SAMEERA ELECTRONICS P.LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 5023/MUM/2010

• Counselvise Citation: 502319914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: D B SHAH
• Keywords: Depreciation; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER. I.T.A. NO. 5023/MUM/2010. ASSESSMENT YEAR : 2007-08. SAMEERA ELECTRONICS PVT. LTD., ASSTT. COMMISSIONER OF EL-79, ELECTRONICS ZONE, VS. INCOME TAX, 10(3), BLOCK A, TTC INDUSTRIAL AREA, MUMBAI. MIDC, MAHAPE, NAVI MUMBAI 400 709. PAN AAECS 3410H. APPELLANT. RESPONDENT. APPELLANT BY : SHRI D.B. SHAH. RESPONDEN T BY : SHRI V.V. SHASTRI. DATE OF HEARING : 08-08-2011. DATE OF PRONOUNCEMENT : 12-08-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-22, MUMBAI DATED 21-04-2010 AND THE SO LITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS.16,73,614/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF VALUE OF CLOSING STOCK. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF DEALING IN COMPUTER AND COMPUTER PERIPH ERALS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 15-11-2007 DECLARING TOTAL INCOME AT NIL. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS NOTICED BY THE 2 ITA NO. 5023/MUM/2010 ASSESSMENT YEAR : 2007-08. AO THAT SOME OF THE ITEMS LYING IN THE CLOSING STOC K WERE VALUED BY THE ASSESSEE AT NIL AS AGAINST THEIR COST OF ACQUISITION OF RS.16,7 3,614/-. THE STAND OF THE ASSESSEE IN THIS REGARD AS TAKEN BEFORE THE AO WAS THAT THE SAID ITEMS HAD BECOME OBSOLETE DUE TO CHANGE IN TECHNOLOGY AND SINCE THEY HAD VERY NEGLIGIBLE REALIZABLE VALUE, THEIR VALUE WAS TAKEN AS NIL. THIS STAND OF THE ASS ESSEE WAS NOT FOUND ACCEPTABLE BY THE AO AND HE MADE THE ADDITION OF RS.16,73,643/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INCREASING THE VALUE OF CLOSING STOCK T O THAT EXTENT FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5.3 OF HIS ORDER PAS SED U/S 143(3) : THE DETAILS OF INVENTORY HAVE BEEN CONSIDERED. FR OM THE INVENTORY IT IS SEEN THAT THE ASSESSEE IS HAVING MONITOR, KEY BO ARD, CD WRITER, HARD DISC, ETC., WHICH HAVE BEEN SHOWN AT THE COST. FURTHER, M ORE THE ASSESSEE IS STILL IS HAVING THE POSSESSION OF SUCH STOCK. FURTHER, THE F AILED TO FURNISH ANY EXPLANATION FOR WRITING OFF OF SUCH STOCK BY TAKING THE CLOSING STOCK VALUE AT NIL. IN ABSENCE OF ANY PROPER EXPLANATION IN RESP ECT OF WRITTEN OFF OF SUCH HUGE STOCK, THE CLAIM OF THE ASSESSEE IN THIS REGAR D IS NOT ACCEPTABLE. FURTHER MORE THE ASSESSEE HAS ALSO FAILED TO SUBMIT THE MET HOD ADOPTED TO VALUE SUCH STOCK AT NIL. BY MERELY FURNISHING THE DETAILS OF S TOCK WHICH HAVE BEEN WRITTEN OFF DOES NOT SUFFICE THE PURPOSE. IN ABSENC E OF ANY DETAILS AND EVIDENCES AND IN LIGHT OF THE DECISION OF HONBLE S UPREME COURT DECISION IN THE CASE OF CIT VS. CALCUTTA AGENCY LTD. (19 ITR 19 1) WHEREIN IT WAS HELD THAT THE ONUS OF PROVING NECESSARY FACTS IN ORDER T O AVAIL THE DEDUCTION IS ON THE ASSESSEE. IF THE ASSESSEE FAILS TO ESTABLISH TH E FACTS NECESSARY TO SUPPORT HIS CLAIM FOR DEDUCTION, THE CLAIM FOR DEDUCTION IS NOT ADMISSIBLE. THE ONUS LIES ON THE ASSESSEE TO PROVE THE NECESSARY FACTS C LAIMED BY IT. FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION OF ANDHRA P RADESH HIGH COURT IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF INDIA LTD. 256 ITR 701 AND ALSO IN THE CASE OF CIT VS. IMPERIAL CHEMICAL INDUSTRIES (I ) PVT. LTD. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), AN A PPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS). DURING TH E COURSE OF APPELLATE PROCEEDINGS, THE SUBMISSION MADE BEFORE THE AO WAS REITERATED ON BEHALF OF THE ASSESSEE. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT(APPEALS) THAT ALL THESE ITEMS LYING IN THE CLOSING STOCK WERE FINALLY SOLD ON 10-02-2010 FOR THE TOTAL 3 ITA NO. 5023/MUM/2010 ASSESSMENT YEAR : 2007-08. CONSIDERATION OF R.32,750/- ONLY. IT WAS CONTENDED THAT THIS AMOUNT FINALLY REALIZED IN THE YEAR 2010 WAS SUFFICIENT TO SHOW THAT THE CO NCERNED ITEMS LYING IN THE CLOSING STOCK HAD BECOME OBSOLETE AND DID NOT HAVE ANY MARKET VALUE. 3. THE SUBMISSION MADE BY THE ASSESSEE WAS NOT FOUN D ACCEPTABLE BY THE LEARNED CIT(APPEALS) AND HE CONFIRMED THE ADDITION OF RS.16,73,614/- MADE BY THE AO FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.4 OF HIS IMPUGNED ORDER : I HAVE GONE THROUGH THE ASSESSMENT ORDER, PERUSED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSED THE CASE W ITH THE A/R OF THE APPELLANT. THE A.O. HAS MADE ADDITION OF RS.16,73,6 14/- BEING AN AMOUNT ON ACCOUNT OF STOCK WRITTEN OFF. THE A.O. NOTED THAT T HE INVENTORY INCLUDED MONITOR, KEY BOARD, CD WRITER, HARD DISC ETC. WHICH HAD BEEN SHOWN BY THE APPELLANT AT COST AND IT WAS STILL IN POSSESSION TH EREOF DURING THE RELEVANT PERIOD. IN CLOSING STOCK THE ASSESSEE HAD SHOWN THE VALUE OF THIS INVENTORY AS NIL, THE BASIS OF WHICH WAS NOT EXPLAINED BEFORE A. O. NOR ANY WORKING WAS GIVEN BEFORE A.O. FOR TAKING THE VALUE AS NIL. DURI NG THE COURSE OF APPELLATE PROCEEDINGS IT WAS STATED HAT IN THE LETTER DATED 0 9.11.2009 FILED BEFORE A.O. THE EXPLANATION WAS OFFERED. HOWEVER, ON PERUSAL OF THE LETTER DATED 09.11.2009 FILED BEFORE A.O. IT IS NOTED THAT IT HA S SIMPLY BEEN STATED THAT DUE TO DECLINE IN ORDERS AND HIGH RATE OF OBSOLENCE ASSOCIATED WITH FAST MOVING TECHNOLOGY, THE ASSESSEES STOCK OF RAW MATE RIAL BECAME OUT DATED WITH NO REALIZABLE VALUE AND HENCE IT WAS VALUED AT NIL. HOWEVER, THE APPELLANT FAILED TO EXPLAIN AS TO HOW THE STOCK WHI CH WAS IN ITS POSSESSION COULD BE VALUED AT NIL. FALACY OF THE CONTENTION OF THE APPELLANT IS FURTHER PROVED THAT IT HAS ADMITTED THAT THE SAME STOCK WAS SOLD IN FEB. 2010. THE APPELLANT WAS ASKED TO GIVE THE DETAILS OF ITEMS AL ONG WITH DATE OF PURCHASE/ACQUISITION WHICH IT COULD NOT DO EVEN DUR ING APPELLANT PROCEEDINGS ON THE GROUND THAT THERE WAS FIRE ON 17 .12.2005 DURING WHICH BOOKS OF ACCOUNT, INVOICES AND OTHER DOCUMENTS WERE COMPLETELY DESTROYED. HOWEVER, FROM THE PANCHNAMA AND FIRE REPORT ENCLOSE D IT IS NOTED THAT THE CONTENTS WHICH WERE DESTROYED IS SNOT GIVEN ELABORA TELY AND HENCE CANNOT BE CO-RELATED WITH THE STOCK DAMAGED OR BOOKS DESTROYE D. FURTHER, IF ALL THE BOOKS OF ACCOUNT AND RELEVANT MATERIAL WAS DESTROYE D THEN HOW THE APPELLANT HAS GIVEN THE DETAILS OF THE OBSOLETE STOCK AND FIL ED RETURN AFTER DULY GETTING ACCOUNT AUDITED. THE RETURN HAS BEEN FILED ON 15.11 .2007 WHILE THE DATE OF FIRE IS 17.12.2005. THE APPELLANT FURTHER SUBMITS T HAT THE VALUATION OF 4 ITA NO. 5023/MUM/2010 ASSESSMENT YEAR : 2007-08. INVENTORY AT NIL WAS BASED ON SOUND AND GENERALLY A CCEPTED ACCOUNTING POLICY WHICH IS COST OR REALIZABLE VALUE WHICHEVER IS LESS. HERE, IT MAY BE NOTED THAT THE APPELLANT HAS NEITHER VALUED THE INV ENTORY AT COST NOR AT A REALIZABLE VALUE, SINCE IT HAS VALUED THE STOCK AT NIL. THUS, THE VALUATION MADE BY THE APPELLANT IS UNSCIENTIFIC AND FAR AWAY FROM THE GENERAL ACCEPTED ACCOUNTING POLICY. THE APPELLANT FURTHER SUBMITS T HAT IT HAS MADE ALL POSSIBLE EFFORTS TO SELL THE ITEMS OF CLOSING INVEN TORY BUT COULD NOT GET POSITIVE RESPONSE FROM ANY PARTY. HOWEVER, IT FAILE D TO FURNISH COPY OF NEWS PAPER CUTTINGS THROUGH WHICH THE QUOTATIONS WERE IN VITED COPY OF TWO QUOTATIONS RECEIVED BY APPELLANT ARE FILED. HOWEVER , QUOTATION GIVEN BY ITANIUM COMPUTERS DATED 29.08.2007 IS VAGUE SINCE I T DOESNT MENTION THE ITEMS WHICH WERE TO BE SOLD. SIMILAR IS THE POSITIO N QUOTATION GIVEN BY CENTURY PERIPHERALS DATED 29.07.2007. THE APPELLANT HAS ALSO FILED FEW LETTERS FROM STOREKEEPER AND HEAD OF DEPARTMENT. HO WEVER, THESE BEING INTERNAL CORRESPONDENCE OF THE COMPANY HAVE NO INDE PENDENT EVIDENTIAL VALUE. THE APPELLANT HAS ALSO RELIED UPON FEW CASE LAWS WHICH ARE BASED ON DIFFERENT SET UP OF FACTS AND HENCE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. IN VIEW OF THE DISCUSSION AS ABOV E, IT IS NOTED THAT THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT THE VALUA TION OF ITS INVENTORY AT NIL AND SUBSEQUENTLY ITS WRITE OFF WAS BASED ON ANY SOU ND BASIS OR PRINCIPLE OF ACCOUNTING. THUS, THE APPELLANT FAILED TO JUSTIFY T HE EXPENDITURE CLAIMED IN VIEW OF DECISION OF HONBLE SUPREME COURT IN CASE C IT VS. CALCUTTA AGENCY LTD. (SUPRA). ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. IS UPHELD. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NO DOUBT TRUE THAT THE VA LUATION OF STOCK IN TRADE HAS TO BE MADE AT COST OR MARKET PRICE WHICHEVER IS LOWER. IT IS ALSO TRUE THAT IN CASE OF COMPUTER AND COMPUTER PERIPHERALS, THE ITEMS BECOM E OBSOLETE IN VERY SHORT SPAN OF TIME DUE TO CHANGE IN TECHNOLOGY AND THEIR MARKE T VALUES COME DOWN DRASTICALLY. HOWEVER, IT CANNOT BE ACCEPTED THAT TH E VARIOUS ITEMS LYING IN THE CLOSING STOCK OF THE ASSESSEE, A LIST OF WHICH IS G IVEN ON PAGES 10 AND 11 OF THE 5 ITA NO. 5023/MUM/2010 ASSESSMENT YEAR : 2007-08. PAPER BOOK OF THE ASSESSEE, WAS HAVING NO MARKET VA LUE AT ALL AS ON 31-02-2007 AS CLAIMED BY THE ASSESSEE. ON THE OTHER HAND, THE FAC T THAT THE ASSESSEE COULD REALIZE A SUM OF RS.32,750/- BY SELLING THE SAID ITEMS IN F EBRUARY, 2010 CLEARLY INDICATES THAT THE SAID ITEMS HAD A NET REALIZABLE VALUE IN T HE MARKET EVEN ON 31-03-2007 AND THAT TOO MUCH MORE THAN WHAT WAS REALIZED BY THE AS SESSEE IN FEBRUARY, 2010. THE ACT PRESCRIBES A RATE OF DEPRECIATION OF 60% ON COM PUTER AND COMPUTER PERIPHERALS TAKING INTO CONSIDERATION THE DRASTIC REDUCTION IN THEIR PRICES AS A RESULT OF RAPID CHANGE IN THE TECHNOLOGY. IF THE SAID RATE IS TAKEN INTO CONSIDERATION AND REVERSE WORKING IS MADE, THE VALUE OF ITEMS SOLD IN THE YEA R 2010 AT RS.32,750/- WOULD GIVE A PRICE OF ABOUT RS.5 LAKHS AS ON 31-03-2007. WE, THEREFORE, FIND IT FAIR AND REASONABLE TO ESTIMATE THE MARKET VALUE OF THE RELE VANT ITEMS LYING IN THE CLOSING STOCK AS ON 31-03-2007 AT RS.5 LAKHS AND RESTRICT T HE ADDITION MADE BY THE AUTHORITIES BELOW ON THIS ISSUE AT THAT FIGURE. NEE DLESS TO SAY THAT THIS VALUE INCLUDED IN THE CLOSING STOCK VALUE FOR THE YEAR UN DER CONSIDERATION WILL BE TAKEN AND INCLUDED IN THE VALUE OF CLOSING STOCK FOR THE IMMEDIATELY SUCCEEDING YEAR. 5. IN THE YEAR, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. \. ORDER PRONOUNCED ON THIS 12 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. PADVEKAR)) (P.M . JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 12 TH AUGUST, 2011. WAKODE 6 ITA NO. 5023/MUM/2010 ASSESSMENT YEAR : 2007-08. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY O RDER ASSTT. REGISTRAR, ITAT, MUMBAI BENC HES, MUMBA I.