Cama Moters Limied, Ahmedabad V. The Dy.CIT.,(OSD)Range-1, Ahmedabad

ITA 646/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6610 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 27-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P TALATI
• Assessee Lawyers: J P SHAH

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M CAMA MOTORS LTD., RUSTOM CAMA MARG, LAL DARWAJA, AHMEDABAD. VS. DY. CIT (OSD), RANGE, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J. P. SHAH, AR RESPONDENT BY:- SHRI S. P. TALATI, SR.DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING GR OUNDS WHICH ARE DETAILED AND ARGUMENTATIVE. THE GIST OF THESE GROUN DS IS THAT THE ADDITION OF RS.20,91,763/- MADE BY THE AO HAS BEEN CONFIRMED BY LD. CIT(A). THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF AGENCY OF VEHICLES SUCH AS MERCEDES BENZ, SKODA MOTORS AND HINDUSTAN M OTORS. IT HAS SHOW ROOMS OF THESE THREE BRANDS AT KHANPUR, AHMEDA BAD. IT HAS ALSO AGENCY OF BAJAJ AUTOMOBILES HAVING SHOW-ROOM OF TWO WHEELERS AT GANDHINAGAR. ITA NO.646/AHD/2009 ASST. YEAR 2004-05 ITA NO.646/AHD/2009 ASST. YEAR 2004-05 2 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THERE IS SUBSTANTIAL DIFFERENCE BETWEEN THE DETAILS OF THE S TOCK GIVEN TO THE BANK FOR HYPOTHECATION AGAINST LOAN AND DETAILS OF STOCK AS PER BOOKS. HE NOTICED THAT MUCH LESS STOCK HAS BEEN SHOWN IN THE BOOKS. THE DIFFERENCE WAS WORKED OUT AT RS.20,91,763/-. THE ASSESSEE SUBM ITTED FOLLOWING EXPLANATION TO THE AO:- THE ASSESSEE IS CONTINUOUSLY FOLLOWING THE METHOD OF REDUCING THE VALUE OF STOCK BY 20% WHICH IS OLDER BY ONE YEAR AND REDU CE THE VALUE OF STOCK BY 70% WHICH IS OLDER BY MORE THAN TWO YEARS. THE C OMPANY IS CONTINUOUSLY FOLLOWING THE SYSTEM OF VALUING THE ST OCK AT COST OR NET REALIZABLE VALUE WHICHEVER IS LESS. THE COMPANY IS IN THE BUSINESS OF AUTOMOBILES AND Y OU ARE AWARE THAT IN THE AUTOMOBILE INDUSTRY THE PRINCIPAL COMPANY INTRO DUCES NEW MODELS EVERY THREE TO SIX MONTHS WITH DIFFERENT VARIANCE, FEATURES AND FACILITIES. THE COMPANY BEING AUTHORIZED STOCKIEST OF THE SAID VEHICLES HAS TO KEEP READY THE STOCK OF SPARES PARTS AND ACCESSORIES OF ALL THE MODELS INTRODUCED BY THE PRINCIPAL COMPANY. ACCORDINGLY, I T SO HAPPEN THAT MANY TIMES MODELS FOR WHICH COMPANY HAS PURCHASED S PARES PARTS AND ACCESSORIES WHICH MAY NOT RUN COMMERCIALLY SUCCESSF UL OR THAT, CONVERSELY, IT IS SO HAPPENS IF THE SAID MODEL IS Q UITE SUCCESSFUL AND REQUIRES LESS REPAIRS AND PARTS AND IN BOTH THE CAS ES, THE INVENTORIES OF THE SPARES PARTS AND ACCESSORIES ARE PILED UP. OVER A PERIOD OF TIME, WHEN THE NEW MODELS ARE INTRODUCED, THE INVENTORIES OF THE OLD MODEL BECOME SLOW MOVING/NON-MOVING AND COMPANY HAS TO SU FFER LOSSES, IF ANY. THE COMPANY WAS EARLIER AUTHORIZED DEALER OF H INDUSTAN MOTORS WHICH WAS HAVING AMBASSADOR AND CONTESSA MODELS WHI CH HAVE BECOME OUTDATED OVER A PERIOD OF TIME. HOWEVER, WHENEVER T HE VEHICLES WHICH ARE IN CIRCULATION IN MARKET, THEY COME FOR REPAIRS AT THE COMPANYS GARAGE AND THE COMPANY HAS TO KEEP THE INVENTORIES OF THOSE SPARE PARTS. SOMETIMES, SPARE PARTS AND OTHER ACCESSORIES WHICH ARE OF METAL-IRON AND STEEL, MAY GET CORROSION DUE TO CLIMATE CONDITI ONS, WEAR AND TEAR AND EFFLUX OF TIME AND THE COMPANY HAS TO DISCARD THEM FROM ACTIVE USE. THUS CONSIDERING THE ABOVE PRACTICAL ASPECT AND TRADE PR ACTICE, THE COMPANY SINCE LAST SEVERAL YEARS IS CONTINUOUSLY FOLLOWING THE SYSTEM OF VALUING ITS SPARES PARTS, ACCESSORIES ETC. ON THE BASIS OF COST OF NET REALIZABLE VALUE ITA NO.646/AHD/2009 ASST. YEAR 2004-05 3 WHICHEVER IS LOWER AND IN RESPECT OF INVENTORIES WH ICH ARE MORE THAN ONE YEAR OLD ARE VALUED AT 20% REDUCTION AND THE INVENT ORIES WHICH ARE MORE THAN TWO YEAR OLD ARE VALUED AT 70% REDUCTION. THIS PRACTICE IS FOLLOWED CONSISTENTLY YEAR AFTER YEAR FOR LAST SEVERAL YEARS AND ACCORDINGLY IN THE CURRENT YEAR ALSO THE VALUATION IS MADE ON THE SAME BASIS. THE GIST OF THE EXPLANATION FURNISHED BY THE ASSESS EE IS THAT IT IS REDUCING THE VALUE OF STOCK IN THE BOOKS BY A FIXED PERCENTA GE EVERY YEAR. IF THE STOCKS ARE OLD BETWEEN ONE YEAR TO TWO YEARS THEN V ALUE IS REDUCED BY 20% AND IF THE STOCK IS OLDER THAN 2 YEARS THE VALU E OF STOCK IS REDUCED BY 70% BUT TO THE BANK ACTUAL COST VALUE IS SHOWN. THE AO DID NOT ACCEPT THE ABOVE METHOD OF ACCOUNTING. HE DID NOT BELIEVE THAT STOCK OF SPARES PURCHASED BY THE ASSESSEE WOULD BECOME REDUNDANT AN D, THEREFORE, THEIR VALUATION COULD BE LOWEST. NO EVIDENCE HAS BEEN ADD UCED THAT IT IS CHARGING LESS FOR OLD SPARE PARTS AND CHARGING MORE FOR FRESH SPARES. NO SUCH DISTINCTION IS MADE IN THE BILLS THROUGH WHICH STOCK IS SOLD. 3. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVI NG AS UNDER :- KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND VARIOUS JUDICIAL PRONOUNCEMENTS, IT IS CRYSTAL CLEAR THAT THIS FACT IS ABUNDANTLY CLEAR THAT THERE IS DIFFERENCE BETWEEN THE STOCK STATEMENT SUBMITTED BY THE APPELLANT TO THE BANK (I.E. KALUPUR COMMERCIAL BANK) AND THE STOCK RECORDED IN ITS BOOKS OF ACCOUNTS BY RS.21,91,763/-. THUS, THERE IS A CLEAR ADMISSION ON BEHALF OF THE APPELLANT OF ITS BEING OWNER OF THE DISCLOSED STOCK IN THE STATEMENT SUBMI TTED TO THE BANK. ACCORDING TO THE WELL ESTABLISHED LAW, AN ADMISSION IS STATEMENT, OR AL OR WRITTEN, SUGGESTING AN INFERENCE AS TO ANY FACT IN ISSUE MADE BY A PARTY T O ANY PROCEEDINGS. IT IS A STATEMENT OF FACTS WHICH WAIVES OR DISPENSES WITH THE PRODUCT ION OF EVIDENCE BY CONCEDING THAT THE FACT ASSERTED BY THE OPPONENT IS TRUE. IN OTHER WORDS, ADMISSION IS CONFESSION OR VOLUNTARY ACKNOWLEDGEMENT MADE BY A PARTY AS TO THE EXISTENCE OF CERTAIN FACTS WHICH ARE IN ISSUE OR RELEVANT TO AN ISSUE. THE PREDOMINA NT CHARACTERISTIC OF AN ADMISSION, WHICH IS A TYPE OF EVIDENCE, CONSISTS OF ITS BINDIN G CHARACTER. THUS, AN ADMISSION IS OF EVIDENTIARY VALUE ONLY TO THE EXTENT THAT ITS MAKER HAS PERSONAL KNOWLEDGE OF THE MATTERS ADMITTED TO. IT IS IMMATERIAL AS TO WHOM OR BEFORE WHOM THE ADMISSION IS ITA NO.646/AHD/2009 ASST. YEAR 2004-05 4 MADE; BUT IT WILL OPERATE AS A FOUNDATION OF THE RI GHTS OF THE PARTIES ONCE MAKING OF ADMISSION IS ESTABLISHED. THE EFFECT OF ADMISSION I S THAT IT CONSTITUTES A SUBSTANTIVE PIECE OF EVIDENCE IN THE CASE AND, FOR THAT REASON, CAN BE RELIED UPON FOR PROVING THE TRUTH OF THE FACTS INCORPORATED IN AN ADMISSION. ON CE IT IS FOUND THAT THE ADMISSION IS CLEAR, CERTAIN AND DEFINITE AND NOT AMBIGUOUS, VAGU E OR CONFUSED, IT WILL HAVE THE VALUE AND EFFECT OF SHIFTING OF THE ONUS OF PROVING TO THE CONTRARY ON THE PARTY MAKING AN ADMISSION, WITH THE RESULT THAT IF CASTS ON IMPE RATIVE DUTY ON SUCH PARTY TO EXPLAIN THE ADMISSION. IN ABSENCE OF A SATISFACTORY EXPLANA TION IT IS PRESUMED TO BE TRUE. IN OTHER WORDS, AN ADMISSION, IF CLEARLY AND UNEQUIVOC ALLY MADE, IS THE BEST EVIDENCE AGAINST THE PARTY MAKING IT AND, THOUGH NOT CONCLUS IVE SHIFTS THE ONUS ON TO THE MAKER AS IT MUST NECESSARILY BE PRESUMED TO BE TRUE AND U NTIL THE PRESUMPTION IS REBUTTED THE FACT ADMITTED MUST BE TAKEN TO BE ESTABLISHED. ADMI SSION IS THE BEST EVIDENCE THAT AN OPPOSITE PARTY CAN RELY UPON. THOUGH IT IS NOT CONC LUSIVE; IT IS DECISIVE OF THE MATER UNLESS IT IS SUCCESSFULLY WITHDRAWN OR PROVED TO BE ERRONEOUS BUT WHAT A PARTY HIMSELF ADMITS TO BE TRUE MAY REASONABLY TO BE SO. REFERENC E IN THIS REGARD CAN BE MADE TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTS OF INDIA VS. MUKESH R. SHAH (200 4) 186 CTR (GUJ) 579. THE STATEMENT OF STOCK SUBMITTED BY THE APPELLANT T O THE BANK WHICH IS EXCESS BY RS.21,91,763/- WHEN CONSIDERED VIS--VIS BOOKS OF A CCOUNTS OF THE APPELLANT IS NOTHING BUT AN ADMISSION WHICH IS CLEAR, CERTAIN AN D DEFINITE AND NOT AMBIGUOUS, VAGUE OR CONFUSED. THUS, IT HAS VALUE AND SHIFTS TH E ONUS OF PROVING TO THE CONTRARY ON THE APPELLANT AND IT CASTS AN IMPERATIVE DUTY ON TH E APPELLANT TO EXPLAIN THE ADMISSION. WITH THE RESULT, THE STOCK STATEMENT SUB MITTED TO THE BANK IS PRESUMED TO BE TRUE. IN THE GIVEN FACTS AND CIRCUMSTANCES, THE ACTION OF THE AO (I.E. ADDITION OF RS.20,91,763/- AS UNDISCLOSED INVESTMENT IN STOCK O F SPARES AND PARTS) IS, THEREBY CONFIRMED. THE GIST OF THE REASONINGS GIVEN BY THE LD. CIT(A) IS THAT - (1) IT IS AN ADMISSION BEFORE THE BANKING AUTHORITIES T HAT ITS ACTUAL STOCK IS MORE BY RS.20,91,763/-. (2) THERE IS NO SATISFACTORY EXPLANATION TO THE DIFFERE NCE SO FOUND BY THE AO. 4. WE HAVE HEARD THE PARTIES. THE LD. AR SUBMITTED THE FOLLOWING CHART SHOWING HOW THE AO HAS WORKED OUT THE DIFFERE NCE OF RS.20,91,763/-:- ITA NO.646/AHD/2009 ASST. YEAR 2004-05 5 STOCK SUMMARY OF CLOSING STOCK OF SPARE PARTS AS ON 31.03.2004 CODE MODEL CLOSING STOCK AMOUNT (RS.) MORE THAN 1 YEAR BUT LESS THAN 2 YEARS AMOUNT (RS.) MORE THAN 2 YEARS AMOUNT (RS.) A LUB MBIL 54,802.89 - - B CON.DSL. 21,072.99 - 21,073.20 C CON.PTL 226,009.01 5,998.54 220,009.97 F LANCER 2,533,259.34 385,544.64 480,088.50 G LANCER ACC 186,941.30 32,288.00 129,468.70 H AMBASSADOR 321,616.06 19,045.31 300,521.48 LU LUBRICANTS 5,298.00 MS MISC.PARTS 66,054.60 38,557.15 4,644.32 ZP MBIL PARTS 3,693,844.99 557,409.07 1,422,855.98 ZQ MBIL ACC 136,110.30 10,714.63 108,840.05 TOTAL 72,45,049.48 10,52,557.34 26,87,502.20 HE SUBMITTED THAT VALUE OF STOCK SUBMITTED TO THE B ANK IS RS.72,45,049/- WHEREAS AS PER BOOKS IT IS RS.53,40,170/-. THE DIFF ERENCE OF RS.20,91,763/- IS ON ACCOUNT OF REDUCTION IN THE VA LUE BY 20% ON ITEMS OLDER BETWEEN ONE AND TWO YEARS WHICH IS CALCULATED AT RS.2,10,511.47 AND THE DIFFERENCE IN VALUE BY 70% ON ITEMS WHICH A RE OLDER THAN TWO YEARS. HE SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWIN G THIS METHOD REGULARLY AND HAS BEEN ACCEPTED BY THE DEPARTMENT. IN FACT THE ACCEPTED METHOD OF VALUING OF STOCK IS COST OR NET REALIZABL E VALUE AND ASSESSEE HAS CONSIDERED THE NET REALIZABLE VALUE AS LESS THAN TH E COST AND AS PER ITS EXPERIENCE IT HAS ESTIMATED THE REDUCTION IN VALUE AS ABOVE. 5. THE LD. DR ON THE OTHER HAND SUBMITTED THAT ASSE SSEE HAS NOT SHOWN THE EXACT COPY OF STATEMENT SUBMITTED TO THE BANK SO THAT IT CAN BE ITA NO.646/AHD/2009 ASST. YEAR 2004-05 6 FOUND OUT WHETHER THERE IS ANY VARIATION IN THE QUA NTITIES. FURTHER REDUCTION CARRIED OUT IN VALUATION IN EARLIER YEARS HAS BEEN SUBMITTED. THERE IS NO EVIDENCE TO SHOW THAT SUCH REDUCTION WA S CONSISTENTLY MADE BY THE ASSESSEE AND HOW IT IS A RECOGNIZED METHOD O F ACCOUNTING OF STOCK. THERE IS ALSO NO COMPARISON OF REDUCED VALUE WITH T HE ACTUAL REALIZATION MADE IN SUBSEQUENT YEARS ON THEIR SALE. THE METHOD ADOPTED BY THE ASSESSEE SHOULD BE VERIFIED WITH THE SALE REALIZATI ON IN SUBSEQUENT YEARS WHICH SHOULD SUPPORT THE VALUATION DONE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND WE ARE OF THE CONSIDERED VIEW THAT TH E MATTER HAS NOT BEEN EXAMINED CORRECTLY. THE COPY OF THE STATEMENT GIVEN TO THE BANK IS NOT BROUGHT ON RECORD. IT IS NOT KNOWN WHETHER THERE IS REDUCTION IN QUANTITY OR ONLY IN VALUE. IF ITS REDUCTION ONLY IN VALUE WH ETHER SUCH METHOD HAS BEEN FOLLOWED CONSISTENTLY AND HOW MUCH REDUCTION, ASSESSEE IS SHOWING AND WHAT IS THE BASIS OF SUCH REDUCTION. THE LD. AR HAS REFERRED TO THE DECISION OF HON. RAJASTHAN HIGH COURT IN THE CASE O F CIT VS. LAXMI ENGINEERING INDUSTRIES (2009) 308 ITR 279 (RAJ) WHE REIN IT IS HELD THAT NO ADDITION COULD BE MADE TO THE INCOME IF THERE IS NO DIFFERENCE IN QUANTITY OF STOCK SUBMITTED TO THE BANK AND AS PER BOOKS. IN OUR CONSIDERED VIEW, AS THE ISSUE REQUIRES TO BE RE-EXA MINED, WE RESTORE THE MATTER TO THE FILE OF AO TO CALL FOR THE EXACT STAT EMENT SUBMITTED TO THE ITA NO.646/AHD/2009 ASST. YEAR 2004-05 7 BANK, COMPARE THE QUANTITIES AND IF THERE IS DIFFER ENCE IN QUANTITY THEN ONLY HE SHOULD RESORT TO MAKE ADDITION. WHETHER THE RE IS ANY DEFECT IN SYSTEM FOLLOWED BY THE ASSESSEE IN REDUCING THE VAL UE OF STOCK ARBITRARILY AND, THEREFORE, ADDITION ON THIS COUNT IS CALLED FO R, IS NOT THE ISSUE BEFORE US. THE ISSUE IS LIMITED TO THE EXTENT THAT THERE I S A VARIATION IN THE VALUE OF STOCK SUBMITTED TO THE BANK AND VALUE OF STOCK S HOWN IN THE BOOKS. IF THIS DIFFERENCE IS ARISING OUT OF QUANTITY DIFFEREN CE THEN ADDITION MAY BE RESORTED TO AND NOT OTHERWISE. AS A RESULT, WE ALLO W THE APPEAL FILED BY THE ASSESSEE BUT FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 13/5/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 13/5/11. MAHATA/- ITA NO.646/AHD/2009 ASST. YEAR 2004-05 8 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 9/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 12/05/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER ..