Hartex Rubber (P) Ltd., Hyderabad V. D.C.I.T CC - XVII,kolkata, Kolkata

ITA 424/KOL/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70513 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2013
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: SOUMITRA CHOW DHURY
• Section: 143(3); 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SRI SHAMIM YAHYA, AM & HONBLE SR I GEORGE MATHAN, JM] ITA NO.424/KOL/2013 ASSESSMENT YEAR : 2006-07 ( APPELLANT ) -VS- (RESPONDENT) HARTEX RUBBER (P)LTD. . D.C.I.T., CENTRAL CIRCLE -XVII KOLKATA KOLKATA (PAN:AABCK 1284 C) ITA NO.703/KOL/2011 ASSESSMENT YEAR : 2006-07 ( APPELLANT ) -VS- (RESPONDENT) HARTEX RUBBER (P) LTD. . C.I.T., CENTRAL-I, KOLKATA KOLKATA (PAN:AABCK 1284 C) FOR THE APPELLANT: SHRI SOUMITRA CHOWDHURY, ADVOCATE FOR THE RESPONDENT: SHRI RAVI JAIN,. CIT(DR) DATE OF HEARING : 18.12.2013 DATE OF PRONOUNCEMENT : 18. 12.2013. ORDER PER SHRI GEORGE MATHAN, JM I.T.A.NO.424/KOL/2013 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF LD. C.I.T.(A)-CENTRAL-I, KOLKATA IN APPEAL NO.287/C C-XVII/CIT(A)C-I/11-12 DATED 31.12.2012 FOR ASSESSMENT YEAR 2006-07 AND I.T.A.NO .703/KOL/2011 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY L D. C.I.T.-CENTRAL-I, KOLKATA U/S 263 OF THE ACT IN M.NO. CIT(C-I)/263/HARTEX RUBBER PVT. LTD./TECH/10-11/KOL/3384-86 DATED 14.03.2011 FOR ASSESSMENT YEAR 2006-07. 2. SHRI SOUMITRA CHOWDHURY, ADVOCATE REPRESENTED O N BEHALF OF THE ASSESSEE AND SHRI RAVI JAIN, CIT(DR) REPRESENTED ON BEHALF OF THE REVENUE. ITA NO.424/KOL/2013 (A.YR.2006-07): 3. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS :- ITA NO.424/KOL/2013 AND 703/KO L/2011 H ARTEX RUBBER (P) LTD. A.YR.2006-07 2 1(A). FOR THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE LD.A.O. I N ASSESSING THE ALLEGED EXPORT BENEFITS OF RS.174.50 LAKHS IN RESPECT OF DEEC AND OF RS.6.8 0 LAKHS IN RESPECT OF DFRC, TOTALING TO RS.181.30 LAKHS, AS INCOME U/S 28 OF TH E ACT. 1.(B) . FOR THAT THE LD. CIT(A) OUGHT TO HAVE DELET ED THE SAID ADDITION OF RS.181.30 LAKHS AS THE COMPUTATION OF THE AFORESAID EXPORT BENEFIT WAS MADE ON A NOTIONAL BASIS AND THAT NO ACTUAL BENEFIT ACCRUED DURING THE YEAR TO T HE ASSESSEE COMPANY. 1.(C) FOR THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE CHANGEOVER MADE BY THE ASSESSEE IN ITS SYSTEM OF ACCOUNTING IN ACCOUNTING FOR THE EXPORT BENEFITS WAS BONAFIDE AND/OR IN CONFORMITY WITH THE ACCOUNTING STANDARDS 12 ISSUED BY THE ICAI. 2.(A) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,05,52,771/- MADE BY THE LD.A.O ON ACCOUNT OF ALLEGED DISCREPANCY IN THE VALUATION OF STOCK. 2.(B) FOR THAT THE LD.CIT(A) FAILED TO APPRECIATE T HAT THE FIGURES OF FINISHED STOCK IN THE FINAL ACCOUNTS WAS TAKEN ON COST BASIS AND THOSE IN THE NOTES ON ACCOUNT AT MRP BASIS. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER O R DELETE ALL OR ANY OF THE GROUNDS OF APPEAL. 