ATLAS CASTALLOY LTD, MUMBAI V. DCIT 6(1), MUMBAI

ITA 7173/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0298 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 01-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PURUSHOTTAM KASHYAP
• Assessee Lawyers: S V JOSHI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7173 /MUM/201 4 ASSESSMENT YEAR: 20 10 - 1 1 ATLAS CASTALLOY LTD. 7 - C, KHATAU HOUSE, UDYOG MANDIR COMPOUND, BAGOJI KEER MARG, MAHIM MUMBAI 400016 VS. DCIT 6(1) 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400020 PAN NO. AABCA0742K (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. S.V. JOSHI, AR REVENUE BY: MR. PURUSHOTTAM KASHYAP, DR DATE OF HEARING: 05 /06/2017 DATE OF ORDER: 14 /06/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 20 10 - 1 1 . THE APPEAL IS DIRECTED AGAINST THE ORDER COMMISSIONER (APPEALS) 14 , MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. THE LEARNED C OMMISSIONER OF I NCOME T AX (A PPEALS ) - 14, MUMBAI ( HEREINAFTER REFERRED TO AS THE LEARNED CIT (A) ) ERRED IN HOLDING THAT THE LEARNED AO WAS JUSTIFIED IN REJECTING THE METHOD OF VALUATION OF STOCKS OF SEMI - FINISHED GOODS & MAKING AN ADDITION OF RS. 29.15 LACS TO THE INCOME OF THE APPELLANT . ITA NO 7173/MUM/2014 2 2. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE METHOD OF VALUATION OF S TOCKS REGULARLY EMPLOYED BY THE APPELLANT IN EARLIER YEARS CANNOT BE CHANGED IN SUBSEQUENT YEARS. 3. THE LEARNED CIT (A) ERRED IN OVERLOOKING THE FACT THAT THE ACCOUNTING STANDARD ON VALUATION OF INVENTORIES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA REQUIRES THE APPELLANT TO VALUE STOCKS AT LESSER OF COST OR NET REALISABLE VALUE AS AGAINST THE VALUATION OF SEMI - FINISHED GOODS AT A PERCENTAGE OF SELLING PRICE, SUCH PERCENTAGE BEING BASED ON THE ESTIMATED PROFIT MARGIN (A METHOD OF VALUATION NOT SUPPORTED BY A.S - 2) 4. THE LEARNED CIT (A) OVERLOOKED THE FACT THAT THE DECISIONS OF THE BOMBAY HIGH COURT IN MELMOULD CORPORATION VS CIT 202 ITR 789 & CIT V S MODERN TERRY TOWER LTD (2013) 90 DTR 321 HOLDING THAT THE ASSESSE E WAS JUSTIFIED IN CHANGING THE METHOD OF VALUATION OF STOCKS FROM NET REALISABLE VALUE TO COST OR MARKET PRICE WHICHEVER IS LOWER, STILL APPLY EVEN IN THE CONTEXT OF PROVISION OF SEC. 145A. 3. BRIEFLY STATED , THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE B USINESS OF MANUFACTURE AND SALE OF ALUMINIUM CASTING. DURING THE FY 2009 - 10 RELEVANT TO THE AY 2010 - 11, THE ASSESSEE - COMPANY HAS CHANGED ITS METHOD OF VALUATION OF INVENTORIES OF SEMI - FINISHED GOODS TO LESSER OF COST OR NET REALIZABLE VALUE AND IT RESULTED IN REDUCTION OF PROFIT TO THE TUNE OF RS. 29,15,000/ - . THE ASSESSING OFFICER (AO) HAS OBSERVED THAT IF THE ASSESSEE IS GENUINELY INTERESTED IN CHANGE IN HIS STOCK VALUATION THEN HE SHOULD HAVE DONE ADJUSTMENT BUT THE VALUATION WHICH REDUC ES THE PROFIT SHOULD HAVE BEEN DISALLOWED FOR THE PURPOSE OF COMPUTATION OF INCOME CONSIDERING IT AS CAPITAL LOSS. THEREFORE, THE A.O. MADE AN ADDITION OF RS. 29,15,000/ - U/S. 145A OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS REFERRED TO SECTION 145A OF ITA NO 7173/MUM/2014 3 THE ACT AND STATED THAT THE METHOD ONCE REGULARLY EMPLOYED IS NOT PERMISSIBLE TO BE CHANGED UNDER THE PROVISIONS OF THE ABOVE SECTION. THEREFORE, THE LD. CIT(A) HA S UPHELD THE ADDITION OF RS. 29,15,000/ - MADE BY THE A.O. U/S. 145A OF THE ACT. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BAJAJ AUTO LTD. V S. CIT (2017) 146 DTR (BOM.) 2010 . IN RESPONSE TO A QUERY FROM THE BENCH, THE LD. COUNSEL OF THE ASSESSEE REPLIES THAT THE CHANGED METHOD OF VALUATION FOR SEMI - FINISHED GOODS HAS BEEN FOLLOWED BY THE ASSESSEE - COMPANY IN SUB SEQUENT YEARS. H E FILED A COPY OF THE ASSESSMENT ORDER PASSED BY THE A .O. U/S. 143(3) IN THE CASE OF THE ASSESSEE FOR THE AY 2013 - 14 AND 2014 - 15 TO DRIVE HOME HIS POINT THAT NO ADDITION / DISALLOWANCE HAS BEEN MADE BY THE A.O. ON THE ABOVE ISSUE. 6. PER CONTRA , THE LD. DR RELIES ON THE ORDER PASSED BY THE LD. CIT(A) AND SUB MITS THAT THE A.O. HAS RIGHTLY MADE A DISALLOWANCE OF RS. 29,15,000/ - U/S. 145A OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATTER ON RECORD. WE FIND THAT UPTO 31.03.2009, THE ASSESSEE - COMPANY VALUED ITS STOCK OF SEMI - FINI SHED GOODS AT A PERCENTAGE OF SELLING PRICE, SUCH PERCENTAGE BEING BASED ON THE ESTIMATED PROFIT MARGIN. THIS METHOD IS NOT RECOGNISED BY ACCOUNTING STANDARD (AS) 2, WHICH REQUIRES VALUATION OF INVENTORIES AT THE LESSER OF COST OR NET REALI ZABLE VALUE. THE ASSESSEE - COMPANY HAS SWITCHED OVER FROM THE FY 2009 - 10 TO LESSER OF COST OR NET REALIZABLE VALUE FOR VALUING ITS STOCK OF SEMI - FINISHED GOODS. 7.1 WE NOW DISCUSS AS - 2 ON VALUATION OF INVENTORIES . AS PER IT THE INVENTORIES SHOULD BE VALUED AT LOWER OF COST AND NET REALIZABLE VALUE. THUS, THE CHANGED METHOD NOW FOLLOWED BY THE ASSESSEE - COMPANY IS IN CONFORMITY WITH THE RECOGNIZED PRINC IPAL OF VALUATION INVENTORIES. ITA NO 7173/MUM/2014 4 IN CIT V S. EASTERN BENGAL JUTE TRADING CO. LTD . (1978) 112 ITR 575 (CAL.) , IT HAS BEEN HELD THAT BONAFIDE CHANGE IN THE METHOD CANNOT BE REJECTED ON THE GROUND THAT THE SAME WOULD RESULT IN LOSSES. ALSO, IT IS HELD IN THE CASE OF INDO - COMMERCIAL BANK LTD. V S. CIT (1962) 44 ITR 22, 32 (MAD.) THAT IT IS NOT OPEN TO THE ASSESSING OFFICER TO REJECT THE CHANGE IN METHOD OF ASSESSEES ACCOUNT FOR THE REASON THAT OTHERWISE THE REVENUE WOULD LOSE. 7.2 . IN THE CASE OF BAJAJ AUTO LTD ., (SUPRA) , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT WHAT THE ASSESSEE HAS CHANGED IS THE METHOD OF ASCERTAINING THE COST FOR THE PURPOSE OF STOCK VALUATION AND NOT THE METHOD OF ACCOUNTING EMP LOYED BY THE ASSESSEE FOR THE PUR POSE OF STOCK VALUATION AS SUCH; THE METHOD, AS BEFORE, CONTINUES TO BE COST OR MARKET VALU E WHICHEVER IS LOWER , EVEN OTHERWISE, SO LONG AS THE CHANGE MADE BY THE ASSESSEE IN HIS METHOD OF ACCOUNTING IS BONA FIDE AND AMOUNTS TO A PERMANENT ARRANGEMENT TO BE FOLLOWED, THE REVENUE HAS NO CAUSE TO COMPLAIN. 7.3 IN THE INSTANT APPEAL, THE ASSESSE E HAS FOLLOWED THE CHANGED METHOD OF VALUATION OF SEMI - FINISHED GOODS IN SUBSEQUENT ASSESSMENT YEARS. 7.4 AS THE ASSESSEE COMPANY HAS CHANGED ITS METHOD OF VALUATION OF SEMI - FINISHED GOODS TO BE IN CONFORMITY WITH RECOGNISED PRINCIPLES OF COMMERCIAL ACC OUNTING AS MANDATED BY AS - 2, KEEPING IN MIND THE RATIO OF THE DECISIONS DELINEATED HERE - IN - ABOVE , THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS. 29,15,000/ - MADE BY HIM U/S. 145A OF THE ACT. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/06/2017. ITA NO 7173/MUM/2014 5 SD/ - (MAHAVIR SINGH) SD/ - (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 14/06/2017 RAHUL DHOKE P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI