SNTEXTURES, MUMBAI V. DCIT 29(3), MUMBAI

ITA 637/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 8028 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 27-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SOMAIYA
• Assessee Lawyers: DHIRENDRA M SHAH
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAVISH SOOD (JM) I.T.A. NO. 637 /MUM/20 1 7 (ASSESSMENT YEAR 20 12 - 13 ) M/S. SYNTEXTURES 1, MAHAJAN MILL COMPOUND, LBS MARG VIKHROLI (WEST) MUMBAI - 400 079. PAN : AAAFM4905A VS. DY. CIT 29(3) B.K.C BANDRA MUMBAI - 400050. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI DHIRENDRA M. SHAH DEPARTMENT BY S HRI NISHANT SOMAIYA DATE OF HEARING 2 5 . 9 . 201 8 DATE OF PRONOUNCEMENT 25 . 9 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 8.11.2016 PASSED BY THE LEARNED CIT(A) - 40, MUMBAI AND IT RELATES TO A.Y. 2012 - 13. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY THE LEARNED CIT(A) ON FOLLO WING ISSUES : - (I) ADDITION OF ` 17.70 LAKHS ON ACCOUNT OF UNDERVALUATION OF STOCK. (II) REJECTION OF CLAIM FOR DEDUCTION U/S. 80IB OF THE ACT ON INTEREST ON FIXED DEPOSITS. (III) REJECTION OF CLAIM FOR DEDUCTION U/S. 80IB OF THE ACT ON SUBSIDY AMOUNT RECEIVED. 3 . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF YARN. THE F IRST ISSUE RELATES TO ADDITION MADE TOWARDS UNDERVALUATION OF CLOSING STOCK OF FINISHED GOODS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED FOR QUANTITY DETAILS OF RAW MATERIAL OF STOCK AND FINISHED GOODS STOCK. THE ASSESSING OFFICER ALSO ANALYZED AVE RAGE PRICE OF M/S. SYNTEXTURES 2 PURCHASE AND SALE. HE NOTICED THAT THE AVERAGE PRICE OF PURCHASE OF RAW MATERIAL WORKED OUT TO 99.89 PER KG., WHEREAS CLOSING STOCK HAD BEEN VA LUED BY THE ASSESSEE AT 85.52 PER KG. HENCE, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAS UNDERVALUED THE CLOSING STOCK OF FINISHED GOODS IN ORDER TO REDUCE HIS PROFIT. WHEN QUESTIONED, T HE ASSESSEE SUBMITTED THAT THE FINISHED GOOD INCLUDED D EFECTIVE STOCK S, WHICH HAS BEEN VALUED AT LOWER RATE. HOWEVER, THE ASSESSING OFFICER NOTICED THAT THE AUDITOR HAS NOT REPORTED ABOUT THE DEFECTIVE STOCK IN THE TAX AUDIT REPORT AND HENCE THE AO TOOK THE VIEW THAT EXPLANATION OF THE ASSESSEE IS NOT ACCEPTAB LE. 4. THE ASSESSING OFFICER TOOK THE VIEW THAT THE VALUE OF FINISHED GOODS SHOULD BE ARRIVED AT BY DEDUCTING GP RATE FROM THE AVERAGE SELLING RATE. THE GP RATE REPORTED BY THE ASSESSEE WAS 9.38%. THE AVERAGE SELLING RATE WAS RS.122.98 PER KG. ACCORDINGLY , THE ASSESSING OFFICER REDUCED THE GROSS PROFIT RATE OF 9.38% FROM AVERAGE SELLING RATE MENTIONED ABOVE AND ACCORDINGLY ARRIVED AT THE VALUE OF RS. 111.45 PER KG . THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE VALUED ITS CLOSING STOCK OF YARN AT RS.11 1.45 PER KG. SINCE THE ASSESSEE HAS VALUED CLOSING STOCK AT AN AVERAGE PRICE OF RS. 85.52 PER KG , THE ASSESSING OFFICER TOOK THE VIEW THAT CLOSING STOCK OF FINISHED GOODS WAS UNDERVALUED BY RS. 25.93 PER KG (111.45 MINUS 85.52 ). ACCORDINGLY, HE ARRIVED AT U NDERVALUATION OF FINISHED GOODS AT 17.70 LAKHS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE LD CIT(A) ALSO CONFIRMED THE SAME. 6. WE HEARD THE PARTIES ON THIS ISSUE. WE NOTICE THAT THE TAX AUTHORITIES HAVE WORKED OUT THE DISALL OWANCE ONLY FOR THE REASON THAT THE AUDITOR HAS NOT REPORTED ABOUT DEFECTIVE STOCK. IT IS A FACT THAT THE AUDITOR HAS ACCEPTED THE VALUATION OF CLOSING STOCK DONE BY THE ASSESSEE, MEANING THEREBY, HE WAS AWARE OF THE LOWER RATE ASSIGNED TO DEFECTIVE STOCK . HENCE THE REASONING GIVEN BY THE TAX AUTHORITIES FOR MAKING THE ADDITION IS NOT JUSTIFIED. IN ANY CASE, THE METHODOLOGY ADOPTED BY THE AO TO ARRIVE AT THE ALLEGED UNDER VALUATION OF STOCK BY ADOPTING AVERAGE RATE OF SELLING PRICE, IN OUR VIEW, MAY NOT BE CORRECT M/S. SYNTEXTURES 3 METHODOLOGY. THE AO APPEARS TO HAVE ADOPTED THE SAID METHODOLOGY, SINCE HE DID NOT BELIEVE THE CLAIM OF DEFECTIVE STOCK. IN OUR VIEW, WHAT IS REQUIRED TO BE SEEN IS WHETHER THE LOWER RATE ASSIGNED TO THE DEFECTIVE STOCK IS JUSTIFIED OR NOT. O NE OF THE WAYS OF VERIFYING THE SAME IS TO EXAMINE THE SUBSEQUENT SALES BILLS RAISED BY THE ASSESSEE FOR SELLING THE DEFECTIVE STOCKS. AT THE TIME OF HEARING, THE LD A.R SUBMITTED THAT THE ASSESSEE MAY BE PROVIDED WITH AN OPPORTUNITY TO PROVE THE SAME BY TAKING SUPPORT OF SUBSEQUENT SALES BILLS. THE LD D.R ALSO DID NOT OBJECT TO THE SAME. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THIS ISSUE AFRESH. THE ASSESSEE IS DIRECT ED TO FURNISH THE RELEVANT DETAILS BEFORE THE AO TO PROVE THE CLAIM OF DEFECTIVE STOCK. 7. THE NEXT TWO ISSUES URGED BY THE ASSESSEE ARE THAT THE INTEREST INCOME ON BANK DEPOSITS AND SUBSIDY RECEIPTS ARE ALSO ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT . THE LD AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT BY HOLDING THAT NONE OF THE RECEIPTS CAN BE CONSIDERED AS DERIVED FROM INDUSTRIAL UNDERTAKING. THE LD CIT(A) ALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF RECEIPTS BY W AY OF JOB WORK CHARGES AND INTEREST ON YARN SALES. FOR THIS PURPOSE HE TOOK SUPPORT OF DECISION RENDERED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2008 - 09 IN ITA NO.2222/M/2013 DATED 24.6.2015. THE LD CIT(A) NOTICED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF INTEREST ON FIXED DEPOSITS AND SUBSIDY RECEIPTS IN AY 2008 - 09 WAS REJECTED BY LD CIT(A) AND THE ASSESSEE HAS ACCEPTED THE SAME. ACCORDINGLY, FOLLOWING THE ORDER PASSED BY LD CIT(A) IN AY 2008 - 09, THE LD CIT( A) REJECTED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF INTEREST ON FIXED DEPOSITS AND SUBSIDY RECEIPTS. 8. AT THE TIME OF HEARING, THE LD A.R FAIRLY ADMITTED THAT THE SUBSIDY RECEIPTS ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT, S INCE IT CANNOT BE CONSIDERED AS PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING. ACCORDINGLY WE REJECT THE GROUND PERTAINING TO THE SAME. M/S. SYNTEXTURES 4 9. WITH REGARD TO THE INTEREST INCOME EARNED ON FIXED DEPOSITS, THE LD A.R SUBMITTED THAT THE ASSESSEE HAD BORROWED LOAN S FROM BANKS AND THE FIXED DEPOSITS WERE KEPT AS MARGIN MONEY DEPOSITS AS PER THE TERMS AND CONDITIONS OF THE LOAN . ACCORDINGLY HE CONTENDED THAT THE INTEREST INCOME SHOULD BE CONSIDERED AS AN INCOME DERIVED FROM UNDERTAKING, AS THE SAME HAS BEEN EARNED D URING THE COURSE OF CARRYING ON OF BUSINESS. HE SUBMITTED THAT THE AO HAS ASSESSED THE INTEREST INCOME UNDER THE HEAD BUSINESS ONLY. 10. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE INTEREST INCOME CANNOT BE CONSIDERED AS PROFIT DERIVED FROM INDUSTR IAL UNDERTAKING, AS THE SOURCE OF INCOME IS THE FIXED DEPOSIT AND NOT THE INDUSTRIAL UNDERTAKING. 11. WE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. THE ASSESSEE IS BRINGING NEW FACT WITH REGARD TO THE NECESSITY OF MAKING DEPOSIT. I F THE LOAN FUNDS ITSELF HAVE BEEN USED TO MAKE DEPOSITS, IN OUR VIEW, THERE IS SCOPE FOR NETTING OF INTEREST INCOME AGAINST INTEREST EXPENDITURE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB OF THE ACT, IF THE ASSESSEE IS ABLE TO SHOW THE NEXUS. HOWEVER , ALL THESE CONTENTIONS REQUIRE EXAMINATION AT THE END OF THE AO. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING IT AFRESH. 12. IN THE RESULT, THE APPEAL OF THE ASSESSE E IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 25 . 9 .201 8 . SD/ - SD/ - (RAVISH SOOD ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER M UMBAI ; DATED : 25 / 9 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT M/S. SYNTEXTURES 5 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI