The DCIT, Circle-2, RAJKOT-GUJARAT V. M/s ISPL Industries Ltd., RAJKOT-GUJARAT

ITA 688/RJT/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0482 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-10-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH PANDEY
• Assessee Lawyers: DM RINDANI
• Keywords: Additional evidence; Valuation report; Tax effect
• Section: 145; 144

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO.688/RJT/2010 / ASSESSMENT YEAR: 2000-2001 DCIT, CIRCLE-2, RAJKOT VS M/S. ISPL INDUSTRIES LTD., BHAVNAGAR ROAD, RAJKOT PAN : AAACI 6862 P / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI YOGESH PANDEY, DR ASSESSEE BY : SHRI D.M. RINDANI, CA / DATE OF HEARING : 07/10/2015 /DATE OF PRONOUNCEMENT: 23/11/2015 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-III, R AJKOT DATED 27.11.2009 PASSED FOR ASSESSMENT YEAR 2000-01. 2. IN THE FIRST GROUND OF THE APPEAL, THE REVENUE H AS PLEADED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.5,82,97,056/- WHICH WAS ADDED BY THE ASSESSING OFFICER ON THE GRO UND THAT THE ASSESSEE HAS UNDERVALUED THE STOCK OF WORK-IN-PROGR ESS (WIP) OF MACHINE BUILDING DIVISION (MBD). ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 2 - 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE MANUFACTURING OF INDUSTRIAL FASTENER S & MACHINE BUILDING. IT HAS FILED ITS RETURN OF INCOME ON 30.1 1.2000, DECLARING A LOSS OF RS.16,90,01,531/-. THE CASE OF THE ASSESSE E WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) WAS ISSUE D AND SERVED UPON THE ASSESSEE. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSEE HAS BEEN DECLARED AS A SICK INDUSTRIAL UNDERTAKING UNDER THE PROVISIONS OF SICK INDUSTRIAL COMPANIES ACT BY THE BIFR. THE REHABILITATION PROPOSAL WAS PENDING FOR ADJUDICATIO N BEFORE THE BIFR. THEREFORE, THE ASSESSEE FAILED TO COMPLY WITH THE Q UESTIONNAIRES ISSUED BY THE ASSESSING OFFICER. THE LD. ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER ACCORDING TO HIS BEST JUDGMENT U/S 144 OF THE INCOME-TAX ACT. THE ORDER WAS PASSED ON 31.03.2003 AND THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.(-) 5,87,98,86 2/- AS AGAINST THE DECLARED LOSS OF RS.(-)16,90,01,531/-. THE LD. ASS ESSING OFFICER HAS MADE VARIOUS ADDITIONS IN THE INCOME OF THE ASSESSE E WHICH HAS REDUCED THE DECLARED LOSS. 4. THE FIRST ADDITION MADE BY THE ASSESSING OFFICER IS OF A SUM OF RS.5,82,97,056/-. THE BRIEF FACTS WITH REGARD TO T HIS ISSUE ARE THAT UP TO LAST YEAR THE ASSESSEE WAS VALUING THE STOCK OF MAC HINE BUILDING DIVISION AT ESTIMATED COST. DURING THE YEAR, BASED ON THE VALUATION REPORT RECEIVED FROM CHARTERED ENGINEER AND GOVERNM ENT APPROVED VALUER, THE INVENTORY HAS BEEN VALUED AT REALIZABLE VALUE, RESULTING IN LOWER VALUATION OF INVENTORY IN MACHINE BUILDING