4. IT WAS SUBMITTED BY THE LD. AR THAT IN RESPECT O F GROUND NO.1(A),(B) AND (C) THE ISSUE WAS AGAINST THE ACTION OF LD.CIT(A) IN CONFIR MING THE ADDITION MADE BY THE AO IN RESPECT OF EXPORT BENEFITS IN RESPECT OF DEEC AN D DFRC WHICH WAS NOT CLAIMED BY THE ASSESSEE. IT WAS THE SUBMISSION THAT FOR A.YR.2 006-07 THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING WHEREIN THE ASSESSEE WAS OFFER ING AS INCOME ONLY THE DEEC AND DFRC WHICH HAD BEEN UTILIZED BY THE ASSESSEE. I T WAS THE SUBMISSION THAT THIS CHANGE IN THE METHOD OF ACCOUNTING WAS DISCLOSED BY THE ASSESSEE IN ITS ACCOUNTS. THE LD. AR DREW OUR ATTENTION TO THE AUDITORS REPORT A T PAGE 15 OF THE PAPER BOOK WHEREIN IT HAS BEEN SPECIFICALLY MENTIONED BY THE AUDITOR T HAT IN RESPECT OF SCHEDULE 18 REGARDING CHANGE IN ACCOUNTING POLICY FOR ACCOUNTIN G EXPORT BENEFITS SUCH AS DEEC AND DFRC, HAD THE COMPANY FOLLOWED THE EARLIER POLI CY THERE WOULD HAVE BEEN AN INCREASE IN PROFITS FOR THE YEAR WITH CORRESPONDING INCREASE IN RECEIVABLES. HE ALSO DREW OUR ATTENTION TO PAGE 29 OF THE PAPER BOOK WHI CH WAS THE COPY OF SCHEDULES FORMING PART OF THE BALANCE SHEET WHEREIN IN THE FI NANCIAL STATEMENTS IT HAS BEEN SPECIFICALLY MENTIONED THAT DURING THE YEAR THE ACC OUNTING FOR EXPORT BENEFITS SUCH AS DEEC AND DFRC ARISING OUT OF EXPORTS FOR THE YEAR H AVE NOT BEEN RECOGNIZED AND THE SAME WOULD BE ACCOUNTED IN THE YEAR OF UTILIZATION OF THE SAID BENEFITS. IT HAS ALSO BEEN SPECIFICALLY MENTIONED THAT THE CHANGE WAS DUE TO U NCERTAINTY FOR AVAILMENT OF BENEFITS AND THUS WAS IN CONFORMITY WITH AS-9. IT W AS THE SUBMISSION THAT THIS METHOD ITA NO.424/KOL/2013 AND 703/KO L/2011 H ARTEX RUBBER (P) LTD. A.YR.2006-07 3 WAS ALSO APPROVED BY THE HONBLE SUPREME COURT IN A VERY RECENT DECISION IN THE CASE OF EXCEL INDUSTRIES LTD. IN CIVIL APPEAL NO.5195 OF 2011, 9101 OF 2013 AND 9100 OF 2013 ALONG WITH 125 OF 2013 DATED 8 TH OCTOBER, 2013. THE HONBLE SUPREME COURT HAS IN PARA 27 OF THE SAID ORDER SPECIFICALLY HELD 27. APPLYING THE THREE TESTS LAID DOWN BY VARIOUS DECISIONS OF THIS COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL; WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN M ADE; AND THE PROBABILITY OR IMPROBABILITY OF REALIZATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE ASSESSEE MAY NOT H AVE MADE IMPORTS), IT IS QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY HYPOTHETICAL I NCOME HAD ACCRUED TO THE ASSESSEE AND SECTION 28(IV) OF THE ACT WOULD BE INAPPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. ESSENTIALLY, THE ASSESSING OFFICER IS REQUIRE D TO BE PRAGMATIC AND NOT PEDANTIC. IT WAS THE SUBMISSION THAT CONSEQUENTLY AS THE ISSU E WAS NOW SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F EXCEL INDUSTRIES LTD. THE ADDITION WAS LIABLE TO BE DELETED. 5. IN REPLY THE LD. DR SUBMITTED THAT THE ASSESSEE HAD NOT SHOWN ANY JUSTIFICATION IN THE CHANGE IN THE METHOD OF ACCOUNT. HE VEHEMENT LY SUPPORTED THE ORDERS OF THE LD. CIT(A) AND AO. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET IT IS NOTICED THAT THE CHANGE IN THE METHOD OF ACCOUNTING AS HAS BEEN ADOP TED BY THE ASSESSEE ADMITTEDLY IS IN LINE WITH THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF EXCEL INDUSTRIES LIMITED REFERRED TO SUPRA. FURTHER, THE SUBMISSION OF THE LD. DR THAT THERE IS NO JUSTIFICATION FOR THE CHANGE IN THE METHOD OF ACCOU NTING WOULD NOT HOLD WEIGHT IN SO FAR AS THE ASSESSEE HAS SPECIFICALLY IN THE SCHEDUL E FORMING PART OF THE BALANCE SHEET IN RESPECT OF THE NOTES TO THE ACCOUNTS HAS CATEGORICA LLY SPECIFIED THAT THE CHANGE IS DUE TO UNCERTAINTY FOR THE AVAILMENT OF BENEFITS AND TH US IS IN CONFORMITY WITH AS-9. THE CHANGE IN THE METHOD OF ACCOUNTING IS NOT BEING DON E ON WHIMS AND FANCIES OF THE ASSESSEE BUT BECAUSE OF A SPECIFIC VALID REASON AND TO COMPLY WITH A SPECIFIC ACCOUNTING STANDARD WHICH THE ASSESSEE IS BOUND TO COMPLY WITH. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CHANGE IN THE METHOD OF ACCOUNTING DURING THE RELEVANT ITA NO.424/KOL/2013 AND 703/KO L/2011 H ARTEX RUBBER (P) LTD. A.YR.2006-07 4 ASSESSMENT YEAR IS VALID AND THE METHOD OF ACCOUNTI NG AS CHANGED AND FOLLOWED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR AND SUBSE QUENT ASSESSMENT YEARS BEING IN CONFORMITY WITH THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD. REFERRED TO SUPRA THE ADDITION AS C ONFIRMED BY THE LD. CIT(A) STANDS DELETED. 7. IN RESPECT OF GROUND NO.2(A) AND (B) IT WAS SUBM ITTED BY THE LD. AR THAT THE ISSUE WAS AGAINST THE ADDITION MADE BY THE AO AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF VALUATION OF THE CLOSING STOCK. IT WAS T HE SUBMISSION THAT THE ASSESSEE FOR THE PURPOSE OF BALANCE SHEET HAD SPECIFICALLY SHOWN THE VALUATION OF THE CLOSING STOCK AT COST PRICE. THE LD. AR DREW OUR ATTENTION TO PAG ES 21 AND 26 OF THE PAPER BOOK WHICH SHOWED THE CLOSING STOCK AS ALSO INCREASE AND DECREASE IN THE STOCK. HE FURTHER DREW OUR ATTENTION TO PAGE 31 OF THE PAPER BOOK WHI CH SPECIFIED THE QUANTIFICATION OF THE ITEMS IN THE CLOSING STOCK. HE FURTHER DREW OUR ATTENTION TO PAGE 57 OF THE PAPER BOOK WHICH WAS THE CERTIFICATE ISSUED BY THE AUDITO R OF THE ASSESSEE SPECIFICALLY CLARIFYING THAT THE FINISHED GOODS HAS BEEN SHOWN A T MRP IN THE NOTES ON ACCOUNTS WHILE THE CLOSING STOCK OF FINISHED GOODS HAS BEEN VALUED AT COST PRICE WHICH IS LOWER THAN MRP AS THE SAME IS APPEARING IN BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT HAS ALSO BEEN SPECIFICALLY CLARIFIED THAT THE QUANTITAT IVE FIGURES FOR THE PURPOSE OF THESE TWO VALUATIONS WERE THE SAME. IT WAS THE FURTHER SU BMISSION THAT EVEN FOR THE SUBSEQUENT ASSESSMENT YEAR THE OPENING BALANCE OF T HE CLOSING STOCK WHICH HAD BEEN TAKEN WAS AT COST PRICE AND THE SAME FIGURE WAS SHO WN IN THE CLOSING STOCK FOR THE RELEVANT ASSESSMENT YEAR. IT WAS THE SUBMISSION THA T THERE BEING NO CHANGE OR VARIATION IN THE QUANTITY OF CLOSING STOCK, THE METHOD OF ACC OUNTING FOLLOWED BY THE ASSESSEE COULD NOT HAVE BEEN MODIFIED JUST FOR THE PURPOSE O F VALUING THE CLOSING STOCK AT MARKET PRICE. IT WAS THE SUBMISSION THAT THE ASSESS EE HAD THE LIBERTY TO VALUE ITS CLOSING STOCK AT COST OR MARKET PRICE WHICHEVER IS LOWER AND THE ASSESSEE HAVING EXERCISED ITS DISCRETION IN VALUING THE CLOSING STO CK AT COST PRICE ADMITTEDLY WHICH IS A LOWER FIGURE AND WHICH WAS THE METHOD CONTINUOUSLY FOLLOWED BY THE ASSESSEE THE SAME COULD NOT HAVE BEEN MODIFIED FOR ONE YEAR WITH OUT MAKING THE NECESSARY ADJUSTMENTS IN THE EARLIER AND SUBSEQUENTLY YEARS. ITA NO.424/KOL/2013 AND 703/KO L/2011 H ARTEX RUBBER (P) LTD. A.YR.2006-07 5 8. IN REPLY THE LD. DR VEHEMENTLY SUPPORTED THE ORD ER OF LD. CIT(A) AND THE AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. A PERUSAL O F THE ACCOUNTS OF ASESSEE CLEARLY SHOW THAT THE PHYSICAL QUANTITY OF THE CLOS ING STOCK HAS NOT BEEN VARIED BY THE ASSESSEE NOR BY THE AO. THE ONLY DISPUTE IS WHETHER THE METHOD FOLLOWED BY THE ASSESSEE IN VALUING ITS CLOSING STOCK AT COST AND I TS FINISHED GOODS AT MARKET PRICE CAN BE MODIFIED TO MAKE VALUATION OF BOTH ITEMS ON THE SAME LINES. ADMITTEDLY THIS IS THE METHOD FOLLOWED BY THE ASSESEE EARLIER AND FOR THE SUBSEQUENT YEARS. THIS METHOD HAS NOT BEEN TINKERED WITH. THIS METHOD HAS BEEN FOLLOW ED AND IS SHOWING A PARTICULAR PROFIT. ANY TINKERING TO THIS METHOD WOULD INCREASE THE PROFIT IN ONE YEAR AND MAKE A CORRESPONDING REDUCTION IN THE PROFIT IN THE SUBSEQ UENT YEAR OR IN THE EARLIER YEAR. ADMITTEDLY THE VALUATION OF THE CLOSING STOCK IS TO BE DONE AT COST OR MARKET PRICE WHICHEVER IS LOWER. THE ASSESSEE IS SHOWING ITS CLO SING STOCK AT COST AND IT IS THE SAME QUANTITY AND VALUATION WHICH IS SHOWN IN THE OPENIN G STOCK FOR THE SUBSEQUENT ASSESSMENT YEAR. THE DIFFERENCE IN THE VALUATION WH ICH HAS BEEN DONE IS ON ACCOUNT OF THE AUDITOR NOT SPECIFYING THE REASON FOR THE FINIS HED GOODS AT MRP IN THE NOTES TO THE ACCOUNTS WHILE THE CLOSING STOCK OF THE FINISHED GO ODS WAS VALUED AT COST PRICE WHICH IS LOWER THAN MRP. THIS MISTAKE HAS BEEN CLARIFIED BY THE AUDITOR IN ITS LETTER DATED 16.11.2009 TO THE AO. ADMITTEDLY IT IS NOT THE CASE OF THE AO THAT THERE IS ANY QUANTITY VARIATION IN THE CLOSING STOCK. THE AUDITO RS HAVING EXPLAINED THE REASON FOR THE VALUATION NO ADDITION IS CALLED FOR IN THE HAND S OF THE ASSESSEE. IN THE CIRCUMSTANCES THE ADDITION AS MADE BY THE AO AND AS CONFIRMED BY THE LD. CIT(A) ON THIS ISSUE STANDS DELETED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NO.703/KOL/2011 (A.YR.2006-07): 11. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS :- 1. FOR THAT LD. CIT ERRED IN HOLDING ORDER OF LD A O U/S 143(3) DT 19.11.08 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. ITA NO.424/KOL/2013 AND 703/KO L/2011 H ARTEX RUBBER (P) LTD. A.YR.2006-07 6 2. FOR THAT THE LD. CIT ERRED IN HOLDING THAT EXPO RT BENEFITS OF RDS.181.30 LAKHS AS MENTIONED IN SCHEDULE 18 TO BALANCE SHEET ARE ASSES SABLE AS INCOME OF IMPUGNED YEAR UNDER SEC 28 OF INCOME TAX ACT, 1961. 3. FOR THAT LD CIT ERRED IN HOLDING THAT LD AO OUGH T TO HAVE TAKEN THE VALUE OF INCREASE IN STOCK AT RS.2,84,03,124/- AS PER FIGURE S GIVEN IN SCHEDULE 18 INSTEAD OF RS.1,78,50,353/- AS SHOWN IN PROFIT & LOSS ACCOUNT. 4. FOR THAT THE APPELLANT CRAVES THE RIGHT TO PUT A DDITIONAL GROUNDS AT OR BEFORE THE TIME OF HEARING. 12. AT THE TIME OF HEARING THE LD. AR SUBMITTED THA T HE DID NOT WISH TO PRESS THE SAID APPEAL. CONSEQUENTLY THE SAME IS DISMISSED AS NOT PRESSED. 13. .IN THE RESULT THE APPEAL OF THE ASSESSEE IN IT A NO.424/KOL/2013 IS ALLOWED AND THE APPEAL IN ITA NO.703/KOL/2011 IS DISMISSED `ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2013. SD/- SD/- [SHAMIM YAHYA] [ GEORGE MATHAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 18.12.2013. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. HARTEX RUBBER (P)LTD., KAMALA TOWER, 2 ND FLOOR, PLOT NO.1-8-304 TO 307, PATIGADDA ROAD, BEGUMPET, HYDERABAD-500016, ANDHRA PRADESH 2 D.C.I.T., CENTRAL CIRCLE-XVII, KOLKATA 3 . CIT(A)-CENTRAL-I, KOLKATA 4. CIT - KOLKATA. 5. CIT(A)DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES