Annapurna Industries Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-1(1),, Surat

ITA 608/AHD/2007 | 2003-2004
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 60820514 RSA 2007
Assessee PAN SALSO1010C
Bench Ahmedabad
Appeal Number ITA 608/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 20 day(s)
Appellant Annapurna Industries Pvt.Ltd.,, Surat
Respondent The Income tax Officer,Ward-1(1),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-01-2010
Date Of Final Hearing 25-01-2010
Next Hearing Date 25-01-2010
Assessment Year 2003-2004
Appeal Filed On 08-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI N S SAINI AND MAHAVIR SINGH) ITA NO.608/AHD/2007 (ASSESSMENT YEAR:-2003-04) A N D ITA NO.3217/AHD/2007 (ASSESSMENT YEAR:-2004-05) ANNAPURNA INDUSTRIES PVT. LTD. 210-B GIDC PANDESARA SURAT V/S THE INCOME-TAX OFFICER WARD-1(1) SURAT [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI J P SHAH ADVOCATE RESPONDENT BY:- SMT. NEETA SHAH SENIOR DR O R D E R PER N S SAINI (ACCOUNTANT MEMBER) : THE PENALTY APPEAL [ITA NO.608/AHD/2007 FOR ASSESSMENT YEAR:-2003-04 IS FI LED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS)-I SURAT DATED 15-12-2006 PASSED IN APPE AL NO. CAS- I/66/06-07. 2 THE QUANTUM APPEAL [ITA NO.3217/AHD/2007 FOR ASSE SSMENT YEAR:-2004-05 IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I SURAT DATE D 08-06-2007 PASSED IN APPEAL NO. CAS-I/66/06-07. 3 IN THE ASSESSMENT YEAR 2003-04 THE SOLE GROUND O F APPEAL TAKEN BY THE ASSESSEE IS THAT THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE PENALTY OF RS.38 66 518/- LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT 1961 [THE ACT FO R SHORT]. 2 2 4 THE PENALTY HAS BEEN LEVIED WITH RESPECT TO FIVE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER NAMELY RS.2 11 397/- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK RS.26 27 2 02/- ON ACCOUNT OF CESSATION OF LIABILITIES RS.90 063/- ON ACCOUNT OF DISALLOWANCE U/S 41(1)(A) RS.5270/- ON ACCOUNT OF DISALLOWANCE OF D EPRECIATION AND RS.9 32 586/- ON ACCOUNT OF ESTIMATION OF GROSS PRO FIT. 5 THE ADDITION OF RS.2 11 397/- ON ACCOUNT OF SUPP RESSION OF CLOSING STOCK WAS MADE BY THE LEARNED ASSESSING OFF ICER AS THE LEARNED ASSESSING OFFICER FOUND FROM THE RG-1 REGIS TER THAT THE ASSESSEE WAS HAVING PROCESSED CLOTH OF 32316 METERS AT THE END OF THE ACCOUNTING YEAR LYING ON MACHINES AT VARIOUS STAGES WHICH WAS NOT INCLUDED IN THE CLOSING STOCK AS WORK-IN-PROGRESS B Y THE ASSESSEE AND FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS (INDIA) VS CIT 188 ITR 44 THE LEAR NED ASSESSING OFFICER MADE ADDITION OF RS.2 11 396/- TO THE INCOM E OF THE ASSESSEE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK. THE SAME W AS CONFIRMED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS). 6 THE ADDITION OF RS.26 27 202/- ON ACCOUNT OF CES SATION OF LIABILITIES WAS MADE BY THE LEARNED ASSESSING OFFIC ER AS THE LEARNED ASSESSING OFFICER OBSERVED THAT IN THE BALANCE SHEE T THE ASSESSEE HAS REDUCED THE CREDITORS OF FINISHED GOODS FROM RS.47 87 060/- TO RS.27 93 521/- BY MAKING PAYMENT OF RS.19 83 934/- TO THE CREDITORS AND AN AMOUNT OF RS.9 605/- WAS WRITTEN OFF AS KASA R. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OF FICER REQUIRED THE ASSESSEE TO PRODUCE THE CREDITORS FOR VERIFYING THE SAME. THE ASSESSEE SUBMITTED THAT IT HAS TRIED TO LOCATE THE PARTIES A ND THAT THEY APPEARED TO BE NOT TRACEABLE AND HENCE THE ASSESSEE WAS INCLINE D TO SURRENDER THE AMOUNT OF RS.19 83 934/- AS INCOME ON THE CONDITION THAT PENALTY WILL NOT BE LEVIED. THE LEARNED ASSESSING OFFICER OBSERV ED THAT ALL THE 3 3 CHEQUES OF RS.19 83 934/- WERE CLEARED THROUGH THE ACCOUNTS OF DIFFERENT SHROFFS OF THE CITY WHICH REVEALS THAT AL L THE PAYMENTS MADE TO THE ABOVE CREDITORS ARE BOGUS AND THEREFORE THE ASSESSEE HAS COME FORWARD HIMSELF AND OFFERED AN AMOUNT OF RS.19 83 9 34/- FOR TAXATION AS INCOME. HE ALSO OBSERVED THAT IT IS PERTINENT TO NO TE THAT THE BALANCE AMOUNT OF RS.27 93 521/- THE ASSESSEE HAS SUBMITTED