ACIT CIR 4(3), MUMBAI V. VANDANA GLOBAL P. LTD, MUMBAI

ITA 5960/MUM/2010

• Counselvise Citation: 596019914 RSA 2010
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 07-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 30-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SHAHU
• Assessee Lawyers: USHA DALAL; Y P TRIVEDI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL F, BENC H MUMBAI .. , ! '# $ %% , '# BEFORE SHRI R.C.SHARMA, AM & SANJAY GARG, JM ./ ITA NO.5508/MUM/2010 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2007-08) M/S VANDANA GLOBAL LIMITED, 7, DARIYA NAGAR HOUSE, 1 ST FLOOR, 69M, KARVE ROAD, MUMBAI. VS. ADCIT, RANGE-4(3), MUMBAI #( ! ./ $) ./ PAN/GIR NO. : AAACV 2018 E ( (* / APPELLANT ) .. ( + ,(* / RESPONDENT ) AND ./ ITA NO.5960/MUM/2010 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2007-08) ACIT, RANGE-4(3), MUMBAI VS. M/S VANDANA GLOBAL LIMITED, 7, DARIYA NAGAR HOUSE, 1 ST FLOOR, 69M, KARVE ROAD, MUMBAI. #( ! ./ $) ./ PAN/GIR NO. : AAACV 2018 E ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) &-. / // / 0 0 0 0 /ASSESSEE BY : MR. Y.P.TRIVEDI & MS. USHA DALAL $# / // / 0 0 0 0 /REVENUE BY : MR. R.K.SHAHU & / .1! / DATE OF HEARING : 5 TH JUNE, 2014 23' / .1! / DATE OF PRONOUNCEMENT : 13 TH JUNE, 2014 ' ' ' ' / O R D E R PER R.C.SHARMA (A.M.) : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER OF CIT(A) DATED 3-5-210, FOR THE ASSESSMENT YEAR 2007-08, IN THE MATTER OF ORDER PASSED U/S.143(3) O F THE I.T. ACT. ITA NO.5508&5960/10 2 2 . COMMON GROUNDS IN BOTH THE APPEALS PERTAIN TO ADD ITION MADE BY INCREASING THE VALUE OF CLOSING STOCK BY ADDING BALANCE UNDER CENVAT ACCOUNT AMOUNTING TO RS.4,11,37,363/-. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUS ED. FACTS IN BRIEF ARE THAT DURING THE COURSE OF SCRUTINY ASSESS MENT, THE AO FOUND THAT UNDER THE HEAD LOANS AND ADVANCES, ASSESSEE HA D SHOWN A SUM OF RS.4,11,37,363/- AS CLOSING CENVAT CREDIT BALANC E. THE AO FURTHER OBSERVED THAT AS PER ENCLOSURE-CD7, WHICH REFERS TO CLAUSE 22(A) OF 3CD FORM OF THE TAX AUDIT REPORT SHOWS THAT THE ASS ESSEE HAS AN OPENING CREDIT BALANCE UNDER THE CENVAT ACCOUNT AMO UNTING TO RS.4,76,78,878/-, CREDIT AVAILED DURING THE YEAR OF RS.9,70,87,166/- WHICH HAS BEEN DEDUCTED FROM PURCHASES AND CREDIT U TILIZED DURING THE YEAR OF RS.10,36,28,681/- WHICH HAS BEEN DEDUCTED F ROM THE SALES AND THE CLOSING CENVAT CREDIT BALANCE AVAILABLE OF RS.4 ,11,37,363/- HAS BEEN SHOWN AS LOANS AND ADVANCES. THE AO OBSERVED T HAT IN VIEW OF PROVISIONS OF SECTION 145A, PURCHASES AND SALES OF GOODS ARE REQUIRED TO BE VALUED ON GROSS OF TAXES AND DUTIES I.E. INCL USIVE OF SET-OFF AVAILED AND INVENTORY I.E. CLOSING STOCK IS REQUIRED TO BE VALUED ON GROSS BASIS. ACCORDINGLY, THE AO CONCLUDED THAT ASSESSEE HAS UND ERSTATED ITS INCOME TO THE EXTENT OF RS.4,11,37,363/- IN VIOLATI ON OF PROVISIONS U/S.145A OF THE ACT, WHICH WAS ADDED BY HIM IN ASSE SSEES INCOME. ITA NO.5508&5960/10 3 4 . BY THE IMPUGNED ORDER THE CIT(A) FOLLOWED THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS (P) LTD., 318 ITR 116 AND DIRECTED THE AO AS UNDER :- A) CHANGE THE OPENING STOCK BY THE VALUE OF CENVAT CREDIT AS ON 01.04.2006. B) CHANGE THE CLOSING STOCK OF PAST YEARS AND SET T HE CHAIN REACTION IN MOTION AS HELD BY BOMBAY HIGH COURT OVE R IGNORING THE RATIO ITS EARLIER DECISION IN CASE OF MELMOULD CORPORATION VS. CIT, 202 ITR 789. AGAINST THE ABOVE DIRECTION OF THE CIT(A), BOTH ASS ESSEE AND REVENUE ARE IN APPEALS BEFORE US. 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND FOUND THAT THE BRIE F ISSUE UNDER CONTROVERSY PERTAINS TO DETERMINATION OF INCOME CHA RGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS BY TAKING INTO ACCOUNT VALUATION OF PURCHASES AND SALES OF GOODS AND INVENTORY BY INCLU DING THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRE D BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CO NDITIONS AS ON THE DATE OF VALUATION AS PER PROVISIONS OF SECTION 145A OF THE ACT. IN THE INSTANT CASE BEFORE US, THE AO HAS MADE ADJUSTMENT BY INCLUDING THE CENVAT CREDIT BALANCE AVAILABLE AT THE END OF THE Y EAR IN THE CLOSING STOCK THEREBY INCREASING THE BUSINESS PROFIT OF THE ASSESSEE WITHOUT MAKING CORRESPONDING ADJUSTMENT OF THE OPENING STOC K. E XACTLY SIMILAR ISSUE HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIG H COURT IN THE CASE OF MAHALAXMI GLASS WORKS (P) LTD. (SUPRA) AND IT WAS HELD THAT ITA NO.5508&5960/10 4 TO GIVE EFFECT TO SECTION 145A, IF THERE IS ANY CHA NGE AT THE CLOSING STOCK AT THE END OF THE YEAR DUE TO INCLUSION OF CE NVAT CREDIT AVAILABLE THEN THERE MUST NECESSARILY BE A CORRESPO NDING ADJUSTMENT MADE IN THE OPENING STOCK OF THAT YEAR AND THIS WOU LD NOT AMOUNT TO GIVE DOUBLE BENEFIT TO THE ASSESSEE AND WOULD BE NE CESSARY TO COMPUTE THE TRUE AND CORRECT PROFIT FOR THE PURPOSE OF ASSESSMENT. WHILE HOLDING SO THE HONBLE BOMBAY HIGH COURT RELI ED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALUMINIUM LTD., 297 ITR 77 (DEL) AND AHMEDABAD NEW COTTON MILLS CO. LTD., AIR 1930 PC 56 . THIS QUESTION HAS BEEN DEALT WITH AND ANSWERED BY THE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INC OME TAX VS. MAHAVIR ALLUMINIUM LTD. REPORTED IN (2008) 297 ITR 77 (DELHI). THIS QUESTION CONCERNS THE METHOD OF VALUATION OF INVENT ORY AS CONTEMPLATED BY SECTION 145A OF THE INCOME TAX ACT. IN THE CASE BEFORE THE DELHI HIGH COURT, THE ASSESSING OFFICER CONTENDED THAT SECTION 145A DID NOT PERMIT THE ASSESSEE TO MAKE A CHANGE IN THE VALUATION OF THE OPENING STOCK AS ON 1.4.1998 THOUG H IT PERMITTED A CHANGE IN THE CLOSING STOCK AS ON 31.3.1999. THE QU ESTION BEFORE THE DELHI HIGH COURT WAS THAT THE ADJUSTMENT OF EXCISE DUTY COULD BE MADE IN THE OPENING STOCK ALSO. IN THIS CONNECTION, RELY ING UPON THE DECISION OF PRIVY COUNCIL IN THE CASE OF CIT VS. AHMEDABAD N EW COTTON MILLS CO. LTD. REPORTED IN AIR 1930 PC 56, THE DELHI HIGH COURT TOOK A VIEW THAT TO GIVE EFFECT TO SECTION 145A, IF THERE IS AN Y CHANGE IN THE CLOSING ITA NO.5508&5960/10 5 STOCK AT THE END OF THE YEAR THEN THERE MUST NECESS ARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK OF THAT YEAR. IT HAS BEEN HELD THAT THIS WOULD NOT AMOUNT TO GIVE DO UBLE BENEFIT TO THE ASSESSEE AND WOULD BE NECESSARY TO COMPUTE THE TRUE AND CORRECT PROFIT FOR THE PURPOSE OF ASSESSMENT. THE HONBLE C OURT FURTHER OBSERVED AS UNDER :- 3. WE MAY REPRODUCE HERE, THE RELEVANT OBSERVATION IN THE JUDGMENT OF THE PRIVY COUNCIL IN THE CASE OF CIT VS . AHMEDABAD NEW COTTON MILLS CO. LTD. WHICH WAS RELIE D UPON BY THE DELHI HIGH COURT AND WHICH IS AS UNDER : 'IF THE METHOD OF ALTERING BOTH VALUATION IS NOT AD OPTED IT IS PERFECTLY PLAIN THAT THE PROFIT WHICH IS BROU GHT FORWARD IS NOT THE REAL ONE. IT MAY BE MORE OR IT M AY BE LESS, BUT IT HAS NO RELATION TO THE TRUE PROFIT IF THE STOCK IS VALUED ON ONE BASIS WHEN IT GOES OUT WITHOUT CONSIDERING THE VALUE OF THE STOCK WHEN IT COMES IN . WHEN, THEREFORE, THERE IS UNDERVALUATION AT ONE END , THE EFFECT IS TO CAUSE BOTH A SMALLER DEBIT IN RESP ECT OF THE STOCK INTRODUCED INTO THE NEXT ACCOUNT AND A LA RGER SUM FOR PROFITS REALISED BY THE SALE, CHANGE IN MAR KET VALUE BEING IMMEDIATELY REFLECTED IN THE PRICE OBTA INED FOR THE GOODS THAT ARE SOLD; IN THESE CIRCUMSTANCES TO CONTEND THAT THERE SHOULD BE UNDER VALUATION AT ONE END AND NOT AT THE OTHER IS TO RAISE AN ARGUMENT WH ICH THEIR LORDSHIPS CANNOT ACCEPT'. 6 . IN VIEW OF THE ABOVE DECISION OF HONBLE JURISDI CTIONAL HIGH COURT, IT IS CLEAR THAT AS PER PROVISIONS OF SEC.14 5A ADJUSTMENT IS TO BE DONE IN THE OPENING AND CLOSING STOCK OF THE YEAR U NDER CONSIDERATION SO AS TO ASCERTAIN THE TRUE PROFITS. ACCORDINGLY, W E DIRECT THE AO NOT TO DISTURB THE CLOSING STOCK OF PAST YEARS AND TO MAKE ADJUSTMENT IN THE OPENING AND CLOSING STOCK OF THE YEAR UNDER CONSIDE RATION BY THE AMOUNT OF VALUE OF CENVAT CREDIT AVAILABLE TO THE A SSESSEE AS AT THE ITA NO.5508&5960/10 6 BEGINNING AND AT THE END OF THE YEAR. ACCORDINGLY, THE ORDER OF THE CIT(A) IS MODIFIED TO THIS EXTENT. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL APPEA L OF THE REVENUE ARE ALLOWED IN PART IN TERMS INDICATED HERE INABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH JUNE,2014. ' / 23' ! 4 5'&6 13 TH JUNE,2014 3 / % SD/- SD/- ( $ %% ) (SANJAY GARG) ( . . ) (R.C.SHARMA) '# '# '# '# / JUDICIAL MEMBER ! ! ! ! '# '# '# '# / ACCOUNTANT MEMBER MUMBAI ; 5'& DATED 13/06/2014 +. . /PKM , & . / PS ' ' ' ' / // / +.7 +.7 +.7 +.7 8 7'. 8 7'. 8 7'. 8 7'. / COPY OF THE ORDER FORWARDED TO : ' & ' & ' & ' & / BY ORDER, 9 99 9 / : : : : $ $ $ $ ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. ; ( ) / THE CIT(A), MUMBAI. 4. ; / CIT 5. 7<% +.& , , / DR, ITAT, MUMBAI 6. %= / GUARD FILE. ,7. +. //TRUE COPY//