M/s. Ambuja Oil Industries, Ahmedabad V. The Income tax Officer,Ward-6(1), Ahmedabad

ITA 409/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80355 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 08-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2011
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: S N DIVETIA A R
• Section: 145

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! ! ! ! ' #$% ' #$% ' #$% ' #$% #& #&#& #&0 00 0# ## #0 00 0 '& '& '& '&, , , , () * () * () * () * ( ' ( ' ( ' ( ' BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT % % % %./ ././ ./ ITA NO. 409/AHD/2011 & - $.- & - $.- & - $.- & - $.-/ // / ASSESSMENT YEAR: 2006-07 M/S. AMBUJA OIL INDUSTRIES, KHEDA HIGHWAY, DHOLKA. PAN: AAOFS7114H VS INCOME TAX OFFICER, WARD-6(1), AHMEDABAD. /0/ (APPELLANT) 12 /0/ (RESPONDENT) REVENUE BY : SMT. SONIA KUMAR, SR. D.R. ASSESSEE(S) BY : SHRI S.N. DIVETIA, AR &$3 4 )/ // / DATE OF HEARING : 08/09/2014 56. 4 ) / DATE OF PRONOUNCEMENT: 12/09/2014 (7 (7 (7 (7/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHM EDABAD DATED 03.12.2010. 2. AT THE TIME OF HEARING, THE AUTHORIZED REPRESEN TATIVE OF THE ASSESSEE SUBMITTED THAT GROUND NO. 2.1 OF THE A PPEAL TAKEN BY THE ASSESSEE WILL COVER ALL THE CONTROVERSIES RAISE D BY THE ASSESSEE IN THIS APPEAL. ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 2 - 3. GROUND NO. 2.1 (1) IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK OF RS 4,61,30 5/-. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE DOES NOT HAVE ANY BASIS FOR VALUING THE CLOSING STOCK, THE ASSESSEE DOES NOT MAINTAIN DAY T O DAY STOCK REGISTER AS EVIDENT FROM THE AUDIT REPORT, THE QUAN TITY-WISE DETAILS ARE ALSO NOT MAINTAINED, THERE IS FALL IN THE GROSS PROFIT RATIO FROM 0.76% IN THE EARLIER YEAR TO 0.45% IN THIS YEAR. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THE ONLY BASIS OF VAL UATION OF CLOSING STOCK OF FINISHED GOODS IS THE MARKET VALUE AND THE REFORE, REVALUING THE CLOSING STOCK AS PER THE AVAILABLE SALE BILLS, HE MADE AN ADDITION OF RS 4,61,305/- AS UNDER: SR.NO. ITEM QUANTITY IN QTLS. VALUE IN RS. ADOPTED PER QTL. VALUE AS PER SALES BILL DIFFERENCE PER QTL. COL. NO. C X F A B C D E F G 1. COTTON 1303.98 4780 5061.60 281.60 3,67,200 2. COTTON SEEDS 2800.60 825 855 30 84,018 3. OIL 504.35 3500 3520 20 10,087 TOTAL 4,61,305 5. ON APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE CONTENDED THAT THE ASSESSEE HAS DETERMINED THE VALUE OF CLOSI NG STOCK OF COTTON, COTTON SEEDS AND WASH OIL AS ON 01.04.2005 AND AS ON 31.03.2006 NEARER TO THE RATE OF AVERAGE MARKET RAT E OF LAST MONTH WHICH WAS HIGHER THAN THE COST. THE ABOVE METHOD I S ADOPTED AND CONTINUED SINCE LAST MANY YEARS AND THEREFORE THERE WAS NO QUESTION ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 3 - OF UNDER-VALUATION OF CLOSING STOCK. IT WAS SUBMIT TED THAT HIGHER VALUATION OF CLOSING STOCK HAS RESULTED IN HIGHER N OTIONAL PROFIT WHICH WERE REALISED OR NOT. THE VALUE OF CLOSING STOCK I S TO BE MADE AT COST OR MARKET VALUE WHICHEVER IS LOWER BASIS WHICH IS H E GENERALLY ACCEPTED RULE OF COMMERCIAL PRACTICE. THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: A.L.A. FIRM VS CIT (1991) 189 ITR 285 (SC) CHAIRNRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) CIT VS. AHMEDABAD NEW COTTON MILLS CO. LTD. 4ITC 24 5 (PC) 6. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE CONFIRMED THE ACTION OF THE ASSESSING OFFI CER BY OBSERVING AS UNDER: 2.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE A. R . OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. A.O'S OBSERVATIONS ON THE ISSUE I N BRIEF ARE AS FOLLOW. AS PER CLAUSE 12(A) OF THE AUDIT REPORT, VALUATION OF CLOSING STOCK IS DONE AT 'MARKET PRICE'. IT IS ALSO SEEN FROM THE AUDIT REPORT THAT DAY-TO-DAY STOCK REGISTER WAS NOT MAINTAINED, G. P. HAS DECLINED FROM 0.76% IN THE EA RLIER YEAR TO 0.45% IN THE CURRENT YEAR. WITH THESE OBSERVATIO NS, A.O. WENT ON TO VALUE THE CLOSING STOCK OF COTTON, COTTO N SEEDS AND OIL ADOPTING THE SALE PRICE IN THE LAST BILL OF THE PREVIOUS YEAR AS 'MARKET PRICE'. THE DIFFERENCE IN THE VALUATION OF RS. 4,61,305/- WAS ADDED. 2.1.2. IN THE WRITTEN SUBMISSIONS REPRODUCED ABOVE, APPELLANT HAS NOT BEEN ABLE TO REBUT THE A.O'S FINDINGS. ONCE THE AUDIT REPORT ITSELF STATES THAT CLOSING STOCK IS VALUED A T 'MARKET PRICE', A.O'S VALUATION OF CLOSING IN THE ASSESSMEN T ORDER CANNOT BE FAULTED. THE CASE-LAWS RELIED ON ARE DIST INGUISHABLE ON FACTS. 2.1.3. THEREFORE, IMPUGNED ADDITION OF RS. 4,61,305 /- IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 7. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 4 - WHEREAS THE DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFI CER OBSERVED THAT AS PER THE TAX AUDIT REPORT FILED BY THE ASSESSEE UNDE R CLAUSE 12(A), THE BASIS FOR VALUATION OF CLOSING STOCK WAS MARKET PR ICE. THE ASSESSING OFFICER FURTHER OBSERVED THAT FROM THE SA LE BILLS PRODUCED BY THE ASSESSEE, IT IS OBSERVED THAT THE RATE OF CO TTON SOLD ON 29.03.2006 WAS RS 5061.60 PER QUINTAL, RATE OF COTT ON SEEDS SOLD ON 25.03.2006 WAS RS 855/-PER QUINTAL AND RATE OF WASH OIL SOLD ON 24.03.2006 WAS RS 3,520/- PER QUINTAL. THE ASSESSE E HAS ADOPTED THE RATE OF COTTON SEEDS FOR VALUATION OF CLOSING S TOCK AS RS 825/- PER QUINTAL WHICH IS NOT THE MARKET PRICE. THEREFORE, THE ASSESSING OFFICER ADOPTED THE RATE SHOWN IN THE SALE BILLS AS THE RATE FOR VALUATION OF CLOSING STOCK OF COTTON, COTTON SEEDS AND OIL AND THEREBY MADE ADDITION OF THE DIFFERENCE AMOUNT OF RS 4,61,3 05/- TO THE INCOME OF THE ASSESSEE. 9. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAS VALUED THE CLOSING STOCK AT THE AVERAGE MARKET RATE OF THE LAST MONTH OF THE YEAR W HICH WAS THE METHOD CONSISTENTLY AND REGULARLY FOLLOWED BY THE A SSESSEE AND THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED I N SUBSTITUTING THE VALUATION OF CLOSING STOCK WITH THE BILLS ISSUED DU RING THE FAG-END OF THE YEAR AND MAKING ADDITION TO THE INCOME OF THE A SSESSEE, AND THE ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 5 - COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN CONFIRMING THE SAME. 11. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CA SE, WE ARE OF THE CONSIDERED VIEW THAT FOR THE PURPOSES OF VAL UATION OF CLOSING STOCK, THE ASSESSEE IS AT LIBERTY TO CHOOSE A METHO D OF VALUATION OF CLOSING STOCK BUT THE ASSESSEE IS REQUIRED TO FOLLO W THE CHOSEN METHOD REGULARLY. THE DEPARTMENT IS BOUND BY THE A SSESSEES CHOICE OF THE METHOD REGULARLY EMPLOYED UNLESS BY THIS MET HOD THE TRUE INCOME OR PROFITS CANNOT BE ARRIVED AT. THE ASSESS EES REGULAR METHOD SHOULD NOT BE REJECTED AS IMPROPER MERELY BE CAUSE IT GIVES HIM THE BENEFIT IN CERTAIN YEARS BECAUSE AS PER THE ASSESSING OFFICER THE OTHER METHOD WOULD HAVE BEEN MORE PREFERABLE. THE METHOD OF ACCOUNTING CANNOT BE SUBSTITUTED BY THE ASSESSING O FFICER MERELY BECAUSE IT IS UNSATISFACTORY. WHAT IS MATERIAL FOR THE PURPOSES OF SECTION 145 OF THE INCOME TAX ACT, 1961 IS, THE MET HOD SHOULD BE SUCH THAT THE REAL INCOME, PROFITS AND GAINS CAN BE PROPERLY DEDUCED THEREFROM. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS NOT ADOPTED THE AVERA GE MARKET RATE OF LAST MONTH OF THE YEAR FOR THE PURPOSES OF VALUA TION OF CLOSING STOCK OF COTTON, COTTON SEEDS AND OIL CONSISTENTLY AND REGULARLY FOR THE PURPOSES OF ITS ACCOUNT. FURTHER, IT IS ALSO N OT THE CASE OF THE REVENUE THAT THE METHOD DOES NOT AFFORD THE TRUE PI CTURE OF THE PROFITS. THEREFORE, IN OUR VIEW, THE LOWER AUTHORI TIES WERE NOT JUSTIFIED IN VALUING THE CLOSING STOCK OF THE ASSES SEE ON THE BASIS OF THE SALE BILLS AT THE FAG-END OF THE YEAR IN PLACE OF THE METHOD ADOPTED BY THE ASSESSEE OF VALUING ITS CLOSING STOC K ON THE BASIS OF AVERAGE MARKET PRICE OF THE LAST MONTH OF THE YEAR. THUS, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELET E THE ADDITION OF RS 4,61,305/- AND ALLOW THIS GROUND OF APPEAL OF THE A SSESSEE. ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 6 - 12. THE ONLY OTHER GRIEVANCE OF THE ASSESSEE AS ST ATED IN GROUND NO. 2.1(2) IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ADDITION BEI NG 20% OF GUNNY BAGS PURCHASE RS 2,00,249/-. 13. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID RS 24,13,728/- TOWARDS GINNING AND PRESSING CHARGES TO VISHAL INDUSTRIES WHICH SHO WS THAT READYMADE COTTON BALES ARE RECEIVED BY ASSESSEE FOR DIRECT SALE. COTTON IS NORMALLY SOLD IN BALES AND HENCE USE OF G UNNY BAGS IS ONLY SECONDARY IN NATURE. THE ASSESSING OFFICER FURTHER OBSERVED THAT EVEN IF COTTON IS BAGGED BY THE ASSESSEE IN GUNNY B AGS, THE WEIGHT OF GUNNY BAGS IS NOT SEPARATELY SHOWN IN THE BILLS ISS UED. THEREFORE, THAT MUCH QUANTITY OF COTTON IS NOT INCORPORATED IN THE SALE QUANTITY. FURTHER, THE ASSESSEE HAS NOT ACCOUNTED FOR THE VAL UE OF GUNNY BAGS IN CLOSING STOCK. THE ASSESSEE WAS REQUIRED TO FUR NISH MONTH-WISE DETAILS OF CONSUMPTION OF GUNNY BAGS AND ALSO TO FU RNISH NAMES AND ADDRESSES OF THE PARTIES FROM WHOM SUCH BAGS HAVE B EEN PURCHASED. THE ASSESSEE FAILED TO PROVIDE ANY SUCH DETAILS. T HEREFORE, 25% OF THE EXPENSES CLAIMED TO HAVE BEEN INCURRED BY THE A SSESSEE FOR GUNNY BAGS WAS DISALLOWED AND ADDED TO THE TOTAL IN COME. 14. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. AS SEEN FROM THE ASSESSMENT ORDE R, A.O. DISALLOWED ON ESTIMATE 25% OF THE EXPENSES ON THE G UNNY BAGS. APPELLANT CONTENDS THAT NO SHOW-CAUSE WAS GI VEN BY THE A.O. WHICH APPEARS TO BE TRUE GOING BY THE DISC USSION ON THE ISSUE IN THE ASSESSMENT ORDER. A.O. IS DIRECTE D TO VERIFY THE WORKING REGARDING CONSUMPTION OF GUNNY BAGS (FU RNISHED BY APPELLANT IN THE WRITTEN SUBMISSIONS REPRODUCED ABOVE) AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. THUS SUBJ ECT TO VERIFICATION, THIS GROUND OF APPEAL IS TREATED AS A LLOWED. ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 7 - 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE HAS PAID RS 24,13,728/- FOR GINNING AND PRESSING CHARGE S TO VISHAL INDUSTRIES. HE ALSO NOTED THAT THE ASSESSEE RECEIV ES READYMADE COTTON BALES FOR DIRECT SALES. HE ALSO OBSERVED TH AT IF THE COTTON WAS BAGGED BY THE ASSESSEE IN GUNNY BAGS, THE WEIGHT OF GUNNY BAGS WAS NOT SEPARATELY SHOWN IN THE BILLS ISSUED AND TH EREFORE, THAT MUCH QUANTITY OF COTTON WAS NOT ACCOUNTED FOR IN THE SAL E QUANTITY. HE FURTHER OBSERVED THAT THE ASSESSEE COULD NOT FURNIS H MONTH-WISE DETAILS OF CONSUMPTION OF GUNNY BAGS AND THE NAMES AND ADDRESSES OF THE PARTIES FROM WHOM SUCH GUNNY BAGS WERE PURCH ASED. THEREFORE, HE MADE AN ESTIMATED DISALLOWANCE OF 25% OF THE EXPENSES TOWARDS GINNING AND PRESSING CHARGES CLAIM ED BY THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE AS SESSEE. 16. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT THE ASSESSING OFFICER HAS MADE AN ESTIMAT ED DISALLOWANCE OF 25% OF THE EXPENSES ON THE GUNNY BAGS AND THAT T HE ASSESSEE CONTENDED THAT THE NO SHOW CAUSE NOTICE WAS GIVEN B Y THE ASSESSING OFFICER BEFORE MAKING THE DISALLOWANCE AND HENCE RE STORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, D IRECTING HIM TO VERIFY THE WORKING REGARDING CONSUMPTION OF GUNNY B AGS FURNISHED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. WHEN ASKED BY THE BENCH TO THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO EXPLAIN WHAT WAS HIS GRIEVANCE AGAINST THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COULD NOT POINT OUT ANY GRIEVANCE AGAINST THE ABOVE FINDING OF THE COMM ISSIONER OF INCOME TAX (APPEALS). THEREFORE, THIS GROUND OF AP PEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 409/AHD/2011 M/S. AMBUJA OIL INDUSTRIES, DHOLKA. FOR A.Y. 2006-07 - 8 - 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED IN THE MANNER INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 12 TH OF SEPTEMBER, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12/09/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8. (7 4 18 9(8./ COPY OF THE ORDER FORWARDED TO : 1. /0 / THE APPELLANT 2. 12/0 / THE RESPONDENT. 3. %% : / CONCERNED CIT 4. :() / THE CIT(A)-III, AHMEDABAD 5. 8$= 1& , , / DR, ITAT, AHMEDABAD 6. - >3 / GUARD FILE. (7& (7& (7& (7& / BY ORDER, / // / % % % % ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD