M/s Aman Agro Industries, Khanna V. ITO, Khanna

ITA 380/CHANDI/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0004 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 380/CHD/2016 ASSESSMENT YEAR : 2010-11 M/S AMAN AGRO INDUSTRIES, VS THE ITO, C/O SHRI RANJIT SINGH, WARD 1, H.NO. 527, SECTOR 3A, KHANNA. BATTAN LAL ROAD, MANDI GOBINDGARH. PAN: AAHFA3328C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 16.05.2016 DATE OF PRONOUNCEMENT : 17.05.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-2, LUDHIANA DATED 20.01.2016 FOR ASSESSMENT YEAR 2010-11. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 3. ON GROUND NO. 1, ASSESSEE CHALLENGED THE ADDITIO N OF RS. 1,20,140/- ON ACCOUNT OF VALUATION OF STOCK. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE FIRM IS ENGAGED IN MANUFACTURING OF STEEL AND IRON. THE ASSESSING OFFICER NOTED THAT AFTER VALUATION OF CLO SING STOCK, THE VALUE OF 33.372 MT MELTING SCRAP HAVE BE EN 2 SHOWN AT RS. 6,50,754/- WHICH COMES @ RS. 19,500/- PMT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY VALUATION OF THE CLOSING STOCK AND ASKED TO PRODUCE BILLS OF MELTING SCRAP FOR THE MONTH OF MAR CH AND APRIL, 2010. AFTER PERUSING THE BILLS, THE ASS ESSING OFFICER NOTED THAT VALUE OF 11.340 MT MELTING SCRAP HAD BEEN ARRIVED AT RS. 23,100/- PMT AS AGAINST VALUATI ON SHOWN IN THE BALANCE SHEET @ RS. 19,500/- PMT. THE ASSESSEE SUBMITTED THAT IT PRODUCES SCRAP ON TWO ST AGES OF PRODUCTION, DURING CUTTING OF THE RAW MATERIAL A ND DURING THE END CUTTING OF FINISHED GOODS. THE SCRA P PRODUCED DURING THE PROCESS OF RAW MATERIAL CUTTING HAS DUST, RUST, PAINT AND NOT OF UNIFORM SIZE. IT WAS FURTHER SUBMITTED THAT MELTING SCRAP RATES FLUCTUATED TIME TO TIME ACCORDING TO THE MARKET PRICE. THE ASSESSING OFFICER DID NOT ACCEPT CONTENTION OF THE ASSESSEE A ND HELD THAT VALUE OF 33.372 MT MELTING SCRAP SHOULD H AVE BEEN TAKEN AT A HIGHER VALUE OF RS. 23,100/- PMT WH ICH HAVE BEEN DONE AT A LESSER RATE OF RS. 19,500/- PMT THEREFORE, ADDITION OF RS. 1,20,410/- WAS MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK. 5. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) THAT PRINCIPLE OF ACCOUNTING IS THAT VALUE OF CLOSI NG STOCK IS TO BE ADOPTED AT MARKET PRICE OR COST PRIC E, WHICHEVER IS LESSER AND IT IS NOWHERE MENTIONED IN ACCOUNTING STANDARDS THAT SALE PRICE OF SUBSEQUENT YEAR CAN BE TAKEN AS VALUE OF CLOSING STOCK. THE ASSESS EE 3 VALUED THE CLOSING STOCK AT MARKET PRICE OR COST PR ICE, WHICHEVER IS LESSER. THE ASSESSING OFFICER IN THE REMAND REPORT SUBMITTED THAT ASSESSEE HAS VALUED CLOSING STOCK ON THE BASIS OF NEWS PAPER REPORT. T HE ASSESSEE REITERATED THE SUBMISSIONS BEFORE LD. CIT(APPEALS). HOWEVER, LD. CIT(APPEALS) DID NOT AC CEPT CONTENTION OF THE ASSESSEE AND DISMISSED THIS GROUN D OF APPEAL OF THE ASSESSEE. 6. THE LD. COUNSEL FOR THE ASSESSEE FILED AUDIT REP ORT FOR THE YEAR UNDER CONSIDERATION AND REFERRED TO TH E METHOD OF VALUATION OF CLOSING STOCK AT COST PRIC E, RAW MATERIAL AND FINISHED GOODS AT MARKET PRICE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SAME METHOD OF VALUATION OF CLOSING STOCK HAS BEEN ADOPTED IN EARL IER YEARS, THEREFORE, ADDITION IS WHOLLY UNJUSTIFIED. HE HAS RELIED UPON THE ORDER OF ITAT AMRITSAR BENCH IN THE CASE OF ITO VS KASHMIRI LAL BHARAT BHUSHAN 26 ITREP 152 IN WHICH IT WAS HELD THAT , NO CORRESPONDING ADDITION MADE IN THE OPENING STOCK OF THE SUCCEEDING PREVIOUS YEA R, THEREFORE, ADDITION IS NOT SUSTAINABLE. 7. CONSIDERING THE SUBMISSIONS OF THE PARTIES IN TH E LIGHT OF THE MATERIAL ON RECORD, I AM OF THE VIEW A DDITION IS WHOLLY UNJUSTIFIED. THE ASSESSEE ADOPTED THE ME THOD OF VALUATION OF CLOSING STOCK CONSISTENTLY AS WAS A DOPTED IN THE EARLIER YEARS. THE ASSESSEE VALUED THE CLOS ING STOCK AT MARKET PRICE OR COST PRICE, WHICHEVER IS L ESSER. NO INFIRMITY IN THE METHOD OF VALUATION OF CLOSING STOCK 4 ADOPTED BY THE ASSESSEE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. THE ASSESSEE GENERATED THE CLOS ING STOCK OF 33.372 MT. THE ASSESSING OFFICER TOOK THE VALUATION OF SUBSEQUENT YEAR ON THE BASIS OF PART O F THE SCRAP OF 11.340 MT. FOR REST, THERE IS NO EXPLANAT ION AS TO HOW THE SAME COULD BE VALUED AT THE SAME PRICE WITHOUT ANY MATERIAL ON RECORD. FURTHER, THERE IS NO EXPLANATION GIVEN BY THE ASSESSING OFFICER AS TO HO W THE VALUATION OF SUBSEQUENT YEAR COULD BE ADOPTED FOR T HE PURPOSE OF VALUING THE CLOSING STOCK OF THE YEAR UN DER CONSIDERATION. THERE CAN BE MANY REASONS FOR DIFFE RENCE IN VALUATION IN SUBSEQUENT YEAR BUT NOTHING IS EXPL AINED BY ASSESSING OFFICER IN THIS REGARD. FURTHER, NO CORRESPONDING BENEFITS HAVE BEEN GIVEN TO THE ASSES SEE ON ENHANCING THE VALUATION OF CLOSING STOCK IN SUBSEQUENT YEAR, THEREFORE, IT WOULD AMOUNT TO DOUB LE ADDITION. THE ASSESSEE HAD ALREADY OFFERED HIGHER AMOUNT OF SALE CONSIDERATION IN SUBSEQUENT YEAR. 8. CONSIDERING TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND THAT ASSESSEE CONSISTENTLY MAINTAINED THE SAME METHOD OF VALUATION OF STOCK, I DO NOT FIND AN Y JUSTIFICATION FOR THE ASSESSING OFFICER TO VALUE TH E CLOSING STOCK ON HIGHER AMOUNT BY CONSIDERING THE S ALE CONSIDERATION OF THE SUBSEQUENT YEAR. 9. I, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORIT IES BELOW AND DELETE THE ADDITION OF RS. 1,20,140/-. GROUND NO. 1 OF APPEAL OF THE ASSESSEE IS ALLOWED. 5 10. ON GROUND NO. 2, ASSESSEE CHALLENGED THE ADDITI ON OF RS. 1,92,600/- ON ACCOUNT OF DISALLOWANCE OF INT EREST UNDER SECTION 36(1)(III) OF THE ACT. 11. BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD GIVEN LOANS AND ADVANCE TO THE FOLLOWING PERSONS FROM WHOM THE INTEREST WAS NOT CHARGED BY THE ASSESSEE : SR. NO. NAME OF THE PERSON/ CONCERN TO WHOM INTEREST FREE LOAN/ADVANCE GIVEN AMOUNT OF LOAN/ADVANCE GIVEN (RS.) @12% INTEREST DISALLOWED FOR WHOLE YEAR (RS.) 1. SH. CHARANDEEP SINGH, KHANNA 3,00,000/- 36,000/- 2. M/S HITESH INDS. MVG. 3,65,000/- 43,800/- 3. M/S NIKET STEEL INDS. MVG 2,50,000/- 30,000/- 4. M/S O.M. STEEL & ALLOYS, MVG 1,10,000/- 13,200/- 5. M/S ONKAR AGRO & ENGG. WORKS MVG 2,50,000/- 30,000/- 6. M/S SURYA TRADING CO., MVG 3,30,000/- 39,600/- TOTAL 16,05,000/- 1,92,600/- 12. THE ASSESSEE WAS ASKED TO EXPLAIN WHY PROPORTIONATE INTEREST @ 12% MAY NOT BE DISALLOWED. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED THE AMOUNT IN QUESTION. 13. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) THAT OUT OF THE ABOVE SIX PARTIES, RS. 9,90,000/- I S THE AMOUNT OF LOAN/ADVANCES BROUGHT FORWARDED FROM THE EARLIER YEARS I.E. IN RESPECT OF SHRI CHARANDEEP SI NGH, M/S O.M. STEEL & ALLOYS, M/S ONKAR AGRO & ENGINEERI NG WORKS MANUFACTURING AND M/S SURYA TRADING COMPANY. NO ADVANCES HAVE BEEN GIVEN TO THEM DURING THE 6 ASSESSMENT YEAR UNDER APPEAL. FURTHER AS REGARDS T HE SUNDRY DEBTORS TO M/S HITESH INDUSTRIES AND M/S NIK ET STEEL INDUSTRIES, ADVANCES WERE GIVEN ONLY ON 23.03.2010, COPY OF THE ACCOUNTS WAS FILED IN THIS REGARD. THE ASSESSEE, THEREFORE, SUBMITTED THAT DISALLOWANCE OF INTEREST IS WHOLLY UNJUSTIFIED. 13(I) THE LD. CIT(APPEALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND NOTED THAT ASSESSEE HAS FAILED TO PROVE ANY BUSINESS EXPEDIENCY THEREFORE, FUNDS HAVE BEEN DIVERTED TO NON-BUSINESS PURPOSES. HOWEV ER, IN RESPECT OF TWO PARTIES TO WHOM ADVANCES HAVE BEE N GIVEN ON 23.03.2010, ASSESSING OFFICER WAS DIRECTED TO VERIFY CLAIM OF THE ASSESSEE AND TO DISALLOW INTERE ST FOR THE PERIOD FROM 23.03.2010 TO THE END OF THE FINANC IAL YEAR. THIS GROUND WAS, THEREFORE, PARTLY ALLOWED. 14. AFTER HEARING RIVAL SUBMISSIONS, I AM OF THE VI EW ADDITION IS WHOLLY UNJUSTIFIED. THE LD. COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. THE ASSESSEE SPECIFICALLY PLEAD ED BEFORE THE AUTHORITIES BELOW THAT RS. 9,90,000/- IS THE AMOUNT OF LOAN/ADVANCES BROUGHT FORWARD FROM THE EARLIER YEARS THEREFORE, NO ADVANCE HAVE BEEN GIVEN TO THE FOUR PARTIES OF THE AFORESAID AMOUNT IN ASSESSM ENT YEAR UNDER APPEAL. NO FINDINGS HAVE BEEN GIVEN BY THE ASSESSING OFFICER IN THIS REGARD. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PB-21 WHICH IS BALANCE SHEET O F ASSESSEE AS ON 31.03.2010 WHICH SHOWS UNSECURED LOA NS 7 OF RS. 21,66,583/-. THE DETAILS OF THE SAME IS GIV EN AT PB-26 IN WHICH AFTER EXCLUDING THE AMOUNT OF M/S GULZAR INDUSTRIES, ASSESSEE HAS INTEREST FREE UNSEC URED LOANS FROM THREE PARTIES NAMELY M/S RANJIT SINGH, M /S SHRI KAILASHPAT STEEL TRADERS AND M/S VIJAY LUXMI S TEEL INDUSTRIES IN A SUM OF RS. 14,29,715/-. THE LD. CO UNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT SINCE I NTEREST FREE UNSECURED LOANS ARE AVAILABLE TO THE ASSESSEE, THEREFORE, NO ADDITION ON ACCOUNT OF DISALLOWANCE O F INTEREST IS JUSTIFIED. HE HAS RELIED UPON ORDER OF ITAT (DB) CHANDIGARH IN THE CASE OF M/S DEEPAK BUILDERS DATED 26.02.2016 IN WHICH THE TRIBUNAL CONSIDERING NON INTEREST BEARING FUNDS AVAILABLE TO THE ASSESSEE, CONSIDERED THE ISSUE IN THE LIGHT OF DECISION OF HO N'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. AND DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF HERO CYCLES PVT. LTD. HELD THA T THE AMOUNT ADVANCES WERE FROM INTEREST FREE FUNDS OF TH E ASSESSEE. THEREFORE, NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT COULD BE MADE. COPY OF THE O RDER IS PLACED ON RECORD. 15. CONSIDERING THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, IT IS CLEAR THAT SUBSTANTIVE AMOUNT OF LOAN AND ADVANCES WERE BROUGHT FORWARD FROM EARLIER YEARS AN D THE SMALL AMOUNT IS LEFT OF TWO PARTIES, WHICH ADVA NCES WERE GIVEN ON 23.03.2010 AND ASSESSEE HAS SUFFICIEN T INTEREST FREE FUNDS AVAILABLE IN THE SHAPE OF INTER EST FREE 8 LOANS AND ADVANCES AS PER BALANCE SHEET EXPLAINED ABOVE. THEREFORE, FOLLOWING THE ORDER IN THE CASE OF DEEPAK BUILDERS (SUPRA), I SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION. 16. IN THE RESULT, GROUND NO. 2 OF THE APPEAL OF TH E ASSESSEE IS ALLOWED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 17 TH MAY, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD