Radiall India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 749/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5708 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 27-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: N DEVANATHAN
• Keywords: Tangible material
• Section: 143(3); 244A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.748 & 749/MDS/2017 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. RADIALL INDIA PRIVATE LIMITED, NO.23/21, S-2, PRINCE COURT, BAZAAR STREET, NESAPAKKAM, CHENNAI 600 078. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(3), CHENNAI PAN: AABCR2087C ( /APPELLANT) ( /RESPONDENT) /ASSESSEE BY : SHRI N. DEVANATHAN, ADVOCATE /REVENUE BY : SHRI S. VIJAYAPRABHA, JCIT /DATE OF HEARING : 27.09.2017 !' /DATE OF PRONOUNCEMENT : 12.12.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI DATED 30.12.2016 IN ITA NO S. 64/2014- 15/CIT(A)-3 & 72/2015-16/CIT(A)-3 FOR THE ASSESSMEN T YEARS 2010-11 & 2011-12 PASSED U/S.250(6) R.W.S. 143(3) O F THE ACT. 2 ITA NO.748 & 749/MDS /2017 2. THE ASSESSEE HAS RAISED SEVERAL IDENTICAL GROUND S IN BOTH OF ITS APPEALS HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- (I) THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO WHO HAD DISALLOWED STOCK WRITTEN OFF UNDER THE HEAD INDIRECT EXPENSES IN THE P & L ACCOUNT FOR RS.86,69,344/- IN THE ASSESSMENT YEAR 2010-11 AND RS.7,71,937/- IN THE ASSESSMENT YEAR 2011-12 AS ALLOWABLE DEDUCTION. (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF THE LD.AO WITH RESPECT TO CHARGING OF INTEREST U/S.234B & 234 C OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN MANUFACTURING OF PROFESSIONAL ELECTRONIC COMPONENTS & CABLE ASSEMBLY FILED ITS RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 & 2011-12 ON 12.10. 2010 & 28.09.2011 ADMITTING TOTAL INCOME OF RS.4,26,74,410 /- & RS.2,49,02,549/- RESPECTIVELY. THE CASE WAS SELECTE D FOR SCRUTINY AND FINALLY ASSESSMENT ORDERS FOR THE ASSESSMENT YE ARS 2010-11 & 2011-12 WERE PASSED U/S.143(3) OF THE ACT ON 26.0 3.2014 & 26.03.2015 WHEREIN THE LD.AO DISALLOWED RS.86,69,34 4/- & RS.7,71,937/- TOWARDS STOCK WRITTEN OFF U/S.37 OF T HE ACT AND ALSO 3 ITA NO.748 & 749/MDS /2017 LEVIED PENALTY U/S.234B & 234C OF THE ACT FOR THE R ELEVANT ASSESSMENT YEARS. 4. GROUND NO. 2(I) : STOCK WRITTEN OFF:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD CLA IMED RS.86,69,344/- AND RS.7,71,937/- FOR THE ASSESSMENT YEAR 2010- 11 & 2011-12 RESPECTIVELY AS DEDUCTION UNDER THE HE AD STOCK WRITTEN OFF WHICH WAS DISCLOSED IN SCHEDULE K IND IRECT EXPENSES FORMING PART OF P& L ACCOUNT. ON QUERY IT WAS EXPL AINED THAT CONSOLIDATED VALUE OF INVENTORY WAS TAKEN INTO P&L ACCOUNT ON ACCOUNT OF CONSTRAINTS IN THE ERP BEING USED BY THE ASSESSEE COMPANY. HOWEVER THE LD.AO DISALLOWED THE CLAIM OF THE ASSESSEE AS ALLOWABLE DEDUCTION BECAUSE OF THE FOLL OWING REASONS:- 1) THE RAW MATERIALS DEALT BY THE ASSESSEE COMPANY HAD HIGHER SCRAP VALUE WHICH THE ASSESSEE HAD NOT TAKEN INTO CONSIDERATION. 2) THE ONLY BASIS FOR WRITING OFF STOCK WAS THAT, I T WAS NOT MOVING FOR THE PAST THREE YEARS. 4 ITA NO.748 & 749/MDS /2017 3) THE SCRAP VALUE OF THE STOCK WAS IGNORED AND THE ASSESSEE COMPANY HAD MERELY DEBITED ITS P&L ACCOUNT WITHOUT REDUCING THE VALUE OF THE CLOSING STOCK. 4) THE DECISIONS RELIED BY THE ASSESSEE WAS NOT APP LICABLE IN THE CASE OF THE ASSESSEE COMPANY. 4.1 ON APPEAL THE LD.CIT(A) UPHELD THE ORDER OF THE LD.AO. WHILE DOING SO, HE MADE THE FOLLOWING OBSERVATIONS: - I. THE ASSESSEE HAD NOT ADDUCED ANY POLICY IN SUPPO RT OF VALUATION OF CLOSING STOCK PERTAINING TO OBSOLETE I TEMS OF INVENTORY. II. THE ASSESSEE HAD NOT FILED ANY EVIDENCE SUCH AS PROOF OF AGE OF AN ITEM CONSIDERED FOR VALUATION. III. THE ASSESSEE HAS NOT FILED ANY EVIDENCE WITH R ESPECT TO CHANGE IN TECHNOLOGY WHICH HAS RESULTED IN RENDERIN G OF STOCK AS OBSOLETE. IV. THE ASSESSEE HAD NOT FILED ANY EVIDENCE FOR THE STOCK BEING DAMAGED. V. THE ASSESSEE HAD NOT ESTABLISHED AS TO HOW THE N ET REALIZABLE VALUE OF ITS STOCK HAS DEPLETED. 5 ITA NO.748 & 749/MDS /2017 VI. THE ASSESSEE HAS NOT COMPLIED WITH THE ACCOUNTI NG STANDARDS 2. VII. THE ASSESSEE HAS NOT REDUCED THE VALUE OF THE STOCK WRITTEN OFF FROM ITS CLOSING STOCK AND OPENING STOCK FOR TH E SUBSEQUENT YEAR. 4.2 BEFORE US THE LD.AR MADE THE FOLLOWING SUBMISSI ONS:- (I) THE APPELLANT COMPANY HAD MAINTAINED REGULAR BO OKS OF ACCOUNTS UNDER THE COMPANIES ACT, 1956 WHICH WAS DU LY AUDITED. (II) ONLY THE NON-MOVING AND OBSOLETE STOCK HELD FO R A PERIOD OF MORE THAN THREE YEARS WERE WRITTEN OFF. (III) THE COMPANY HAS AN ERP PROCEDURE IN LINE WITH THEIR MANUFACTURING ACTIVITY WHICH IDENTIFIES OBSOLETE ST OCK. (IV) SUCH OBSOLETE STOCKS ARE PHYSICALLY VERIFIED, VALUED AND THEREAFTER WRITTEN OFF IN THE BOOKS OF ACCOUNTS. (V) THE VALUE OF THE OBSOLETE STOCK IS NOT DUPLICAT ED BY FURTHER REDUCTION IN CLOSING STOCK. 6 ITA NO.748 & 749/MDS /2017 WITH THE ABOVE SUBMISSION THE LD.AR PLEADED THAT TH E DISALLOWANCE MADE BY THE LD. REVENUE AUTHORITIES WI TH RESPECT TO WRITING OFF OF OBSOLETE STOCK MAY BE DELETED. THE LD.DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD. REVENUE AUTHORITIES. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD CAREFULLY. FROM THE FACTS OF T HE CASE, IT IS APPARENT THAT THE ASSESSEE HAS SIMPLY DEBITED IN IT S P&L ACCOUNT UNDER THE HEAD INDIRECT EXPENSES WITH RESPECT TO STOCK WRITTEN OFF FOR BOTH THE ASSESSMENT YEARS AND THE CORRESPONDING CREDIT IS GIVEN EFFECT TO PROVISION ACCOUNT. THIS PROCEDURE ADOPTED BY THE ASSESSEE IS NEITHER IN ACCORDANCE WITH THE COMPANIE S ACT, 1956 NOR WITH THE ACCOUNTING STANDARDS / FINANCIAL ACCOU NTING. IF THE VALUE OF THE STOCK HAS DEPLETED THE SAME HAS TO BE REDUCED FROM THE VALUE OF THE CLOSING STOCK WHICH WILL CONVERSEL Y REDUCE THE PROFIT OF THE ASSESSEE. FURTHER THE VALUE OF CLOSIN G STOCK FORMS PART OF BALANCE SHEET ITEM THEREBY DISCLOSING THE T RUE STATE OF AFFAIRS OF THE COMPANY WITH RESPECT TO THE VALUE OF CLOSING STOCK. MOREOVER THE CLOSING STOCK IS ADOPTED AS THE OPENIN G STOCK OF THE SUBSEQUENT YEAR AND CARRIED FORWARD IN THE P&L ACCO UNT. IF THE DEPLETED VALUE OF OPENING STOCK IS SOLD AT A HIGHER PRICE IN THE 7 ITA NO.748 & 749/MDS /2017 SUBSEQUENT YEAR OR VERSE VERSA, TO THAT EXTENT THE PROFIT WILL INCREASE OR DECREASE FOR THAT YEAR. THUS THE PROFI T OR LOSS ARISING DUE TO CHANGE IN VALUE OF THE STOCK WILL BE INHEREN TLY ABSORBED IN THE P&L ACCOUNT WHEN SUCH METHOD IS FOLLOWED AND TH E CORRECT VALUE OF STOCK WILL BE DISCLOSED IN THE BALANCE SHE ET. SCHEDULE VI PART I, PART II AND PART III TO COMPANIES ACT ALSO MANDATES SUCH METHOD OF ACCOUNTING. HOWEVER IN THE CASE OF THE A SSESSEE, IT HAS SIMPLY WRITTEN OFF A SPECIFIED AMOUNT AS EXPEND ITURE UNDER THE HEAD INDIRECT EXPENSES AND CORRESPONDINGLY PROVIS ION IS CREATED. THE VALUE OF THE STOCK DOES NOT REFLECT THE DEPLETI ON OF THE VALUE OF THE STOCK. THUS THE TRUE AND FAIR VALUE OF THE S TOCK IS NOT DISCLOSED IN THE BALANCE SHEET EXPLICITLY. MOREOVE R THERE WILL BE NO CONTROL IN COMPUTING THE CORRECT PROFIT / LOSS I N THE P&L ACCOUNT. THEREFORE THE METHOD ADOPTED BY THE ASSESS EE BY WRITING OFF THE VALUE OF THE STOCK IS ERRONEOUS AND CANNOT BE ALLOWED AS DEDUCTION. MOREOVER EVEN IF THE ASSESSE E HAS FOLLOWED THE CORRECT METHOD BY WRITING OFF THE VALU E OF THE STOCK IN THE BOOKS OF ACCOUNTS AS EXPLAINED HEREIN ABOVE, AS POINTED OUT BY THE LD.AO AND THE LD.CIT(A) THE ASSESSEE HAS TO COME OUT WITH SOME TANGIBLE MATERIALS TO ESTABLISH THAT THE VALUE OF THE STOCK HAS ACTUALLY DEPLETED AND THAT IS LACKING IN THE CASE OF THE 8 ITA NO.748 & 749/MDS /2017 ASSESSEE. THEREFORE WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD. REVENUE AUTHORITIES ON THIS IS SUE. 5. GROUND NO. 2(II) : LEVY OF INTEREST U/S.234B & 234C OF THE ACT:- IT IS PERTINENT TO MENTION THAT LEVY OF INTEREST U/ S.234D & 244A OF THE ACT IS CONSEQUENTIAL IN NATURE AND ACCO RDINGLY THIS GROUND RAISED BY THE ASSESSEE IS DEVOID OF MERITS. 6. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE A RE DISMISSED. ORDER PRONOUNCED ON THE 12 TH DECEMBER, 2017 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER #$ /CHENNAI, %& /DATED 12 TH DECEMBER, 2017 RSR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF