DCIT 7(2), MUMBAI V. ROLSON INDUSTRIES (I) LTD, MUMBAI

ITA 4659/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1980 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI RAM CHANDRAN
• Assessee Lawyers: SHOBHA
• Keywords: Depreciation; Cost of acquisition
• Section: 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I.T.A. NO.4659/M/13 ( / ASSESSMENT YEAR: 2007-08) DY. COMMISSIONER OF INCOME TAX 7(2) ROOM NO.624, M.K.ROAD, MUMBAI - 400020 / VS. M/S. ROLSON INDUSTRIES (I) LTD. 343, KEWAL INDUSTRIES ESTATE, S.B.MARG, LOWER PAREL, MUMBAI - 400013 ./ ./ PAN/GIR NO. : AADCR0225Q ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: MS. SHOBHA DEPARTMENT BY: SHRI K. RAVI RAMCHANDRAN / DATE OF HEARING: 27.10.2015 /DATE OF PRONOUNCEMENT: 23.12.2015 !' / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-13, MUMBAI [HE REINAFTER REFERRED TO AS THE LEARNED CIT(A)] DATED 05.03.20 13 RELEVANT TO THE A.Y. 2007-08. ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF TEXTILE FABRICS. THE A SSESSEE FILED HIS E- RETURN OF INCOME DECLARING TOTAL INCOME OF RS.18,07 ,961/- ON 31.10.2007. THE RETURN WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). SUBSEQUENTLY NOTIC E U/S. 142(1) OF THE ACT DATED 06.05.2009 WAS ISSUED ALONG WITH QUESTION NAIRE AND THEREAFTER THE RETURN OF INCOME OF ASSESSEE WAS PRO CESSED AND THE ASSESSING OFFICER ASSESSED THE VALUATION OF CLOSING STOCK OF RS.90,60,853/- ON YARN, GREY AND FINISHED CLOTH. T HE ASSESSING OFFICER ALSO ESTIMATED GROSS PROFIT @ 20% ON SALES PER METER OF FINISHED CLOTHS. SINCE THE ASSESSING OFFICER HAS W RONGLY CALCULATED THE COST OF CLOSING STOCK AND ALSO ASSESSED THE VAL UE ESTIMATED GROSS PROFIT @ 20% OF SALES OF PER METER OF FINISHED CLOT HS. THEREFORE, THE APPEAL WAS FILED BEFORE LEARNED CIT(A) AND LEARNED CIT(A) HAS ACCEPTED THE APPEAL OF THE ASSESSEE AND DELETED THE SAID ADDITIONS. AGGRIEVED BY THE SAID ORDER OF LEARNED CIT(A) IN QU ESTION, THE REVENUE HAS FILED THE PRESENT APPEAL. 3. THE REVENUE HAS RAISED THE FOLLOWING THREE ISSUE S HOWEVER, THE OTHER ISSUES ARE GENERAL IN NATURE THEREFORE, THE S AME ARE NOT LIABLE TO DESCRIBE AND DISCUSSED. I) THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 90,60,853/- ON ACCOUNT OF VALUATION OF CLOSING STOCK, WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 3 II) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 90,60,853/- ON ACCOUNT OF VALUATION OF CLOSING STOCK, WITHOUT APPRECIATING THE FACT THAT THE VALUATION OF STOCK SHOWN BY THE ASSESSEE IS EVEN LESS THAN THE PURCHASE COST AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. III) THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION MADE BY ESTIMATING THE GROSS PROFIT @ 20% ON SALES PER METER OF FINISHED CLOTH, WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. ISSUE NO. 1&2:- 4. ISSUE NO.1&2 ARE SIMILAR IN NATURE AND LEADS ONL Y ONE GROUND I.E. LEARNED CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.90,60,853/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. SO FAR A S THE CLOSING STOCK OF THE ASSESSEE IS CONCERNED, THE SAME IS NOT DISPUTED BUT IT IS REQUIRE TO SEEN THAT IN WHICH MANNER THE ASSESSING OFFICER ASS ESSED THE VALUE OF CLOSING STOCK TO THE TUNE OF RS.90,60,853/-. THE F INDING OF THE ASSESSING OFFICER IN THIS REGARD IS HEREBY REPRODUC ED AS UNDER:- THE NET PROFIT IS ONLY 26,83,054/ -, IT INCLUDES PROFIT OF COMMISSION RECEIVED OF 2.13 LAKHS, EXCISE REFUND OF 79.32 LAKHS. DEPB SALES 1.97 CORES, SALE OF FENTS/RAGS/WASTE OF 37.99 LAKHS, LOCAL SALES OF 1 C RORE AND EXPORTS OF 28.7 CRORES. THIS MEANS PRACTICALLY THERE IS NO INCOME AND ACTUALLY LOSS FROM EXPORTS AND LOCAL SALES. THE GP HAS BEEN WORKED OUT AT 5.3% WHICH IS VERY LOW. IN THIS BACK GROUND IT IS NOTICED FROM THE QUANTITATIVE DETAILS GIVEN IN TAX AUDIT REPORT AND STATUTORY AUDIT REPORT THAT THE VALUATION OF CLOSING STOCK OF GREY AND FINISHED CLO TH ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 4 IS LESS THAN THE PURCHASE COST AND THE COST OF PRODUCTION. THE PRODUCTION OF GREY PER KGS OF YARN IS ALSO LOW. THE UNDER VALUATION COMES TO ABOUT RS. 90 LAKHS. FURTHER THE GP IS WORKED OUT PER METER AVERAGE PURCHASE/SALE RATE OF CLOTH IS MUCH HIGHER THAN GP DISCLOSED. THIS LEADS TO TWO PRESUMPTIONS. (A) EITHER THE STOCK IS GROSSLY UNDERVALUED TO REDUCE PROFITS. (B) OR THE PRODUCTION AND SALES QUANTITIES ARE SUPPRESSED LEADING TO HIGHER COST OF PRODUCTION/PURCHASE PER METER OF CLOTH. IN EITHER CASE THE BOOK RESULTS ARE NOT CORRECT AND LIABLE TO BE REJECTED. SHOW CAUSE REGARDING THE SAME. A SAMPLE ANALYSIS OF QUANTITATIVE DETAILS IS ENCLOSED FOR REFERENCE. ALSO SHOW CAUSE/ EXPLAIN T HE ISSUES MENTIONED IN THE ENCLOSED CHART. ASSESSEE WAS ALSO ASKED TO FURNISH THE EXPLANATION REGARDING THE VALUATION OF STOCK AS PER THE CHART MENTIONED BELOW ROLSONS INDUSTRIES INDIA LTD. A.Y.07-08 YARN KGS AMOUNT AVG OS 67,494 87,40,473 129.5 PURCHASES 33,31,994 38,44,54,355 115.38267 CONSUMPTION 24,01,076 SALES 0 CLOSING STOCK 998412 121174321 121.36705 SHORTAGE 1.68% 1 HOW JUSTIFIED? GIVE INDUSTRY COMPARISON FROM PUBLISHED DATA 2 IT GIVES PRODUCTION OF ONLY 2.25 MTS OF GREY PER KG S OF YARN (5399530/2401076) 3 HOW JUSTIFIED? GIVE INDUSTRY COMPARISON FROM PUBLI SHED DATA 4 IT GIVES YARN COST OF RS. 51.3 PER MTS OF GREY (115 .38./2.25) TAX AUDIT REPORT MENTIONS KGS SHOULD BE METRES ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 5 MTS AMOUNT AVG GREY OS 105284 5843262 55.5 PURCHASES 30902 1665340 53.89101 PRODUCTION 5398530 CONSUMPTION 442462 SALES 192880 10140313 52,57,317 CLOSING STOCK 820312 39377971 48003651 SHORTAGE 2.13% 5 HOW JUSTIFIED? GIVE INDUSTRY COMPARISON FROM PUBLISHED DATA. 6 HOW CS VALUATION IS LESS THAN OS AND PURCHASE RATE UNDERVALUATION (53.9- 48)X820312= 4839840.8 7 HOW SALE RATE IS LESS THAN PURCHASE AND OS RATE 8 THE CS RATE IS LESS THAN EVEN THE YARN COST UNDERV ALUATION (51.9- 48)X820312= 2707029.6 9 ANNUAL REPORT MENTIONS CLOSING STOCK QTY AT 820374 MTS INSTEAD OF 82031 MTS, EXPLAIN MTS. AMOUNT AVG FINISHED OS 0 PURCHASES 0 PRODUCTION 4328400 CONSUMPTION SALES 4206085 287749158 68.412587 CLOSING STOCK 102504 5306398 51.767716 SHORTAGE 0.46% 10 HOW JUSTIFIED? GIVE INDUSTRY COMPARISON FROM PUBLISHED DATA. THE CS RATE IS JUST EQUAL TO YAM COST AND LESS THAN GREY PURCHASE COST MTS PRODUCED CHARGES AVG ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 6 DEBITED PROCESSING CHARGE 4328400 54724388 12.643099 UNDERVALUATION (53.89+12.64 - 51.76)* 102504 = 1513984 GP 5.93% AS PER TAX AUDIT REPORT 11 IF GP IS CALCULATED PER MTS BY COMPARING SALE RA TE AND CLOSING STOCK WE GET THE FOLLOWING PICTURE PER MT GP FOR FINISHED (68.41- 51.76) /68.41 24.33% PER MT GP FOR GREY (52.57- 48)/52.57 8.70% 12 THIS MEANS THE QUANTITATIVE DETAILS ARE NOT CORRECT. EXPLAIN 13 SUPPRESSED PRODUCTION OR UNDERVALUATION EXPLAIN. IN RESPONSE TO THE SAME THE ASSESSEE HAS ONLY REPLIED REGARDING DISCREPANCY IN CLOSING STOCK AND ADMITTED THE MISTAKE THAT CLOSING STOCK 820312 MTS. IS CORRECT INSTEAD OF 820374. HOWEVER, THE ASSESSEE DID NOT FURNISH ANY OTHER EXPLANATION DETAILS REGARDING THE ABOVE MENTIONED QUESTIONNAIRE. THEREFORE, IT IS PRESUMED THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER IN RESPECT OF ABOVE DISCREPANCIES. THE ASSESSEE HAS NOT GIVEN ANY JUSTIFICATION OR INDUSTRY NORMS REGARDING SHORTAGE CLAIMED THOUGH SPECIFICALLY ASKED FOR, ASSESSEE HAS SHOWN PRODUCTION OF 2.25 MTRS. OF GREY PER KG. OF YAM WHICH IS VERY LOW AND NO INDUSTRY COMPRESSION GIVEN BY THE ASSESSEE. THE ASSESSEE HAS ADMITTED MISTAKE IN THE CLOSING STOCK QUANTITY OF GREY AND HAS STATE D THAT IT IS TYPING MISTAKE. THE ASSESSEE HAS SHOWN GP IS 5.93% HOWEVER THE GP WORKED OUT FROM AVERAGE PER METER ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 7 RATE IS 24.33% FOR FINISHED GOODS AND 8.7% FOR GREY AS MENTIONED IN THE CART IN PARA '5' SUPRA. FROM TH E ABOVE IT IS CLEAR THAT THE BOOKS RESULT OF THE ASSE SSEE ARE NOT CORRECT AND HENCE REJECTED AS PER THE PROVISIONS OF SECTION 145(3) OF THE IT ACT 1961. TH E ESTIMATED GP RATE IS TAKEN AT 20% BY CONSIDERING TH E PER METER GP RATE MENTION IN THE SIMILAR INDUSTRY LIKE 'THE RUBY MILLS LTD. (PAN AAACT0220G) WHERE GP IS SHOWN BY 33% FOR A. Y. 07-08 ON TURNOVER OF 108,68,01,077/-. IN VIEW OF THE ABOVE. GP IS ESTIMATED @ 20%. NET PROFIT IS COMPUTED AS UNDER: GP ESTIMATED @20% 96335656 LESS: EXPENSES ADMINISTRATIVE EXPENSES 10402345 INT. & FINANCIAL CHARGES 12830095 SELLING & PROMOTION EXPENSES 1940119 25172559 PROFIT BEFORE DEPRECIATION 71163097 LESS: DEPRECIATION 707895 NET PROFIT 70455202 THE ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF RS.90,60,853/- (4839840.8 + 2707029.6 + 1513984) IS INCLUDED IN THE GP ADDITION MADE ABOVE AND FURTHER STRENGTHENS ESTIMATION OF GP. THEREFORE IT IS NOT BEEN SEPARAT ELY ADDED IN THE COMPUTATION OF INCOME. IN VIEW OF THE ABOVE SAID CALCULATIONS THE ASSESSI NG OFFICER ACCOUNTED THE UNDER VALUATION OF CLOSING STOCK OF R S.90,60,853/-. SUBSEQUENTLY, THE MATTER TRAVELLED BEFORE THE LEARN ED CIT(A) WHO DELETED THE SAID ADDITIONS BY FOLLOWING FIFO METHOD (FIRST IN FIRST OUT). HOWEVER, THE FINDING OF THE LEARNED CIT(A) I S HEREBY REPRODUCED BELOW:- ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 8 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. THE APPELLANT WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE FABRICS. FOR THIS PURPOSE THE YARN WAS PURCHASED, THE YARN WAS CHANGED AND THEREAFTER, THE GREY CLOTH WAS MANUFACTURED. THERE WAS NO STANDARDIZED THICKNESS. THE SAME WAS DEPENDENT ON THE ORDER RECEIVED. MANUFACTURING OF GREY CLOTH OF DIFFERENT THICKNESS REQUIRED CONSUMPTION OF DIFFERENT YARN KG. PER METER. THEREAFTER, THE GREY CLOTH WAS SUBJECT TO THE DYEIN G AND PROCESSING. ULTIMATELY, FINISHED SUITING AND SHIRTING AND CHINDI MATERIAL WAS MANUFACTURED. IN THE AUDIT REPORT AS PER REQUIREMENTS, APPELLANT HAS GIVEN QUANTITATIVE DETAILS OF OPENING STOCK, CONSUMPTION, FINISHED PRODUCTS AND SHORTAGE OF YARN , GREY CLOTH AND FINISHED PRODUCTS. THE A.O. HAS RE- PRODUCED SUCH QUANTITATIVE DETAILS IN THE ASSESSMEN T ORDER. AFTER ANALYZING THE ABOVE QUANTITATIVE DETAI LS THE A.O HELD THAT AVERAGE RATE OF PURCHASE OF YARN WAS RS.115.38. WHILE WORKING SO THE A.O. CONSIDERED THE TOTAL PURCHASES OF YARN DURING THE YEAR WHICH' WAS DIVIDED BY PURCHASE AMOUNT GIVING AVERAGE RATE OF RS.115.38. HOWEVER, THE APPELLANT WAS FOLLOWING FIFO METHOD OF ACCOUNTING. IN THIS METHOD ONLY THE LAST PURCHASES REMAINED IN STOCK WERE REQUIRED TO BE CONSIDERED. THE APPELLANT HAS GIVEN WORKING OF PURCHASES OF LAST THREE MONTHS WHICH HAD CLAIMED TO HAVE BEEN REMAINED IN THE CLOSING STOCK. ON THE BASIS OF THIS LAST THREE MONT HS PURCHASES FIGURES, THE AVERAGE RATE WORKS OUT TO RS . 