DI VISION BY RS.5,82,97,056/-. ACCORDING TO THE ASSESSEE, AS PE R THE ACCOUNTING ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 3 - STANDARD-2 NOTIFIED BY THE INSTITUTE OF CHARTERED A CCOUNTANTS OF INDIA, THE INVENTORY OF WIP HAS TO BE VALUED AT REALIZABLE VALUE. THE ASSESSING OFFICER FAILED TO APPRECIATE THIS ASPECT AND OBSERVED THAT INVENTORY OUGHT TO BE VALUED AT ESTIMATED COST. DUE TO THIS REASON, THE LD. ASSESSING OFFICER HAS ADOPTED DIFFERENT FIGURE WHICH ACCORDING TO HIM OUGHT TO BE ADOPTED BY THE ASSESSEE IN THE CLOS ING STOCK. THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.5,82,9 7,056/- ON THE GROUND THAT THE ASSESSEE HAS UNDERVALUED THE STOCK WHICH IS UNDER WORK-IN-PROGRESS (WIP). 5. ON APPEAL, THE LD. FIRST APPELLATE AUTHORITY HAS DELETED THIS ADDITION BY OBSERVING AS UNDER:- 4.4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE WRITTEN SUBMISSION FILED BY THE AR OF THE APPELLANT. IT IS CORRECT THAT APPELLANT COMPANY WAS TO COMPLY WITH THE AS-2 ISSUED BY THE I NSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE NOTES FORMING P ART OF ACCOUNTS AT PAPER-BOOK PAGE-24 REGARDING VALUATION OF INVENTORI ES IS REPRODUCED HEREUNDER TO EMPHASIS THE IMPORTANCE OF THE AS-2 CO MPLIANCE: (D) VALUATION OF INVENTORIES:- I. RAW MATERIALS: THE COMPANY HAS DURING THE YEAR VALUED INVENTORIES OF RAW MATERIALS AS WEIGHTED AVERAGE COST AS PERMISSIBLE UNDER THE A CCOUNTING STANDARD 2 (AS 2) 'VALUATION OF INVENTORIES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA INSTEAD OF FIRST IN FIRST OUT (FIFO) FORMULA HERETO FOLLOWED, AS IN THE OPINION OF THE C OMPANY SUCH CHANGE WOULD RESULT IN A MORE APPROPRIATE PRESENTATION OF THE FINANCIAL STATEMENTS. THE COMPANY HAS ALSO EXCLUDED RECOVERAB LE TAXES AND DUTIES INCURRED FORM VALUATION OF INVENTORIES AS RE QUIRED BY AS2. HOWEVER CONSEQUENT TO THIS THERE IS NO MATERIAL IMP ACT ON THE LOSS FOR THE YEAR. ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 4 - II. WORK IN PROGRESS (WIP): THE VALUATION OF WIP OF MACHINE BUILDING DIVISION ( MBD) UPTILL LAST YEAR WAS VALUED AT ESTIMATED COST. DURING THE YEAR BASED ON THE VALUATION REPORT RECEIVED FROM CHARTERED ENGINEER A ND GOVT. APPROVED VALUER M/S. N. M. SHAH & ASSOCIATES, MUMBAI. THE IN VENTORY HAS BEEN VALUED AT REALIZABLE VALUE RESULTING IN LOWER VALUATION OF INVENTORY IN MBD DIVISION BY RS.5829756/- TO COMPLY WITH THE STIPULATION OF AS2 FOR VALUATION OF INVENTORY ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LOSS FOR THE YE AR IS HIGHER TO THAT EXTENT. IN RESPECT OF WIP OF FASTNER DIVISION THE C OMPANY HAS VALUED ITS WTP ON THE BASIS OF ESTIMATED COST. THIS IS HOW EVER, NOT IN ACCORDANCE WITH THE METHOD OF VALUATION PRESCRIBED BY AS2. IN THE OPINION OF THE MANAGEMENT DUE TO COMPLEXITY OF THE MANUFACTURING PROCESS, IT IS NOT POSSIBLE FOR THEM TO ASSIGN THE VALUATION RECOMMENDED BY AS2. III. THE STOCK OF STORES, SPARES, TOOLS & DIES A RE VALUED AT COST. IV. THE FINISHED GOODS ARE VALUED AT COST OR MAR KET VALUE, WHICHEVER IS LOWER. ON PERUSAL OF ABOVE NOTES ON VALUATION OF INVENTORI ES, IT IS NOTICED THAT THE AS 2 COMPLIANCE IS TO BE MADE REGA RDING VALUATION OF RAW-MATERIALS AS WELL AS WIP. THE ASSESSING OFFICER HAS ACCEPTED AS 2 COMPLIANCE FOR RAW-MATERIALS PART BUT CONVENIENTLY CHOOSE IGNORE THE AS 2 COMPLIANCE FOR VALUATION OF WIP. THIS WAS DONE BY THE ASSESSING OFFICER ONLY AS IT WAS PROCEEDING IN EX-PARTE MANNE R. THE APPELLANT COMPANY IS UNDER LIQUIDATION BEFORE THE BIFR, LOSSE S ARE RUNNING IN CRORES. THERE WILL BE NO SUBSTANTIAL TAX EFFECT. IT IS WORTHWHILE TO MENTION THAT THE COMPANY HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR IN QUESTION DECLARING LOSS OF RS.16 2346176/-. HOWEVER, REGARDING VALUATION OF WIP AS THE NOTES ME NTIONED REGARDING UNDER-VALUATION BY RS.58297056/-, THE ASS ESSING OFFICER HAS CAME TO THE CONCLUSION THAT SUCH DEVIATION IS R ELATING TO UNDERVALUATION AND IS THEREFORE NOT ACCEPTABLE IN I NCOME-TAX LAW. II IS TO BE SEEN THAT THE ASSESSING OFFICER HAS NOT TAKEN HOLISTIC VIEW REGARDING THE MATERIAL IMPACT OF THE LOWER VALUATIO N OF WIP ON THE LOSS FOR THE YEAR BUT HAS ARRIVED AT THE DECISION ON SUR MISES AND ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 5 - CONJECTURES. ADDITION IN CURRENT YEAR'S STOCK VALUE WILL NATURALLY INCREASE THE VALUE OF CLOSING STOCK OF NEXT YEAR AN D HENCE THE OVERALL TAX EFFECT WILL BE NIL. AS FOR THE CURRENT YEAR LOS S WILL FURTHER INCREASE BUT THE CORRECTION IN VALUE OF WIP WILL REFLECT PRO PER CALCULATION IN P& L ACCOUNTS. IN SUBSEQUENT YEARS, THE CORRECT POSITI ON MIGHT BE REFLECTED IN THE P & L ACCOUNTS. THE VALUATION DIFFERENCE IS BECAUSE OF THE AS-2 COMPLIANCE AND SAME CANNOT BE CONSIDERED TO BE UNDE R STATEMENT IN VALUATION. ASSESSING OFFICER HAS FAILED TO MADE OUT ANY CASE OF UNDER- VALUATION. ADDITION MADE ON SURMISES, CONJECTURES A ND PRESUMPTIONS DOES NOT STAND GOOD AND DESERVES TO BE DELETED. FUR THER, DURING THE COURSE OF SET ASIDE APPELLATE PROCEEDINGS, THE ASSE SSING OFFICER HAS NOT SUBMITTED HIS COMMENTS ON THE ADDITIONAL EVIDENCES FIELD BY THE APPELLANT. AS SUCH, THE ADDITION OF RS.58297056/- M ADE BY THE ASSESSING OFFICER IS HEREBY ORDERED TO BE DELETED. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED U PON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL F OR THE ASSESSEE HAS PLACED ON RECORD COPY OF THE ACCOUNTING STANDARD-2. A COPY OF ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNM ENT OF INDIA BY EXERCISING POWERS CONFERRED UNDER SUB-SECTION (2) O F SECTION 145 HAS ALSO BEEN PLACED ON RECORD. THE NOTIFICATION BEARI NG NO.S.O.69(E) DATED 25.01.1996 HAS BEEN REFERRED BY BOTH THE PART IES. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. AS FAR AS MAINTENANC E OF ACCOUNTS AT THE END OF ASSESSEE IN ACCORDANCE WITH THE ACCOUNTING S TANDARD NOTIFIED BY THE GOVERNMENT OF INDIA IS CONCERNED, THERE IS N O DISPUTE. THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF AC COUNTING. IT HAS DISCLOSED THE COMPLETE FACTS IN ITS AUDITED ACCOUNT S. IT HAS ALSO DISCLOSED THE CHANGE IN THE METHOD OF ACCOUNTS WITH REGARD TO THE VALUATION OF WORK-IN-PROGRESS IN MACHINE BUILDING D IVISION (MBD). ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 6 - SUB-CLAUSE (6) OF THE ACCOUNTING STANDARD NOTIFIED BY THE GOVERNMENT OF INDIA PROVIDES THE MEANING OF EXPRESSIONS USED I N CLAUSE NOS. (1) TO (5) OF THESE STANDARDS. ACCORDING TO SUB-CLAUSE (A) OF CLAUSE (6), ACCOUNTING POLICIES MEANS THE SPECIFIC ACCOUNTING PRINCIPLES AND THE METHODS OF APPLYING THOSE PRINCIPLES ADOPTED BY THE ASSESSEE IN THE PREPARATION AND PRESENTATION OF FINANCIAL STATE MENTS. THE ASSESSEE HAS FOLLOWED THESE POLICIES AND NO DEFECT HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. SIMILARLY, CLAUSE (9) PROVIDES A CHANGE IN AN ACCOUNTING POLICY ON ACCOUNT OF FULFILLMENT OF CERT AIN STATUTORY REQUIREMENTS. CLAUSE (13) FURTHER PROVIDES THE MEAN ING OF EXPRESSIONS USED IN CLAUSES (7) TO (12) OF THESE STANDARDS. THE FIRST ASPECT IS THE MEANING OF EXPRESSION ACCOUNTING ESTIMATE. AS PE R SUB-CLAUSE (A) OF CLAUSE (13), ACCOUNTING ESTIMATE MEANS AN ESTI MATE MADE FOR THE PURPOSE OF PREPARATION OF FINANCIAL STATEMENTS WHIC H IS BASED ON THE CIRCUMSTANCES EXISTING AT THE TIME WHEN THE FINANCI AL STATEMENTS ARE PREPARED. AS-2 NOTIFIED BY THE INSTITUTE OF CHARTER ED ACCOUNTANTS OF INDIA PROVIDED AT SR. NO.5 THAT INVENTORY SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALUE. THIS HAS BE EN PROVIDED WITH RESPECT TO WORK-IN-PROGRESS. THE ASSESSEE HAS FOLL OWED AS-2 AND ESTIMATED CLOSING STOCK OF WORK-IN-PROGRESS IN MACH INE BUILDING DIVISION AT NET REALIZABLE VALUE. THE LD. FIRST APP ELLATE AUTHORITY HAS APPRECIATED THIS ASPECT AND OBSERVED THAT THE ASSES SING OFFICER HAS NOT TAKEN A HOLISTIC VIEW REGARDING THE MATERIAL IM PACT OF THE LOWER VALUATION OF WORK-IN-PROGRESS ON THE LOSSES FOR THE YEAR. EVEN IF IT IS ADDED IN THIS YEAR, IT WILL BECOME THE OPENING STOC K OF THE NEXT YEAR AND THE NEXT YEAR LOSS WOULD INCREASE. THUS, THERE IS NO MATERIAL ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 7 - DIFFERENCE AS FAR AS THE TAXABILITY PART IS CONCERN ED, EVEN IF THIS METHOD IS BEING NOT PERMITTED TO THE ASSESSEE. AFTER GOING THROUGH THE ORDER OF THE LD. CIT(A) IN THE LIGHT OF ACCOUNTING POLICY NOTIFIED BY THE GOVERNMENT OF INDIA AS WELL AS AS-2 NOTIFIED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WE ARE OF THE VIEW THAT THE ASSESSEE HAS RIGHTLY VALUED THE WORK-IN-PROGRESS IN MACHINE BUILDING DIVISION AT NET REALIZABLE VALUE. THIS FIGURE HAS BEEN ADOP TED ON THE BASIS OF VALUATION REPORT RECEIVED FROM THE CHARTERED ENGINE ER AND GOVERNMENT APPROVED VALUER. THE ASSESSING OFFICER H AS NOT POINTED OUT ANY DEFECTS IN THE VALUATION. HIS CONCERN WAS W ITH REGARD TO THE METHOD ONLY. THEREFORE, WE DO NOT FIND ANY MERIT I N THIS GROUND OF APPEAL OF THE REVENUE AND IT IS REJECTED. 8. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF T HE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE AD DITION MADE ON ACCOUNT OF UNDER-STATEMENT OF INCOME RELATING TO EX CISE DUTY TO RS.5,94,402/- OUT OF TOTAL ADDITION OF RS.1,14,19,3 86/-. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE LD. ASS ESSING OFFICER HAS MADE AN ADDITION OF RS.1,14,19,386/- ON THE GROUND THAT THE ASSESSEE HAS REDUCED THE VALUE OF ITS CLOSING STOCK BY RS.1, 08,24,984/- BEING EXCISE DUTY ON THE ASSESSEE-COMPANYS SALES AND RS. 5,94,402/- BEING EXCISE DUTY ON FINISHED GOODS. ACCORDING TO THE AS SESSING OFFICER, EXCISE DUTY IS A CHARGE THAT GETS ATTACHED THE MOME NT THE PRODUCT SUBJECT IS BEING MANUFACTURED AND REACHED AT FINISH ED STAGE. BEFORE THE LD. CIT(A), IT WAS CONTENDED BY THE ASSESSEE TH AT THE AMOUNT OF ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 8 - EXCISE DUTY AMOUNTING TO RS.1,08,24,984/- WAS INCUR RED BY THE ASSESSEE ON THE SALES CREDITED IN THE P&L ACCOUNT A T RS.9,97,39,399/-. THIS AMOUNT, THEREFORE, NOT ASSOCIATED WITH THE STO CK AVAILABLE IN THE CLOSING STOCK. IT CANNOT BE ADDED. AS FAR AS THE AMOUNT OF RS.5,94,402/- IS CONCERNED, THE STAND OF THE ASSESS EE WAS THAT EXCISE DUTY IS BEING CONSIDERED WHEN FINISHED PRODUCTS ARE BEING TAKEN OUT OF THE PREMISES. THE LD. FIRST APPELLATE AUTHORITY HAS ACCEPTED THE CONTENTION OF THE ASSESSEE QUA THE FIRST FOLD OF SU BMISSION. WITH REGARD TO THE SECOND FOLD, LD. CIT(A) HAS OBSERVED THAT AS PER SECTION 145A, THE ASSESSEE HAS TO INCLUDE THE ELEMENT OF EX CISE DUTY IN THE VALUE OF CLOSING STOCK. THUS, THE FINISHED CLOSING STOCK AVAILABLE WITH THE ASSESSEE SHOULD INCLUDE THE ELEMENT OF EXCISE D UTY. THE LD. CIT(A) IN THIS WAY CONFIRMED THE ADDITION OF RS.5,94,402/- AND DELETED THE ADDITION OF RS.1,08,24,984/-. THE BRIEF FINDINGS RE CORDED BY THE LD. CIT(A) ON THIS ISSUE READ AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSION O F THE AR OF THE APPELLANT. IT IS NOTICED THAT IN THE PRINTED 34 TH ANNUAL REPORT OF THE COMPANY AT PAGE-11, THE PROFIT & LOSS ACCOUNT SHOWS SALES WORTH RS.99739399/- AND THE EXPENDITURE SIDE SHOWS EXCISE DUTY PAYMENT OF RS. 10824984/- DEBITED IN P & L ACCOUNT. THEREFO RE, THE APPELLANT'S ARGUMENTS APPEAR TO BE CORRECT THAT EXCISE DUTY OF RS. 10824984/- WAS INCURRED ON ACCOUNT OF SALES MADE BY THE APPELL ANT. THEREFORE, IT IS NOT REMOTELY ASSOCIATED WITH THE CLOSING STOCK AND APPEARS TO HAVE BEEN MISINTERPRETED BY THE ASSESSING OFFICER. EXCISE DUT Y IS PAYABLE ON MANUFACTURING OF GOODS I.E. ON FINISHED PRODUCTS. T HUS, THE AMOUNT OF EXCISE DUTY PAID ON SALES HAS BEEN FULLY DEBITED BY APPELLANT IN P & L ACCOUNT, THEREFORE, SAME IS ORDERED TO BE DELETED. HOWEVER, THE EXCISE DUTY ON FINISHED GOODS AMOUNTING TO RS.594402/- SHO ULD HAVE BEEN ADDED IN THE VALUE OF CLOSING STOCK IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE IT ACT INTRODUCED WITH REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA L TD,-188 ITR 44. ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 9 - FURTHER, DURING THE COURSE OF SET ASIDE APPELLATE P ROCEEDINGS, THE ASSESSING OFFICER HAS NOT SUBMITTED HIS COMMENTS ON THE ADDITIONAL EVIDENCES FILED BY THE APPELLANT. THEREFORE, THE AD DITION OF RS.594402/- IS HEREBY ORDERED TO BE CONFIRMED OUT OF THE ADDITI ON MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.11419386/-. FURTH ER, THE ASSESSING OFFICER IS DIRECTED TO ALLOW APPELLANT DEDUCTION U/ S.43B ON PAYMENT BASIS IN THE YEAR OF PAYMENT. 10. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES , WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS DEM ONSTRATED THAT THE EXCISE DUTY PAYMENT OF RS.1,08,24,984/- WAS INCURRE D ON ACCOUNT OF SALES MADE BY THE ASSESSEE. THIS AMOUNT, THEREFORE , CANNOT BE INCLUDED WHILE VALUING THE CLOSING STOCK. THIS FIN DING OF FACT HAS NOT BEEN REBUTTED BY THE REVENUE BY SUBMITTING ANY EVID ENCE. IN PRINCIPLE, LD. FIRST APPELLATE AUTHORITY HAS ACCEPT ED THIS STAND OF THE ASSESSING OFFICER THAT IF ASSESSEE HAS FINISHED PRO DUCT IN ITS CLOSING STOCK, THEN THE VALUE OF EXCISE DUTY IS TO BE INCLU DED U/S 145A OF THE INCOME-TAX ACT IN THE VALUE OF CLOSING STOCK OF SUC H FINISHED PRODUCTS. BUT, ON THE BASIS OF THE EVIDENCE SUBMITTED BY THE ASSESSEE, LD. CIT(A) SEGREGATED THE ADDITION MADE BY THE ASSESSING OFFIC ER IN TWO PARTS ONE REPRESENTING THE EXPENDITURE OF EXCISE DUTY INC URRED ON THE SALES AND DEBITED IN THE P&L ACCOUNT. THEREFORE, WE DO NO T FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A). THIS GROUND OF APP EAL IS REJECTED. 11. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.5,00,000/-. THIS ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT CERTAIN STOCKS ARE LYING WITH THIRD PARTIES WHICH R EMAINED UNVERIFIED AND THEREFORE, THE ASSESSING OFFICER, ON AN AD-HOC BASIS, MADE AN ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 10 - ADDITION OF RS.5,00,000/-. ON APPEAL, LD. CIT(A) D ELETED THE ADDITION ON THE GROUND THAT THE ASSESSEE HAS FILED THE CONFI RMATION CERTIFICATE. THE ASSESSING OFFICER HAS NOT MADE ANY FURTHER INQU IRY. THE LD. CIT(A) HAS REMITTED THE CERTIFICATE FOR VERIFICATIO N TO THE ASSESSING OFFICER, BUT THE LD. ASSESSING OFFICER DID NOT SUBM IT THE REPORT. THE NON-COOPERATIVE ATTITUDE OF THE ASSESSING OFFICER H AS BEEN HIGHLIGHTED BY THE FIRST APPELLATE AUTHORITY IN THE IMPUGNED OR DER. THEREFORE, AFTER GOING THROUGH THE ORDER OF THE LD. CIT(A), WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD. CIT(A) ON THIS ISSU E. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO REJECTED. 12. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF SALE OF SCRAP. 13. THE BRIEF FACTS OF THE CASE ARE THAT THE LD. AS SESSING OFFICER HAS MADE A LUMP-SUM ADDITION OF RS.10,00,000/- ON THE G ROUND THAT THE ASSESSEE MUST HAVE GENERATED SCRAP WHICH MIGHT HAVE BEEN SOLD OUT OF BOOKS. LD. CIT(A) HAS OBSERVED THAT SALES OF TH E ASSESSEE HAVE BEEN DECLINED IN THIS YEAR. THE PRODUCTION IS ONLY 580 M.T.; WHEREAS IN THE IMMEDIATELY PRECEDING YEAR THE PRODUCTION WAS 715 M .T. SINCE THERE IS A DECLINE IN THE PRODUCTION, SIMULTANEOUSLY THE SCRAP GENERATION MUST HAVE BEEN DECLINED. THEREFORE, ACCORDING TO L D. CIT(A) THERE CANNOT BE ANY ASSUMPTION OF HIGHER GENERATION OF TH E SCRAP. ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 11 - 14. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE SOLE ISSUE IS WH ETHER THE ASSESSEE HAS GENERATED HIGHER AMOUNT OF SCRAP WHICH HAS BEEN SOLD OUT OF BOOKS OR NOT. THE ASSESSING OFFICER HAS DRAWN INFE RENCE ON THE BASIS OF EARLIER YEARS PRODUCTION; WHEREAS THE LD. FIRST APPELLATE AUTHORITY DID NOT CONCUR WITH SUCH INFERENCE ON THE GROUND TH AT PRODUCTION ITSELF HAS DECLINED. ON DUE CONSIDERATION OF THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDING OF THE LD. C IT(A). THE FINDING OF THE ASSESSING OFFICER IS NOT BASED ON ANY CONCRETE EVIDENCE. THEREFORE, THIS GROUND OF APPEAL IS REJECTED. 15. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS.10,00,000/- WHICH WAS ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF UNSUBSTANTIATED EXPENDITURE. THE FINDINGS OF THE L D. CIT(A) ON THIS ISSUE READ AS UNDER:- 8. . NEXT GROUND OF APPEAL NO. 11 IS THAT THE ASS ESSING OFFICER WAS NOT CORRECT IN MAKING LUMP SUM ADDITION OF RS.10000 00/- FOR UN- SUBSTANTIATE EXPENDITURE. THE ASSESSING OFFICER HAS ON PAGE-5 AT PARA- 8 OF THE ASSESSMENT ORDER MENTIONED THAT THE ASSESS EE WAS ASKED TO FURNISH DETAILS OF VARIOUS EXPENDITURE. AS NO SUCH DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE, HENCE THE ASSESSING OFFI CER HELD THAT ASSESSEE'S EXPENDITURE IS NOT FULLY SUBSTANTIATED A ND THEREFORE, MADE AN ADDITION OF RS.1000000/- TO THE TOTAL INCOME OF THE ASSESSEE. 8.1. DURING THE COURSE OF SET ASIDE APPELLATE PRO CEEDINGS, THE AR OF THE APPELLANT SUBMITTED A PAPER-BOOK AND ON PAGE-7 & 8 IN PARA-14 SUBMITTED AS UNDER:- '14. THE LEARNED AO VIDE PARA 8 OF HIS ORDER HAS MA DE A PRESUMPTIVE ADDITION OF RS. 10 LACS CONTENDING THE SAME TO BE ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 12 - UNSUBSTANTIATED EXPENDITURE. THE APPELLANT BEGS TO SUBMIT THAT IT COULD NOT PROVIDE THE DETAILS AS SOUGHT FOR ON A CCOUNT OF THE CIRCUMSTANCES SLATED AT PARA 1. THAT FURTHER TO THI S IT IS A LISTED CO. WHOSE ACCOUNTS ARE SUBJECTED TO THE SCRUTINY OF JOINT STATUTORY AUDITORS AS ALSO VARIOUS INSTITUTIONS SUC H AS BANKS ETC. IT IS PERTINENT TO NOTE THAT NO ADVERSE COMMENT OR QUALIFICATION HAS BEEN MADE BY ANY OF THESE INDEPENDENT & PROFESS IONALLY QUALIFIED AUTHORITIES. BEARING THIS IN MIND THE APP ELLANT BEGS TO SUBMIT THAT THIS PRESUMPTIVE ADDITION OF RS. 10 LAC S ON ACCOUNT OF UNSUBSTANTIATED EXPENDITURE IS UNCALLED FOR.' 8,2. I HAVE CAREFULLY CONSIDERED THE ABOVE REPLY OF THE AR OF THE APPELLANT. IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE THE LUMP SUM ADDITION WITHOUT ANY BASIS. THE ACCOUNTS OF THE COMPANY ARE AUDITED ACCOUNTS AND IN EARLIER YEAR, NO SUCH ADDIT ION HAS BEEN MADE FOR UN-SUBSTANTIATED EXPENDITURE. NO PRESUMED ADDIT ION CAN BE MADE BY THE ASSESSING OFFICER. ADDITION MADE ON SURMISES , CONJECTURES AND PRESUMPTIONS DESERVES TO BE DELETED. FURTHER, DURIN G THE COURSE OF SET ASIDE APPELLATE PROCEEDINGS, THE ASSESSING OFFICER HAS NOT SUBMITTED HIS COMMENTS ON THE ADDITIONAL EVIDENCES FILED BY T HE APPELLANT. AS SUCH, ABOVE ADDITION OF RS.1000000/- ALSO DESERVES TO BE DELETED, THEREFORE, SAME IS ORDERED TO BE DELETED. 16. THE LD. CIT-DR FAILED TO BRING ANY MATERIAL TO OUR NOTICE WHICH CAN PERSUADE US TO ASSUME THAT THERE WERE INSTANCES OF EXPENDITURE WHICH HAVE NOT BEEN ACCOUNTED BY THE ASSESSEE. IF THE ASSESSING OFFICER WANTS TO DRAW CERTAIN INFERENCE OR PRESUMPT ION, THEN HE SHOULD HAVE MADE REFERENCE TO PERIPHERAL CIRCUMSTAN CES OR ANY RELEVANT MATERIAL WHICH GIVE RISE TO SITUATION THAT THE ASSESSEE MUST HAVE INCURRED EXPENDITURE OUT OF BOOKS. NO SUCH TH INGS HAVE BEEN HIGHLIGHTED BY THE ASSESSING OFFICER; THEREFORE, WE DO NOT HESITATE IN CONCURRING WITH THE FINDINGS OF LD. CIT(A) (EXTRACT ED SUPRA). THIS GROUND OF APPEAL IS REJECTED. ITA NO. 688/RJT/ 2010 DCIT VS. ISPL INDUSTREIS LTD AY : 2000-01 - 13 - 17. NEXT GROUND IS GENERAL GROUND OF APPEAL WHICH D OES NOT CALL FOR RECORDING OF ANY SPECIFIC FINDING; HENCE, REJECTED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 23.11.2015 SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD, DATED 23/11/2015 *BIJU T. ! / COPY OF ORDER FORWARDED TO:- 1. ! / APPELLANT- 2.#$ ! / RESPONDENT 3.&'& ( / CONCERNED CIT/DIT 4. (- / CIT (A) 5 .+,-#.. , , / DR, ITAT, RAJKOT 6 .-0123 / GUARD FILE. / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) & ' / ITAT, RAJKOT