ACIT 18(2), MUMBAI V. JAL EXPORTS, MUMBAI

ITA 4541/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5255 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 09-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 03-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4541/MUM/2009 (ASSESSMENT YEAR: 2006-07) ACIT, CIRCLE - 18(2) M/S. JAL EXPORTS ROOM NO. 115, 2ST FLOOR 128, KEWAL INDL. ESTATE, S. B. MARG PIRAMAL CHAMBERS, PAREL VS. LOWER PAREL, MUMBAI 400013 MUMBAI 400012 PAN - AAAFJ 2706 J APPELLANT RESPONDENT APPELLANT BY: SHRI SURENDRA KUMAR RESPONDENT BY: NONE O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-XXVIII, MUMBAI, DATED 04.05.2009. 2. REVENUE HAS RAISED ONLY ONE GROUND, WHICH IS AS UND ER: - I. ON THE FACTS AND IN LAW, THE LD. CIT(A) ERRED I N DELETING AN ADDITION OF RS.31,84,335/- ON ACCOUNT OF UNDER VALUATION OF STO CK. 3. BRIEFLY STATED, THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF GARMENTS. ASSESSEE FILED RETURN OF INC OME FOR ASSESSMENT YEAR 2006-07 DECLARING TOTAL INCOME AT ` 27,89,330/-. THE RETURN WAS ACCOMPANIED WITH COMPUTATION OF TOTAL INCOME, BALAN CE SHEET WITH RELEVANT SCHEDULES, P & L ACCOUNT WITH RELEVANT SCHEDULES AN D ALSO AUDIT REPORT IN FORM 3CB AND 3CD WITH RELEVANT ANNEXURES. THE RETUR N WAS PROCESSED UNDER SECTION 143(1) AND IN THE SCRUTINY PROCEEDING S THE A.O. NOTICED THAT THE ASSESSEES VALUATION OF CLOSING STOCK OF FINISH ED GOODS WAS @ ` 150/- PER PIECE WHEREAS THE AVERAGE SALE PRICE OF GARMENT WAS AT ` 183.23 PER PIECE. AFTER CONSIDERING ASSESSEES OBJECTIONS REGARDING C LOSING STOCK VALUATION HE RE-VALUED THE CLOSING STOCK AT THE AVERAGE SALES PR ICE MINUS 6.8% G.P. WHICH CAME TO ABOUT ` 172.42 PER PIECE. ACCORDINGLY HE ENHANCED VALUATION OF ITA NO. 4541/MUM/2009 M/S. JAL EXPORTS 2 43450 PIECES THEREBY MAKING AN ADDITION OF ` 9,74,149/-. LIKEWISE WITH REFERENCE TO CLOSING STOCK OF SEMI-FINISHED GOODS H E NOTICED THAT THE DIFFERENCE BETWEEN SEMI-FINISHED GOODS AND FINISHED GOODS IN THE BOOKS OF ACCOUNT AS PER ASSESSEES OWN VALUATION WAS ` 40/- AND ACCORDINGLY ON THE VALUATION ARRIVED AT FOR THE CLOSING STOCK HE REDUC ED ` 40/- AND ARRIVED AT THE VALUE OF SEMI-FINISHED GOODS AT ` 132.42 PER PIECE AND RE-VALUED 98581 PIECES OF STOCK THEREBY MAKING AN ADDITION OF ` 22,10,186/-. THUS HE MADE AN ADDITION OF ` 31,84,335/-. 4. ASSESSEE REITERATED THE SAME SUBMISSIONS BEFORE THE CIT(A), WHICH WAS SUMMARISED AS UNDER BY THE CIT(A) IN PARA 4.7: - 4.7 THE APPELLANTS SUBMISSION ARE AS UNDER: (A) THAT THE A.O. ACCEPTED THE VALUATION OF CLOSING STO CK OF FABRIC (RAW MATERIAL) HOWEVER, HE DID NOT ACCEPT THE VALUA TION OF CLOSING STOCK OF FINISHED AND SEMI-FINISHED GOODS. (B) THAT THE APPELLANT IS MAINTAINING DAY TO DAY STOCK RECORD SHOWING THE QUANTITY AND VALUE OF OPENING STOCK/ PURCHASES/CONSUMPTION/TRANSACTION/SALES AND CLOSING STOCK. (C) THAT THE APPELLANT IS CONSISTENTLY FOLLOWING FIFO M ETHOD, THEREFORE, THE STOCK REMAINED AT THE END OF THE YEA R PERTAINS TO PURCHASE MADE IN THE LAST THREE MONTHS. (D) THAT THE A.O. CANNOT DISTURB THE ESTABLISHED ACCOUN TING PRACTICE REGULARLY EMPLOYED BY THE APPELLANT UNLESS HE HAS VALID REASON TO DO SO AS PER SEC. 145. (E) THAT THE AVERAGE RATE ADOPTED BY THE A.O. IS NOT CO RRECT PROCEDURE AND THE STOCK HAS TO BE VALUED AS PER THE QUANTITY AND RATES MAINTAINED IN THE STOCK REGISTER . (F) THE BOOK RESULT OF THE APPELLANT AS WELL AS THE MET HOD OF VALUATION OF CLOSING STOCK WAS ACCEPTED BY THE DEPA RTMENT FOR EARLIER YEARS. (G) THAT THE CLOSING STOCK FOR THIS YEAR WOULD CONSTITU TE OPENING STOCK OF NEXT YEAR, HENCE THERE IS NO BENEFIT TO TH E REVENUE. 5. AFTER CONSIDERING THE SUBMISSIONS THE CIT(A) HAS DE LETED THE ADDITION BY HOLDING AS UNDER: - 4.8 I HAVE CAREFULLY CONSIDERED THE INFORMATION ON RECORD. THE PROCEDURE ADOPTED BY THE A.O. IN VALUATION OF CLOSI NG STOCK IS DEFECTIVE. THE PURCHASES AND SALES ARE HAPPENING SIMULTANEOUSL Y, THE STOCK LYING ITA NO. 4541/MUM/2009 M/S. JAL EXPORTS 3 AT THE END OF THE YEAR USUALLY PERTAIN TO THE PURCH ASES MADE DURING LAST FEW MONTHS. FURTHER NO REASONS ARE BROUGHT ON RECOR D BY THE A.O. TO DEVIATE FROM THE METHOD OF ACCOUNTING FOLLOWED BY T HE ASSESSEE. AS PER SEC. 145 IT IS MANDATORY THAT THE INVENTORY HAS TO BE VALUED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IF THE A.O. IS NOT SATISFIED ABOUT THE ME THOD OF ACCOUNTING, HE HAS TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE A.O. HAS NOT POINTED OUT ANY DISCREPANCY IN THE STOCK REGISTER O R IN THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT. WHILE THERE I S NO BASIS FOR THE A.O. TO DEVIATE FROM THE METHOD ADOPTED BY THE APPELLANT , THE ACTION OF THE A.O. DOES NOT BRING ANY ADDITIONAL REVENUE TO THE D EPARTMENT AS THE CLOSING STOCK OF THIS YEAR WOULD CONSTITUTE OPENING STOCK FOR THE NEXT YEAR. IN VIEW OF THIS DISCUSSION, THE ADDITION MADE BY THE A.O. TO THE CLOSING STOCK IS DELETED. 6. WE HAVE HEARD THE LEARNED D.R., WHO REITERATED THE WORKING OF THE A.O. THE ASSESSEE WAS NOT REPRESENTED BY ANYBODY, H ENCE ISSUES ARE CONSIDERED EXPARTE ASSESSEE, ON MERITS. 7. ON EXAMINATION OF THE ASSESSMENT ORDER AS WELL AS O RDER OF THE CIT(A) WE ARE OF THE OPINION THAT THE A.O. HAS NOT MADE OU T ANY CASE TO REVALUE THE CLOSING STOCK WHILE ACCEPTING THE BOOKS OF ACCOUNT. IN FACT, HE ALSO GIVES A FINDING THAT THE ASSESSEE HAS FURNISHED NECESSARY P & L ACCOUNT AND BALANCE SHEET SCHEDULES ALONG WITH THE RETURN AND I N THE ASSESSMENT ORDER ALSO HE GIVES A FINDING THAT WHATEVER DETAILS HAVE BEEN CALLED FOR HAS BEEN FILED AND EXAMINATION WAS DONE. THERE IS NO ISSUE A S FAR AS ASSESSEES G.P. RATE ALSO AND THE A.O. HAS NOT REJECTED THE BOOKS O F ACCOUNT. CONSEQUENTLY, HE HAS NO REASON TO REVALUE THE CLOSING STOCK. A.O. ALSO HAS NOT EXAMINED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE O N FIFO METHOD. THE ASSESSEE ALSO JUSTIFIED ITS VALUATION ON THE BASIS OF THE SALES MADE IN THE NEXT YEAR AND THE A.O. HAS REJECTED IT OUTRIGHT OBS ERVING AS UNDER: - 5.5 THE ASSESSEES SUBMISSION WAS CAREFULLY CONSID ERED AND IT WAS FOUND THAT THE ASSESSEE HAS TRIED TO SELECTIVELY US E THE DATA AS PER ITS CONVENIENCE. BY REFERRING TO ONLY THE FIST FEW DAYS OF APRIL, 06, THE ASSESSEE HAS CONVENIENTLY OVERLOOKED THE AVERAGE PR ICE OF GARMENTS ALL THROUGH THE PREVIOUS YEAR 05-06 AND ALSO THE AVERAG E PRICE OF GARMENTS ACHIEVED DURING FULL MONTH OF APRIL, 2006. IT HAS R ATHER TRIED TO MISLEAD THE ASSESSING OFFICER BY REFERRING TO THE FIRST FEW DAYS OF APRIL 06. THERE IS NO MERIT IN THE ASSESSEES ARGUMENT AND IT IS TH EREFORE REJECTED. ITA NO. 4541/MUM/2009 M/S. JAL EXPORTS 4 8. AS CAN BE SEEN, ASSESSEES JUSTIFICATION OF CLOSING STOCK VALUATION, WHICH IS MORE OR LESS SUPPORTED BY THE SALES MADE I N APRIL 2006 WAS REJECTED WITHOUT ANY REASON, BUT STATING THAT ASSES SEE TRIED TO MISLEAD. SINCE THE ORDER OF THE A.O. IS NOT CORRECT ON FACTS AND AS RIGHTLY HELD BY THE CIT(A), THE PROCEDURE ADOPTED BY THE A.O. IN VALUAT ION OF CLOSING STOCK IS DEFECTIVE, WE SEE NO REASON TO INTERFERE WITH THE O RDER OF THE CIT(A). ACCORDINGLY, REVENUES GROUND IS REJECTED. 9. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 13 TH AUGUST 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXVIII, MUMBAI 4. THE CIT XVIII, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.