DCIT, Hyderabad V. M/s Orient Longman PvtLtd., Hyderabad

ITA 595/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66393 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M V ANIL KUMAR SHRI M H NAIK
• Keywords: Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.529/HYD/2009 : ASSESSM ENT YEAR 2005-06 M/S. ORIEN T LONGMAN (P)LTD., HYDERABAD ( PAN - AAACO 2722 Q) V/S. JOINT COMMISSIONER OF INCOME - TAX RAGE 16, HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.595/HYD/2009 : ASSESSMENT YEAR 2005-06 JOINT COMMISSIONER OF INCOME- TAX RAGE 16, HYDERABAD V/S. M/S. ORIENT LONGMAN (P)LTD., HYDERABAD ( PAN - AAACO 2722 Q) (APPELLANT) (RESPONDENT) ASSESSEE BY DEPARTMENT BY : : SHRI M.V.ANIL KUMAR SHRI M.H.NAIK DATE OF HEARING 22.8.2012 DATE OF PRONOU NCEMENT 19.10.201 2 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE- FOR THE ASSESSMENT YEAR 2005-06 ARE DIRECT ED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 27.2.2009. SINCE COM MON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 2 ASSESSEES APPEAL : ITA NO.529/HYD/2009 : ASSESSMENT YEAR 2005-06 2. GROUND NO.1 TO 3 OF THE ASSESSEES APPEAL RELAT E TO DISALLOWANCE OF COMMSISION PAYMENT OF RS.3,93,061 TO NON-WHOLE T IME DIRECTORS. 3. BRIEFLY STATED, FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PUBLISHING AND SELLING BOOKS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING I NCOME OF RS.3,67,70,240. THE RETURN FILED BY THE ASSESSEE WAS PICKED UP FOR SCRUTINY BY ISSUING NOTICE UNDER S.143(2) OF THE ACT. IN THE COURSE OF SCRUTI NY, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE O F RS.3,93,061 TOWARDS COMMISSION PAYMENT TO NON-WHOLE TIME DIRECTORS. THE ASSESSING OFFICER FURTHER NOTICED FROM THE ANNUAL REPORT THAT COMMISS ION TO DIRECTOR WAS PAID AS A PERCENTAGE OF NET PROFIT. THE ASSESSING OFFIC ER THEREFORE, REQUESTED THE ASSESSEE TO FURNISH THE AGREEMENT WITH THE DIRECTOR S, THE DETAILS OF SERVICES RENDERED BY THE DIRECTORS, AND WHETHER SUCH SERVICE S WERE COVERED BY THE TERMS OF EMPLOYMENT. IN RESPONSE TO THE QUERY MADE BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE COMMISSION PAYMENT TO NON-WHOLE TIME DIRECTORS WAS APPROVED BY A RESOLUTION OF THE BOARD AND AS PER THE PROVISIONS OF THE COMPANIES ACT, 1956. THE ASSESSE E FURTHER CLARIFIED THAT NO AGREEMENT WAS ENTERED INTO WITH THE DIRECTORS IN RE SPECT OF COMMISSION PAYMENT. THE ASSESSING OFFICER, AFTER EXAMINING TH E BOARDS RESOLUTION, WAS OF THE VIEW THAT THE NON-WHOLE TIME DIRECTORS HAD N O CONTRACT OF EMPLOYMENT WITH THE COMPANY. THEREFORE, THE COMMISSION PAYMENT , NOT BEING CONTRACTUAL, ITS ALLOWABILITY HAS TO BE CONSIDERED AS PER THE PROVISIONS OF S.37 OF THE INCOME-TAX ACT. THE ASSESSING OFFICER OBSER VING THAT THE ASSESSEE HAS FAILED TO BRING ANY MATERIAL ON RECORD TO PROVE THA T THE NON-WHOLE TIME DIRECTORS HAVE RENDERED ANY SERVICES WHICH RESULTED IN THE IMPROVEMENT OF BUSINESS OF THE ASSESSEE, OPINED THAT THE COMMISSIO N PAID AS A PERCENTAGE OF ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 3 NET PROFIT IS NOTHING BUT DISTRIBUTION OF PROFIT. THE ASSESSING OFFICER HOLDING THAT THERE BEING NO MATERIAL TO SHOW THAT THE COMMI