B.L.Steels, CHENNAI V. ACIT, CHENNAI

ITA 637/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61294 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: T BANUSEKHAR
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.637/MDS/2012 (ASSESSMENT YEAR: 2008-09) M/S. B.L.STEELS, NO.67, HAPPY BUILDING, 1 ST FLOOR, SEMBUDOSS STREET, CHENNAI-600 001. PAN:AADFB2991G VS. ASSISTANT COMMISSIONER OF INCOME TAX, RANGE-VIII, CHENNAI. (APPELLANT/PETITIONER) (RESPONDENT) APPELLANT BY : MR. T.BANUSEKHAR, C.A RESPONDENT BY : DR. S.M OHARANA, CIT DR DATE OF HEARING : 28 TH JUNE, 2012 DATE OF PRONOUNCEMENT : 19 TH JULY 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE ASSAILIN G THE ORDER OF THE CIT(A)-IX, CHENNAI DATED 22.02.201 2. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF TRADING IN IRON & STEEL GOODS. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED RETURN OF ITS INCO ME ON 29.9.2008 DECLARING TOTAL INCOME OF ` 31,27,810/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U NDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 25.08. 2009. IN ITA NO. 637/MDS/2012 2 ORDER TO VERIFY THE STOCK, THE ASSESSING OFFICER CA LLED FOR STOCK REGISTER, INVENTORY OF CLOSING STOCK, PURCHASE & SA LE LEDGERS. AS PER THE CASE OF THE ASSESSEE, THE ASSESSEE WAS F OLLOWING FIFO METHOD FOR VALUATION OF STOCK. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 31.12.2010 HELD THAT SI NCE THE ASSESSEE WAS FOLLOWING FIFO METHOD OF STOCK VALUATI ON, THERE CANNOT BE OLD STOCK AND THUS MADE THE ADDITION OF ` 4,78,53,941/- ON ACCOUNT OF UNDER VALUATION OF CLO SING STOCK. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) C ONFIRMED THE ORDER OF THE ASSESSING OFFICER AND DISMISSED TH E APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE IS IN SECOND APP EAL BEFORE THE TRIBUNAL IMPUGNING THE ORDER OF THE CIT( A) DATED 22.2.2012. THE GROUNDS RAISED BEFORE THE TRIBUNAL A RE WITH REGARD TO THE ADDITIONS MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK OF ` 4,78,53,941/- AS WELL AS LEVY OF INTEREST UNDER SECTION 234B ON T HE ADDITIONS MADE IN THE INCOME. 3. SHRI BANUSEKAR, APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE ASSESSING OFFICER FAILED TO TAKE INTO ITA NO. 637/MDS/2012 3 CONSIDERATION THE FACT THAT THE ASSESSEE HAD VALUED STOCK AT THE LOWER OF COST OR NET REALIZABLE VALUE. THE ASSE SSEE HAD FOLLOWED FIRST IN FIRST OUT (FIFO) METHOD FOR THE PURPOSE OF VALUATION OF CLOSING STOCK ONLY. THE ENTIRE STOCK I S LYING IN A GODOWN WHERE IT IS DIFFICULT TO SEGREGATE THE OLD AND NEW STOCK. THE PHYSICAL SALE OF THE STOCK IS MADE ON LA ST IN FIRST OUT (LIFO) BASIS. SINCE, IT IS NOT PRACTICABLE TO D EMARCATE THE OLD AND NEW STOCK OF IRON BARS, THEREFORE, SALE BY WAY OF FIFO METHOD IS NOT POSSIBLE. THE A.R. MADE A STATEMENT A T THE BAR THAT FIFO METHOD IS APPLIED ONLY FOR VALUATION OF T HE STOCK AND NOT FOR THE SALE OF THE STOCK. THE A.R. FURTHE R CONTENDED THAT AT THE TIME OF ASSESSMENT, THE ASSESSING OFFIC ER ONLY ASKED FOR DOCUMENTS RELATING TO THE PHYSICAL QUANTI TY OF THE CLOSING STOCK. THE ASSESSING OFFICER HAD NEVER ASK ED FOR VALUATION OF THE CLOSING STOCK AND THE DEFECTIVE S TOCK. HE FURTHER CONTENDED THAT VALUE OF THE DEFECTIVE STOCK IS ALWAYS LESS THAN THE MARKET VALUE. THE ASSESSING OFFICER NEVER ASKED FOR THE DETAILS OF THE DEFECTIVE STOCK. THE A SSESSING OFFICER CALCULATED THE VALUE OF THE CLOSING STOCK I N A HYPER- TECHNICAL MANNER WITHOUT TAKING INTO CONSIDERATION THE FACT ITA NO. 637/MDS/2012 4 THAT THE ASSESSEE IS ALSO SELLING STEEL ROLLS BY CU TTING/SLICING IT INTO PIECES AND THEREFORE THERE WAS BOUND TO BE SO ME WASTE IN THE FORM OF CUTTINGS/SCRAP AND ALSO THAT IT IS N OT POSSIBLE TO SELL THE STOCK BY FIFO METHOD. 4. ON THE OTHER HAND, DR. S.MOHARANA REPRESENTING T HE DEPARTMENT SUBMITTED THAT THE ASSESSEE WAS FOLLOWIN G LIFO METHOD AND NOT FIFO METHOD, AS IS EVIDENT FROM PARA 8 OF THE ORDER OF THE CIT(A). HE FURTHER SUBMITTED THAT ASS ESSEE NEVER SHOWED DEFECTIVE STOCK IN THE STOCK REGISTER. HE ST RONGLY SUPPORTED THE ORDER OF THE CIT(A) AND PRAYED FOR DI SMISSAL OF APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE PARTIE S AND HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER OF THE CIT(A). A PERUSAL OF THE ORDER OF THE CIT(A) SHOWS THAT THE CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE FAC T THAT THE ASSESSEE IS MAINTAINING A GODOWN WHEREIN IT IS DIFF ICULT TO DEMARCATE THE OLD AND NEW STOCK OF IRON BARS AND ST EEL ROLLS. THE SALE OF IRON AND STEEL ROLLS HAS TO BE MADE ON THE BASIS OF THE CONVENIENCE OF THE REMOVAL OF PHYSICAL STOCK . ITEMS WHICH ARE PLACED ON THE TOP ARE TO BE REMOVED FIRST . THE ITA NO. 637/MDS/2012 5 ASSESSEE HAD CATEGORICALLY STATED THAT IT IS FOLLOW ING FIFO METHOD ONLY FOR THE PURPOSE OF VALUATION OF STOCK. AS FAR AS SALE PURPOSE IS CONCERNED, FIFO METHOD IS NOT PRACT ICABLE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS A FORCE IN THE ARGUMENT OF THE LEARNED AR THAT SALES CANNOT BE MAD E ON THE BASIS OF FIFO. 6. AS REGARDS THE FINDINGS OF THE LOWER AUTHORITIES WITH REGARD TO DEFECTIVE/WASTE STOCK IS CONCERNED, THE S AME ARE NOT SUSTAINABLE, SINCE THE ASSESSEE IS SELLING STEE L ROLLS BY SLICING/CUTTING THEM AS PER THE CUSTOMERS REQUIREME NTS, THERE IS BOUND TO BE SOME WASTE MATERIAL/SCRAP ARISING O UT OF THE CUTTINGS. WE ARE, THEREFORE, OF THE VIEW THAT THE A SSESSING OFFICER VALUED THE CLOSING STOCK WITHOUT TAKING INT O CONSIDERATION PRACTICAL DIFFICULTIES IN THE REMOVAL OF PHYSICAL STOCK AS WELL AS THE WASTAGE. THE ASSESSING OFFICE R AS WELL AS CIT(A) HAVE ERRED IN NOT TAKING INTO CONSIDERATI ON THE DETAILS OF OLD AND DEFECTIVE STOCK PRODUCED BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE PRODUCED THE RELEVANT RECO RDS ON ISSUANCE OF SHOW CAUSE NOTICE. HOWEVER, THE AUTHORI TIES ITA NO. 637/MDS/2012 6 BELOW DISCARDED THE SAME IN AN ARBITRARY MANNER BY TERMING IT AS AFTERTHOUGHT. 7. IN VIEW OF OUR ABOVE FINDINGS, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ADDITION MADE IN THE CLOSING STOC K IS DELETED. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 19 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 19 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.