J.R. Dyeing & Printing Mills Pvt. Ltd., Surat V. The Income tax Officer, Ward-1(3), Surat

ITA 478/AHD/2009

• Counselvise Citation: 47820514 RSA 2009
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Assessee Lawyers: M K PATEL
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI MUKUL KUMAR SHRAWAT ,JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.478 / AHD/2009 (ASSESSMENT YEAR 2006-07) M/S. J.R. DYEING & PRINTING MILLS PVT. LTD., Z-1201, SURAT TEXTILE MARKET, RING ROAD, SURAT VS. ITO, WARD 1(3), SURAT PAN/GIR NO. : AAACJ5474G (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI M.K. PATEL, AR RESPONDENT BY: SHRI A.K. PATEL, DR DATE OF HEARING: 28.09.2011 DATE OF PRONOUNCEMENT: 21.10.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDE R OF LD. CIT(A) I, SURAT DATED 24.12.2008 FOR THE ASSESSMENT YEAR 20067-07. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE R, THE HONBLE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION ON ACCO UNT OF CLOSING STOCK OF WORK IN PROGRESS TO EXTENT OF PRODUCTION O F FIRSTS FIVE DAYS OF NEXT FINANCIAL YEAR. 2) WITHOUT PREJUDICE TO ABOVE GROUND OF APPEAL, THE AT THE HONBLE CIT(A) HAS ERRED IN NOT ALLOWING THE APPELL ANT DEDUCTION IN RESPECT OF OPENING STOCK OF W.I.P. WHICH IS EMB EDDED IN THE G.P. ADDITION MADE IN LAST YEAR (ASSESSMENT YEAR 20 05-06). 3. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE ARE NOTED BY THE LD. CIT(A) IN PARA 2.1 OF HIS ORDER, WHICH IS REPRO DUCED AS UNDER: I.T.A.NO. 478 /AHD/2009 2 2.1 GROUND NO.L IS REGARDING ADDITION OF RS.8,88,237/- ACCOUNT OF CLOSING STOCK OF WORK-IN-PROGRESS AND GR OUND NO.2 REGARDING DEDUCTION IN THE OPENING STOCK OF WORK-IN -PROGRESS EMBEDDED IN G.P. ADDITION OF LAST YEAR. IN THE AS SESSMENT ORDER THE A.O. HAS STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING OF FABRIC ON JOB WORK BASIS AS WELL AS I TS OWN TRADING. ACCORDING TO THE A.O., THE PERUSAL OF INVENTORY OF CLOSING STOCK SHOWED THAT THE ASSESSEE HAS NOT SHOWN THE CLOSING STOCK OF WORK- IN-PROGRESS. SINCE THE FABRIC UNDER PROCESS BEARS P ART OF EXPENSES INCURRED ON ACCOUNT OF COLOUR, CHEMICALS, WAGES, PO WER, FUEL, ETC., THE A.O. ASKED THE ASSESSEE AS TO WHY WORK IN PROGR ESS IN THE CLOSING STOCK BE NOT ESTIMATED. THE ASSESSEE STATE D THAT IT HAS NOT BEEN SHOWING WORK-IN-PROGRESS AT ALL BECAUSE THE CL OTH DOES NOT BELONG TO THE ASSESSEE. THIS PRACTICE HAS BEEN FOLL OWED BY THE ASSESSEE CONSISTENTLY IN PAST YEARS AND WAS ACCEPTE D BY THE DEPARTMENT. THE ASSESSEE STATED THAT IF ADDITION OF THE WORK-IN- PROGRESS IS MADE TO THE CLOSING STOCK THEN CORRESPO NDING EFFECT SHOULD BE GIVEN IN THE OPENING STOCK ALSO. THE A.O. DID NOT ACCEPT THE ABOVE EXPLANATION AND STATED THAT THE OPENING I S EQUAL TO THE CLOSING STOCK OF LAST YEAR. HOWEVER, THE FABRIC UND ER PROCESS BEARS EXPENSES OF COLOUR, CHEMICALS, WAGES, POWER, FUEL, ETC. AND, THEREFORE, CORRECT PROFIT CANNOT BE OBTAINED WITHOU T ADDING CLOSING STOCK OF WORK-IN-PROGRESS. IN THIS REGARD, THE A.O. RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F BRITISH PAINTS INDIA LTD. (188-ITR-44), WHEREIN THE HON'BLE SUPREM E COURT STATED AS UNDER:- 'IT IS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSE SSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE T RUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCORRECT TO SAY THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUES TIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS.' THE A.O. THEREAFTER WORKED OUT THE AVERAGE PRODUCTI ON PER DAY BY TAKING 360 DAYS AS THE WORKING DAYS AND SINCE THE P ROCESSING CYCLE IS FIVE DAYS HE WORKED OUT THE FABRIC UNDER PROCESS AT 224870 METERS IN PARAGRAPH-5 OF THE ASSESSMENT ORDER. HE C ALCULATED THE AVERAGE PROCESSING CHARGES AT RS.7.89 PER METER BY REDUCING THE GROSS PROFIT FROM GROSS RECEIPT. HE STATED THAT SIN CE THE FABRIC IS I.T.A.NO. 478 /AHD/2009 3 LYING UNDER DIFFERENT STAGES OF PROCESS, IT IS REAS ONABLE TO ADOPT AS COST OF WORK-IN-PROGRESS. HE, THEREFORE, ESTIMATED THE VALUE OF WORK-IN-PROGRESS AT RS.3.95 PER METER AND CALCULATE D THE CLOSING STOCK AT RS.8,88,237/- AND THIS WAS ADDED TO THE TO TAL INCOME. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A). BEFORE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT EVEN IF FIVE DAYS PRODUCTION CYCLE IS TAKEN, THE PRODUCTION DURING FIRST FIVE DAYS WAS ONLY 172588 MTRS ON 05.04.2006. IT WAS SUBMITT ED THAT UNDER THESE FACTS, THE FABRIC UNDER PROCESS COULD NOT BE MORE T HAN THIS QUANTITY I.E. 172588 MTRS. IT WAS ALSO SUBMITTED THAT IN THE PRE CEDING YEAR, G.P. ADDITION WAS FOR THE ALLEGED SHORTAGE AND WHILE MAK ING THE G.P. ADDITION, THE A.O. DISCUSSED THAT THE WORK IN PROGRESS WAS NO T SHOWN IN CLOSING STOCK AND, THEREFORE, W.I.P. IS EMBEDDED IN THE G.P . ADDITION FOR THE LAST YEAR AND THAT AMOUNT SHOULD BE ALLOWED AS OPENING S TOCK OF THE CURRENT YEAR. IT WAS HELD BY THE LD. CIT(A) THAT AS PER TH E JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BRITISH PAINTS I NDIA LTD. AS REPORTED IN 188 ITR 44, CORRECT PROFIT CANNOT BE WORKED OUT UNL ESS PROPER VALUE OF THE CLOSING STOCK IS CONSIDERED. REGARDING QUANTUM OF ADDITION, HE DIRECTED THE A.O. THAT THE A.O. SHOULD EXAMINE THE CONTENTION OF THE ASSESSEE AS TO WHETHER THE PRODUCTION DURING FIRST FIVE DAYS OF THE NEXT YEAR WAS ONLY 172588 MTRS. AND NOT 224870 MTRS. AS CALCULATED BY THE A.O. IN PARA 5 OF THE ASSESSMENT ORDER. HE DIRECTE D THE A.O. THAT IF THE ASSESSEE IS NOT ABLE TO PROVE BEFORE THE A.O. THAT AS PER THE RECORDS, PRODUCTION /CLEARING OF FIRST FIVE DAYS IS 172588 M TRS., THEN THE A.O. WILL ADOPT THE QUANTITY OF 224870 MTRS. BUT IF THE ASSE SSEE CAN ESTABLISH THAT THE PRODUCTION OF FIRST FIVE DAYS OF THE NEXT YEAR WAS ONLY 172588 MTRS., THEN ONLY THIS QUANTITY SHOULD BE CONSIDERED BY THE A.O. FOR THE PURPOSE OF VALUING THE CLOSING STOCK OF W.I.P. IN THE CURRE NT YEAR. REGARDING THE I.T.A.NO. 478 /AHD/2009 4 RATES ADOPTED BY THE A.O. OF RS.3.95 PER MTR., HE U PHELD THE SAME. THIS ARGUMENT WAS ALSO RAISED BEFORE THE LD. CIT(A) THAT GP ADDITION IN THE PRECEDING YEAR WAS ON ACCOUNT OF ADDITION IN RESPEC T OF CLOSING STOCK OF W.I.P. IN THAT YEAR AND, THEREFORE, IN THE PRESENT YEAR, THE SAME SHOULD BE CONSIDERED AS OPENING STOCK. ON THIS ASPECT, IT IS DECIDED BY LD. CIT(A) THAT IN THE LAST YEAR, ONLY G.P. ADDITION WAS MADE AND NO QUANTIFICATION OF W.I.P. WAS DONE. HE HELD THAT W.I.P. ADDITION CANN OT BE AUTOMATICALLY DONE AND HENCE, THEE IS NO QUESTION OF ASSUMING THA T THE ADDITION OF G.P. IN THE LAST YEAR AMOUNT TO ADDITION AS W.I.P. IN TH E CLOSING STOCK OF LAST YEAR. HE FURTHER HELD THAT THE OPENING STOCK OF TH E CURRENT YEAR HAS TO BE THE SAME AS CLOSING STOCK OF THE LAST YEAR AND THER E CANNOT BE ADDITION IN THE OPENING STOCK OF W.I.P. IN THE PRESENT YEAR. N OW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. LD. A.R. OF THE ASSESSEE REITERATED THE SAME ARG UMENTS AS WERE RAISED BEFORE THE AUTHORITIES BELOW. HE SUBMITTED THAT THE COPY OF THE ASSESSMENT ORDER FOR THE PRECEDING YEAR I.E. ASSESS MENT YEAR 2005-06 IS AVAILABLE ON PAGES 20-31 OF THE PAPER BOOK AND IN P ARTICULAR, HE DRAWN OUR ATTENTION TO PAGE 30 OF THE PAPER BOOK TO SHOW THAT IN THE PRECEDING YEAR, AN ADDITION OF RS.8,53,987 WAS MADE. HE HAS DRAWN OUR ATTENTION TO PARA 6 OF THE ASSESSMENT ORDER OF THAT YEAR WHERE I T IS DISCUSSED BY THE A.O. THAT SINCE THEE IS NO REFLECTION OF W.I.P. IN THE CLOSING STOCK, IT IS THE MAIN BASIS AND REASON FOR THE A.O. TO FORM AN OPINI ON THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE INCOMPLETE AND CORRECT PROFITS CANNOT BE DEDUCED THEREFROM. HE SUBMITTED THAT BEC AUSE OF THIS FINDING OF THE A.O. IN THE ASSESSMENT ORDER OF THE PRECEDIN G YEAR, IT HAS TO BE ACCEPTED THAT THE GP ADDITION MADE BY THE A.O. IN T HAT YEAR IS NOTHING BUT VALUE OF CLOSING STOCK OF W.I.P. OF THAT YEAR AND, THEREFORE, IN THE PRESENT YEAR, VALUE OF OPENING STOCK SHOULD BE INCREASED BY THAT AMOUNT. I.T.A.NO. 478 /AHD/2009 5 6. LD. D.R. OF THE REVENUE SUPPORTED THE ORDER OF L D. CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IT IS ADMITTED POSITION THAT THERE IS A CYCLE OF FIVE DAYS FOR GETTING THE PRODUCTION OF FINISHED GOODS AND THE A.O. HAS ADOPT ED THE QUANTITY OF AVERAGE PRODUCTION DURING THE PRESENT YEAR FOR FIVE DAYS AS QUANTITY OF W.I.P. AT THE YEAR END. ON THIS ASPECT, CIT(A) HAS ALREADY GIVEN A DIRECTION TO THE A.O. TO VERIFY THE CONTENTION OF T HE ASSESSEE THAT FACTUALLY, THE PRODUCTION OF FIRST FIVE DAYS OF THE NEXT YEAR \IS ONLY 172588 MTRS AND NOT 224870 MTRS. AS ADOPTED BY THE A.O. H ENCE, ON THIS ASPECT, NO INTERFERENCE IS CALLED FOR. REGARDING VALUATION ASPECT, WE FIND THAT THE A.O. HAS WORKED OUT THE AVERAGE COST PER MTR. IN T HE PRESENT YEAR AND FOR THE VALUATION OF CLOSING STOCK OF W.I.P AT THE YEAR END, HE HAS CONSIDERED ONLY 50% OF AVERAGE COST OF THE PRESENT YEAR AND HE NCE, IN OUR CONSIDERED OPINION, THIS IS ALSO REASONABLE AND ON INTERFERENC E IS CALLED FOR FROM OUR SIDE ON THIS ASPECT ALSO. REGARDING THIS CONTENTIO N OF THE ASSESSEE THAT THE CLOSING STOCK OF W.I.P. SHOULD NOT BE CONSIDERED AT ALL, WE ARE OF THE CONSIDERED OPINION THAT THIS ARGUMENT HAS NO BASIS BECAUSE ADMITTEDLY, THE CORRECT PROFITS CANNOT BE DEDUCED WITHOUT CONSI DERING THE VALUE OF THE CLOSING STOCK AT THE YEAR END. THERE IS ONE MORE C ONTENTION OF THE ASSESSEE THAT SINCE IN THE PAST, THE ASSESSEE WAS F OLLOWING THIS METHOD OF NOT VALUING THE CLOSING STOCK OF W.I.P. AND HENCE, AS PER THE PRINCIPLE OF CONSISTENCY, IN THE PRESENT YEAR, NO ADDITION SHOUL D BE MADE ON ACCOUNT OF VALUE OF CLOSING STOCK OF W.I.P. THIS ARGUMENT ALSO HAS NO FORCE BECAUSE IN THE NAME OF CONSISTENCY, A MISTAKE CANNO T BE ALLOWED TO BE PERPETUATED. COMPUTATION OF PROFITS WITHOUT CONSI DERING THE VALUE OF CLOSING STOCK IS A MISTAKE AND HENCE, EVEN IF THE A SSESSEE WAS DOING THIS IN THE PAST, A WRONG STAND CANTO BE ALLOWED TO BE P ERPETUATED ON THE BASIS I.T.A.NO. 478 /AHD/2009 6 OF PRINCIPLE OF CONSISTENCY. WE, THEREFORE, DO NOT FIND ANY MERIT IN GROUND NO.1 OF THE ASSESSEE AND THE SAME IS REJECTE D. 8. IN GROUND NO.2, THE ASSESSEE RAISED ALTERNATIVE PLEA AND IT IS THE CLAIM OF THE ASSESSEE THAT THE GP ADDITION MADE IN THE PRECEDING YEAR SHOULD BE ALLOWED AS INCREASE IN VALUE OF OPENING S TOCK OF THE PRESENT YEAR. A COPY OF THE ASSESSMENT ORDER OF THE PRECED ING YEAR IS AVAILABLE ON PAGES 20-32 OF THE PAPER BOOK. IN PARA 6 OF THE ASSESSMENT ORDER FOR THAT YEAR, THE A.O. HAS STATED THAT NON REFLECTION OF W.I.P. IS THE MAIN REASON FOR REJECTING THE BOOKS OF ACCOUNTS OF THE A SSESSEE BUT ACTUALITY, THE A.O. DID NOT VALUE THE CLOSING STOCK OF W.I.P. IN THAT YEAR AND HE SIMPLY MADE G.P. ADDITION BY ADOPTING G.P. RATE OF 6.05% AS AGAINST THE G.P. DECLARED BY THE ASSESSEE @ 5.83% IN THAT YEAR. WHEN WE GO THROUGH THE ASSESSMENT ORDER OF THAT YEAR, WE FIND THAT THI S IS NOT THE ONLY BASIS FOR G.P. ESTIMATION IN THAT YEAR THAT ASSESSEE DID NOT VALUE THE CLOSING STOCK OF W.I.P. IN THAT YEAR. THE A.O. HAS ALSO NOTED IN THAT YEAR THAT THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF INCREASE D SHORTAGE OF 3.90% SHOWN IN THE PRODUCTION PROCESS AS COMPARED TO THE PRECEDING YEAR AND THE ASSESSEE HAS NOT FURNISHED ANY REASON OR EVIDEN CE TO JUSTIFY THE CLAIM OF INCREASED SHORTAGE OF 3.90% IN THE PRODUCTION PR OCESS IN THAT YEAR. HENCE, IT CANNOT BE ACCEPTED THAT EVEN IN THE ABSEN CE OF ANY WORKING DONE BY THE A.O. OF THE VALUE OF CLOSING STOCK OF W .I.P. IN THE PRECEDING YEAR, IT SHOULD BE ACCEPTED THAT THE G.P. ADDITION MADE BY THE A.O. IN THE PRECEDING YEAR IS ON ACCOUNT OF VALUE OF CLOSING ST OCK OF W.I.P. OF THAT YEAR. IN OUR CONSIDERED OPINION, IN THE FACTS OF THE PRESENT CASE AND IN THE LIGHT OF THIS OBSERVATION OF THE A.O. IN THE AS SESSMENT ORDER OF THE PRECEDING YEAR THAT FOR THE ASSESSEES CLAIM OF INC REASED SHORTAGE OF 3.90% IN THE PRECEDING YEAR, THE ASSESSEE COULD NOT FURNISH ANY REASON OR EVIDENCE TO JUSTIFY THAT CLAIM OF INCREASED SHORTAG E, THIS CONTENTION OF THE I.T.A.NO. 478 /AHD/2009 7 ASSESSEE THAT G.P. ADDITION MADE IN THE PRECEDING Y EAR WAS ON ACCOUNT OF VALUE OF CLOSING STOCK OF W.I.P. OF THAT YEAR HAS N O MERIT AND CANNOT BE ACCEPTED. HENCE, GROUND NO.2 IS ALSO REJECTED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT., 2011. SD./- SD./- (MUKUL KUMAR SHRAWAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 21 ST OCT., 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 18/10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19/10.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.20/10 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 21/10 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.21/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/10/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..