SSION PAYMENT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS , DISALLOWED THE SAME, AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. THE ASSESSEE CHALLENGED THE ADDITION BY FILING APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE CONTENDED T HAT THE TERM SALARY UNDER THE INCOME-TAX ACT AS WELL AS COMPANIES ACT I NCLUDES COMMISSION. THE PAYMENT OF COMMISSION HAVING BEEN WORKED OUT AS PER THE PROVISIONS OF COMPANIES ACT, 1956 AND IS AUTHORIZED BY THE BOARD AND APPROVED BY THE MEMBERS CANNOT BE DISALLOWED. THE ASSESSEE CONTENDE D THAT THE BOARD OF DIRECTORS TAKE CRUCIAL DECISIONS COLLECTIVELY AND A RE COLLECTIVELY RESPONSIBLE FOR THE GROWTH OF THE COMPANY, AND THEREFORE, IT IS NOT FOR THE ASSESSING OFFICER TO EVALUATE THEIR SERVICES FOR THE COMPANY. THE ASS ESSEE FURTHER CONTENDED THAT THE COMMISSION PAYMENT IS AN EXPENDITURE WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE COMPANY, AND THEREFORE, IT IS ALLOW ABLE. THE CIT(A), CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE TO PROVE THAT THE NON-WHOLE TIME DIRECTORS HAVE ACTUALLY REN DERED SERVICES, WHICH HAS RESULTED IN ENHANCEMENT OF PROFIT OF THE COMPANY DU RING THE RELEVANT PREVIOUS YEAR. THE CIT(A), FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS V/S. CIT (63 ITR 57), HELD THAT ASSESSEE HAVING FAILED TO PROVE REGARDING RENDERING OF SERVICES BY THE NON- WHOLE TIME DIRECTORS IN REAL TERMS, WHICH RESULTED IN IMPROVING THE PROFITABILITY OF THE COMPANY, PAYMENT OF COMMISSION CANNOT BE ALLOWED AS EXPENDITURE. 5. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WHILE MAKING HIS SUBMISSIONS VIRTUALLY REITERATED THE STA ND TAKEN BEFORE THE LOWER AUTHORITIES. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 4 SUBMITTED THAT HE TERM SALARY AS PROVIDED IN S.15 OF THE ACT, ALSO INCLUDES COMMISSION. THE LEARNED AUTHORISED REPRESENTATIVE F OR THE ASSESSEE SUBMITTED THAT THE BOARD OF DIRECTORS TAKE CRUCIAL DECISIONS COLLECTIVELY AND ALSO RESPONSIBLE FOR THE GROWTH OF THE COMPANY. THE REFORE, THE PAYMENT OF COMMISSION AS A PERCENTAGE OF PROFIT, HAVING BEEN A PPROVED BY THE BOARD CANNOT BE DISALLOWED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE ASSESSEE SINCE HAS FAILED TO PROVIDE ANY EVIDENCE T O PROVE THE FACT THAT THE PAYMENT OF COMMISSION WAS WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS, THE DISALLOWANCE OF EXPENDITURE WAS JUSTI FIED. HE THEREFORE, URGED FOR SUSTAINING THE ADDITION. 7. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATE RIALS ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THERE I S NO CONTRACT OF EMPLOYMENT BETWEEN THE ASSESSEE COMPANY AND NON-WHO LE TIME DIRECTORS. THEY WERE ALSO NOT PAID ANY FIXED REMUNERATION. THE BOARDS RESOLUTION DATED 15,5,2002, WHICH HAS BEEN EXTRACTED IN THE IMPUGNED ORDER OF THE CIT(A) PROVIDES FOR PAYMENT OF REMUNERATION/COMMISSION NOT EXCEEDING 1% OF THE NET PROFIT OF THE COMPANY. THE RESOLUTION DOES NOT HOWEVER, FIX ANY PARTICULAR SERVICE, FOR THE PERFORMANCE OF WHICH CO MMISSION IS PAID TO NON- WHOLE TIME DIRECTOR. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE BEFORE THE LOWER AUTHORITIES, TO SHOW THAT THE COMMISSION WAS PAID FOR RENDERING ANY SERVICE, WHICH RESULTED IN ENHANCING THE PROFITABIL ITY OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE APART FROM SUBMITTING THAT COMMISSION WAS PAID AS PER THE COLLECTIVE DECI SION OF THE BOARD, AND IN TERMS WITH THE PROVISIONS OF COMPANIES ACT, 1956, HAS NOT PRODUCED ANY EVIDENCE TO PROVE THAT THE NON-WHOLE TIME DIRECTORS HAVE RENDERED ANY SERVICE, FOR WHICH COMMISSION WAS PAID. PAYMENT OF COMMISSION CANNOT BE ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 5 ALLOWED AS AN EXPENDITURE SIMPLY BECAUSE, IT IS APP ROVED BY THE BOARD AND IT IS IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES A CT, 1956. AN EXPENDITURE WHICH FALLS WITHIN THE AMBIT OF S.37 OF THE ACT CAN BE ALLOWED, IF IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE I NCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE AF ORESAID VIEW OF THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE VIEW TAKE N BY THE LOWER AUTHORITIES, WHICH IS ACCORDINGLY SUSTAINED, AND THE GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. 8. GROUNDS NO.4 TO 7 OF THE ASSESSEE IN ITS APPEAL ARE IN RESPECT OF ADDITION OF AN AMOUNT OF RS.45 LAKHS ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 9. BRIEFLY THE FACTS ARE THAT THE ASSESSEE FOR TH E ASSESSMENT YEAR UNDER DISPUTE VALUED THE CLOSING STOCK AT RS.4,23,6 1,003. IN THE NOTES TO THE ACCOUNTS, THE ASSESSEE MENTIONED THAT THE CLOSING S TOCK OF BOOKS IS GENERALLY SHOWN AT REALISABLE VALUE BECAUSE OF VARIOUS FACTOR S. IT IS FURTHER MENTIONED THAT THE MANAGEMENT HAS FORMULATED AND STANDARDIZED THE METHOD FOR IDENTIFYING SLOW AND NON-MOVING STOCK OF BOOKS FOR THE PURPOSES OF VALUATION OF CLOSING STOCK. THE ASSESSING OFFICER ASKED THE A SSESSEE TO FURNISH THE WORKING OF THE CLOSING STOCK BY GIVING THE FOLLOWIN G DETAILS- (A) ACTUAL COST OF BOOKS INCLUDED IN THE CLOSING STOCK. (B) AMOUNT SHOWN IN PROFIT & LOSS ACCOUNT (C) IN CASE ACTUALLY THERE IS A CHANGE IN SYLLABUS W ITH RESPECT TO SUCH BOOKS WHICH HAVE BEEN INCLUDED IN CLOSING STOCK, WO RK OUT THE ACTUAL COST AND REALIZABLE VALUE SEPARATELY. ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 6 THE ASSESSEE REPLIED EXPLAINING THE POSITION AS TO VALUATION OF CLOSING STOCK IN THE FOLLOWING MANNER- THE CLOSING STOCK IS VALUED AS EXPLAINED EARLIER I N THE PREVIOUS YEARS AND EXPECTED FUTURE SALES. OUT COMPETITORS T RIED TO ADD NEW CHAPTERS TO GET THEIR BOOKS PRESCRIBED STATING THAT THEIR BOOKS IS BETTER THAN OTHERS. TO WITHSTAND SUCH COMP ETITION, THERE IS NEED TO ADD NEW CHAPTER FOR US AS WELL. ONCE A N EW CHAPTER IS ADDED THE OLD BOOKS BECOMES REDUNDANT. WHILE ASSESS ING FUTURE SALES, WE LOOK INTO THE FACTORS WHICH INFLUENCE THE FUTURE SALES SUCH AS: 1, CHANGE IN SYLLABI 2. COMPETITORS TITLES 3. PIRACY 4. NO/SLOW MOVING TITLES 5. CHANGE IN EDUCATION POLICY 6. POLITICAL UNCERTAINTY ETC. TAKING ALL THESE FACTORS INTO ACCOUNT, THE VALUATIO N OF STOCK IS DONE. THIS IS THE METHOD GENERALLY FOLLOWED IN THE PUBLISHING INDUSTRY WORLD OVER AND IN THE SAME METHOD FOLLOWED BY US. THE ACTUAL STOCK AS ON 31.03.2005 FOR ALL OUR 3121 TITLES IS 69,06,786 COPIES. THE TITLES CONSIDERED FOR VALUATI ON BASED ON THE FACTORS STATED ABOVE ARE 2445 AND THE COPIES CONSID ERED FOR VALUATION ARE 63,28,674 COPIES. ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 7 THERE WAS NO SALE IN 2004-05 FOR 675 TITLES PRINTED ABOUT 2 YEARS BACK AND THEREFORE WE HAVE NOT CONSIDERED STOCK REP RESENTING TO THESE TITLES FOR VALUATION. 10. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. AS THE ASSESSEE DID NOT FURNISH THE D ETAILS WITH THE TITLES, WHICH WERE CONSIDERED BY THE ASSESSEE AS REDUNDANT AND AS TO HOW THEY WERE VALUED. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE VALUATION DONE BY THE ASSESSEE IS PURELY PROVISIONAL AND BASED ON CONTING ENT EVENT LIKE ANTICIPATING COMPETITION FROM COMPETITORS, CHANGE IN SYLLABI, PO LITICAL UNCERTAINTY, ETC. THE REALISABLE VALUE HAS BEEN ARRIVED AT BY THE ASSESSE E, BY HEAVILY BANKING ON THE UNCERTAIN CONTINGENT EVENT IN GENERAL TERM. TH E ASSESSING OFFICER CAME TO A CONCLUSION THAT THE CLOSING STOCK HAS BEEN VAL UED AT A LESSER VALUE PROCEEDED, TO MAKE A FRESH VALUATION OF THE CLOSING STOCK BY ADOPTING HIS OWN METHOD, AS BELOW- 1. OPENING STOCK VALUED @ 4.28 IS CONSIDERED AS ST ILL LYING WITH HIM COMPRISING MAJOR PORTION OF CLOSING STOCK. 2. THE REMAINING CLOSING STOCK IS OUT OF CURRENT YE ARS PRODUCTION AND IS VALUED AT COST. BOOKS PRODUCED DURING THE YEAR 81,42,926 SALES DURING THE YEAR 65,95,709 CURRENT YEAR BOOKS INCLUDED IN THE CLOSING STOCK 1547217 VALUE AT THE @ RS.17.33 26813270 A ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 8 TOTAL QUANTITY OF CLOSING STOCK IN TRADE 69,06,786 CURRENT YEAR STOCK INCLUDED AS ABOVE & PURCHASED BOOKS AND JOURNALS 15,47,563 OPENING STOCK STILL INCLUDED IN THE CLOSING STOCK 53,59,223 VALUE @ 4.28 2,29,37,474 B VALUE OF BOOKS AND JOURNALS OF PURCHASED 1,47,101 C A+B+ C = 4,98,97,845 STOCK IN TRADE SHOWN IN CLOSING STOCK BY THE ASSESSEE = 4,23,61,003 DIFFERENCE = 75,36,842 THE ASSESSING OFFICER, HELD THAT THE ASSESSEE HAS U NDERVALUED THE STOCK TO THE EXTENT OF RS.75,36,842 AND ADDED THE SAME TO TH E TOTAL INCOME. 11. THE ASSESSEE CHALLENGED THE ADDITION BY FILIN G APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT IT WAS FOLLOWING THE SAME METHOD OF VALUATION CONSISTENTLY FROM YEAR TO YEAR. THE BOOKS PRINTED AND PUBLISHED IS GENERALLY FAR IN EXC ESS OF THE ANNUAL SALE REQUIREMENT. LATER EDITIONS OF THE SAME BOOKS ARE ALSO PRINTED FROM TIME TO TIME AFTER CARRYING OUT EDITORIAL AND OTHER CHANGES . IT WAS SUBMITTED THAT MANY OF THE STANDARD BOOKS CONFORMING TO THE SYLLAB I OF VARIOUS UNIVERSITIES ALSO BECOME REDUNDANT DUE TO CHANGE IN SYLLABI. IT WAS SUBMITTED THAT EXCEPTING IN CASES WHERE THE BOOKS ARE PRINTED DURI NG THE YEAR END, THE VALUE OF INVENTORY IS EQUAL TO SCRAP VALUE OF THE B OOKS. THEREFORE, TAKING ALL THESE FACTORS INTO CONSIDERATION ON A TITLE TO TITL E BASIS, THE VALUATION OF STOCK ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 9 IS MADE BASED ON PAST YEARS SALES AS WELL AS EXPEC TED FUTURE SALES. THE STOCK OF EACH TITLE IS VERIFIED AND VALUE EVALUATED ON A TITLE-WISE BASIS FOR THE ENTIRE INVENTORY. IT WAS FURTHER SUBMITTED THAT TH E ASSESSEE IS VALUING ITS CLOSING STOCK AT THE YEAR END BY APPLYING A FORMULA WHICH HAS BEEN FOLLOWED BY THE ASSESSEE CONSISTENTLY. THE FORMULA FOLLOWED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK IS- 1) IF STOCK IN HAND AS ON 31 ST MACH PERTAINS TO THE CURRENT YEARS PRINTING, THE STOCK IS VALUED AT 75% OF THE CURRENT YEARS PRINTING. 2) IF THE STOCK IN HAND INCLUDES/PERTAINS TO THE PR EVIOUS YEARS STOCK, THE STOCK IS VALUED AT 25% OF THE PREVIOUS Y EARS PRINTING. 3) IF THE STOCK IN HAND INCLUDES/PERTAINS TO THE ST OCK PRINTED OVER TWO YEARS BUT LESS THAN THREE YEARS, THE STOCK PERT AINING TO OVER TWO YEARS WILL BE VALUED AT 15% OF THE PREVIOUS YEA RS PRINTING. 4) IN ADDITION, PROPORTIONATE DIRECT EXPENSES PERTA INING TO THE FULL SALARIES OF OUR PRODUCTION PERSONNEL AND FIFTY PERC ENT OF THE SALARIES OF OUR EDITORIAL PERSONNEL ARE TAKEN INTO ACCOUNT WHILE ARRIVING AT THE VALUATION OF OUR STOCK. 12. IT WAS SUBMITTED BY THE ASSESSEE THAT A RIDER TO THE FORMULA ADOPTED FOR VALUATION OF STOCK IS THAT THE STOCK QU ANTITY OF EACH TITLE IS RESTRICTED TO SALES QUANTITY FOR THAT TITLE IN THE YEAR. IF, IN CASE OF A PARTICULAR TITLE, THE STOCK QUANTITY IS MORE THAN THE YEAR SAL ES QUANTITY, THEN THE STOCK QUANTITY OF THAT TITLE IS RESTRICTED TO THE SALES Q UANTITY OF THAT TITLE IN THE YEAR. IN SUPPORT OF THE CONTENTION, THE ASSESSEE SUBMITTE D BEFORE THE CIT(A) A CONSOLIDATED STOCK VALUATION STATEMENT AS ON 31.3.2 005. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND EXAM INING THE MATERIALS ON RECORD FOUND THAT THE ASSESSEE HSS ADVANCED AN ALTO GETHER DIFFERENT ARGUMENT BEFORE HIM, WHILE CLARIFYING ON VALUATION OF STOCK. BEFORE THE ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 10 ASSESSING OFFICER, THE ASSESSEE HAD STATED THAT ACT UAL STOCK AS ON 31.3.2005 IS FOR 3,121 TITLES NUMBERING 69,06,786 COPIES, OUT OF WHICH THE ASSESSEE HAS CONSIDERED 63,28,624, COVERING 2445 TITLES FOR VALU ATION, AND REST 675 TITLES WERE NOT CONSIDERED FOR VALUATION AS THEY WERE PRIN TED ABOUT TWO YEARS BACK AND THERE WERE NO SALES DURING THE YEAR. HOWEVER, BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE SUBMITTED HAT IN RESPECT OF STOCK PERTAINING TO THE CURRENT YEARS PRINTING, VALUATION IS MADE AT 75% O F THE COST, STOCK ARISING FROM PRINTING MADE IN PRECEDING PREVIOUS YEAR IS VA LUED AT 25% OF THE COST, AND IN RESPECT OF COST ARISING OUT OF PRINTING MADE MORE THAN TWO YEARS BUT LESS THAN THREE YEARS BACK IS VALUED AT 15% OF THE COST PRICE. FURTHER MORE, FOR THE PURPOSE OF VALUATION, THE STOCK QUANTITY OF EACH TITLE CANNOT EXCEED THE SALE QUANTITY OF THAT TITLE DURING THE PREVIOUS YEAR. THE CIT(A) FOUND THAT EVEN THOUGH THE ASSESSEE HIMSELF HAS DEVISED THE ME THOD OF VALUATION OF CLOSING STOCK AT 75% OF THE COST, BUT AS A RESULT O F THE RIDER PUT BY IT, THE ACTUAL VALUE OF THE STOCK IS REDUCED. THAT APART, T HE ASSESSEE NEVER REVEALED THAT METHOD OF VALUATION BEFORE THE ASSESSING OFFIC ER. 13. THE CIT(A) NOTICED THAT IN CASE OF CERTAIN TI TLES, LIKE ALLAUDDIN AND OTHER TALES, ROBINSON CRUSOE AND A TALE OF TWO CITIES, WHILE VALUING THE CLOSING STOCK, THE ASSESSEE HAS TAKEN LESSER NU MBER OF BOOKS THAN WHAT HAS BEEN PRINTED DURING THE CURRENT PREVIOUS YEAR A ND ACTUALLY LYING IN STOCK. IN RESPECT OF EIGHT TITLES UNDER THE NAME, A MAGIC PLACE TEACHERS BOOK, THOUGH THE ENTIRE STOCK ARISES FROM CURRENT PREVIOU S YEARS PRINTING, BUT WHILE VALUING THE CLOSING STOCK, NOT A SINGLE PIECE HAS B EEN TAKEN INTO ACCOUNT. THE CIT(A) ALSO NOTICED THAT BEFORE THE ASSESSING OFFIC ER, THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS CONSIDERED 63,28,67 4 COPIES COVERING 2445 TITLES FOR THE PURPOSE OF VALUATION OF CLOSING STOC K ARRIVED AT RS.4,23,61,003. HOWEVER, IN THE CONSOLIDATED STOCK STATEMENT FURNIS HED AT THE FIRST APPELLATE STAGE, THE CLOSING STOCK VALUATION OF RS.4,23,61,00 3 WAS SHOWN TO BE FOR ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 11 26,18,572 NUMBER OF BOOKS,. DUE TO THE AFORESAID D IFFERENCES AND DISCREPANCIES, THE CIT(A) HELD THAT THE VALUATION O F CLOSING STOCK MADE BY THE ASSESSEE CANNOT BE ACCEPTED, AND TO ARRIVE AT THE V ALUE OF THE CLOSING STOCK, ESTIMATION HAS TO BE MADE. THE CIT(A) FURTHER DID NOT CONSIDER THE METHOD ADOPTED BY THE ASSESSING OFFICER TO VALUE THE CLOSI NG STOCK TO BE PROPER, SINCE THE ASSESSING OFFICER HAS PRESUMED THAT THE OPENING STOCK OF THE GOODS, ARE STILL LYING WITH THE ASSESSEE AND THE REMAINING CL OSING STOCK ALONE IS OUT OF THE CURRENT YEARS PRODUCTION. THE CIT(A) ALSO HE LD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ADOPTING THE AVERAGE PRICE OF RS.4.28 IN RESPECT OF OPENING STOCK AND AVERAGE PRICE OF RS.6.13 IN RESP ECT OF THE CLOSING STOCK WHEN THE STOCK WITH THE ASSESSEE COMPRISES OF TITLE S HAVING DIFFERENT PRICES. THE CIT(A) FINALLY ESTIMATED THE UNDERVALUATION OF CLOSING STOCK AT RS.45 LAKHS, AND DIRECTED THE ASSESSING OFFICER TO RESTRI CT THE ADDITION MADE BY HIM ON THIS ACCOUNT TO THIS FIGURE. 14. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A ), REVENUE RAISED GROUNDS ON THIS ISSUE IN ITS APPEAL, WHEREAS THE AS SESSEE IS IN APPEAL NOT SATISFIED WITH THE RELIEF GRANTED AND AGGRIEVED BY THE ADDITION SUSTAINED. 15. THE LEARNED AUTHORISED REPRESENTATIVE, REITERA TING THE STAND TAKEN BEFORE THE FIRST APPELLATE AUTHORITIES SUBMIT TED BEFORE US THAT DUE TO VARIOUS FACTORS LIKE CHANGE IN SYLLABI, COMPETITORS TITLES, PIRACY, CHANGE IN EDUCATION POLICY, ETC., THE STOCK OF BOOKS WHICH AR E PRINTED ABOUT TWO YEARS BACK HAVE ABSOLUTELY NO VALUE AND RATHER THEY ARE AS GOOD AS SCRAP. THEREFORE, THEY ARE NOT CONSIDERED FOR VALUATION OF STOCK. THE LEARNED AUTHORISED REPRESENTATIVE, SUBMITTED THAT THE ASSES SEE HAS THEREFORE, DEVISED A FORMULA FOR VALUATION OF CLOSING STOCK, W HICH IS BEING CONSISTENTLY FOLLOWED BY IT FROM YEAR TO YEAR AND THE FORMULA AD OPTED BY THE ASSESSEE FOR ADOPTING THE VALUATION OF CLOSING STOCK IS GENERAL LY FOLLOWED IN THE PUBLICATION ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 12 INDUSTRY AND IT IS ALSO AS PER THE ACCOUNTING STAND ARDS. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT CLOSING ST OCK VALUED BY IT BY APPLYING THE AFORESAID METHOD IN PREVIOUS ASSESSMEN T YEARS AND SUBSEQUENT YEARS HAS BEEN ACCEPTED BY THE DEPARTMENT. THE LEAR NED AUTHORISED REPRESENTATIVE, THEREFORE, URGED FOR ACCEPTING THE VALUATION OF CLOSING STOCK MAD BY THE ASSESSEE. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT TED BEFORE US, THAT THE ASSESSEE HAS DELIBERATELY UNDER-VALUED THE STOCK, THE DIFFERENCE IN VALUATION WORKED OUT BY THE ASSESSING OFFICER HAS B EEN RIGHTLY ADDED TO THE INCOME OF THE ASSESSEE. AS SUCH, THE CIT(A) WAS NO T JUSTIFIED IN GRANTING ANY RELIEF TO THE ASSESSEE, AND THEREFORE, THE ADDITION THUS MADE BY THE ASSESSING OFFICER SHOULD BE RESTORED. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS ON RECORD. AFTER GOING THROUGH THE ORDERS OF THE LO WER AUTHORITIES, WE FIND IT QUITE CLEAR THAT THE ASSESSEE HAS TAKEN A PREVARIC ATED STAND WITH REGARD TO VALUATION OF CLOSINGS TOCK. WHILE BEFORE THE ASSES SING OFFICER, THE ASSESSEE HAS STATED THAT IT HAS CONSIDERED FOR VALUATION 244 5 TITLES RUNNING INTO 63,28,674 COPIES FOR VALUATION, AND IT HAS NOT CONS IDERED 675 TITLES PRINTED ABOUT TWO YEARS BACK, BEFORE THE CIT(A), THE ASSES SEE HAS SUBMITTED A DIFFERENT METHOD OF VALUATION, AS PER WHICH STOCKS RELATING TO CURRENT YEARS PRINTING IS VALUED AT 75% OF THE COST, STOCK RELATI NG TO PREVIOUS YEARS PRINTING IS VALUED AT 25% OF THE COST, AND THE STOC K RELATING TO MORE THAN TWO YEARS BACK IS VALUED AT 15% OF THE COST. THE ASSESS EE HAS PRESCRIBED FURTHER RIDER THAT STOCK QUANTITY OF DIFFERENT TITLES IS RE STRICTED TO SALE QUANTITY OF THAT TITLE IN THE YEAR. IT IS ALSO A FACT THAT BEFORE T HE ASSESSING OFFICER, THE ASSESSEE HAS STATED THE VALUATION OF 63,28,674 COP IES AT RS.4,23,61,003, WHEREAS IN THE CONSOLIDATED STOCK STATEMENT, THE AS SESSEE HAS SHOWN ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 13 26,18,572 COPIES FOR VALUATION OF CLOSING STOCK AT THE SAME FIGURE OF RS.4,23,61,003. THE CIT(A) HAS ALSO REFERRED TO SP ECIFIC INSTANCES OF TITLES, WHICH THOUGH WERE PRINTED DURING THE CURRENT YEAR, WHILE VALUING THE CLOSINGS STOCK, THE ASSESSEE HAS TAKEN LESSER NUMBE R OF BOOKS THAN WHAT IS ACTUALLY AVAILABLE IN STOCK. IN THE CASE OF THE TI TLE A MAGIC PLACE TEACHERS BOOK, THOUGH THE ENTIRE TOCK WAS PRINTED DURING TH E CURRENT PREVIOUS YEAR, WHILE VALUING THE CLOSING STOCK, THE ASSESSEE HAS N OT CONSIDERED EVEN A SINGLE PIECE. THIS IS IN CONTRADICTION TO THE FORMULA DEV ISED BY THE ASSESSEE HIMSELF FOR VALUATION OF CLOSING STOCK. THE AFORESAID FACTS CAST A DOUBT ON THE VALUATION OF CLOSING STOCK MADE BY THE ASSESSEE. F URTHER, THE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT THE TITLES PRINTED TWO YEARS BACK AND LYING IN STOCK HAVE ABSOLUTELY NO VALUE DUE TO CHANGE OF SYL LABI, APPEARS TO HAVE SOME FORCE. THESE BOOKS CERTAINLY CANNOT BE SOLD I N THE MARKET. THE ASSESSEE MAY NOT BE ABLE TO SELL THESE BOOKS AND CA N ONLY TREAT THEM AS SCRAP. THE CONTENTION OF THE LEARNED AUTHORISED R EPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE SAME METHOD OF VALUATION OF CLOSING STOCK, WHICH HAS ALSO BEEN ACC EPTED BY THE DEPARTMENT IN THE EARLIER AS WELL AS THE SUBSEQUENT YEARS ALSO RE QUIRES TO BE CONSIDERED. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ACCEP TS THE FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS N OT QUESTIONED. THE CIT(A) HAS ALSO NOT GIVEN ANY BASIS FOR ESTIMATING THE UN DERVALUATION OF CLOSING STOCK AT RS.45 LAKHS. THERE IS NOTHING IN THE ORDER OF THE CIT(A) TO SUGGEST WHY HE HAS ADOPTED THE FIGURE OF RSS.45 LAKHS. THE ASSESSEE HOWEVER IS REQUIRED TO SUBSTANTIATE WITH SUPPORTING EVIDENCE, WHICH ARE THE STOCKS LYING WITH IT, WHICH ARE NOT CONSIDERED FOR THE PURPOSES OF VALUATION, AND THE REASON FOR DOING SO. THE ASSESSEE ALSO HAD TO EXPL AIN THE SPECIFIC INSTANCES POINTED OUT BY THE CIT(A), WHERE THE ASSESSEE HAS T AKEN INTO CONSIDERATION LESSER NUMBER OF BOOKS FOR VALUATION OF CLOSINGS TO CK FROM THE CURRENT YEARS PRINTING, WHEN THE ASSESSEE HIMSELF HAS ADOPTED A F ORMULA, AS PER WHICH THE ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 14 CURRENT YEARS PRINTING IS VALUED AT 75% OF THE COS T. ASSESSEE IS ALSO REQUIRED TO RECONCILE THE DISCREPANCY BETWEEN THE N UMBER OF COPIES CONSIDERED FOR ARRIVING AT THE CLOSING STOCK FIGURE OF RS. 4,23,61,003 AS PER THE CONSOLIDATED STOCK STATEMENT SUBMITTED BEFORE T HE CIT(A) AND THE DETAILS GIVEN BEFORE THE ASSESSING OFFICER. 18. FOR THE AFORESAID REASONS, WE DEEM IT PROPER TO SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND REMIT THE MATTER T O THE FILE OF THE ASSESSING OFFICER FOR FRESH DETERMINATION OF THE IS SUE RELATING TO VALUATION OF CLOSINGS STOCK. THE ASSESSING OFFICER SHALL CONSID ER THIS ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING REASONABLE OPPORT UNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM WITH REGARD TO THE VALUE OF THE CLOSING STOCK, DULY RECONCILING THE DIFFERENCES AND DISCREPANCIES POINT ED OUT BY THE CIT(A), AS NOTED ABOVE, AND IN ACCORDANCE WITH LAW. 19. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. REVENUES APPEAL ITA NO.595/HYD/2009 20. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPE AL, AS ALREADY NOTED ABOVE, RELATES TO THE RELIEF GRANTED BY THE C IT(A) IN THE MATTER OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F VALUATION OF CLOSING STOCK. IN VIEW OF OUR DECISION ON THIS VERY ISSUE WHILE DEALING WITH THE GROUNDS OF THE ASSESSEE IN RELATION TO THIS VERY IS SUE, WHEREBY WE HAVE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW, AFTER GIVING REASONABLE OPPORT UNITY OF HEARING TO THE ASSESSEE, THE GROUNDS OF THE REVENUE IN THIS APPEAL NEED NO SEPARATE ADJUDICATION, AND THEY ARE ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.529 & 595/HYD/2009 M/S. ORIENT LONGMAN (P)LTD., HYDERABAD 15 21. IN THE RESULT, REVENUES APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. 22. TO SUM UP, WHILE THE ASSESSEES APPEAL, ITA NO 529/HYD/2009, IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, REVENUES APPEAL, ITA NO.595/HYD/2009, IS ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED IN THE COURT ON 19.10.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 19 TH OCTOBER, 2012 COPY FORWARDED TO: 1. M/S. ORIENT LONGMAN (P)LTD., C/O. M/S. M.ANANDAM & CO., CHARTERED ACCOUNTANTS, 6549, R.P. ROAD, SECUNDERABA D. 2. 3. 4 JOINT COMMISSIONER OF INCOME - TAX RANGE 16, HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDERABAD COMMISSIONER OF INCOM E - TAX IV, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.