Dy. Commr. Income Tax, Junagadh Circle, Junagadh V. M/s Keshodwala Foods, Veraval

ITA 469/RJT/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7270 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Set aside

Judgement Text

आयकरअपील यअ धकरण, राजकोट यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकरअपीलसं./ITA No. 469/Rjt/2017 नधा रणवष /Asstt. Year:2012-2013 DCIT Junagadh Circle, “Bhutnath Chambers”, College Road, Junagadh Vs. M/s. Keshodwala Foods, 305, GIDC, Udyognagar, Somnath Road, Veraval PAN: AADFK6651Q (Applicant) (Respondent) Revenue by : Shri B. D. Gupta, Sr. DR Assessee by : Shri Mehul Ranpura, A.R. स ु नवाईक तार ख/Date of Hearing : 07/07/2022 घोषणाक तार ख/Date of Pronouncement: 14/09/2022 आदेश/O R D E R PER BENCH: The captioned appeal has been filed at the instance of the Revenue against the order of the Ld. Commissioner of Income Tax-(Appeals)-3 (in short the Ld. CIT(A)), Rajkot dated 12/10/2017 arising in the matter of assessment order passed under Section 143(3)of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-13. 2. The Revenue has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in law and on fats in deleting the addition of undervaluation of closing of Rs.2,32,93,829/-. 2. On the facts and circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made on account of low G.P. of Rs.52,72,637/- made by the A.O. 3. Any other ground that the revenue may raise before or during the proceeding before the Hon’ble I.T.A.T. 4. On the facts of the case and in law, the Ld. CIT(A) ought to have upheld the assessment order of the A.O. 5. It is, therefore, prayed that the order of the C.I.T.(A) may be set aside and that of the A.O. be restored to the above extent.” ITA No.469/Rjt/2017 A.Y. 2012-13 2 3. The first issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the AO for Rs.2,32,93,829/- on account of under valuation of closing stock. 4. The facts in brief are that the assessee in the present case is a partnership firm engaged in the business of fish processing and freezing and export activities. The AO during the assessment proceedings found that the assessee while calculating the closing stock has not factored DEPB benefits and therefore, the same has been undervalued by Rs. 2,32,93,829/- only. Thus, the AO added the same to the closing stock which has resulted increase in the amount of profit declared by the assessee. 5. Aggrieved assessee preferred an appeal before the Ld. CIT(A) who has allowed the appeal of the assessee after relying on the order of his predecessor for the A.Y. 2011-12. 6. Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 7. Both the Ld. AR and the Ld. DR before us vehemently supported the order of the authorities below as favourable to them. However, the Ld. AR before us filed a Paper Book running Page from 01 to 59. 8. We have heard the rival contention of both the parties and perused the relevant materials available on record. At the outset, we find the identical issue was raised by the Revenue in the immediate preceding A.Y. 2011-12 which was decided in favour of the assessee and against the Revenue in ITA No. 152/Rjt/2016 for the AY 2011-12. The relevant extract of the order is reproduced as under: “8. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the addition has been made by the AO by increasing the cost of closing stock. The reason for doing so is that the sale price declared by the assessee was determined after considering the DEPB effect whereas the assessee has not considered the DEPB effect while calculating the closing stock. Thus the AO made the addition which was subsequently deleted by the Ld. CIT(A), on the reasoning that ITA No.469/Rjt/2017 A.Y. 2012-13 3 there was no nexus between the valuation of closing stock vis-à-vis the benefit received by the assessee in the DEPB. 8.1 There is no ambiguity to the fact that the assessee has adopted valuation of closing stock either at market price or cost whichever is less. To this effect, no doubt has been raised by the AO. As per the AO the amount of DEPB should have been factored while valuing the closing stock. The DEPB is given to the parties who are engaged in the export business. It is the incentive that is given to the parties in order to promote the export activities. Therefore the exporters generally take into consideration such incentive while determining the sales price of the export product. 8.2 The Government is giving DEPB benefit to the parties so as to give them leverage to stand in the competitive international market. The DEPB has nothing to do with the cost of the closing stock. Accordingly to our understanding, the order passed by the AO is perverse. We also note that this Tribunal bearing ITA nos. 759 to 761/Rjt/2016 dated 12/09/2017 has decided the issue in favour of the assessee and against revenue. The relevant extract of the order is reproduced as under: 9. We have given a thoughtful consideration to the orders of the authorities below. A perusal of the assessment order shows that the A.O. has contradicted himself. On the one hand, the A.O. says that the effect of DEPB would be that the market price would be lower than the cost price. On the other hand, the A.O. has made the addition for undervaluation of is stock. 10.Assuming, yet not accepting, if the effect of DEPB is to make the market price lower than the cost price then the closing stock would be valued at market price as the method of accounting employed by the assessee is lower of cost or market price. 11.The A.O. further erred in stating that if the market price is computed taking into consideration, the DEPB gains the actual market price so computed would be more than the cost price. In fact, if the DEPB gains are considered then the market price would be less than the actual cost, 12.The undisputed fact is that the assessee has been consistently following the same method of accounting since past many years which has not been disturbed by the Department. Therefore, we do not find any logic in disturbing the well recognized method of valuation of closing stock adopted by the Assessee. We do not find any error or infirmity in the findings of the ld.CIT(A). 13. In the result, all these appeals are accordingly dismissed. 8.3 It is the established practice that the closing stock of one year becomes the opening stock of the subsequent year. Accordingly if the AO increases the value of closing stock for the year under consideration then it is the duty to give the corresponding effect in the opening value of the closing stock. Thus there will not be any impact on the income declared by the assessee except the increase in the amount of income in one year and decrease in the amount of income in the subsequent year. On this reasoning as well, we are also not convinced with the findings of the AO. 8.4 In view of the above and after considering the fact in totality we are not inclined to interfere in the order of the Ld.CIT(A). Hence the ground of appeal of the Revenue is dismissed.” ITA No.469/Rjt/2017 A.Y. 2012-13 4 9. Before us the Ld. DR has not brought anything pointing out any distinguishing features in the fact of the case of on hand vis-à-vis the facts of the case of the earlier assessment year i.e. 2011-12. It is also important to note that the Ld. CIT(A) has deleted the addition after making reference to the order of his predecessor pertaining to the AY 2011-12. The Ld. DR has also not brought anything on record suggesting that the order of the ITAT for the A.Y. 2011-12 was either stayed or over-ruled by any higher authority. Therefore, respectfully following the same we do not find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. 10. The second issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the AO for Rs. 52,72,637/- on account of low Gross Profit in comparison to the earlier assessment year. 11. The AO during the assessment proceedings found that there is a decline in the Gross Profit ratio shown by the assessee in the year under consideration vis-à- vis in the earlier assessment year. As such the assessee in the year under consideration has shown Gross Profit @5.76% whereas the Gross Profit in the immediate preceding financial year was declared at 7.35%. 12. The AO also found that the assessee has shownless yield with respect to different categories of fishes in comparison to the earlier assessment years. Accordingly, the AO estimated the G.P. before depreciation @5.90% as against the 5.76% declaring by the assessee. As such the addition was made for Rs. 52,72,637/- being 0.14% of the gross turn over. 13. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who has allowed the grounds of appeal of the assessee by observing as under: “I agree with conclusion drawn by my Ld. Predecessor. In present assessment order also the AO could not adduce a single instance of irregularity to hold that the appellant had suppressed its profits. The AO has not brought any comparative instance to hold that the appellant’s gross profit was below industrial average. The AO has not rejected the books of accounts and has not pointed any deficiency in purchase, sale or major expenses. In such circumstances the AO cannot be said to be justified in re-estimating the gross profit when he has not rejected the books of account of the appellant. Even the yield ratio analysis ITA No.469/Rjt/2017 A.Y. 2012-13 5 done by the AO does not point out any significant fluctuation; it signifies only minor fluctuation in the yield. Considering the above facts specifically acceptance of books of accounts by AO without pointing out any defect in sales, purchase or major expenses; I do not find any justification in AO’s action of re-estimating the gross profit. Ground 4 & 5 are allowed.” 14. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 15. Both the Ld. DR and the Ld. A.R. before us vehemently supported the order of the authorities below as available to them. The Ld. A.R. before us filed a Paper Book running Page from 01 to 59. 16. We have heard the rival contention of both the parties and perused the relevant materials available on record.At the outset, we note that the identical issue was raised by the Revenue in the immediate preceding A.Y. 2011-12 which was decided in favour of the assessee and against the Revenue in ITA No. 152/Rjt/2016 for the A.Y. 2011-12. The relevant extract of the order is reproduced as under: “12. We have heard the rival contentions of both the parties and perused the materials available on record. In the instance case, the AO has increased the amount of gross profit by 0.15% on the reasoning that the assessee was not maintaining the record with respect to the wastage generated in the processing of materials. The gross profit depends on various facts such as sales price, cost of purchase and other direct expenses. In the given case the AO has not doubted either on the sales price or the purchases vis-à-vis stock maintained by the assessee. Therefore, in our considered view the amount of gross profit cannot be disturbed merely on the reasoning that there was a decline in the gross profit ratio in the year under consideration in comparison to the earlier year. Accordingly, we do not find any infirmity in the order passed by the Ld. CIT(A) and we, therefore, confirm the same. Hence, the ground of appeal of the Revenue is hereby dismissed.” 17. Before us the Ld. DR has not brought anything on record pointing out any distinguishing features in the fact of the case of in vis-à-vis the facts of the case of the earlier assessment year i.e. 2011-12. It is also important to note that the Ld. CIT(A) has deleted the addition after making reference to the order of his predecessor pertaining to the A.Y. 2011-12. The Ld. DR has also not brought anything on record suggesting that the order of the ITAT for the A.Y. 2011-12 was either stay or over-ruled by any higher authority. Therefore, respectfully following ITA No.469/Rjt/2017 A.Y. 2012-13 6 the same we do not find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. 18. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the Court on 14/09/2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 14/09/2022 Tanmay, Sr. PS TRUE COPY आदेशक त ल प े षत/Copy of the Order forwarded to : आदेशान ु सार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील यअ!धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation : 12/09/2022 2. Date on which the typed draft is placed before the Dictating Member 12/09/2022 3. Date on which the approved draft comes to the Sr.P.S./P.S. - /09/2022 4. Date on which the fair order is placed before the Dictating Member for Pronouncement /09/2022 5. Date on which the file goes to the Bench Clerk: 14/09/2022 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order.......................... Date of Despatch of the Order.................. 1. अपीलाथ / The Appellant 2. !यथ / The Respondent. 3. संबं धतआयकरआय ु #त/ Concerned CIT 4. आयकरआय ु #त(अपील) / The CIT(A) 5. $वभागीय 'त'न ध, आयकरअपील यअ धकरण/ DR, ITAT, 6. गाड)फाईल / Guard file.