PENNZOIL QUAKER STATE INDIA LTD, MUMBAI V. ASST CIT 1(2), MUMBAI

ITA 8738/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9240 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVAN MUMBAI PANGIR NO AAACP C
• Assessee Lawyers: NIKHIL TIWARI SHRI RAJARSHI DW
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , . . ! , ' #$ % BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLA IYA, AM ./I.T.A. NO.8738/MUM/2011 ( & & & & / ASSESSMENT YEAR : 2007-08 M/S. PENNZOIL QUAKER STATE INDIA LTD., 502 B WING, DELPHI, HIRANANDANI BUSINESS PARK, POWAI, MUMBAI - 400 076 / VS. THE ACIT 1-(2), AAYAKAR BYAVAN, MUMBAI-400 020 $' ' ./ () ./PAN/GIR NO. : AAACP 7143C ( '* /APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / APPELLANT BY: SHRI NIKHIL TIWARI +,'* . - / RESPONDENT BY : SHRI RAJARSHI DWIVEDY . /0' / DATE OF HEARING : 13.12.2012 12& . /0' / DATE OF PRONOUNCEMENT : 19.12.2012 #3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE DCIT 1(2) U/S. 143(3) R.W.S 144C(13) OF THE ACT IN PURSUANCE OF THE DIRECTION ISSUED BY THE DISPUTE RESOLUTION PANEL-II , MUMBAI DT. 28.10. 2011. 2. GROUND NO. 1 RELATES TO THE GRIEVANCE THAT THE A O ERRED IN MAKING ADDITION TO CLOSING STOCK AMOUNTING TO RS. 96,39,00 0/- IGNORING THE FACT THAT THE ASSESSEE HAS CHANGED THE METHOD OF VALUATI ON OF INVENTORY FROM WEIGHTED AVERAGE TO FIRST IN FIRST OUT BASIS (FIFO) , ITA NO. 8738/MUM/2011 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT, I NTER ALIA, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ON VERIFICATI ON OF THE ANNUAL ACCOUNTS, THE ASSESSING OFFICER OBSERVED THAT ASSES SEE HAS CHANGED THE METHOD OF VALUATION OF INVENTORY FROM WEIGHTED AVER AGE TO FIFO METHOD. SPECIFIC QUERY WAS RAISED TO THE ASSESSEE IN THIS R EGARD AS TO WHY METHOD OF VALUATION OF INVENTORY WAS CHANGED WHICH RESULTE D INTO LOWER OF PROFIT BY RS. 96,39,000/-. THE ASSESSEE EXPLAINED THAT TH E METHOD OF VALUATION OF INVENTORY HAS BEEN CHANGED BECAUSE THE NEW METHO D I.E. FIFO, WOULD RESULT IN MORE APPROPRIATE PRESENTATION OF FINANCIA L STATEMENTS. HOWEVER THE EXPLANATION FILED BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS CHA NGED THE METHOD FROM WEIGHTED AVERAGE TO FIFO WITH A VIEW TO DECREA SE THE VALUE OF CLOSING STOCK. ACCORDINGLY ADDED SUM OF RS. 96,39, 000/- TO THE PROFIT OF THE COMPANY. THE AO CONCLUDED THAT THIS ADDITION I S ALSO ENDORSED BY THE DRP IN ITS DIRECTIONS U/S. 144C(5) OF THE ACT D T. 23.9.2011. 4. AGGRIEVED BY THIS FINDING OF THE AO, WHO FOLLOWE D THE DIRECTIONS OF THE DRP, THE ASSESSEE IS BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THE COMPANY HAS CHANGED THE METHOD OF VALUATION OF INVENTORY FROM W EIGHTED AVERAGE TO FIFO BASIS AS IT CONSIDERED THAT THE CHANGE WOULD R ESULT INTO MORE APPROPRIATE PRESENTATION OF FINANCIAL STATEMENTS. TO SUBSTANTIATE, THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS DISCOUNT & FINANCE HOUSE OF INDIA LTD. (2007) 14 SO T 334 IN ITA NO. 1333/M/2004. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTING THE FINDINGS OF THE LOWER AUTHORITIES SUBMITTED THAT TH E ASSESSEE HAS GROSSLY ITA NO. 8738/MUM/2011 3 FAILED TO JUSTIFY THE CHANGE IN THE METHOD OF VALUA TION OF INVENTORY AND THEREFORE THE ADDITION MADE BY THE AO DESERVE TO BE CONFIRMED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE AUDITOR S HAVE ONLY GIVEN A REFERENCE TO THE CHANGE IN THE METHOD OF VALUATION OF INVENTORY FROM WEIGHTED AVERAGE TO FIFO AND HAVE QUANTIFIED THE DI FFERENCE AT RS. 96,39,000/- FROM THE EARLIER METHOD OF VALUATION OF INVENTORY. THE SUBMISSION OF THE COUNSEL THAT THE CHANGED METHOD W OULD RESULT IN MORE APPROPRIATE PRESENTATION OF FINANCIAL STATEMENTS DO ES NOT HAVE ANY FORCE. THE ASSESSEE HAS NOWHERE BROUGHT ON RECORD THE BONA FIDES OF THE CHANGE IN THE METHOD OF VALUATION OF INVENTORY, NOR THE AS SESSEE COULD BRING ANY MATERIAL EVIDENCE ON RECORD TO SHOW THAT THE NEW ME THOD IS IN- CONSONANCE WITH THE PREVAILING MARKET PRACTICE IN T HE INDUSTRY IN WHICH THE ASSESSEE IS DOING BUSINESS. A PERUSAL OF THE F ACT SUBMITTED BY THE ASSESSEE BEFORE THE AO/TPO AT PARA-4 CLAUSE 4.2, SH OW THAT THE ASSESSEE HAS SUBMITTED AS UNDER: THE ACCOUNTING POLICY OF VALUING INVENTORIES ON FI FO BASIS WAS THEREAFTER CONSISTENTLY FOLLOWED DURING THE YEA R ENDED 31 ST MARCH, 2008. THE ASSESSEE SEIZED OPERATIONS WITH EFFECT FROM 1 ST APRIL, 2008 AND ACCORDINGLY THE QUESTION OF VALUATION OF INVENTORIES IN SUBSEQUENT YEARS DOES N OT ARISE. 8. THUS IT IS CLEAR FROM THE STATEMENT OF THE ASSES SEE ITSELF THAT THE CHANGED METHOD WAS FOLLOWED ONLY FOR ONE ACCOUNTING YEAR, THEREAFTER, ACCORDING TO ASSESSEES OWN STATEMENT, THE COMPANY HAS SEIZED OPERATIONS W.E.F. 14.2008. WE FAIL TO UNDERSTAND T HAT THE METHOD OF VALUATION OF INVENTORY WHICH WAS BEING FOLLOWED BY THE ASSESSEE SINCE ITS ITA NO. 8738/MUM/2011 4 INCEPTION WAS SUDDENLY CHANGED JUST BEFORE ONE YEAR FROM THE SEIZURE OF ITS OPERATION AND THAT TOO WITHOUT GIVING ANY REASO N TO JUSTIFY ITS BONAFIDES. THE DECISION OF THE TRIBUNAL RELIED UPO N BY THE COUNSEL DOES NOT SUPPORT THE FACTS OF THE PRESENT CASE BECAUSE I N THAT CASE, THE INDUSTRY OF WHICH THE ASSESSEE WAS PART OF , BY AND LARGE , VALUED THE STOCK BY MOVING WEIGHTED AVERAGE METHOD AND THEREFORE THE TR IBUNAL ACCEPTED THE BONAFIDES OF THE ASSESSEE COMPANY IN CHANGING OVER TO MOVING WEIGHTED AVERAGE METHOD. HOWEVER, THE FACTS OF THE PRESENT CASE ARE CONTRARY TO THE DECISION OF THE TRIBUNAL INASMUCH AS IN THE PRE SENT CASE , THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE, NEITHER BEFORE THE L OWER AUTHORITIES NOR BEFORE US , THAT SIMILAR METHOD OF VALUATION OF INV ENTORY PREVAIL IN ITS LINE OF BUSINESS. FURTHER, THE FACT THAT THE ASSESSEE SEIZED OPERATIO N AFTER ONE YEAR CANNOT BE BRUSHED ASIDE SLIGHTLY . CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY MERIT IN THE CASE O F THE ASSESSEE. FINDING OF THE AO ARE ACCORDINGLY CONFIRMED. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 9. GROUND NO. 2 RELATES TO INITIATION OF PENALTY U/ S. 271(1)(C) OF THE ACT. THIS GROUND IS PRE-MATURE AND ACCORDINGLY DIS MISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 4 /5 4/ . 6 '4( . (/ 7 ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2012 . #3 . 2& ' 6 8#5 19.12.2012 2 . 9 SD/- SD/- (B.R.MITTAL) (N.K. BILLAIYA) #$ /JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 8# DATED 19 /12 /2012 . . ./ RJ , SR. PS ITA NO. 8738/MUM/2011 5 #3 #3 #3 #3 . .. . +/ +/ +/ +/ :&/ :&/ :&/ :&/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. <9 +/ , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,/ +/ //TRUE COPY// ? ?? ? / 7 7 7 7 ( ( ( ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI