE ASSESSEE IN ASSESSME NT YEAR 2004-05 AND RS.6,29,355/- WAS ADDED TO THE IN COME OF THE ASSESSEE IN ASSESSMENT YEAR 2005-06. ON A PPEAL, THE LD. CIT(APPEALS) CONFIRMED THE ADDITION OF RS.5,38,976/- FOR ASSESSMENT YEAR 2004-05 AND ALSO CONFIRMED ADDITION OF RS.6,29,355/- ASSESSMENT YEAR 2005- 06, BUT DIRECTED THE ASSESSING OFFICER TO ALLOW DE DUCTION OF RS.5,38,976/- AS OPENING WORK-IN-PROGRESS. TH E MAIN CONTENTION RAISED BY THE ASSESSEE BEFORE US IS THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET VA LUE WHICHEVER IS LESS. HE EXPLAINED THAT THE COLOURS AND CHEMICALS IN RESPECT OF FABRIC ON MACHINE ARE ALREA DY ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 14 - CONSUMED AND THE SAME IS NOT IN STOCK WITH HIM. THE FABRIC LYING ON MACHINE BELONGS TO OTHER PARTIES A ND THE ASSESSEE IS NOT THE OWNER OF THE SAME. FURTHER, T HE ASSESSEE HAS GOT NO RIGHT TO RECEIVE ANY JOB CHARG ES IN RESPECT OF FABRIC LYING ON MACHINE AS THE JOB IS NO T COMPLETED AND TILL THE COMPLETION OF THE JOB, NO RI GHT TO RECEIVE ANY AMOUNT ACCRUED TO THE ASSESSEE. FURTH ER, THE CHEMICALS AND COLOURS WHICH ARE ALREADY CONSUM ED CANNOT HAVE ANY SEPARATE MARKET VALUE. IF THE ASS ESSEE DOES NOT DO FURTHER PROCESSING IN THE NEXT YEAR, TH E ASSESSEE WILL NOT RECEIVE EVEN A SINGLE RUPEE IN RE SPECT OF FABRIC LYING ON MACHINE WHICH BELONGS TO OTHERS. FOR THE ABOVE REASON, THE ASSESSEE SUBMITTED THAT IT CONSIS TENTLY DOES NOT INCLUDE ANY VALUE OF CHEMICALS AND COLOURS WHICH ARE ALREADY CONSUMED IN RESPECT OF FABRIC LYI NG ON THE MACHINE AND THIS CONSISTENTLY FOLLOWED SYSTEM W AS ALWAYS ACCEPTED BY THE DEPARTMENT IN PAST IN HIS CA SE. THEREFORE, THERE WAS NO JUSTIFICATION FOR MAKING A N ABRUPT ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 15 - CHANGE IN THE YEARS UNDER APPEAL ON ESTIMATE BASIS WITHOUT ACTUALLY POINTING OUT THAT SUCH COLOURS AND CHEMICALS HAD ANY MARKET VALUE AT THE END OF THE RELEVANT PREVIOUS YEAR. THE ASSESSEE ALTERNATIVELY ALSO SUBMITTED THAT INCOME OF THE ONE YEAR CANNOT BE ASSESSED IN THE OTHER YEAR AND IF THE ASSESSING OFF ICER ASSUMED MARKET VALUE IN RESPECT OF CHEMICALS AND COLOURS CONSUMED ON FABRICS LYING ON MACHINES AT TH E CLOSE OF THE YEARS, THEN FOR THE SAME REASON HE ALS O OUGHT TO HAVE TAKEN OPENING VALUE OF SIMILAR STOCK LYING ON A MACHINE AT THE BEGINNING OF THE YEAR. THE AS SESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. EMA IND IA LTD. (2008) 296 ITR 510 (ALL.). WE FIND THAT THE REVEN UE COULD NOT DISPUTE THE FACT THAT THE FABRICS WHICH WERE LY ING ON MACHINE AT THE END OF THE RELEVANT PREVIOUS YEAR BELONGS TO OTHER PARTIES. THE CHEMICALS AND COLOU RS WHICH WERE USED IN RESPECT OF SUCH FABRIC WERE ALRE ADY ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 16 - CONSUMED AND COULD NOT BE SOLD OR MARKETED SEPARATELY. THUS, IT IS OBSERVED THAT THE REVENUE HAS NOT BEEN ABLE TO BRING ANY MATERIAL BEFORE US TO SHOW T HAT SUCH CONSUMED CHEMICALS AND COLOURS HAD ANY MARKET VALUE AS AT THE END OF THE YEAR. FURTHER, IT IS A LSO NOT IN DOUBT THAT NO RIGHT TO RECEIVE ANY PART OF JOB CHAR GES ACCRUED TO THE ASSESSEE AT THE END OF THE RELEVANT YEAR. FURTHER, IT IS OBSERVED THAT THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. EMA INDIA LTD.(SUPRA), OBSERVED AS UNDER:- 7. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE TRIBUNAL. IT IS SETTLED PRINCIPLE OF LAW THAT THE S TOCK CAN BE VALUED AT THE COST OR AT MARKET RATE. ADMITTEDLY THE ASSESSEE HAD BEEN MANUFACTURING THE GOODS, WHICH WERE TAILOR-MADE FOR SPECIFIC REQUIREMENTS OF ITS CUSTOMERS AND UNLESS THE WHOLE OF THE MACHINERY IS COMPLETE, WORK-IN-PROGRESS BY ITSELF HAS NO OTHER UTILITY. ASSESSEE HAS VALUED TH E WORK-IN-PROGRESS ON THE BASIS OF RAW MATERIAL CONSUMED AT COST PRICE. THIS METHOD HAS BEEN ADOPTED SINCE LAST SEVEN YEARS AND ALSO IN SUBSEQUENT YEARS. NO OBJECTION HAS BEEN RAISED BY THE REVENUE IN THE PREVIOUS YEARS TO SUCH VALUATION . IT WAS FOUND THAT ASSESSEE-COMPANY WAS A PROGRESSIVE COMPANY AND SHOWN OUT PROFITS ON PROGRESSIVE SCALE FROM YEAR TO YEAR AND CANNOT ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 17 - ESCAPE FROM THE CLUTCHES OF THE REVENUE. THE CLOSING STOCK OF THIS YEAR IS THE OPENING STOCK OF SUBSEQUENT YEAR AND, HENCE, A CONSISTENT METHOD ADOPTED FOR VALUATION BY THE ASSESSEE SHOULD NOT BE DISTURBED. THEREFORE, THE SAME METHOD ADOPTED IN THE YEAR UNDER CONSIDERATION FOR VALUING THE STOCK, AS HAS BEEN ADOPTED IN THE PREVIOUS YEARS, CANNOT BE SAID TO BE UNJUSTIFIED. 11. IN VIEW OF THE ABOVE DECISION, IN OUR CONSIDERE D OPINION ON THE FACTS AND CIRCUMSTANCES MENTIONED ABOVE, WE DO NOT FIND ANY ERROR IN THE CONSISTENTL Y FOLLOWED SYSTEM OF VALUATION OF STOCK BY THE ASSESS EE. AS THE SAID SYSTEM WAS ACCEPTED BY THE DEPARTMENT A LSO IN PAST IN THE CASE OF THE ASSESSEE, WE DO NOT FIND ANY GOOD REASON FOR DEPARTURE FROM THE SAID ACCEPTED METHOD. THE CLOSING STOCK OF ONE YEAR IS THE OPEN ING STOCK OF THE NEXT YEAR AND, HENCE, A CONSISTENT MET HOD ADOPTED FOR VALUATION BY THE ASSESSEE SHOULD NOT BE DISTURBED WITHOUT GOOD REASONS. WE, THEREFORE, S ET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELE TE THE ADDITION(S) OF RS.5,38,976/- IN ASSESSMENT YEAR 200 4-05 ITA NOS.3635 & 3636/AHD/2008 M/S.BAJAJ FASHIONS PVT.LTD. VS. DCIT ASST.YEARS 2004-05 & 2005-06 RESPECTIVELY - 18 - AND RS.90,379/- IN THE ASSESSMENT YEAR 2005-06. T HUS, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 24/07/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 24/07/2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-I, SURAT 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD