Pee Empro Exports Pvt. Ltd., New Delhi V. ACIT, Circle-19(2), New Delhi

ITA 6589/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2150 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2016-2017
• Appeal Filed On: 08-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHISEK KUMAR SR DR
• Assessee Lawyers: S KRISHNAN
• Section: 143(3); 145(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI , ! ' $%&'()*+,-+! BEFORE MS. SUSHMA CHOWLA, V.P & SHRI PRASHANT MAHAR ISHI, AM . / ITA NO.6589/DEL/2019 / ) ) / ASSESSMENT YEAR 2016-17 PEE EMPRO EXPORTS PVT.LTD., G-6, VAIKUNTH, 82-83, NEHRU PLACE, NEW DELHI-110019. PAN-AAACP3293P .......... 01 /APPELLANT VS THE ACIT, CIRCLE-19(2), NEW DELHI. . $201 / RESPONDENT 0134+ / APPELLANT BY : SH. S.KRISHNAN, ADV. $20134+ / RESPONDENT BY : SH. ABHISEK KUMAR, SR.DR 3&, / DATE OF HEARING : 04.02.2020 56 3&, / DATE OF PRONOUNCEMENT: 20 .03.2020 +% / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST OR DER OF CIT(A)-7, NEW DELHI DATED 08.07.2019 RELATING TO ASSESSMENT YEAR 2016-17 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TA X ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(APPEALS) ERRED IN CONFIRMING THE FOLLOWING A CTIONS OF THE ASSESSING OFFICER IN :- I. COMPLETING ASSESSMENT UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961 (THE ACT) DETERMINING TAXABLE INCOM E AT ITA NO.6589/DEL/2019 ASSESSMENT YEAR 2016-17 2 RS.24,66,44,620/- AGAINST RETURNED INCOME IN A SUM OF RS.21,76,39,230/-; II. MAKING ADDITION OF RS.2,90,05,390/- ON ACCOUNT OF VALUATION IN CLOSING STOCK REJECTING THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE, ACCEPTED BY THE DEPARTMENT FROM YEAR TO YEAR IN THE PAST BY REJECTING THE METHOD OF VALU ATION OF CLOSING STOCK ON ESTIMATE BASIS. 3. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND O F APPEAL WHICH READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND WITHOUT PREJUDICE TO THE ORIGINAL GROUNDS AS RAISED IN THE MEMO OF APPEAL, THE ACTION OF THE CIT(A) IN NOT DIRECTING T HE ASSESSING OFFICER TO COMPUTE THE OPENING STOCK OF THE SUCCEEDING YEAR CO NSISTENT WITH THE VALUATION OF CLOSING STOCK AS PROPOSED BY HIM IN AS SESSMENT IN THE SUBJECT YEAR IS ARBITRARY AND FALLACIOUS. IT IS PR AYED THAT REQUISITE DIRECTIONS TO THE EFFECT BE KINDLY ISSUED BY THE HO NBLE TRIBUNAL. 4. THE ISSUE RAISED BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.2.90 CRORES (APPROX.) ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE DOES NOT RE QUIRE ANY INVESTIGATION INTO THE FACTS, HENCE IS ADMITTED. 5. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE HA D FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.21,76,39,230/-. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND EXPORT OF READYMAD E GARMENTS. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF CLOSING STOCK. THE ASSESSING OFFICER NOTES THAT THE ASSESSEE FILED STATEMENT SHOWING VALUE OF FINISHED GOODS AS ON 31.03.2016 AT RS.13,78,58,3 20/-. FROM THE DETAILS FURNISHED, IT WAS NOTED BY THE ASSESSING OFFICER TH AT THE ASSESSEE HAD ARRIVED AT SUCH VALUE BY REVERSE CALCULATION OF SAL E PRICE MINUS (-) 25%. THE ITA NO.6589/DEL/2019 ASSESSMENT YEAR 2016-17 3 TOTAL SALE PRICE OF FINISHED GOODS WAS SHOWN AT RS. 18,38,11,092/- AND AFTER ADJUSTING 25% OF ABOVE VALUE, CLOSING STOCK WAS DEC LARED AT RS.13,78,58,320/-. THE ASSESSEE WAS SHOWCAUSED AS TO WHY ADJUSTMENT WAS MADE @ 25% TO ARRIVE AT THE VALUE OF CLOSING ST OCK. THE ASSESSEE EXPLAINED THAT IT WAS FOLLOWING THE SAID PRACTICE F OR PAST SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED AS SUCH. THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WAS NO BASIS FOR ADOPTING 25% AS THE BAS IS OF DISCOUNT FOR COMPUTING THE VALUE OF CLOSING STOCK. HE WAS OF TH E VIEW THAT THE INCOME OF THE ASSESSEE NEEDS TO BE RE-COMPUTED IN TERMS OF SE CTION 145(3) OF THE ACT AFTER RE-VALUING THE CLOSING STOCK. HE ADOPTED THE AVERAGE G.P. RATE OF PAST TWO YEARS @ 9.22% AND APPLIED RATE OF 9.22 % FOR CO MPUTING THE VALUE OF CLOSING STOCK, WHICH RESULTED IN MAKING AN ADDITION OF RS.2,90,05,390/-. THE CIT(A) CONFIRMED THE SAME AGAINST WHICH THE ASS ESSEE IS IN APPEAL BEFORE US. 6. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT RAW MATERIAL WAS VALUED AT COST BUT THE FINISHED GOODS/SEMI FINISHED GOODS WER E VALUED AT SALE PRICE RATE MINUS 25%, TO COMPUTE THE VALUE OF CLOSING STO CK. HE FURTHER POINTED OUT THAT THE ASSESSING OFFICER HAD APPLIED G.P. RAT E @ 9.22% TO WORK OUT THE VALUE OF CLOSING STOCK. HE THUS STATED THAT TH E ADDITIONAL GROUND OF APPEAL HAS BEEN RAISED THAT THE CLOSING STOCK SHOUL D BE THE OPENING STOCK OF NEXT YEAR. HE ALSO STRESSED THAT IN CASE THE METHO D OF VALUATION OF CLOSING STOCK IS REVISED THEN THE VALUE OF THE OPENING STOC K ALSO NEEDS REVISION. IN THE ALTERNATE, HE POINTED OUT THAT IN CASE THE VALU E OF CLOSING STOCK DECLARED BY THE ASSESSEE IS ACCEPTED, THEN ALL OTHER ISSUES WOULD BECOME ACADEMIC. ITA NO.6589/DEL/2019 ASSESSMENT YEAR 2016-17 4 HE STRESSED THAT SAME PRINCIPLE HAS BEEN APPLIED BY THE ASSESSEE FROM YEAR TO YEAR. HE PLACED RELIANCE IN THE DECISION OF HON BLE DELHI HIGH COURT IN CIT VS SUPERIOR CRAFTS [2012] 20 TAXMANN.COM 144 (D EL). 7. THE LD.DR FOR THE REVENUE QUESTIONED THE BASIS A DOPTED BY THE ASSESSEE TO WORK OUT THE VALUE OF CLOSING STOCK. H E PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES IN THE PRESENT APPEAL IS THE VALUE OF CLOSING STOCK TO BE ADOPTED IN THE CASE OF THE ASSESSEE. THE ASS ESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GARMENTS. THE CLOSING STOCK WAS DECLARED BY THE ASSESSEE AT RS.13,78,58,320/-. THE VALUE OF THE SEMI FINISHED GOODS/FINISHED GOODS WAS DETERMINED ON TH E BASIS OF SALE VALUE LESS 25%. THE RAW MATERIAL WAS VALUED AT COST. THE ASS ESSING OFFICER QUESTIONED THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE. I N REPLY, IT WAS POINTED OUT THAT THE SAID METHOD HAS BEEN ADOPTED FROM YEAR TO YEAR BY THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE SAME AND NOTED THAT THE G.P. RATE DECLARED BY THE ASSESSEE IN ASSESSMENT YEAR 20 14-15 WAS 9.38% AND IN ASSESSMENT YEAR 2015-16 WAS 9.07% AND ADOPTING T HE AVERAGE OF 9.22%, THE ASSESSING OFFICER WORKED OUT THE VALUE OF CLOSI NG STOCK AT RS.16.68 CRORES (APPROX.). THIS RESULTED IN AN ADDITION OF 2.90 CRORES (APPROX.). THE PLEA OF THE ASSESSEE BEFORE US IS THAT WHERE CONSIS TENT METHOD HAS BEEN FOLLOWED FROM YEAR TO YEAR THEN THE SAME SHOULD NOT BE DISTURBED. HOWEVER, THE ASSESSEE IS UNABLE TO POINT OUT THE BASIS FOR A DOPTING 25% AS THE BENCHMARK FOR WORKING OUT THE VALUE OF CLOSING STOC K; THOUGH, THE SAID ITA NO.6589/DEL/2019 ASSESSMENT YEAR 2016-17 5 BENCHMARK WAS APPLIED FROM YEAR TO YEAR BUT THE SA ME HAS NO BASIS. ACCORDINGLY, WE FIND NO MERIT IN THE METHODOLOGY AD OPTED BY THE ASSESSEE IN VALUING ITS CLOSING STOCK. ON THE OTHER HAND, THE ASSESSING OFFICER HAD APPLIED THE G.P. RATE OF 9.22% IN ORDER TO COMPUTE THE VALUE OF CLOSING STOCK I.E. SALE VALUE LESS 9.22%. WE ARE OF THE VIEW THA T THE VALUE OF CLOSING STOCK AS COMPUTED BY THE ASSESSING OFFICER NEEDS TO BE AC CEPTED AS SUCH. HOWEVER, SAME METHOD IS TO BE APPLIED FOR VALUATION OF OPENING STOCK, WHICH IS TO BE RE-DETERMINED BY REDUCING THE VALUE OF OP ENING STOCK BY 9.22%. IT IS AN ADMITTED POSITION THAT SAME RATE NEEDS TO BE APPLIED TO COMPUTE THE VALUE OF OPENING STOCK AND/OR CLOSING STOCK. IT MA Y ALSO BE POINTED OUT THAT THE VALUE OF CLOSING STOCK AS ON THE CLOSE OF THE Y EAR WOULD BE THE VALUE OF OPENING STOCK AS ON THE OPENING DAY OF NEXT ASSESSM ENT YEAR. ACCORDINGLY, WE HOLD SO. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE THUS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2020. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) +, - / ACCOUNTANT MEMBER ! / VICE PRESIDENT / DATED : 20 TH MARCH, 2020 * AMIT KUMAR * ITA NO.6589/DEL/2019 ASSESSMENT YEAR 2016-17 6 +%3$/&7(8+(&9 COPY OF THE ORDER IS FORWARDED TO : 1. 01 / THE APPELLANT 2. $201 / THE RESPONDENT 3. :& ; < / THE CIT(A) 4. = :& / THE PR. CIT 5. 6. / DR, ITAT, DELHI >?)@9 GUARD FILE. +% / BY ORDER , 2(&$/& // TRUE COPY // ' A-B , * ASSISTANT REGISTRAR, ITAT, DELHI