ITO WD 2(3)(4), MUMBAI V. YASH SFETY PRODUCTS (I) LTD, MUMBAI

ITA 4978/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8400 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: HEENA JOSHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 4978/MUM/2011 ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER WARD 2(3)(4) ROOM NO.555, AAYAKAR BHAVAN M.K. ROAD, NEW MARINE LINES MUMBAI-400 020. VS. M/S. YASH SAFETY PRODUCTS (INDIA) LTD. 194, RAVINDRA ANNEX DINSHAW VACCHA ROAD, CHURCHGATE MUMBAI-400 020. PAN NO. AAACY 0365 R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMARDEEP RESPONDENT BY : HEENA JOSHI DATE OF HEARING : 05.11.2012 DATE OF PRONOUNCEMENT : 09.11.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 18.4.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING VALUATION OF CLOSING STOCK. 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSM ENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD VALUED STOCK COSTING RS.18.00 LACS AT RS.1,06,800/-. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE BASIS OF VALUATION OF CLOSING STOCK. THE A SSESSEE ITA NO.4978/M/11 A.Y.: 07-08 2 EXPLAINED THAT SINCE THE YEAR 2002-03, THE ASSESSEE HAD SLOWED DOWN ITS OPERATIONS AND, THEREFORE, THE SELLING OF LOCKS BECAM E DIFFICULT AS IT WAS NOT POSSIBLE TO PROVIDE INSTALLATION AND AFTER SALES SERVICES. THERE WAS ALSO CHANGE IN THE TREND IN THE MARKET IN WHICH THE RE WAS DEMAND FOR LOCKS WITH BACK SET OF 50 + MM WHEREAS THE ASSESSEE HA D LOCKS WITH BACK SET OF 40-45MM. FURTHER, CHEAP PRODUCTS FROM CHINA ALSO AFFECTED THE PRICES. THE ASSESSEE HAD, THEREFORE, VALUED THE STOCK OF MORTISE LOCK SET OF 534 AT RS.200/- PER LOCK. THE AO, HO WEVER, DID NOT ACCEPT THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM TH AT THE ASSESSEE HAD NOT SOLD ANY LOCK DURING THE YEAR AND THERE WAS NO BASIS FOR VALUATION OF CLOSING STOCK. THE AO FURTHER OBSERVE D THAT THE STOCK HAS TO BE VALUED AT COST PRICE OR MARKET PRICE WHICHEVER WAS LOWER AND NET REALIZABLE VALUE ADOPTED BY THE ASSESSEE WAS NOT PERMITTED. THE AO, THEREFORE, REJECTED THE VALUATION MADE AND A DDED THE DIFFERENCE TO THE CLOSING STOCK WHICH CAME TO RS.16,93,200/ - (WRONGLY MENTIONED IN THE ASSESSMENT ORDER AS RS.24,52,035/-). 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE VALUATION OF CLOSING STOCK AT COST PRI CE OR NET REALIZABLE VALUE WHICHEVER IS LOWER IS AN ACCEPTED METHOD AS PER ACCO UNTING STANDARDS AS-2. IT WAS ALSO SUBMITTED THAT SINCE THE STO CK WAS OBSOLETE AND NON-MOVING, THE NET REALISABLE VALUE HAD BEEN TAKEN AT MUCH LOWER FIGURE. THE ASSESSEE REFERRED TO THE JUDGMENT OF HON'BLE ITA NO.4978/M/11 A.Y.: 07-08 3 HIGH COURT OF BOMBAY IN THE CASE OF ALFA LAVAL INDIA L TD. VS. DCIT (266 ITR 418) IN WHICH THE CLAIM OF THE ASSESSEE TO VALUE OBSOLETE AND NON-MOVING STOCK AT A VALUE MUCH LOWER THAN COST WAS ACCEP TED. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSE RVED THAT VALUATION OF INVENTORY AT COST PRICE OR NET REALIZABLE VALUE WAS AN ACCEPTED METHOD AS NET REALIZABLE VALUE WAS NOTHING BUT THE MARKET VALUE. CIT(A) FURTHER OBSERVED THAT SINCE UNSOLD STOCKS WERE ALSO LYING FOR MORE THAN 5 YEARS AND HAD BECOME OBSOLETE, THE ASSE SSEE WAS JUSTIFIED IN ADOPTING NET REALIZABLE VALUE AT MUCH L OWER FIGURE BASED ON EXPERIENCE IN BUSINESS AND PRINCIPLE OF CONSERVATISM. CIT(A), THEREFORE, DELETED THE ADDITION MADE BY AO AGGRIEVE D BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE STOCK WAS OBSOLETE AND NON-MO VING. IT WAS ALSO SUBMITTED THAT THERE WERE NO SALES IN THE EARLIER YEAR OR IN THE SUBSEQUENT YEARS FOR A PERIOD OF 5 YEARS. THE LD. AR PO INTED OUT THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2008-0 9, THE ASSESSEE HAD WRITTEN OFF THE BALANCE AMOUNT OF RS.1,06,80 0/- AS WAS CLEAR FROM SCHEDULE-5 OF AUDITED ACCOUNTS FOR THE SAID YE AR PLACED IN THE PAPER BOOK. IT WAS ALSO SUBMITTED THAT IN THE RETU RN OF INCOME FOR ASSESSMENT YEAR 2008-09, THE VALUE OF STOCK HAD BEEN SHOWN AT NIL WHICH HAD BEEN ACCEPTED BY AO AS NO FURTHER INTIMATION HAD BEEN ITA NO.4978/M/11 A.Y.: 07-08 4 RECEIVED FROM AO. IT WAS ACCORDINGLY URGED THAT THE ORD ER OF CIT(A) SHOULD BE CONFIRMED. 3.1 THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND PLACED RELIANCE IN THE FINDINGS GIVEN IN THE ASSESSMENT OR DER. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION MADE ON A CCOUNT OF VALUATION OF CLOSING STOCK. THE ASSESSEE WAS DEALING IN LOCK S. FOR THE RELEVANT YEAR, THE ASSESSEE HAD VALUED LOCKS COSTING RS.18.0 0 LACS AT RS.1,06,800/-. THE CASE OF THE ASSESSEE IS THAT THE LOCKS WE RE OBSOLETE AND NON-MOVING DUE TO NEW TREND IN THE MARK ET AND CHEAP LOCKS AVAILABLE FROM CHINA AND THEREFORE THE NET REAL IZABLE VALUE WAS SHOWN AT VALUE MUCH LOWER THAN COST. THE AO HAS REJECTED VALUATION MADE BY THE ASSESSEE ON THE GROUND THAT CLOSING STOCK COU LD NOT BE VALUED AT NET REALIZABLE VALUE. IN OUR VIEW, THE VA LUATION OF CLOSING STOCK ON COST PRICE OR NET REALIZABLE VALUE IS AN ACCEPTED METHOD AND, THEREFORE, CIT(A) HAS RIGHTLY REJECTED THE VIEW TAKEN BY THE AO THAT THE STOCK CANNOT BE VALUED AT NET REALIZABLE VALUE. HO WEVER, NET REALIZABLE VALUE HAS TO BE ADOPTED AFTER GIVING A P ROPER BASIS. IN THE PRESENT CASE, THE ASSESSEE HAS MADE VALUATION OF NET REALIZ ABLE VALUE ON THE BASIS OF EXPERIENCE IN THE MARKET. THE NET REA LIZABLE VALUE SHOWN BY THE ASSESSEE AT RS.1,06,800 IS QUITE REASONABLE AS IN THE ITA NO.4978/M/11 A.Y.: 07-08 5 RETURN FOR THE IMMEDIATE SUCCEEDING YEAR, THE VALUE OF THE SAME STOCK HAS BEEN SHOWN BY THE ASSESSEE AT NIL WHICH REMAINS ACCEPTED AS THERE IS NO ADDITION MADE BY THE DEPARTMENT TO THE R ETURNED INCOME FILED IN THE NEXT YEAR. IN VIEW OF THIS POSITION, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DELETING THE ADDIT ION MADE BY THE AO AND THE SAME, IS, THEREFORE, UPHELD . 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.11.2012 SD/- SD/- (H.L. KARWA ) PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 9.11.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.