95.95. THUS THE STARTING BASE OF THE A.O. WAS NOT CORRECT FOR WORKING OUT FURTHER DEFICIENCY IN APPELLANT'S PRODUCTION ACCOUNT. IN THE SAID WORKING THE A.O. HAS CONCLUDED THAT CONSUMPTION OF PER K.G. OF YARN HAS GIVEN PRODUCTION OF 2.25 MTS. OF GREY. IN THE SAID WORKING THE A.O. FURTHER CONCLUDED THAT IN PER METER OF GREY PRODUCED, YARN CONSUMED WAS COSTING RS. 51.3. WHILE CONCLUDING SO THE A. O. HAS TAKEN THE FIGURES OF AVERAGE COST OF PURCHASES OF THE WHOLE YEAR AT RS. 115.38. HOWEVER, IT HAS BEEN EXPLAINED THAT THIS FIGURE WAS INCORREC T AND THE CORRECT FIGURE OF AVERAGE RATE OF PURCHASE ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 9 THAT REMAIN IN CLOSING STOCK WAS RS. 95.95 ON THE BASIS OF LAST 3 MONTHS PURCHASES. THUS THIS MISTAKE WAS CONSEQUENTIAL EFFECT OF ADOPTING INCORRECT FIGURES AT FIRST STAGE ITSELF. IN THE ABOVE WORKING THE A.O. ADOPTED AVERAGE RATE OF RS. 53.89 OF PURCHASES OF GREY ON T HE BASIS OF TOTAL METERS OF GREY PURCHASED DURING THE YEAR DIVIDED BY AMOUNT OF PURCHASE. ON THE BASIS OF THIS AVERAGE RATE OF RS. 53.89 OF PURCHASES DURING THE YEAR OF GREY CLOTH, THE A.O. HAS WORKOUT THE VALUE OF CLOSING STOCK OF GREY AT RS. 48,39,840/-. HOWEVER, THE APPELLANT HAS EXPLAINED THAT THE PURCHASE OF GREY FROM THE MARKET DURING THE YEAR HAD ALREADY BEEN CONSUMED IN MANUFACTURING OF FINISHED CLOTH AND WHAT WAS REMAINED IN THE CLOSING STOCK WAS GREY MANUFACTURED BY THE APPELLANT FROM YARN AND NOT THE READYMADE PURCHASED FROM THE MARKET. IN THE MANUFACTURING OF GREY, THE COST OF WEAVING OF YARN AND OTHER MANUFACTURING COST HAVE ALSO BEEN INCLUDED. THE APPELLANT'S COST OF MANUFACTURED GREY CLOTH WAS LESS THAN THE COST OF WHICH THE FINISHED GREY CLOTH WAS PURCHASED FROM TH E MARKET. THE A.O. HAS ADOPTED AVERAGE RATE OF RS. 53.09 PER METER OF GREY WHEREAS THE APPELLANT'S COS T OF MANUFACTURING OF GREY WAS ONLY AT THE AVERAGE RATE OF RS. 48.03. THIS DIFFERENCE HAS RESULTED IN INCORRECT VALUATION OF CLOSING STOCK OF GREY CLOTH OF THE APPELLANT BY THE A.O. IN THE ABOVE WORKING THE A.O. HAS CONCLUDED THAT HOW THE SALE OF RS. 52.57 WAS LESS THAN PURCHA SE STOCK RATE OF RS. 53.89 AND OPENING STOCK RATE OF R S. 55.50. HOWEVER, AS EXPLAINED ABOVE THE A.O. HAS ADOPTED RATE OF OPENING STOCK BY CONSIDERING THE ENTIRE QUANTITY OF OPENING STOCK WHICH HAD ALREADY BEEN CONSUMED IN THE PRODUCTION. IN CASE OF PURCHASE RATE THE A.O. CONSIDERED THE ENTIRE PURCHASE DURING THE YEAR IN PLACE OF PURCHASES MADE DURING LAST 3 MONTHS AS PER FIFO METHOD. THUS THE APPELLANT'S MANUFACTURING COST WAS RS. 48.03 PER METER AND SALES RATE WAS RS. 52.57 PER METER WHICH WAS HIGHER THAN MANUFACTURING COST. THUS THERE WAS NO DISCREPANCY ON THIS ISSUE AS NOTED BY A. O. IN CASE OF FINISHED PRODUCTS THE A. O. HAD GIVEN FINDI NG ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 10 THAT WHY THE CLOSING STOCK RATE AT RS. 51.78 PER ME TER WAS EQUAL TO YARN COST AND LESS THAN GREY PURCHASED COST. THE APPELLANT HAS EXPLAINED THAT THE YARN AND GREY PURCHASES WERE CONSUMED IN MANUFACTURING OF FINISHED PRODUCT AND COST OF FINISHED PRODUCT PER METER WAS RS. 41.66 ADDING THEREIN PROCESSING CHARGES THE AVERAGE RATE OF CLOSING STOCK WORKOUT RS. 51.77 PER METER. THUS ON THE BASIS OF THESE INCORRECT FIGURES THE A.O. INCORRECTLY WORKED OUT UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS AT RS. 15,13,984/-. THUS THE APPELLANT HAS SATISFACTOR ILY EXPLAINED THAT THE WORKING OF A.O. IN WORKING THE AVERAGE RATE OF YARN, GREY AND FINISHED PRODUCT WER E INCORRECT. THESE INCORRECT FIGURES LED TO FURTHER INCORRECT CONCLUSION MADE BY A.O. IT IS WORTH TO MENTION HERE THAT THE A.O. HAS WORKED OUT AVERAGE RATE BY CONSIDERING THE FIGURES OF ENTIRE YEAR WHEREAS THE SAME WERE REQUIRED TO BE CONSIDERING OF THE LAST 3 MONTHS ONLY BEING FIFO METHOD ADOPTED BY APPELLANT. THE RATES OF DIFFERENT GOODS WERE FLUCTUATING FROM DAY TO DAY AND HOUR TO HOUR AND THEREFORE A UNIFORM AVERAGE RATE WAS NOT POSSIBLE T O BE ADOPTED. FURTHER, AT SOME PLACES THE A.O. HAS NO T CONSIDERED THE WEAVING AND PROCESSING CHARGES IN WORKING OUT THE CLOSING STOCK RATE. THE AVERAGE RAT E OF GREY COULD NOT HAVE BEEN WORKED OUT, IN VIEW OF THE FACT THAT DIFFERENT THICKNESS OF GREY PRODUCED REQUIRED DIFFERENT KINDS/THICKNESS OF YARN. CONSEQUENTLY, THE DYING PROCESS WAS ALSO DIFFERENT ON DIFFERENT VARIETIES WHEREIN THE PROCESS CHARGES VARIED FROM RS. 3 TO 12 PER METER. IN THE PROCESS O F MANUFACTURING, THE WASTAGE ON ACCOUNT OF SHRINKING, CUTTING, SAMPLING ETC. COULD NOT BE RULED OUT RESULTING IN REDUCTION OF QUANTITY MANUFACTURED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES , THE WORKING MADE BY A. O. COULD NOT HAVE CONCLUSIVELY PROVED ANY UNDER STATEMENT OF YARN, GREY AND FINISHED PRODUCTS OF THE APPELLANT. APART FROM THE USING VARIOUS FIGURES FOR REACHING TO A CONCLUSION, THE A.O. HAS NOT NOTICED ANY DEFECT IN APPELLANT'S BOOKS OF ACCOUNT. THEREFORE, THERE WAS NO BASE WITH THE AO FOR REJECTING APPELLANT'S BOOKS OF ACCOUNTS. IT IS' ALSO WORTH NOTING THAT APPELLAN T'S MANUFACTURING ACTIVITY/PROCESS WAS SUBJECTED TO EXCISE DEPARTMENT SUPERVISION WHEREIN THE INPUTS ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 11 AND OUTPUT/ PRODUCTION DETAILS WERE REQUIRED TO BE RECORDED IN RG-1 REGISTER ON DAILY BASIS. HOWEVER, NO DISCREPANCY APPEARS TO HAVE BEEN NOTICED BY EXCISE DEPARTMENT. IN THE FACTS & CIRCUMSTANCES, TH E WORKING MADE BY A.O. WAS NOT PROPER AND CONSEQUENTLY DIFFERENT CONCLUSION MADE ON THAT BASI S WERE ALSO NOT PROPER. THE AO HAS WORKED OUT UNDER VALUATION OF RS.90,60,853/- IN CLOSING STOCK OF YAR N, GRAY AND FINISHED PRODUCT WHICH WAS INCLUDED IN ADDITION OF GROSS PROFIT. ON THE BASIS OF DISCREPANCIES IN AVERAGE RATE OF YARN, GRAY AND FINISHED CLOTH, THE AO HAS JUSTIFIED HIS ACTION OF REJECTING BOOKS OF ACCOUNT AND ESTIMATING THE G.P. RATE OF APPELLANT .. HOWEVER, AS EXPLAINED ABOVE, T HE CONCLUSIONS REACHED BY AO WERE ON INCORRECT FIGURES AND ASSUMPTIONS. THE ADDITION MADE IN. CLOSING STOCK IS THEREFORE, DELETED. THE ESTIMATION OF G.P. RATE HAS BEEN DISCUSSED IN SUBSEQUENT GROUND OF APPEAL. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 5. THE ONLY DIFFERENCE WHICH CAME INTO NOTICE THAT THE ASSESSING OFFICER ASSESSED THE VALUE OF THE CLOSING STOCK ON THE BASIS OF AVERAGE RATE OF THE PURCHASE FOR THE ENTIRE YEAR WHEREAS TH E LEARNED CIT(A) CALCULATED THE VALUE OF CLOSING STOCK ON THE BASIS OF FIFO METHOD (FIRST IN FIRST OUT). THE LEARNED CIT(A) CONSIDERE D THE VALUE ON MATERIAL OF LAST 3 MONTHS AND ACCORDINGLY ASSESSED THE VALUE OF CLOSING STOCK. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSI NESS OF MANUFACTURING AND EXPORT OF TEXTILE AND FABRICS. N O DOUBT THE ASSESSEE COMPANY HAS TO PURCHASE RAW MATERIALS FOR THE MANUF ACTURING OF EXPORT FABRICS. HE HAS TO PURCHASE RAW MATERIAL INITIALLY FROM THE BEGINNING TIME OF ASSESSMENT YEAR AND UP TO THE END OF THE AS SESSMENT YEAR. THE ASSESSMENT OF THE VALUE OF CLOSING STOCK ON THE BAS IS OF AVERAGE COST OF MATERIAL OF THE WHOLE YEAR DOES NOT SEEM JUSTIFIABL E. THE VALUE OF THE ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 12 CLOSING STOCK IS REQUIRED TO BE ASSESSED UPON THE V ALUE OF THE MATERIAL PURCHASED AND COST OF THE LAST 3 MONTHS. ON SEEING THE METHOD OF CALCULATING THE VALUE OF CLOSING STOCK THE METHOD A DOPTED BY THE LEARNED CIT(A) IS QUITE JUSTIFIABLE SPECIFICALLY IN THE CIRCUMSTANCES WHEN THERE IS LOT OF FLUCTUATING IN THE RATES DURI NG THE YEAR. IT IS ONLY A MANNER HOW TO DEAL WITH THE VALUE OF CLOSING STOCK IN THE ASSESSMENT. THE LEARNED DEPARTMENTAL REPRESENTATIVE NOWHERE HI GHLIGHTED ANY GROUND WHICH REQUIRES TO BE INTERFERE WITH THE FIND INGS OF THE LEARNED CIT(A) UNDER APPEAL. THEREFORE, FINDING NO PLAUSIB LE AND CONVINCING REASONS TO INTERFERE WITH THE ORDER PASSED BY LEARN ED CIT(A). WE ARE OF THE VIEW THAT LEARNED CIT(A) HAS PASSED THE ORDE R ON THE SPECIFIC ISSUE JUDICIOUSLY AND CORRECTLY WHICH DOES NOT NEED TO INTERFERE AT THIS STAGE ACCORDINGLY THIS ISSUE IS DECIDE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO. 3:- 6. ACCORDING TO THIS ISSUE THE REVENUE HAS TOOK THE PLEA THAT THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION M ADE BY ESTIMATING THE GROSS PROFIT @ 20% ON SALES PER METER OF FINISH ED CLOTH. THE ASSESSEE HAS SHOWN THE GROSS PROFIT @ 5.93%. THE ASSESSING OFFICER WORKED OUT THE GROSS PROFIT FROM THE AVERAGE PER ME TER RATE @ 24.33% FOR FINISHED GOODS AND @ 8.7% FOR GREY. ON SEEING THE BOOK RESULT AND CLOSING STOCK ASSESSED, THE ASSESSING OFFICER ARRIV ED AT THIS CONCLUSION THAT THE BOOK RESULT IS NOT CORRECT THEREFORE ESTIM ATED GROSS PROFIT RATE SHOULD BE @ 20% BY CONSIDERING RATE OF SIMILAR INDU STRY THE RUBY MILLS LTD. WHEREIN GROSS PROFIT HAS BEEN SHOWN @ 3 3% FOR A.Y. ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 13 2007-08 ON TURNOVER OF RS.108,68,01,077/-. ACCORDI NGLY, THE ASSESSING OFFICER ASSESSED THE VALUE OF CLOTHS. WH EN THE MATTER CAME BEFORE THE FIRST APPELLATE AUTHORITY THEN THE FIRST APPELLATE AUTHORITY ARRIVED AT THIS CONCLUSION THAT THE ASSESSING OFFIC ER COMPARED THE GROSS PROFIT RATE WITH THE RUBY MILLS LTD. WHICH WAS MANUFACTURING OF THE LADIES DRESS MATERIAL WHEREAS THE APPELLANT WAS IN MANUFACTURING OF SUITING AND SHIRTING MATERIAL. LEARNED CIT(A) ALSO HELD THAT BOTH THE CASES ARE NOT COMPARABLE. THEREFORE, THE LEARN ED CIT(A) HAS DELETED THE SAID CONTENTIONS. EVEN BEFORE US NOTHI NG WAS ARGUED THAT ANY KIND OF MATERIAL WAS PURCHASED TO WHICH IT CAN BE ESTIMATED THAT THE ESTIMATION OF GROSS PROFIT @ 20% WAS QUITE JUST IFIABLE. NO EXAMPLE OF COMPARABLE INDUSTRY OF ANY KIND WAS GIVE N BEFORE US TO JUSTIFY THE ESTIMATED GROSS PROFIT @ 20% PER METER ON FINISHED CLOTHS. THEREFORE IN THE SAID CIRCUMSTANCES FINDING NO MATE RIAL ON RECORD TO INTERFERE WITH THE FINDING OF THE LEARNED CIT(A). HENCE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. IN RESULT THE APPEAL OF THE REVENUE IS HEREBY DI SMISSED.. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2015 SD/- SD/- (N.K.BILLAIYA) (AMARJIT SINGH) ! / ACCOUNTANT MEMBER $% ! /JUDICIAL MEMBER & ' MUMBAI; (! DATED : 23 RD DECEMBER, 2015 MP MP MP MP ITA NO.4659/M/13 ASSESSMENT YEAR: 2007-08 14 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+, %%-. , -. , & ' / DR, ITAT, MUMBAI 6. ,/0 1 / GUARD FILE. % / BY ORDER, * % //TRUE COPY// & / %' ( (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI