Rungta Engineering Co. Pvt. Ltd., Kolkata V. ITO, WD-3(2), KOLKATA, Kolkata

ITA 793/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1724 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RABIN CHAWDHURY
• Assessee Lawyers: S JHAJHARIA
• Keywords: Principle of natural justice; Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH KOLKATA BEFORE SHRI A.T. VARKEY, JM & DR. A.L.SAINI, AM ./ ITA NO.793/KOL/2015 ( / ASSESSMENT YEAR : 2005-06 RUNGTA ENGINEERING CO. PRIVATE LTD. C/O, SALARPURIA JAJODIA & CO. 7, C.R. AVENUE, KOLKATA-700072 VS. ITO-3(2), KOLKATA ./ ./PAN/GIR NO. : AABCR 4956 N ( /ASSESSEE ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI S. JHAJHARIA, AR /REVENUE BY : SHRI RABIN CHAWDHURY, ADDL. CIT / DATE OF HEARING : 15/06/2017 /DATE OF PRONOUNCEMENT 09/08/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAINING TO ASSESSMENT YEAR 2005-06, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-1, KOLKATA, IN APPEAL NO. 542/CIT(A)-1/W-3(2)/2007-08, DATED 26.03.2015, WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 18.12.2007. 2. BRIEF FACTS QUA THE ASSESSEE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2005 DECLARING TOTAL INCOME AT RS. ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 2 28,400/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) ON 21.06.2006. LATER ON, THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY U/S 143(2) OF THE ACT, AND THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING ADDITION ON ACCOUNT OF DISCREPANCY IN VALUING THE CLOSING STOCK AT RS. 10,95,236/-. THE ASSESSING OFFICER HAS ALSO MADE THE ADDITION ON ACCOUNT OF EXPENDITURE ON LABOUR PAYMENT AMOUNTING TO RS. 5,63,231/-. THE ASSESSEE COMPANY, DURING THE PERIOD IN QUESTION WAS ENGAGED IN MANUFACTURING AND SELLING OF RAILWAY TRACK MATERIAL. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER IS WHOLLY BAD, UNJUSTIFIED AND UNCALLED FOR IN INCREASING THE VALUE OF THE CLOSING STOCK BY RS. 10,95,236/- AND YOUR PETITIONER HAVING CONSTANTLY AND REGULARLY FOLLOWED THE SYSTEM OF VALUING THE CLOSING STOCK IN THE SAME MANNER DURING ALL EARLIER YEARS AND SUBSEQUENT YEARS AS DONE IN ASSESSMENT YEAR 2005-06 AND DURING ALL EARLIER YEARS AND SUBSEQUENT YEARS AND SUCH SYSTEM OF VALUATION HAVING BEEN ACCEPTED BY THE DEPARTMENT, IT WAS WHOLLY WRONG ON THE PART OF THE ASSESSING OFFICER TO HAVE MADE AN ADDITION OF RS. 10,95,236/- TO THE VALUATION OF CLOSING STOCK BY ADOPTING DIFFERENT METHOD OF VALUATION AND IN VIEW OF THE FACTS AND THE CIRCUMSTANCES THE LD. CIT(A)-1, KOLKATA IS WHOLLY UNJUSTIFIED IN CONFIRMING THE SAID ACTION OF THE ASSESSING OFFICER AND IN VIEW OF THE FACTS AND CIRCUMSTANCES SUCH ADDITION MADE REQUIRES TO BE DELETED AND IN VIEW OF THE FACTS AND CIRCUMSTANCES IT MAY KINDLY BE HELD ACCORDINGLY. 2. WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, THE LD. CIT(A) IN ALL FAIRNESS AND NATURAL JUSTICE SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO CHANGE THE VALUATION OF OPENING STOCK IN AY 2006-07 AND GIVE EFFECT IN AY 2006-07 ACCORDINGLY, AND CONSEQUENTIAL EFFECT SHOULD HAVE BEEN DIRECTED TO BE GIVEN ACCORDINGLY IN ALL SUBSEQUENT ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 3 YEARS WHEREVER REQUIRED AND IN VIEW OF THE FACTS IN THE CIRCUMSTANCES IT MAY KINDLY BE HELD ACCORDINGLY. 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER IS WHOLLY UNJUSTIFIED IN DISALLOWING THE CLAIM TOWARDS EXPENDITURE ON LABOUR PAYMENT AMOUNTING TO RS. 5,63,231/- AND IN VIEW OF THE FACTS AND CIRCUMSTANCES LD. CIT(A)-1, KOLKATA IS WRONG IN CONFIRMING THE SAID ACTION OF THE ASSESSING OFFICER AND IN VIEW OF THE FACTS AND CIRCUMSTANCES SUCH EXPENDITURE BEING OF REVENUE IN NATURE AND HAVING BEEN INCURRED AND THE ACCOUNTS OF YOUR PETITIONER BEING AUDITED BY A FIRM OF CHARTERED ACCOUNTANTS AND THE EXPENDITURE BEING FULLY SUPPORTED AND THE BOOKS OF ACCOUNT HAVING NOT BEEN REJECTED, SUCH ACTION OF THE ASSESSING OFFICER IS WHOLLY BAD, ILLEGAL, UNJUSTIFIED AND UNCALLED FOR AND IN VIEW OF THE FACTS AND CIRCUMSTANCES THE DISALLOWANCE MADE MAY KINDLY BE DELETED. 4. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER IS WHOLLY UNJUSTIFIED IN DISALLOWING A SUM OF RS. 7,714/- OUT OF CLAIM TOWARDS INSURANCE PAYMENT AND THE LD. CIT(A)-1, KOLKATA IS WHOLLY UNJUSTIFIED IN CONFIRMING SUCH DISALLOWANCE AND IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES SUCH DISALLOWANCE MADE MAY KINDLY BE DELETED. 4. ALTHOUGH IN THIS APPEAL, THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO GROUND NOS. 1, 2 AND 3 ONLY AND GROUND NO. 4 IS NOT PRESSED. 5. GROUND NOS. 1 AND 2 RELATE TO THE SAME ISSUE I.E. VALUATION OF CLOSING STOCK BY RS. 10,95,236/-. AS PER ASSESSEE, THE ASSESSING OFFICER SHOULD NOT INCREASE THE VALUE OF CLOSING STOCK BY RS. 10,95,236/-. 5.1. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED, BEFORE US, THAT THE ASSESSING OFFICER HAS INCREASED THE VALUE OF CLOSING STOCK OF RS. ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 4 10,95,236/- WITHOUT ANY REASON. THE ASSESSEE HAS BEEN FOLLOWING CONSISTENTLY AND REGULARLY THE SAME METHOD OF VALUATION OF CLOSING STOCK. THE CLOSING STOCK IS VALUED BY THE ASSESSEE AS PER THE FORMULA COST OR NET REALIZABLE VALUE WHICHEVER IS LESS. THE ASSESSEE HAS BEEN FOLLOWING THE SAME METHOD FOR VALUATION OF CLOSING STOCK, SINCE LONG, AT COST ONLY I.E. THE METHOD OF VALUATION OF CLOSING STOCK HAS BEEN CONSISTENTLY FOLLOWING BY THE ASSESSEE SINCE LAST YEARS AND IN FACT IN SUBSEQUENT YEARS THE SAME METHOD OF VALUATION OF CLOSING STOCK IS BEING FOLLOWED BY THE ASSESSEE. THERE IS A CONSISTENCY IN VALUING THE CLOSING STOCK AND THE DEPARTMENT HAD ACCEPTED THE SAME. THERE IS NO CHANGE SO FAR THE VALUATION METHOD OF CLOSING STOCK IS CONCERNED. THE ASSESSEE IS FOLLOWING CONSISTENTLY THE SAME METHOD FOR VALUING THE CLOSING STOCK AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT IN PAST YEARS. THE LD. COUNSEL FOR THE ASSESSEE ALSO ARGUED BEFORE US THAT WITHOUT REJECTING BOOKS OF ACCOUNTS THE ASSESSEE CANNOT CHANGE THE VALUE OF THE CLOSING STOCK. THE LD. COUNSEL HAS DEMONSTRATED US PREVIOUS YEAR FIGURES AND THE METHOD OF VALUATION OF CLOSING STOCK WHEREIN IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS BEEN FOLLOWING CONSISTENTLY THE SAME METHOD OF VALUING THE CLOSING STOCK. ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 5 5.2. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE CIT(A), WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 5.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE UNDER CONSIDERATION HAS BEEN FOLLOWING THE SAME METHOD I.E. AT COST SINCE LAST MANY YEARS AND IN SUBSEQUENT YEARS ALSO AND THE DEPARTMENT HAVE ACCEPTED THE VALUATION OF CLOSING STOCK DONE BY THE ASSESSEE IN PAST YEARS. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT TAKING A DIFFERENT STAND IN THE PRESENT ASSESSMENT YEAR WOULD BE VIOLATION OF PRINCIPLES OF CONSISTENCY AND THE REVENUE SHOULD NOT BE PERMITTED TO TAKE SUCH A STAND. WE NOTE THAT THE DEPARTMENT HAS BEEN CONSISTENTLY ACCEPTING THE METHOD FOLLOWED BY THE ASSESSEE, IN SCRUTINY PROCEEDINGS, THEREFORE, WE CANCEL THE ORDER OF THE LD. CIT(A) FOLLOWING THE RULE OF CONSISTENCY. FOR THAT WE RELY ON THE ORDER OF THE HONBLE SUPREME COURT IN RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC). THEREFORE, IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER CANNOT REJECT THE VALUATION OF CLOSING STOCK DONE BY THE ASSESSEE WITHOUT BRINGING ANY COGENT MATERIAL ON THE RECORD AND WITHOUT REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE, CONSIDERING THE FACTUAL POSITION AS DISCUSSED ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 6 ABOVE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 10,95,236/-. 5.4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE (ON GROUND NOS. 1 AND 2 ), ARE ALLOWED. 6. THE THIRD GROUND RAISED BY THE ASSESSEE RELATES TO EXPENDITURE INCURRED BY THE ASSESSEE FOR LABOUR PAYMENT AMOUNTING TO RS. 5,63,231/-. 6.1 REGARDING DISALLOWANCE OF RS. 5,63,231/- LABOUR CHARGES, THE SAID AMOUNT PERTAINS TO SALARY WAGES AND BONUS TO THE PERMANENT STAFF AND WORKERS OF THE FACTORY AND OFFICE OF THE ASSESSEE. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE ALSO GETS SOME JOB WORK DONE BY THE THIRD PARTIES LIKE GRINDING AND FINISHING ON PIECE RATE BASIS, THESE EXPENSES HAD BEEN INCLUDED IN LABOUR CHARGES. THE LD. CIT(A) OBSERVED THAT IN CASE OF PAYMENT TO M/S. S.K. ENTERPRISES AND M/S VISWAKARMA ENTERPRISES EXCEEDING RS. 50,000/- WITHOUT DEDUCTING TDS THEREFORE, AS PER PROVISION OF SECTION 40(A)(IA) OF THE ACT, THESE EXPENSES SHOULD BE DISALLOWED. 6.2. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE ASSESSEE HAS INCURRED THESE EXPENSES FOR THE PURPOSE OF BUSINESS. THE SAME TYPE EXPENDITURE I.E. LABOUR PAYMENT IS BEING ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 7 ACCEPTED BY THE DEPARTMENT IN PAST ASSESSMENT YEARS. IN ADDITION TO THIS, THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED BY CA AND FULLY SUPPORTED BY THE VOUCHERS BILLS AND INVOICES. THEREFORE, WITHOUT REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER CANNOT DISALLOW THE EXPENDITURE WHICH IS MADE BY THE ASSESSEE TOWARDS PAYMENT OF WAGES EXPENSES. THE LD. ASSESSING OFFICER DID NOT FIND ANY ERROR OR MISTAKE IN THE DETAILS SUBMITTED BY THE ASSESSEE FOR LABOUR PAYMENT. THE AO WITHOUT BRINGING ANY COGENT EVIDENCE ON RECORD, RELATING TO WAGES PAID BY THE ASSESSEE, TO ITS WORKERS, CAN NOT MAKE ADDITION. THE ASSESSEE SUBMITTED COMPARATIVE CHART FOR VARIOUS PREVIOUS YEARS ALONG WITH NET PROFIT RATIO. THE LD. COUNSEL ALSO SUBMITTED THAT SUCH EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE OVER THE YEARS AND THE SAME HAD BEEN ALLOWED IN FULL OVER THE YEARS. THE DEPARTMENT IN THE INTIMATION U/S 143(1) AS WELL AS SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT HAS BEEN ACCEPTING SUCH TYPE OF EXPENDITURE. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD, IS NOT TENABLE. 6.3. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS DEFENDED THE ORDER PASSED BY THE ASSESSING OFFICER. 6.4. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE HAS BEEN ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 8 PAYING LABOUR CHARGES SINCE A LONG AND THE DEPARTMENT HAS BEEN ACCEPTING THE LABOUR CHARGES. THE ASSESSEE HAS SUBMITTED THE YEAR WISE EXPENDITURE OF LABOUR CHARGES ALONG WITH NET PROFIT PERCENTAGE AND THE SAME HAS NOT BEEN REJECTED BY THE LD. CIT(A). THE DEPARTMENT IN THE INTIMATION U/S 143(1) AS WELL AS SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT HAS BEEN ACCEPTING SUCH TYPE OF EXPENDITURE. IN OUR VIEW, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS PURELY ON GUESS, CONJECTURE AND SURMISES. THEREFORE, CONSIDERING THE FACTUAL POSITION DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 5,63,231/-. 6.5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE (ON GROUNDS NO. 3), IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09/08/2017 . SD/ - (A.T. VARKEY) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; DATED 09/08/2017 SB , SR.PS. ITA NO.793/15 RUNGTA ENGINEERING CO P LTD. 9 / COPY OF THE ORDER FORWARDED TO : SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, I.T.A.T., KOLKATA BENCHES, KOLKATA 1. / THE ASSESSEE- RUNGTA ENGINEERING CO PVT. LTD. 2. / THE RESPONDENT.- ITO, WARD-3(2), KOLKATA 3. ( ) / THE CIT(A), :KOLKATA. 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. / GUARD FILE. //TRUE COPY// BY ORDER