THOMAS BAKER (CHEMICALS) P.LTD, MUMBAI V. DCIT 4(3)(1), MUMBAI

ITA 583/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8006 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ABHIRAMA KARTHIKEYAN LD
• Assessee Lawyers: KSHIPRA SINGHVI LD
• Section: 143(3)

Judgement Text

ITA NO.583/MUM/2017 THOMAS BAKER (CHEMICALS) PRIVATE LIMITED ASSESSMENT YEAR :2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI PAWAN SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.583/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) THOMAS BAKER (CHEMICALS) P VT. LTD. 4, BHARAT MAHAL 86, NETAJI SUBHASH ROAD, MARINE DRIVE, MUMBAI-400 002. / VS. DY. COMMISSIONER OF INCOME TAX-4(3)(1) MUMBAI. ./ ./PAN/GIR NO. AAACT-4221-B ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ASSESSEE BY : MS. KSHIPRA SINGHVI- LD. AR REVENUE BY : S. ABHIRAMA KARTHIKEYAN - LD.DR / DATE OF HEARING : 02/01/2019 / DATE OF PRONOUNCEMENT : 08/01/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-9, MUMBAI [CIT(A)], APPEAL NO. CIT(A)-9/CIR.4/285/2015-16 DATED 21/10/2016.THE REVISED GROUNDS FILED BEFORE US READ S AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LD. ASSESSING ITA NO.583/MUM/2017 THOMAS BAKER (CHEMICALS) PRIVATE LIMITED ASSESSMENT YEAR :2012-13 2 OFFICER OF RS.22,06,916/- ON ACCOUNT OF DIFFERENCE IN THE VALUE OF OPENING AND CLOSING STOCK OF FINISHED GOODS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN NOT APPRECIATING THAT OPENIN G STOCK AND CLOSING STOCK COMPRISE OF DIFFERENT ITEMS, HAVING DIFFERENT VALUE S, AND HENCE AVERAGE RATE OF OPENING STOCK CANNOT BE APPLIED FOR CLOSING STOC K VALUATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT IS A PROFIT-MAKING COMPANY, AND HENCE ADDITION MADE TO T HE CLOSING STOCK IN THE ASSESSMENT FOR AY 2012-13 WOULD BE TAX NEUTRAL. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF COMMISSION RS.3,62,604/- PAID TO M/S THOMAS BAKER BIO SCIENCE PVT. LTD., WITHOUT APPRECIATING THAT COMMISSION PAID WAS FOR SELLING A PPELLANTS PRODUCTS IN THE STATE OF KARNATAKA. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DE PUTY COMMISSIONER OF INCOME TAX-4(3)(1), MUMBAI [AO] IN SCRUTINY ASSESSMENT U/S 143(3) ON 26/03/2015 WHEREIN THE INC OME OF THE ASSESSEE WAS DETERMINED AT RS.83.84 LACS AFTER CERT AIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.54.0 4 LACS FILED BY THE ASSESSEE ON 29/09/2012. AS EVIDENT FROM GROUNDS OF APPEAL, THE ADDITION OF RS.23.06 LACS ON ACCOUNT OF VALUATION O F CLOSING STOCK AND ANOTHER ADDITION OF RS.3.62 LACS, BEING COMMISSION PAID TO RELATED PARTY IS THE SUBJECT MATTER OF THIS APPEAL. DURING IMPUGN ED AY, THE ASSESSEE BEING RESIDENT CORPORATE ENTITY WAS STATED TO BE ENGAGED IN MANUFACTURING & TRADING OF LABORATORY CHEMICALS. 2.1 DURING ASSESSMENT PROCEEDINGS, THE PERUSAL OF F INANCIAL STATEMENTS REVEALED THAT THE ASSESSEE REFLECTED OPE NING STOCK AT RS.430 LACS AND CLOSING STOCK AT RS.522 LACS. ACCORDINGLY, THE ASSESSEE WAS ASKED TO PROVIDE THE REQUISITE DETAILS IN SUPPORT O F THE SAME. UPON PERUSAL OF ASSESSEES REPLY, IT WAS OBSERVED THAT A VERAGE RATE PER LITER OF CERTAIN FINISHED GOODS LYING IN CLOSING STOCK WAS T AKEN BY THE ASSESSEE ITA NO.583/MUM/2017 THOMAS BAKER (CHEMICALS) PRIVATE LIMITED ASSESSMENT YEAR :2012-13 3 AT RS.122/- PER LITER WHEREAS THE RATE IN OPENING S TOCK WAS RS.137/- PER LITER. ADOPTING THIS RATE OF 137/- ON FINISHED GOOD S OF 157476 LITER, THE CLOSING STOCK VALUATION WAS ENHANCED BY RS.23.06 LA CS WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. 2.2 THE DISALLOWANCE OF COMMISSION STEM FROM THE FA CT THAT THE ASSESSEE CLAIMED COMMISSION PAYMENT OF RS.32.08 LAC S IN THE PROFIT & LOSS ACCOUNT. OUT OF THIS AMOUNT, AN AMOUNT OF RS.3 .62 LACS WAS STATED TO BE PAID TO A RELATED ENTITY NAMELY THOMAS BAKER BIO SCIENCE PVT. LTD. (EARLIER KNOWN AS MISS CHERIE COSMETICS PVT. LTD.). THE COMMISSION WAS STATED TO BE PAID AT THE RATE OF 6% OF TOTAL BUSINE SS OF RS.55.92 LACS GENERATED BY THE SAID ENTITY IN THE STATE OF KARNATAKA . HOWEVER, NOT SATISFIED, LD. AO FORMED AN OPINION THAT THE PAYMEN T WAS PAID TO AVOID TAX LIABILITY SINCE THE PAYEE WAS LOSS-MAKING ENTIT Y AND FURTHER, THERE WAS NO EVIDENCE OF RENDERING OF ANY SERVICES BY THE AFO RESAID ENTITY. THEREFORE, THE AFORESAID PAYMENT OF RS.3.62 LACS WA S DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 2.3 BOTH THE ADDITIONS, UPON CONFIRMATION BY FIRST APPELLATE AUTHORITY, IS UNDER APPEAL BEFORE US. 3. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], MS. KSHIPRA SINGHVI, DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN TH E PAPER- BOOK SUBMITTED THAT THE ASSESSEE FOLLOWED CONSISTENT MET HOD OF ACCOUNTING TO VALUE THE STOCK WHICH WAS ACCEPTED BY THE REVENUE IN ALL THE YEARS. THE ATTENTION WAS BROUGHT TO THE FACT TH E ADJUSTMENT MADE IN CLOSING STOCK IN THE IMPUGNED AY WOULD RESULT INTO CORRESPONDING HIGHER OPENING STOCK IN THE NEXT YEAR WHICH WOULD REDUCE T HE PROFIT OF THE NEXT YEAR AND THEREFORE, THE ADJUSTMENT WAS TAX NEUTRAL AND HENCE, NOT ITA NO.583/MUM/2017 THOMAS BAKER (CHEMICALS) PRIVATE LIMITED ASSESSMENT YEAR :2012-13 4 JUSTIFIED. IN SUPPORT OF THE COMMISSION PAYMENTS, O UR ATTENTION HAS BEEN DRAWN, INTER-ALIA, TO THE AGREEMENT ENTERED INTO BY THE ASSESSEE TOWAR DS RENDERING OF SERVICES. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE [DR] SUPPORTED THE FINDINGS OF LOWER AUTHORITIES. 4. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN TH E PAPER-BOOK. SO FAR AS THE VALUATION OF CLOSING STOCK IS CONCERNED, WE FIND THAT THE ASSESSEE WAS FOLLOWING CONSISTENT METHOD OF ACCOUNTING TO VA LUE THE SAME. NOTHING ON RECORD SUGGEST THAT THERE WAS ANY DIFFER ENCE IN QUANTITATIVE DETAILS OF CLOSING STOCK OF THE IMPUGNED AY AND QUA NTITATIVE DETAILS OF OPENING STOCK OF IMMEDIATELY NEXT YEAR. THIS BEING THE CASE, WE FIND SUBSTANTIAL FORCE IN THE ARGUMENT OF LD. AR THAT TH E VALUATION OF CLOSING STOCK WOULD BE TAX-NEUTRAL SINCE THE ASSESSEE WAS P ROFIT-MAKING COMPANY IN THE NEXT YEAR ALSO WHICH IS EVIDENT FROM ASSESSMENT ORDER OF NEXT YEAR. THE ACCOUNTS OF THE ASSESSEE WERE SUBJEC TED TO TAX AUDIT WHICH CONTAIN NOTHING ADVERSE AS TO VALUATION OF ST OCK. NO DISCREPANCY HAS BEEN FOUND IN THE QUANTITATIVE DETAILS OF STOCK . THIS BEING THE CASE, THE ADDITION OF RS.23.06 LACS COULD NOT BE SUSTAINE D. BY DELETING THE SAME, WE ALLOW THIS GROUND OF APPEAL. 5. SO FAR AS COMMISSION PAYMENT TO THE RELATED PART Y IS CONCERNED, WE FIND THAT THE ASSESSEE HAS PAID ONLY RS.3.62 LAC S TO THE SAID ENTITY OUT OF TOTAL COMMISSION PAYMENT OF RS.32.08 LACS AS CLAIMED BY THE ASSESSEE DURING IMPUGNED AY WHICH DEMONSTRATE THAT SIMILAR COMMISSION WAS BEING PAID TO THE OTHER ENTITIES AS WELL. THE COMMISSION WAS BEING PAID TO THE SAID PAYEE REGULARLY PURSUANT TO AGREEMENT DATED 22/04/1998, A COPY OF WHICH HAS BEEN PLACED ON RECO RD. UPON PERUSAL OF ITA NO.583/MUM/2017 THOMAS BAKER (CHEMICALS) PRIVATE LIMITED ASSESSMENT YEAR :2012-13 5 THE SAME, WE FIND THAT THE SAID AGENT WAS TO RENDER CERTAIN SERVICES AS TO RECEIPT / ISSUANCE OF MATERIAL AS ENUMERATED IN APPENDIX-I OF THE AGREEMENT. THE COMMISSION IS STATED TO BE PAID @4% OF BULK SALES AND @6% OF OTHER SALES AGAINST BUSINESS GENERATED IN ST ATE OF KARNATAKA, WHICH IS ALSO NOT UNDER DISPUTE. THE ASSESSEE HAS P AID COMMISSION IN THE RANGE OF 2% TO 20% TO OTHER ENTITIES. FURTHER, THE PERUSAL OF FINANCIALS OF THE PAYEE FOR IMPUGNED AY AS PLACED O N RECORD REVEAL THAT IT HAS REFLECTED PROFIT OF RS.18.70 LACS IN THE BOO KS AS AGAINST THE OBSERVATION OF LD. AO THAT THE PAYEE WAS LOSS-MAKIN G COMPANY. KEEPING IN VIEW THE OVERALL FACTUAL MATRIX, THE IMP UGNED ADDITION COULD NOT BE SUSTAINED. WE ORDER SO. 6. RESULTANTLY, THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JANUARY, 2019. SD/- SD/- (PAWAN SINGH) (MA NOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 08/01/2019 SR.PS, JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. + , '%- , - , / DR, ITAT, MUMBAI 6. , ./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.