STERLITE TECHNOLOGIES LTD, V. ADDL CIT LTU, MUMBAI

ITA 4734/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4284 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 16-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJUNATH R SWAMY
• Assessee Lawyers: B V JHAVERIAR
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 115JB; 80IB; 145

Judgement Text

, ,, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI- E,BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANJAY GARG,JUDICIAL MEMBER /.ITA NO.4734/MUM/2013, /ASSESSMENT YEAR-2007-08 STERLITE TECHNOLOGIES LIMITED SURVEY NO. 68/1, MADHUBAN DAM ROAD, RAKHOLI, UT OF DADRA & NAGAR HAVELI-390 230 PAN: AAECS 8719 B VS. ADDL CIT-(LTU) 28 TH CENTRE NO.1 WORLD TRADE CENTRE CUFFE PARADE MUMBAI-400 005. ( / ASSESSEE ) ( / RESPONDENT) /ASSESSEE BY :SH. B.V. JHAVERI-AR / REVENUE BY :SH. MANJUNATH R.SWAMY-CIT-DR / DATE OF HEARING :09 - 11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.1.3.13 OF CIT-24 MUMBAI TH E ASSESSEE HAS FILED THE PRESENT APPEAL RAISING TWO EFFECTIVE GROUNDS OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALES OF OPTICAL FIBRE, COPPER TELECOM CABLE ETC.,FILED ITS RETURN OF INCOM E ON 31.10.2007 DECLARING PROFIT OF RS. 51.61 CRORES UNDER MAT PROVISIONS.THE ASSESSING OFF ICER(AO)COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 29.12.2009,DETERMINING THE INCOME OF THE ASSESSEE AT RS.54.58 CRORES UNDER THE NORMAL PROVISIONS AND AT RS.52.61 CRORES UNDER SECTION 115JB OF THE ACT. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 3.10 LACS ON ACCOUNT OF CHANGE IN METHOD OF VALUATION OF STOCK.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT AS PER NOTE 1 TO CL-12(B) OF THE TAX AUDIT REPORT THERE WA S DECREASE IN PROFIT DUE TO CHANGE OF METHOD OF VALUATION OF INVENTORY, THAT THE AA HAD ADOPTED WEIGHTED AVERAGE METHOD (WAM) DURING THE YEAR UNDER APPEAL, THAT IT WAS VALUING INVENTOR Y ON THE BASIS OF FIRST IN FIRST OUT (FIFO METHOD).HE DIRECTED THE ASSESSEE TO SHOW CAUSE AS T O WHY THE DECREASE IN PROFIT DUE TO CHANGE IN METHOD OF VALUATION SHOULD NOT BE ADDED B ACK TO ITS PROFIT.AFTER CONSIDERING THE DETAILED SUBMISSION OF THE ASSESSEE THE AO ALLOWED THE CHANGE OF METHOD OF ACCOUNTING.HOWEVER, HE HELD THAT THE RESULTANT EFFE CT ON THE PROFIT OF THE INCOME OF THE ASSESSEE HAD TO BE TAXED DURING THE YEAR UNDER CONS IDERATION,THAT BECAUSE OF CHANGE OF METHOD OF VALUATION, THE VALUE OF CLOSING STOCK GOT REDUCED AS COMPARED TO VALUATION CARRIED OUT OF THE OPENING STOCK, THAT OPENING AND CLOSING STOCK HAVE TO BE VALUED ON SAME PRINCIPLES.FINALLY, HE MADE AN ADDITION OF RS.3.10 LACS TO THE INCOME OF THE ASSESSEE . 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) WHO UPHELD THE ORDER OF T HE AO. 2.2. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) CONTEN DED THAT THE FAA HAD DISMISSED THE GROUND RAISED BY THE ASSESSEE WITHOUT GIVING ANY IN DEPENDENT REASON. HE RELIED UPON THE CASES OF MELMOULD CORPORATION(202 ITR789) AND WMI C RANES LTD.(326 ITR 523)OF THE 4734/13-STERLITE TECHNOLOGIES 2 HONBLE BOMBAY HIGH COURT. THE DEPARTMENTAL REPRESE NTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING FROM FIFO TO WMA, THAT THE AO HAD ACCEPTED THE SAME METHOD OF ACCOUNTING,THAT HE MADE AN ADDITION OF RS.3.10 LACS TO THE INCOME OF THE ASSESSEE,THAT HE HAD NOT DOUBTED THE BONAFIDE OF THE CHANGE IN METHOD,THAT THE CHANGE OF THE METHOD HAD BEEN FOLLOWED IN THE SUBSE QUENT YEARS AND THE METHOD WAS NOT DISPUTED BY THE AO.WE FIND THAT IN THE CASE OF MELM OULD CORPORATION (SUPRA)THE HONBLE JURISDICTIONAL HIGH COURT HAS DISCUSSED AND DELIBER ATED UPON THE ISSUE AS UNDER: UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961, THE ASSESSEE CAN ADOPT A METHOD OF VALUATION WHICH IS TO BE FOLLOWED BY IT REGULARLY. IT IS AN A CCEPTED PRINCIPLE OF ACCOUNTANCY THAT VALUE OF THE STOCK CAN BE DETERMINED AT COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER. THE TWO PRINCIPLES APPLICABLE WITH REGARD TO THE VALUATION OF STOCK ARE THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK EITHER AT COST PRICE OR MAR KET VALUE, WHICHEVER IS LOWER, AND THAT THE CLOSING STOCK MUST BE THE VALUE OF THE OPENING STOC K IN THE SUCCEEDING YEAR. IT IS, THUS, CLEAR THAT IRRESPECTIVE OF THE BASIS ADOPTED FOR VALUATIO N IN THE EARLIER YEARS, THE ASSESSEE HAS THE OPTION TO CHANGE THE METHOD OF VALUATION OF THE CLO SING STOCK AT COST OR MARKET PRICE, WHICHEVER IS LOWER, PROVIDED THE CHANGE IS BONA FID E AND FOLLOWED REGULARLY THEREAFTER. WHENEVER THERE IS A CHANGE IN THE METHOD OF VALUATI ON, THERE IS BOUND TO BE SOME DISTORTION IN THE CALCULATION OF PROFITS IN THE YEAR IN WHICH THE CHANGE TAKES PLACE. BUT, IF THE CHANGE IS BROUGHT ABOUT BONA FIDE AND IS IN ACCORDANCE WITH T HE NORMALLY ACCEPTED ACCOUNTING PRACTICE, THERE IS NO REASON WHY SUCH A CHANGE SHOU LD NOT BE PERMITTED. THE CHANGE HAS TO BE EFFECTED BY ADOPTING THE NEW METHOD FOR VALUING THE CLOSING STOCK WHICH WILL, IN ITS TURN, BECOME THE VALUE OF THE OPENING STOCK OF THE NEXT Y EAR. IF, INSTEAD, A PROCEDURE IS ADOPTED FOR CHANGING THE VALUE OF THE OPENING STOCK ALSO, IT WI LL LEAD TO A CHAIN REACTION OF CHANGES IN THE SENSE THAT THE CLOSING VALUE OF THE STOCK OF THE YE AR PRECEDING WILL ALSO HAVE TO CHANGE AND CORRESPONDINGLY THE VALUE OF THE OPENING STOCK OF T HAT YEAR AND SO ON. FOLLOWING THE ABOVE JUDGMENT,WE HOLD THAT IF THERE WAS SOME DISTORTION,SAME HAS TO BE IGNORED ONCE THE CHANGE WAS FOUND TO BE GENUINE. 3. THE SECOND EFFECTIVE GROUND DEALS WITH DISALLOWANCE OF RS.14,50,69,277/- MADE BY THE ASSESSEE U/S.80IB OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80IB FROM POWER TRANSMISSION DIVISION RAKOLI, THAT CARRY FORWARD LOSSES UNDER CHAPTER-VI-AWERE MORE THAN THE INCOME OF RS.48.10 CRORES DECLARED BY THE ASSESSEE BEFORE CLAIMING ABOVE DEDUCTION, THAT THE GROSS TOTAL INCOME OF THE ASSESSEE WAS NOT POSITIVE.REFERRING TO THE DECISION OF SYNCO IND USTRIES LTD.(299 ITR 444) OF THE HONBLE SUPREME COURT, THE AO ASKED THE ASSESSEE AS TO WHY THE DEDUCTION MADE U/S. 80IB SHOULD NOT BE DISALLOWED.AFTER CONSIDERING THE SUBMISSION OF T HE ASSESSEE,THE AO REJECTED THE CLAIM MADE BY IT. 3.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FAA . AS PER THE FAA THE ASSESSEE DID NOT PRESS THE GROUND W ITH REGARD TO 80IB DEDUCTION,BEFORE HIM. HE OBSERVED THAT BUSINESS INCOME UNDER THE NORMAL P ROVISIONS HAD BEEN CALCULATED AT RS.NIL IN VIEW OF SET OFF OF BROUGHT FORWARD BUSINESS LOS SES AND UNABSORBED DEPRECIATION,THAT EVEN OTHERWISE THE CLAIM MADE BY THE ASSESSEE WAS NOT TE NABLE UNDER LAW.FINALLY, HE DISMISSED THE GROUNDS RAISED BY THE ASSESSEE WITH REGARD TO CLAIM MADE U/S.80IB OF THE ACT. 3.2. BEFORE US, THE AR STATED THAT THE FAA HAD ERRED IN OBSERVING THAT THE ASSESSEE HAD NOT PRESSED THE GROUND REGARDING DEDUCTION U/S. 80IB.HE REFERRED TO PAGE-42 OF THE PAPER BOOK AND STATED THAT IN THE STATEMENT OF FACTS THE ASSES SEEHAD SPECIFICALLY PRESSED THE GROUND. HE 4734/13-STERLITE TECHNOLOGIES 3 ALSO REFERRED TO THE WRITTEN SUBMISSIONS MADE BEFOR E THE FAA.HE FURTHER ARGUED THAT ASSESSEE PAID TAX AS PER THE PROVISIONS U/S. 115JB,THAT THE CARRY FORWARD LOSSES WERE SUBJECT TO DEDUCTION U/S. 80IB IN RESPECT OF POWER TRANSMISSIO N DIVISION, THAT THE CONCLUSION DRAWN BY THE FAA TO CONFIRM THE DISALLOWANCE WAS CONTRARY TO THE FACTS. HE ALTERNATIVELY ARGUED THAT POWER TRANSMISSION DIVISION HAD NO BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION PERTAINING TO ANY OF THE EARLIER YEARS, THAT WHILE COMPUTING DEDUCTION U/S.80IB F THE ACT FOR THE YEAR UNDER APPEAL THE LOSSES OF OTHER DIVISIONS INCURRED IN EARLIER YRS COULD NOT BE ADJUSTED AGAINST THE PROFIT OF POWER TRANSMISSION DIVISION.H E REFERRED TO THE PROVISIONS OF SEC80IA(5) OF THE ACT AND RELIED UPON THE CASES OF PIDILITE IN DUSTRIES LTD.(12 TAXMANN.COM 96);HYDERABAD CHEMICALS SUPPLIES LTD (20 TAXMANN. C OM 289).THE DR SUPPORTED UPON THE ORDER OF THE AO AND THE FAA. 3.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL WE FIND THAT THE FAA HAD OBSERVED THAT THE ASSESSEE HAD NOT PRESSED THE GRO UND WITH REGARD TO 80IB DEDUCTION. THAT IN THE STATEMENT OF TAX AS WELL AS IN THE WRITTEN SUBM ISSION FILED BY THE ASSESSEE IT HAS AGITATED THE ISSUE. THEREFORE,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJU DICATION.HE WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT,APPEAL FILE D BY THE ASSESSEE IS STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COUR T ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( /SANJAY GARG ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI, DATE: 01.01.2016 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.