THE DY. CIT-1(2), RAIPUR (CG) V. M/S. SADGURU ISPAT PVT. LTD., RAIPUR (CG)

ITA 49/BIL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1400 (ITAT-RAIPUR)
• Duration Of Justice: 2 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 12-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K JAIN
• Assessee Lawyers: R K SINGHANIA
• Keywords: Principle of natural justice; Additional evidence; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI SHAMIM YAHYA , HONBLE ACCOUNTANT MEMBER & SHRI PARTHA SARATHI CHAUDHURY , HONBLE JUDICIAL MEMBER ITA NO. 4 9 / R PR /201 3 (ASST. YEAR : 20 1 0 - 11 ) DCIT - 1(2), RAIPUR. VS. M /S. SADGURU ISPAT PVT. LTD. H.NO. 7, PALASH RESIDENCY, NEW PURENA, MAHAVIR NAGAR, RAIPUR. PAN NO. AAICS 5236 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. SINGHANIA - CA DEPARTMENT BY : SHRI D.K. JAIN SR. DR . DATE OF HEARING : 21 / 04/2016 . DATE OF PRONOUNCEMENT : 22 / 04 /201 6 . O R D E R PER SHAMIM YAHYA , ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), RAIPUR , DATED 18 /0 4 /201 3 AND PERTAINS TO ASSESSMENT YEAR 20 1 0 - 11 . 2. GROUND NO.1 OF THE APPEAL OF THE R EVENUE READS AS UNDER: - WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 55 , 71 , 843 / - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UN DER VALUATION OF CLOSING STOCK . 2 ITA NO. 4 9 / RPR /201 3 3 . IN THIS CASE , THE A.O HAS STATED THAT THE GP SHOWN THIS YEAR HAS SLIGHTLY INCREASED FROM 3.03% TO 3.60% AND THE N.P. HAS ALSO INCREASED FROM 0.56% TO 0.65%; THAT THE YIELD SHOWN THIS YEAR IS LOW; THAT THE COST OF RAW MATERIAL CONSUMPTION HAS ALSO INCREASED BY ABOUT 10%; THAT THE APPELLANT HAS NOT CORRECTLY VALUED THE CLOSING STOCK; THAT ACCORDING TO THE CHART THE VALUE OF MS INGOTS - FINISHED PRODUCTS COMES TO RS. 14,9 16/ - PER MT ON AVERAGE BASIS, WHILE THE SALE/NET REALIZABLE VALUE COMES TO RS.26,169/ - ; THAT THE RAW MATERIAL WAS VALUED AT RS. 12,766/ - PER MT; THAT AVERAGE VALUE OF RAW MATERIAL PURCHASED COMES TO RS. 16,949/ - ; THAT THE UNDERVALUATION WORKS OUT TO RS.4,18 3/ - PER MT; THAT THE AVERAGE VALUE OF OPENING STOCK OF FINISHED GOODS COMES TO RS.20,572/ - , WHILE THE CLOSING STOCK WAS VALUED AT RS. 14,916/ - ; THAT EVEN AS PER SIMPLE CALCULATION, THE VALUE OF RAW MATERIALS PLUS MANUFACTURING COST SHOWN BY APPELLANT AT RS .4,106/ - PER MT, THE VALUE OF FINISHED GOODS COMES TO RS.21,055/ - (16949 + 4106); THAT THE APPELLANT HAS VALUED THE FINISHED GOODS AT RS. 14,909/ - AND PER MT DIFFERENCE WORKS O UT TO RS.6,086/ - . THUS, THE AMOUNT OF UNDER VALUATION WORKS OUT AS UNDER: - PARTICULARS CLOSING STOCK QTY (IN MT) DIFFERENCE RATE TOTAL FINISHED GOODS 189.224 RS.6,086/ - RS. 1 1,51,617/ - RAW MATERIAL 1056.712 RS.4,183/ - RS.44,20,226/ - TOTAL RS. 55,71,843/ - 3 ITA NO. 4 9 / RPR /201 3 4 . THE ASSESSEE MADE ELABORATE SUBMISSIONS AND ADDITIONAL EVIDENCE S BEFORE THE LD. CIT(A). CONSIDERING THE SAME, LD. CIT(A) DELETED THE ADDITION HOLDING AS UNDER: - 6. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, AND SUBMISSIONS OF THE APPELLANT I HAVE PERUSED THE TAX AUDIT REPORT, IT IS SEEN THAT THERE IS NO CHANGE IN THE METHOD OF STOCK VALUATION IN COMPARISON TO LAST YEAR. IT IS ALSO SEEN THAT THE METHOD OF STOCK VALUATION ADOPTED BY THE APPELLANT COMMENSURATE WITH THE METHOD PRESCRIBED U/S 145A R. W.S 145 AND ACCOUNTING STANDARD - 2 'VALUATION OF INVENTORIES' ISSUED BY ICAI AND NOTIFIED BY THE CENTRAL GOVERNMENT. I FIND THAT THE AUDITOR HAS NOT MADE ANY ADVERSE REMARK AS REGARDS UNDER V ALUATION OF STOCK. I HAVE ALSO VERIFIED THE METHODOLOG Y ADOPTED BY THE APPELLANT FOR E XA MINATION OF COST BASED ON FIFO METHOD WH ICH BASICALLY INVOLVES VALUATION OF COST WITH REFERENCE TO THE LAST PURCHASES. I AM CONVINCED WITH THE METHODOLOGY ADOPTED BY THE APPELLANT INASMUCH AS THE APPELLANT HAS FOLLOWED THE FIFO METHOD OF VALUATION OF CLOSING STOCK UNDER WHICH THE VALUATION IS DO NE ON FIRST IN FIRST OUT BASIS AND THE CLOSING STOCK IS VALUED ON THE BASIS OF LAST PURCHASE BILLS. I AM CONVINCED WITH THE SUBMISSIONS OF THE APPELLANT THAT THE AO, ON THE CONTRARY, VALUED THE INVENTORY BY TAKING THE AVERAGE COST. I AM OF THE CONSIDERED O PINION THAT THE METHOD APPLIED BY THE A.O IS CLEARLY MISPLACED FOR THE REASON THAT THE APPELLANT IS FOLLOWING THE PRESCRIBED METHOD CONSISTENTLY AND THERE IS NO DEVIATION. THE VALUATION IS TO BE MADE AFTER CONSIDERING THE COST ON BILL TO BILL BASIS APPLYIN G FIFO METHODOLOGY UNDER WHICH THE LAST PURCHASES TO THE EXTENT IT COVERS THE QUANTITY OF CLOSING STOCK, AT THE END OF THE FINANCIAL YEAR IS TO BE CONSIDERED FOR VALUING THE STOCK. THE A.O HAS ACCEPTED THE PROFITABILITY RATIOS DECLARED BY THE APPELLANT. TH ERE IS CONSIDERABLE FORCE IN THE SUBMISSION OF THE APPELLANT THAT THE BOOKS OF ACCOUNTS ARE AUDITED AND THERE IS NO ADVERSE REMARK OF THE AUDITORS. I AM CONVINCED WITH THE SUBMISSIONS OF THE APPELLANT THAT THE METHODOLOGY ADOPTED BY THE A.O FOR VALUING THE INVENTORY OF FINISHED GOODS IS ALSO INCORRECT AS THE A.O HAS WORKED OUT THE SAME BY TAKING THE AVERAGE PURCHASE COST, WHEREAS, THE A.O OUGHT TO HAVE TAKEN RAW MATERIAL CONSUMPTION AND ULTIMATELY THE COST OF PRODUCTION. THE A.O'S METHOD OF FINISHED GOODS I NVENTORY VALUATION COMPLETELY IGNORES THE CLOSING STOCK OF RAW MATERIAL WHICH IS VITAL FOR DETERMINING THE RAW MATERIAL CONSUMED. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND NO MERIT IN THE ADDITION MADE BY THE A.O. HENCE, THE ADDITION MADE BY THE A.O IS DELETED. 4 ITA NO. 4 9 / RPR /201 3 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL . 6 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSING OFFICER HAS STATED IN THE ASSESSMENT ORDER THAT IN HIS OPINION, THE AVERAGE COST OF THE STOCK ARRIVED AT BY HIM WAS NOT DISPUTED BY WAY OF PROPER SUBMISSIONS BY THE LD . COUNSEL OF THE ASSESSEE, HENCE THE ASSESSING OFFICER HAS MADE THE ADDITION BASED UPON HIS COMPUTATION OF AVERAGE VALUE OF STOCKS. ON THE OTHER HAND, ON THE BASIS OF ELABORATE SUBMISSIONS AND EVIDENCES FILED BY THE ASSESSEE, THE LD. CIT(A) HAS GIVEN FINDING THAT THE ASSESSEE HAS BEEN FOLLOWING FIFO METHOD OF VALUATION OF INVENTORY AND AFTER EXAMINATION OF ALL THE EVIDENCES SUBMITTED, THE LD. CIT(A) HAS FOUND THE SAME IN ORDER. 7 . WE FIND THAT THE ELABORATE SUBMISSIONS AND EVIDENCES SUBMITTED BEFORE THE LD. CIT(A) , HAVE ALSO BEEN SUBMITTED TO US BY WAY OF PAPER BOOK. WE FIND FROM PAPER BOOK AT PAGE NOS. 156 - 230 THERE ARE EVIDENCES FILED BY THE ASSESSEE IN SUPPORT OF THE VERACITY OF ITS METHOD OF COMPUTATION OF STOCKS. WE FIND THAT THESE ARE ADDITIONAL EVIDENCES AND THEY WERE NEVER BEFORE THE ASSESSING OFFICER. IN THIS REGARD, LD . COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT ALL THE BOOKS OF ACCOUNT WERE THERE BEFORE THE ASSESSING OFFICER, HENCE, NO ADVERSE INFERENCE IN THIS REGARD SHOULD BE DRAWN ON THE BASIS THAT LD. CIT(A) HAS BASED ITS FINDINGS ON ADDITIONAL EVIDENCE , UPON WHICH , THE ASSESSING OFFICER WAS NOT GIVEN OPPORTUNITY TO MAKE H IS COM M ENTS. 5 ITA NO. 4 9 / RPR /201 3 8 . UPON CAREFUL CONSIDERATION, WE ARE NOT IN AGREEMENT WITH THIS SUBMISSION OF THE LD COUNSEL OF THE ASSESSEE , WHEN THE ADDITIONAL EVIDENCES ARE PRODUCED BEFORE THE LD. CIT(A) AND LD. CIT(A) TAKE S INTO ACCOUNT IN HIS ADJUDICATION , I T IS INCUMBENT UPON THE LD. CIT(A) TO GIVE THE ASSESSING OFFICER AN OPPORTUNITY TO GO THROUGH THE ADDITIONAL EVIDENCES. THIS IS IN ACCORDANCE WITH RULE 46A OF THE ACT. FURTHERMORE, RULE OF NATURAL JUSTICE ALSO MANDATES THE SAME. ACCORDINGLY, WE REMIT THIS IS SUE FOR COMPUTATION OF CLOSING STOCK OF THE ASSESSEE TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH TAKING INTO ACCOUNT THE SUBMISSIONS AND EVIDENCES GIVEN TO THE LD. CIT(A) . NEEDLESS TO ADD, ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEAR D. 9 . THE GROUND NO.2 IN THIS APPEAL, READS AS UNDER: - WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 54,852/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FINANCE CHARGES. 10 IN THIS CASE, THE A.O NOTED THAT AN AMOUNT OF RS.54,852/ - WAS PAID AS FINANCE CHARGES TO M AGMA FINCORP LIMITED WITHOUT MAKING TDS; THAT THE APPELLANT HAS EXPLAINED THAT AS PER AGR EEMENT, THE FINANCE WAS UNDER HIRE PURCHASE BASIS HENCE NO TDS IS REQUIRED AS PER CBDT'S INSTRUCTION 142 5 DATED 16.11.1981; THAT EFFECTIVELY, THE AMOUNT PAID RELATES TO FINANCE CHARGES, WHICH ARE IN THE NATURE OF INTEREST AND NOT PART OF HIRE 6 ITA NO. 4 9 / RPR /201 3 CHARGES; THAT THE OWNERSHIP OF THE VEHICLE IS WITH THE APPELLANT; THAT THEREFORE, THE ABOVE AMOUNT OF RS.54,852/ - IS DISALLOWED U/S 40(A )(IA) . 11 . ON ASSESSEES APPEAL, THE LD. CIT(A) HELD AS UNDER: - 10. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND WRITTEN SUBMISSIONS OF THE APPELLANT. IT IS NOT THE CASE OF THE APPELLANT THAT IT HAD PURCHASED GOODS/ASSET FROM MAGMA FINCORP LIMITED, IN FACT, THE SAID COMPANY HAS PITCHED IN ONLY AFTER THE APPELLANT HAD PURCHASED THE UNDERLYING ASSET FROM THE DEALER/MANUFACTURER AND THE SAID COMPANY HAS, IN A WAY, LENT MONEY TO THE APPELLANT, THEREFORE, THE ARGUMENT OF THE APPELLANT DOES NOT HOLD GOOD. HOWEVER, I FIND THAT IT IS UNDISPUTED FACT THAT THE INTEREST ON LO AN HAD BEEN PAID BY THE ANT DURING THE YEAR ITSELF. IT IS SETTLED POSITION OF LAW THAT THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT HAD NO APPLICATION IN RESPECT OF THE PAYMENTS MADE, SINCE THEY WERE APPLICABLE ONLY IN RESPECT OF THE EXPENDITURE SHOWN A S PAYABLE. AS PER THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERAGES (P) LTD. V. CIT (2007) 293 ITR 226 (SC), SINCE THE IMPUGNED PAYMENT MADE BY THE APPELLANT , HAVING ALREADY SUFFERED TAX IN THE HANDS OF THE RECIPIENT , RECOVERY OF THE TAX ON THE SAID SUM, COULD NOT AGAIN BE MADE FROM THE PAYER VIZ. T HE APPELLANT . THE ONLY REASON FOR MAKING THE ADDITION, AS GIVEN BY THE ASSESSING OFFICER, WAS THAT THE APPELLANT HAD NOT DEDUCTED TAX AT SOURCE ON THE SAID PAYMENT OF FINA NCE CHARGES MADE BY THE APPELLANT. THE BARE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, PROVIDES FOR NON - DEDUCTION OF AN AMOUNT WHICH REMAINS PAYABLE TO A RESIDENT IN RESPECT OF FEES FOR TECHNICAL SERVICES ETC. IN MY CONSIDERED VIEW, IT IS NOT APPLICABLE WHERE EXPENDITURE WAS PAID. THIS PROVISION IS APPLICABLE ONLY IN CASES WHERE THE PAYMENTS ARE DUE AND OUTSTANDING. THE WORD PAYABLE IS NOT DEFINED THOUGH THE WORD PAID IS DEFINED UNDER SEC. 43(2) TO MEAN ACTUALLY PAID OR INCURRED. HENCE, BY IMPLICATIO N, THE WORD PAYABLE DOES NOT MEAN ACTUALLY PAID OR INCURRED. THEREAFTER, LD. CIT(A) HAS PLACED RELI ANCE UPON SEVERAL CASE - LAWS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 7 ITA NO. 4 9 / RPR /201 3 12 AGAINST THE ABOVE ORDER, THE REV E NUE IS IN APPEAL BEFORE US. 13 WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THERE ARE CONFLICTING CASE LAWS FROM DIFFERENCE HON'BLE HIGH COURT S WITH REGARD TO PROPOSITION THAT SECTION 40(A)(IA) IS ATTRACTED ONLY TOWARDS THE SUM PAYABLE AND NOT THE SUMS WHICH HAVE BEEN PAID UPTO THE CLOSE OF FINANCIAL YEAR . HOWEVER, WE FIND THAT THERE IS NO JURISDICTIONAL HIGH COURT DECISION IN THIS REGARD. IN THESE CIRCUMSTA N CES, IN OUR C ONSIDERED OPINION, THE HON'BLE APEX DECISION COURT IN THE CASE OF CIT VS. M/S. VEGETABLES PRODUCTS LTD. (88 ITR 192) WILL BE APPLICABLE FOR THE PROPOSITION THAT IF TWO VIEW S ARE POSSIBLE, ONE IN FA V OU R OF THE ASSESSEE SHOULD BE APPLIED. W E FIND THAT THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LTD ( 357 ITR 642 ) HAS HELD THAT THE PROVISIONS OF SEC. 40(A)(IA) ARE APPLICABLE ONLY TOWARDS THE PAYMENTS WHICH ARE OUTSTANDING AT THE CLOSE OF THE YEAR. ADMITTEDLY, IN THE PRESENT CASE BEFORE U S, T HE SUMS INVOLVED HAVE ALREADY BEEN PAID, HENCE, THE PROVISIONS OF SEC. 40(A)(IA) ARE NOT APPLICABLE HERE. 14 IT IS ALSO TO BE NOTED THAT THE HON'BLE APEX COURT HAS DISMISSED THE SLP AGAINST THE ABOVE ORDER OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VICTOR SHIPPING SERVICES (P) LTD. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE UPHOLD THE ORDER OF LD. CIT(A) . 8 ITA NO. 4 9 / RPR /201 3 15 IN THE RESULT, THIS APPEAL FILED BY THE REVENU E STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 22 /04/2016 . SD/ - SD/ - ( PARTHA SARATHI CHAUDHURY ) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 ND APRIL , 201 6 . VR/ - COPY TO: 1 . THE ASSESS E E. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., RAIPUR.