THAT DURING ASSESSMENT YEAR 2004-05 AND ASSESSMENT YEAR 2005-06 AMOUNTS OF RS.7 76 271/- AND RS.13 73 982/- RESPECTIVELY HAVE BEEN WRITTEN OFF UNDER THE HEAD CREDIT BALANCE WRITTEN OFF. THUS THE TOTAL AMOUNT WRITTEN OFF COMES TO RS.21 50 253/- AND BALANCE REMAINING A MOUNT IS RS.6 43 268/-. ACCORDINGLY HE ADDED RS.6 43 268/- AND RS.19 83 934/- TOTALING TO RS.26 27 202/- TO THE INCOME OF THE ASS ESSEE. IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 7 THE ADDITION OF RS.90 063/- ON ACCOUNT OF DISALL OWANCE U/S 41(1)(A) WAS MADE BY THE AO ON THE GROUND THAT HE F OUND THAT OUTSTANDING AMOUNT IN THE NAME OF THE CREDITOR M/S VENUS TRADERS WAS RS.1 08 111/-. THE CREDITOR INFORMED THE AO VIDE HI S LETTER DATED 28- 12-2005 ON QUERY MADE U/S 133(6) OF THE ACT THAT TH E AMOUNT OUTSTANDING IN THE NAME OF THE ASSESSEE-COMPANY IS RS.18 048/-. THEREFORE THE AO MADE ADDITION OF RS.90 063/- U/S 41(1)(A) OF THE ACT FOR CONCEALMENT OF INCOME. 8 THE ADDITION OF RS.5270/- ON ACCOUNT OF DISALLOW ANCE OF DEPRECIATION WAS MADE BY THE AO AS HE OBSERVED THAT A MOTOR CYCLE WAS PURCHASED FOR RS.36 800/- ON 5-2-2003 ON WHICH ASSE SSEE CLAIMED DEPRECIATION IN THE BLOCK OF PLANT AND MACHINERY AT THE RATE OF 25% WHICH FALLS UNDER THE BLOCK OF VEHICLES WHERE RATE OF DEPRECIATION IS 20%. THUS HE OBSERVED THAT AFTER 1-10-2002 THE RAT E OF DEPRECIATION WILL BE 10% AS AGAINST 12% CLAIMED BY THE ASSESSEE AND THEREFORE 2.5% OF RS.36 800/- AMOUNTING TO RS.920/- WAS DISALLOWE D ON ACCOUNT OF DEPRECIATION. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT THE 4 4 ASSESSEE HAS PURCHASED OFFICE EQUIPMENTS OF RS. 540 00/- ON WHICH THE ASSESSEE CLAIMED DEPRECIATION AT THE RATE OF 25% UN DER THE WRONG BLOCK OF PLANT AND MACHINERY WHEREAS THE DEPRECIATION RAT E ALLOWABLE TO THE ASSESSEE WAS 10% UNDER OFFICE EQUIPMENTS. THEREFORE HE DISALLOWED DEPRECIATION OF RS.4350/-. IN THIS WAY HE DISALLOW ED TOTAL DEPRECIATION OF RS.5 270/- WHICH WAS CONFIRMED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). 9 THE ADDITION OF RS.9 32 586/- WAS MADE ON ACCOUN T OF ESTIMATION OF GROSS PROFIT AS THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT AT THE RAT E OF 17.30% IN THE ASSESSMENT YEAR UNDER APPEAL AND THAT THE GROSS PRO FIT RATE SHOWN IN THE IMMEDIATELY PRECEDING YEAR 2002-03 WAS 21.07%. THEREFORE THE LEARNED ASSESSING OFFICER ESTIMATED THE GROSS PROFI T AT THE RATE OF 18.5% ON THE TOTAL RECEIPTS OF RS.7 79 05 723/- AND MADE ADDITION OF RS.9 32 586/- TO THE INCOME OF THE ASSESSEE WHICH W AS CONFIRMED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS). 10 THE LEARNED ASSESSING OFFICER THEREAFTER LEVIED PENALTY U/S 271(1)(C) OF THE ACT OF RS.14 20 945/- ON ACCOUNT O F THE ABOVE ADDITIONS MADE IN THE ASSESSMENT FOR CONCEALMENT OF INCOME BY THE ASSESSEE. 11 THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT AGAINST THE ORDER OF THE LEARNED COM MISSIONER OF INCOME-TAX (APPEALS) CONFIRMING THE ADDITIONS MADE BY THE AO IN THE ASSESSMENT THE ASSESSEE HAD NOT FILED ANY APPEAL B EFORE THE TRIBUNAL AS THE ASSESSEE WAS HAVING HUGE AMOUNT OF BROUGHT FORW ARD LOSS AND THAT AFTER ADJUSTMENT OF THE ADDITIONS MADE TO THE INCOM E THE TAXABLE INCOME OF THE ASSESSEE WAS NIL. THEREFORE NON FILI NG OF APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS) SHOULD NOT BE READ AGAINST THE ASSESSEE. 5 5 12 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSING OFFICER LEVIED RS.14 20 945/- AS PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF THE FOLLOWING SIX ITEMS OF ADDITIONS / DISALLOWANCES MADE IN THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION. SUPPRESSION OF WORK-IN-PROGRESS RS.2 11 397/- PAYMENT TO UNIDENTIFIED CREDITORS RS.19 83 934/- CESSATION OF LIABILITIES RS.6 43 268/- DIFFERENCE IN CREDITORS RS.90 063/- EXCESS DEPRECIATION RS.5 270/- GROSS PROFIT ADDITION RS.9 32 586/- 13 ON APPEAL THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) CONFIRMED THE LEVY OF PENALTY ON ABOVE AD DITIONS. THE LEARNED ASSESSING OFFICER MADE ADDITION OF RS.2 11 397/- ON OBSERVING THAT THE ASSESSEE HAS NOT INCLUDED THE VALUE OF CLO SING WORK-IN-PROGRESS IN THE VALUATION OF CLOSING STOCK. WE FIND THAT THE ASSESSEE CLAIMED BEFORE THE LEARNED ASSESSING OFFICER AS WELL AS BEF ORE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE ASSES SEE WAS CONSISTENTLY FOLLOWING A SYSTEM OF ACCOUNTING WHERE IN IT DID NOT INCLUDE VALUE OF WORK-IN-PROGRESS IN ITS VALUE OF CLOSING S TOCK. THE CONTENTION OF THE ASSESSEE WAS REJECTED IN THE ASSESSMENT PROC EEDINGS IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF BRITISH PAINTS LTD. VS. CIT 188 ITR 144. DURING THE PENALTY PROCEE DINGS THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND TO BE INC ORRECT OR FALSE BY THE LOWER AUTHORITIES. THE ASSESSEE ALSO CONTENDED BEFO RE THE LOWER AUTHORITIES THAT IF OPENING STOCK IS ALSO VALUED ON SIMILAR FASHION BY INCLUDING VALUE OF OPENING WORK-IN-PROGRESS THERE W ILL BE HARDLY ANY DIFFERENCE IN THE TOTAL TAXABLE INCOME OF THE YEAR UNDER CONSIDERATION. IT 6 6 WAS ALSO POINTED OUT THAT THE DEDUCTION FOR THIS AD DITION OF RS.2 11 397/- WAS DULY ALLOWED TO THE ASSESSEE IN T HE ASSESSMENT OF THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 20 04-05. THUS THE ASSESSEE CONTENDED THAT THE INCOME IN QUESTION WAS DULY DISCLOSED BY THE ASSESSEE THOUGH IN THE SUBSEQUENT YEAR ON THE BASIS OF CONSISTENT SYSTEM OF VALUATION OF CLOSING STOCK FOLLOWED BY IT AND THUS THIS WAS A CASE OF DIFFERENCE IN OPINION IN RESPECT OF THE YEA R IN WHICH RELEVANT INCOME WAS TAXABLE AND FOR THIS PENALTY U/S 271(1)( C) CANNOT BE LEVIED. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT C ONTROVERT THE ABOVE SUBMISSIONS OF THE ASSESSEE. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE AS PER ITS CONSISTENTLY FOLLOWED SYSTE M WAS NOT TAKING INTO CONSIDERATION VALUE OF WORK-IN-PROGRESS IN FINALIZI NG ITS ACCOUNTS. THIS SYSTEM FOLLOWED BY THE ASSESSEE WAS ALSO ACCEPTED B Y THE DEPARTMENT IN THE CASE OF THE ASSESSEE IN EARLIER YEARS. FURTHER IT IS ALSO NOT IN DISPUTE THAT DEDUCTION FOR THIS AMOUNT OF RS.2 11 397/- WAS ALLOWED TO THE ASSESSEE IN THE ASSESSMENT OF ASSESSMENT YEAR 2004- 05 BY INCREASING ITS OPENING STOCK. IN THE ABOVE FACTS AND CIRCUMSTA NCES OF THE CASE IN OUR CONSIDERED OPINION THE NON-DISCLOSURE OF THIS INCOME WAS BECAUSE OF A CONSISTENT SYSTEM OF VALUATION OF CLOSING STOC K FOLLOWED BY THE ASSESSEE AND NOT BECAUSE OF ANY CONCEALMENT OF INCO ME. THUS IN OUR OPINION THE LOWER AUTHORITIES WERE NOT JUSTIFIED I N LEVYING PENALTY U/S 271(1)(C) IN RESPECT OF THE ABOVE AMOUNT OF RS.2 11 397/-. 14 THE NEXT ISSUE RELATES TO RS.19 83 934/- PAID B Y THE ASSESSEE TO UN-IDENTIFIED SUNDRY CREDITORS. THE LEA RNED ASSESSING OFFICER OBSERVED THAT DURING THE YEAR THE ASSESSEE PAID RS.19 83 934/- TO THE SUNDRY CREDITORS BY CHEQUES. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON TO PRODUC E THE SUNDRY CREDITORS AS THE NOTICES SERVED ON SUNDRY CREDITORS AT THE ADDRESSES PROVIDED BY THE ASSESSEE WERE RETURNED UN-SERVED. T HE ASSESSEE CLAIMED BEFORE THE LEARNED ASSESSING OFFICER THAT THE GOODS WERE PURCHASED THROUGH BROKERS AND THEREFORE THE ASSESSEE WAS NOT IN A POSITION TO 7 7 PRODUCE THE CREDITORS AND THE ASSESSEE ALSO OFFERED TO PAY TAX ON THE ABOVE AMOUNT ON THE CONDITION THAT NO PENALTY IS IM POSED IN RESPECT OF THE ABOVE SURRENDER. THE LEARNED ASSESSING OFFICER THEREBY ADDED RS.19 83 934/- TO THE INCOME OF THE ASSESSEE AND AL SO LEVIED PENALTY U/S 271(1)(C) IN RESPECT OF THE SAID AMOUNT. WE FIND TH AT IT IS NOT IN DISPUTE THAT THE PAYMENT OF RS.19 83 934/- WAS MADE BY THE ASSESSEE TO THE CREDITORS BY ACCOUNT PAYEE CHEQUES. THE REVENUE HAS NOT VERIFIED FROM THE BANK ABOUT THE PERSON IN WHOSE ACCOUNT THE AMOU NT OF CHEQUES WERE CREDITED. FURTHER IT IS ALSO OBSERVED THAT THE SUR RENDER OF INCOME MADE BY THE ASSESSEE WAS NOT REJECTED BY THE DEPARTMENT. IN THE ABOVE CIRCUMSTANCES THE ADDITION OF RS.19 83 934/- WAS M ADE BY THE REVENUE TO THE INCOME OF THE ASSESSEE MERELY ON THE BASIS O F THE SURRENDER MADE BY THE ASSESSEE AND NOT BY BRINGING ANY INDEPENDENT MATERIAL ON RECORD TO SHOW THAT THE PROCEEDS OF CHEQUES WERE RECEIVED BACK BY THE ASSESSEE. THUS IN OUR CONSIDERED OPINION THE LOWE R AUTHORITIES WERE NOT JUSTIFIED IN IMPOSING THE PENALTY U/S 271(1)(C) IN RESPECT OF THE ABOVE AMOUNT OF RS.19 .83 934/-. 15 THE NEXT ISSUE RELATES TO THE ADDITION OF RS.6 43 268/- ON ACCOUNT OF CESSATION OF LIABILITIES U/S 41(1) OF TH E ACT. THE LEARNED ASSESSING OFFICER OBSERVED THAT APART FROM PAYMENTS OF RS.19 83 934/- MADE BY THE ASSESSEE TO ITS CREDITORS THE ASSESSEE HAS ALSO SHOWN CREDITORS OF RS.27 93 521/-. OUT OF THESE CREDITORS OF RS.27 93 521/- THE ASSESSEE HAS SHOWN INCOME OF RS.7 76 271/- IN T HE ASSESSMENT YEAR 2004-05 AND RS.13 73 982/- IN THE ASSESSMENT YEAR 2 005-06 AS LIABILITY NO LONGER REQUIRED WRITTEN OFF. THE LEARNED ASSESSI NG OFFICER THUS OBSERVED THAT THE ASSESSEE HAS NOT OFFERED THE BALA NCE AMOUNT OF RS.6 43 268/- AS INCOME IN ANY OF THE ASSESSMENT YE ARS. THE LEARNED ASSESSING OFFICER OBSERVING THAT THE NOTICES ISSUED TO THE CREDITORS AT THE ADDRESSES GIVEN BY THE ASSESSEE WERE RETURNED B ACK UN-SERVED AND THE INSPECTOR DEPUTED FOR VERIFICATION ALSO COULD N OT LOCATE THE SUNDRY CREDITORS AND THE ASSESSEE ALSO COULD NOT PRODUCE T HE CREDITORS BEFORE 8 8 THE LEARNED ASSESSING OFFICER FOR VERIFICATION HEN CE TREATED THE SAME AS INCOME OF THE ASSESSEE OF THE YEAR UNDER CONSIDE RATION AND LEVIED PENALTY U/S 271(1)(C) OF THE ACT ALSO IN RESPECT OF THE SAME. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE CLAIMED THAT CESSATION OF LIABILITY CANNOT TAKE PLACE BY A UNILA TERAL TRANSACTION. HE ALSO POINTED OUT THAT THERE WAS UNABSORBED DEPRECIA TION AND BROUGHT FORWARD BUSINESS LOSS OF MORE THAN RS.94 LACS IN TH E YEAR UNDER CONSIDERATION AND EVEN AFTER INCLUDING THE AMOUNT I N QUESTION THE TOTAL INCOME OF THE ASSESSEE REMAINED NIL AND THEREFORE T HERE WAS NO MENS REA IN THE INSTANT CASE FOR CONCEALMENT OF INCOME A ND THUS LEVY OF PENALTY U/S 271(1)(C) WAS NOT JUSTIFIED. WE FIND TH AT IT IS NOT IN DISPUTE THAT THE ASSESSEE COULD NOT PROVIDE THE CORRECT ADD RESSES OF THE CREDITORS OF RS.6 43 268/-. THE ASSESSEE CLAIMED THOSE CREDIT ORS AS GENUINE BUT COULD NOT POINT OUT EITHER BEFORE THE LOWER AUTHORI TIES OR BEFORE US AS TO WHEN THE PAYMENTS WERE MADE TO THE CREDITORS IN QUE STION OR WHEN THE ASSESSEE BILATERALLY TREATED THE CREDITORS AS CESSA TION OF LIABILITIES AND OFFERED TO PAY TAX THEREON. IN THE ABOVE CIRCUMSTAN CE IN OUR CONSIDERED VIEW THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION FOR SHOWING THE AMOUNT IN QUESTION AS SUNDRY CREDITORS. THE EXPLANATION OF THE ASSESSEE THAT THERE WAS NO MENS REA AND THEREFO RE PENALTY U/S 271(1)(C) CANNOT BE LEVIED IS ALSO NOT WORTHY OF AC CEPTANCE AS THE ASSESSEE COULD NOT POINT OUT THAT THE ASSESSEE COUL D NOT HAVE RECEIVED ANY BENEFIT IN RESPECT OF CARRIED FORWARD AMOUNT OF LOSS OR UNABSORBED DEPRECIATION EVEN WHEN THESE AMOUNTS WERE NOT BROUG HT TO TAX. ON THE ABOVE FACTS AND CIRCUMSTANCES ESPECIALLY THE FACT T HAT EVEN BEFORE US THE ASSESSEE COULD NOT SHOW WHEN AND HOW THE PAYMEN TS WERE MADE BY IT TO THE CREDITORS IN QUESTION IN OUR CONSIDERED VIEW THE LOWER AUTHORITIES WERE JUSTIFIED IN LEVYING PENALTY U/S 2 71(1)(C) IN RESPECT OF THE ABOVE MOUNT OF RS.6 43 268/-. 16 THE NEXT ISSUE RELATES TO PENALTY IMPOSED IN RE SPECT OF AMOUNT OF RS.90 063/- REPRESENTING DISCREPANCIES IN ACCOUNT OF M/S 9 9 VENUS TRADERS. THE LEARNED ASSESSING OFFICER OBSERV ED THAT THE ASSESSEE HAS SHOWN RS.1 08 111/- AS PAYABLE TO M/S VENUS TRADERS AS ON 31-3-2003 AND ON VERIFICATION FROM THE SAID FIRM THE SAID FIRM CONFIRMED THAT RS.18 048/- ONLY AS RECEIVABLE FROM THE ASSESSEE. THUS THE EXCESS CREDIT OF RS.90 063/- REFLECTED FROM THE ACCOUNT OF THE ASSESSEE WAS TREATED AS INCOME OF THE ASSESSEE AND PENALTY IN RESPECT OF THE SAME WAS LEVIED U/S 271(1)(C) OF THE ACT. THE C LAIM OF THE ASSESSEE IS THAT CREDIT BALANCE OF RS.1 08 111/- IN THE NAME OF THE AFORESAID PARTY IS APPEARING AS PER ITS AUDITED BOOKS OF ACCOUNT AN D AS HE HAS NO CONTROL OVER THE SAID PARTY THE DIFFERENCE IN BALANCE SHOU LD NOT BE TREATED AS ASSESSEES INCOME AND PENALTY U/S 271(1)(C) CANNOT BE LEVIED IN RESPECT OF THE SAME. WE FIND THAT IT IS NOT IN DISPUTE THAT THERE WAS A DIFFERENCE OF RS.90 063/- IN THE BALANCE SHOWN BY THE ASSESSEE AND THE BALANCE SHOWN BY THE CREDITOR OF THE ASSESSEE. THE ASSESSEE IN SPITE OF FULL KNOWLEDGE ABOUT THE ABOVE DISCREPANCY COULD NOT GIV E ANY RE- CONCILIATION EVEN IN THE PENALTY PROCEEDINGS OR COU LD NOT GIVE ANY REASONS FOR THE SAID DIFFERENCE. THE ASSESSEE COULD NOT POINT OUT ANY MISTAKE IN THE CONFIRMATION FILED BY THE CREDITOR. EVEN BEFORE US THE ASSESSEE COULD NOT POINT THAT PAYMENT OF THE AFORES AID CREDITOR OF RS.1 08 111/- WAS WHEN AND HOW MADE SUBSEQUENTLY. I N THE ABOVE CIRCUMSTANCES WE DO NOT FIND ANY ERROR IN THE ORDER S OF THE LOWER AUTHORITIES IN LEVYING PENALTY U/S 271(1)(C) IN RES PECT OF THE ABOVE AMOUNT. 17 THE NEXT ISSUE RELATES TO THE DIFFERENCE IN DEP RECIATION OF RS.5 270/-. THE ASSESSEE CLAIMED DEPRECIATION ON MO TOR CYCLE AND OFFICE EQUIPMENT AT THE RATE OF 25% WHEREAS IN THE OPINION OF THE LEARNED ASSESSING OFFICER DEPRECIATION WAS ALLOWABLE ON THE ABOVE ASSETS AT THE RATE OF 20% ON MOTOR CYCLE AND AT THE RATE OF 10% O N OFFICE EQUIPMENT. THUS THE DEPRECIATION CLAIMED BY THE ASSESSEE WAS F OUND TO BE IN EXCESS OF RS.5270/- AND THE LEARNED ASSESSING OFFICER LEVI ED PENALTY U/S 271(1)(C) IN RESPECT OF THE SAME ALSO. THIS LEVY OF PENALTY WAS ALSO 10 10 CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT DEPRECIATION WAS CORRECTLY COMPUT ED BY THE ASSESSEE BY INCLUDING THE ASSETS IN THE PLANT AND MACHINERY BLOCK. THE LEARNED ASSESSING OFFICER COULD NOT GIVE ANY PLAUSIBLE REAS ON AS TO HOW DEPRECIATION CLAIMED BY THE ASSESSEE WAS NOT POSSIB LE. IN OUR CONSIDERED VIEW MOTOR CYCLE CANNOT BE CLASSIFIED A S MOTOR-CAR AND OFFICE EQUIPMENT SHOULD NOT BE CLASSIFIED AS FURNIT URE. FURTHER THE PENALTY U/S 271(1)(C) WAS LEVIED BY THE LOWER AUTHO RITIES WITHOUT CONTROVERTING THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD AND THEREFORE SUCH LEVY OF PENALTY IS CLEARLY UNSUSTAIN ABLE. WE THEREFORE DELETE THE LEVY OF PENALTY IN RESPECT OF THE AFORES AID AMOUNT OF RS.5 270/-. 18 THE LAST ISSUE RELATES TO ADDITION OF RS.9 32 5 86/- IN THE GROSS PROFIT DECLARED BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE GROSS PROFIT DISCLOSED BY THE ASS ESSEE DURING THRE YEAR WORKS OUT TO 17.30% WHEREAS IN THE IMMEDIATELY PRECEDING YEAR THE GROSS PROFIT DECLARED BY THE ASSESSEE WAS 21.07 %. HE THEREFORE CONSIDERED THE GROSS PROFIT DECLARED BY THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION AS LOW AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AT THE RATE OF 18.50% AND THEREBY MADE TRADING ADDITIO N OF RS.9 32 586/-. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT THE GROSS PROFIT DECLARED BY THE A SSESSEE AT 17.30% DURING THE YEAR COMPARES FAVOURABLY WITH THE GROSS PROFIT OF 11.34% ACCEPTED IN THE CASE OF THE ASSESSEE FOR THE ASSESS MENT YEAR 1999-2000 AND GROSS PROFIT RATE OF 12.84% ACCEPTED IN THE CAS E OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALSO POINTED OUT THAT IT WAS ALSO S UBMITTED BEFORE THE LOWER AUTHORITIES THAT DURING THE YEAR PRICE OF JOB CHARGES WAS REDUCED CONSIDERABLY IN COMPARE TO THE IMMEDIATELY PRECEDIN G YEAR AND THEREFORE THERE WAS DECLINE IN THE GROSS PROFIT RAT E DURING THE YEAR IN 11 11 COMPARE TO THE IMMEDIATELY PRECEDING YEAR AND NO ER ROR IN THIS EXPLANATION OF THE ASSESSEE WAS FOUND BY THE LOWER AUTHORITIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THE ABOVE SUBMISSIONS. WE FIND THAT THE TRADING ADDITION WAS MADE ON ESTIMATE BASIS WITHOUT BRINGING ON RECORD ANY MATERIAL TO SH OW THAT THE GROSS PROFIT ACTUALLY EARNED BY THE ASSESSEE WAS MORE THA N THE GROSS PROFIT DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. T HUS IN OUR CONSIDERED VIEW THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN L EVYING PENALTY U/S 271(1)(C) IN RESPECT OF THE ESTIMATED TRADING ADDIT ION. WE LIKE TO OBSERVE HERE THAT THE CONSIDERATION WHICH APPLIES I N A PENALTY PROCEEDING IS DIFFERENT THAN THE CONSIDERATION WHIC H APPLIES IN AN ASSESSMENT PROCEEDING. THE HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN STEELS LTD. VS. STATE OF ORISSA 83 ITR 26 (SC) HAS OBSERVED THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI- CRIMINAL PROCE EDING AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CO NDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF IT S OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFU L TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EX ERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCE S. EVEN IF A MINIMUM PENALTY IS PRESCRIBED THE AUTHORITY COMPETENT TO I MPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY WH EN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WH ERE THE BREACH FLOWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LI ABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. IN VIEW OF THE AB OVE WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE LEAR NED ASSESSING OFFICER TO RECOMPUTE THE LEVY OF PENALTY U/S 27(1)(C) OF TH E ACT IN LIGHT OF THE DECISION MENTIONED HEREINABOVE IN THE ORDER. 19 THUS THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. 12 12 ITA NO.3217/AHD/2007 : 20 THE SOLE ISSUE INVOLVED IN THE APPEAL OF THE AS SESSEE IS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN FACT AND IN LAW IN HOLDING THAT THE LEARNED ASSESSING OFFICER W AS JUSTIFIED IN MAKING AN ADDITION OF RS.4 76 983/- ON ACCOUNT OF S UPPRESSION OF WORK- IN-PROGRESS IN THE CLOSING STOCK. 21 THE LEARNED ASSESSING OFFICER HAS STATED THAT T HE ASSESSEE HAD NOT SHOWN CLOSING STOCK OF WORK-IN-PROGRESS IN THE BOOKS OF ACCOUNTS AND THEREFORE THE ASSESSEE WAS ASKED TO GI VE THE EXPLANATION AS TO WHY THERE IS NO WORK-IN-PROGRESS EVEN THOUGH THE DYEING AND PRINTING CYCLE IS OF MORE THAN ONE DAY. INSTEAD OF REPLYING TO THE QUESTION OF AO THE ASSESSEE SIMPLY STATED THAT THER E WAS NO CLOSING BALANCE OF PROCESSED CLOTH ON 31-3-04 AS PER THE RG -1 REGISTER AND STATED THAT THEREFORE THERE IS NO QUESTION OF CLOS ING STOCK OF WORK-IN- PROGRESS. THE ASSESSEE HOWEVER FAILED TO EXPLAIN HO W IF CLOSING STOCK OF PROCESSED CLOTH IS NOT THERE WORK-IN-PROGRESS COUL D NOT BE THERE. ACCORDING TO THE AO TO COMPLETE THE CYCLE OF PROCES SING IN TEXTILE PROCESSING UNIT IT TAKES AT LEAST FIVE DAYS FOR TH E CLOTH TO MOVE FROM THE STARTING POINT TO THE END POINT. HENCE ACCORDI NG TO THE LEARNED ASSESSING OFFICER A LOT OF GREY CLOTH REMAINS ON T HE MACHINES WHICH WOULD BE EQUAL TO THE PRODUCTION OF FIVE DAYS IN TE RMS OF METRES OF CLOTH. THE AO THEREFORE STATED THAT TAKING INTO CON SIDERATION 26 WORKING DAYS P.ER MONTH THE TOTAL WORKING DAYS WOU LD BE 312 AND SINCE THE TOTAL PROCESSED CLOTH DURING THE YEAR WAS 1 39 46 541 METRES THEREFORE THE DAILY PRODUCTION ON AN AVERAGE WOULD BE 44 700 METRES. SINCE THE CYCLE OF PROCESSING UNIT IS OF FIVE DAYS THEREFORE THE CLOTH LYING ON MACHINE WOULD BE 2 23 500 METRES (44700 X 5 DAYS). THE AO WORKED OUT THE AVERAGE COST OF P ROCESSING CHARGED PER METRE AT RS.6.17 PER METRE. THE AO FURTHER ARGUED THAT IN THE BEGINN ING OF THE CYCLE THE CONSUMPTION OF COLOUR AND CHEMICALS AND VARIOUS INP UTS LIKE POWER 13 13 LABOUR ETC. WOULD BE ALMOST NIL BUT AT THE END OF T HE CYCLE THE SAME WOULD BE ALMOST 100%. THEREFORE HE ADOPTED ON AN AV ERAGE THE COST OF WORK-IN-PROGRESS AT 50% OF THE AVERAGE PROCESSING C HARGES. HE THEREFORE ADOPTED THE VALUE OF WORK-IN-PROGRESS AT 3.08 PER METRE AND WORKED OUT THE SUPPRESSED CLOSING STOCK OF WORK-IN- PROGRESS AT RS.6 88 380/- (2 23 500 METRES X RS.3.08). THE LEAR NED ASSESSING OFFICER HOWEVER ALLOWED ADDITION MADE BY HIM IN TH E LAST YEAR IN RESPECT OF CLOSING STOCK OF WORK-IN-PROGRESS AND TH EREFORE MADE A NET ADDITION OF RS.4 76 983/-. 22 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER BY OBSERVING AS UNDER: 4.3 AS REGARDS THE ADDITION OF WORK-IN-PROGRESS IS CONCERNED THE APPELLANT HAS HIMSELF QUOTED THE DECISION OF HON'BLE SUPREME COURT AS STATED ABOVE THAT EVERY YEAR IS AN INDEPENDENT YEAR. IN THE LAST YEAR THE AO HAD THE BASIS OF RG- 1 REGISTER TO SEE THAT THERE WAS A WORK-IN-PROGRESS AND THE QUANTIFICATION WAS EASIER. HOWEVER THE APPELLANT HAS NOT DENIED THAT IN THE TEXTILE INDUSTRY THE CYCLE OF PROCESSING IN DYEING AND PRINTING UNIT IS OF FIVE DAYS. THE APPELLANT HAS BROUGHT NOTHING ON RECORD TO SHOW THAT THERE WA S NO PRODUCTION IN THE FIRST FEW DAYS OF APRIL OF THE NEXT YEAR AND THEREFORE T HERE IS AN OBVIOUS P.RESUMPTION THAT THERE WOULD BE WORK-IN-PROGRESS O N THE MACHINES. IN VIEW OF THESE REASONS THE ADDITION MADE BY THE AO IN RESPE CT OF WORK-IN-PROGRESS IS CONFIRMED . 23 THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2003-04 ADDIT ION WAS MADE ON ACCOUNT OF WORK-IN-PROGRESS AS THE LEARNED ASSESSIN G OFFICER FOUND FROM RG-1 REGISTER THAT THE ASSESSEE HAD PROCESSED CLOTH OF 32 316 METRES AT THE END OF THE ACCOUNTING YEAR LYING ON T HE MACHINES AT VARIOUS STAGES. IN THE CURRENT YEAR UNDER APPEAL AS PER RG-1 REGISTER THE ASSESSEE DID NOT HAVE ANY PROCESSED CLOTH LYING ON MACHINES AS AT THE END OF THE YEAR. THEREFORE THE LEARNED ASSESSING O FFICER WAS NOT JUSTIFIED ON MAKING ADDITION ON ACCOUNT OF WORK-IN- PROGRESS FOR CLOTH LYING ON MACHINES AT VARIOUS STAGES OF PRODUCTION A T THE END OF THE YEAR 14 14 ON HIS ASSUMPTIONS AND PRESUMPTIONS. THEREFORE THE ADDITION MADE WAS WITHOUT ANY BASIS AND HENCE REQUIRES TO BE DELETED. 24 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND FULLY JUSTIFIED THE ORDERS OF THE LOWER AUTHO RITIES. 25 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT SHOWN WORK-IN-PROGRESS IN THE VALUE OF CLOS ING STOCK ON ACCOUNT OF CLOTH LYING ON MACHINES AT VARIOUS STAGES OF PRO DUCTION ON THE LAST DATE OF THE ACCOUNTING YEAR. THEREFORE HE ESTIMATE D SUCH WORK-IN- PROGRESS ON THE ASSUMPTION THAT CYCLE OF PROCESSING OF CLOTH INVOLVES FIVE DAYS AND THEREFORE THE CLOTH LYING ON MACHINES ON THIS BASIS WOULD BE THE WORK-IN-PROGRESS. HE OBSERVED THAT TOTAL CLO TH PROCESSED DURING THE YEAR BY THE ASSESSEE WAS 1 39 46 541 METRES. HE ALSO OBSERVED THAT THERE ARE 26 WORKING DAYS IN A MONTH AND THEREFORE THE TOTAL WORKING DAYS IN THE YEAR WOULD BE 312 AND BY DIVIDING THE T OTAL YEARLY PRODUCTION BY 312 DAYS ARRIVED AT THE DAILY AVERAGE PRODUCTION OF 44700 METRES. TAKING THIS AS THE BASIS HE ARRIVED AT THE CLOSING WORK-IN- PROGRESS OF FIVE DAYS AT 2 23 500 METRES. HE FURTHE R NOTED THAT AVERAGE PROCESSING COST PER METRE OF THE CLOTH INCURRED BY THE ASSESSEE WAS RS.6.17 PER METER. HE ADOPTED 50% OF THIS RATE AS T HE RATE FOR VALUING THE WORK-IN-PROGRESS AND ARRIVED AT THE VALUE OF CL OSING STOCK OF WORK- IN-PROGRESS AT RS.6 88 380/-. FROM THIS HE ALLOWED DEDUCTION FOR THE ADDITION MADE BY HIM IN THE IMMEDIATELY PRECEDING Y EAR IN RESPECT OF CLOSING STOCK OF WORK-IN-PROGRESS OF RS.2 11 397/- AND THEREBY MADE A NET ADDITION OF RS.4 76 983/- WHICH WAS CONFIRMED I N APPEAL BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE FI ND THAT ON THE SIMILAR FACTS THE TRIBUNAL IN THE CASE OF BAJAJ FAS HION PVT. LTD. VS. DCIT CIRCLE-1 SURAT IN ITA NOS.3635 AND 3636/AHD/ 2008 FOR ASSESSMENT YEARS 2004-05 AND 2005-06 ORDER DATED 2 4-07-2009 15 15 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN WHIC H ONE OF US WAS THE MEMBER CONSTITUTING THE BENCH. THE TRIBUNAL IN THE SAID CASE HELD AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF DYEING & PRINTING OF CLOTH ON JOB-WORK BASIS. FOR THE ABOV E JOB-WORK FABRIC IS SUPPLIED BY THE PARTIES. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WHILE FOLLOWING ITS CONSISTENT METHOD OF VALUATION OF CLOSING STOCK OF RAW-MATERIAL DOES NOT INCLUDE THE VALUE OF CHEMICA LS CONSUMED IN RESPECT OF THE FABRIC LYING ON THE MACHINE. THE AS SESSING OFFICER FINDING THE ABOVE ESTIMATED THE VALUE OF CHEMICALS AND COLOURS USED BY THE ASSESSEE IN RESPECT OF FABRIC LYING ON THE M ACHINE AS AT THE END OF THE YEAR AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. CONSEQUENTLY RS.5 38 976/- WAS ADDED TO THE INCOM E OF THE ASSESSEE IN ASSESSMENT YEAR 2004-05 AND RS.6 29 355/- WAS A DDED TO THE INCOME OF THE ASSESSEE IN ASSESSMENT YEAR 2005-06. ON APPEAL THE LD. CIT(APPEALS) CONFIRMED THE ADDITION OF RS.5 38 976/- FOR ASSESSMENT YEAR 2004-05 AND ALSO CONFIRMED ADDITION OF RS.6 29 355/- ASSESSMENT YEAR 2005-06 BUT DIRECTE D THE ASSESSING OFFICER TO ALLOW DEDUCTION OF RS.5 38 976/- AS OPEN ING WORK-IN- PROGRESS. THE MAIN CONTENTION RAISED BY THE ASSE SSEE BEFORE US IS THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LESS. HE EXPLAINED THAT THE COLOURS AND CHEMICALS IN RESPECT OF FABRIC ON MACHINE ARE ALREADY CONSUMED A ND THE SAME IS NOT IN STOCK WITH HIM. THE FABRIC LYING ON MAC HINE BELONGS TO OTHER PARTIES AND THE ASSESSEE IS NOT THE OWNER OF THE SA ME. FURTHER THE ASSESSEE HAS GOT NO RIGHT TO RECEIVE ANY JOB CHARG ES IN RESPECT OF FABRIC LYING ON MACHINE AS THE JOB IS NOT COMPLETED AND TILL THE COMPLETION OF THE JOB NO RIGHT TO RECEIVE ANY AMOU NT ACCRUED TO THE ASSESSEE. FURTHER THE CHEMICALS AND COLOURS WHI CH ARE ALREADY CONSUMED CANNOT HAVE ANY SEPARATE MARKET VALUE. I F THE ASSESSEE DOES NOT DO FURTHER PROCESSING IN THE NEXT YEAR TH E ASSESSEE WILL NOT RECEIVE EVEN A SINGLE RUPEE IN RESPECT OF FABRIC LY ING ON MACHINE WHICH BELONGS TO OTHERS. FOR THE ABOVE REASON THE ASS ESSEE SUBMITTED THAT IT CONSISTENTLY DOES NOT INCLUDE ANY VALUE OF CHEMICALS AND COLOURS WHICH ARE ALREADY CONSUMED IN RESPECT OF FA BRIC LYING ON THE 16 16 MACHINE AND THIS CONSISTENTLY FOLLOWED SYSTEM WAS A LWAYS ACCEPTED BY THE DEPARTMENT IN PAST IN HIS CASE. THEREFORE THERE WAS NO JUSTIFICATION FOR MAKING AN ABRUPT CHANGE IN THE YE ARS UNDER APPEAL ON ESTIMATE BASIS WITHOUT ACTUALLY POINTING OUT THA T SUCH COLOURS AND CHEMICALS HAD ANY MARKET VALUE AT THE END OF THE RE LEVANT PREVIOUS YEAR. THE ASSESSEE ALTERNATIVELY ALSO SUBMITTED TH AT INCOME OF THE ONE YEAR CANNOT BE ASSESSED IN THE OTHER YEAR AND I F THE ASSESSING OFFICER ASSUMED MARKET VALUE IN RESPECT OF CHEMICAL S AND COLOURS CONSUMED ON FABRICS LYING ON MACHINES AT THE CLOSE OF THE YEARS THEN FOR THE SAME REASON HE ALSO OUGHT TO HAVE TAKEN OPE NING VALUE OF SIMILAR STOCK LYING ON A MACHINE AT THE BEGINNING O F THE YEAR. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HO N'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. EMA INDIA LTD. (2 008) 296 ITR 510 (ALL.). WE FIND THAT THE REVENUE COULD NOT DISPUT E THE FACT THAT THE FABRICS WHICH WERE LYING ON MACHINE AT THE END OF T HE RELEVANT PREVIOUS YEAR BELONGS TO OTHER PARTIES. THE CHEM ICALS AND COLOURS WHICH WERE USED IN RESPECT OF SUCH FABRIC WERE ALRE ADY CONSUMED AND COULD NOT BE SOLD OR MARKETED SEPARATELY. THUS IT IS OBSERVED THAT THE REVENUE HAS NOT BEEN ABLE TO BRING ANY MATERIAL BEFORE US TO SHOW THAT SUCH CONSUMED CHEMICALS AND COLOURS HAD A NY MARKET VALUE AS AT THE END OF THE YEAR. FURTHER IT IS A LSO NOT IN DOUBT THAT NO RIGHT TO RECEIVE ANY PART OF JOB CHARGES ACCRUED TO THE ASSESSEE AT THE END OF THE RELEVANT YEAR. FURTHER IT IS OBSERVED THAT THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. EMA IND IA LTD.(SUPRA) OBSERVED AS UNDER:- 7. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE TR IBUNAL. IT IS SETTLED PRINCIPLE OF LAW THAT THE STOCK CAN BE VALU ED AT THE COST OR AT MARKET RATE. ADMITTEDLY THE ASSESSEE HAD BEEN MANUFACTURING THE GOODS WHICH WERE TAILOR-MADE FOR SPECIFIC REQUIREMENTS OF ITS CUSTOMERS AND UNLESS THE WHOLE OF THE MACHINERY IS COMPLETE WORK-IN-PROGRESS BY ITSELF H AS NO OTHER UTILITY. ASSESSEE HAS VALUED THE WORK-IN-PROGRESS O N THE BASIS OF RAW MATERIAL CONSUMED AT COST PRICE. THIS METHOD HA S BEEN ADOPTED SINCE LAST SEVEN YEARS AND ALSO IN SUBSEQUE NT YEARS. NO OBJECTION HAS BEEN RAISED BY THE REVENUE IN THE PRE VIOUS YEARS TO SUCH VALUATION. IT WAS FOUND THAT ASSESSEE-COMPA NY WAS A PROGRESSIVE COMPANY AND SHOWN OUT PROFITS ON PROGRE SSIVE SCALE FROM YEAR TO YEAR AND CANNOT ESCAPE FROM THE CLUTCHES OF THE REVENUE. THE CLOSING STOCK OF THIS YEAR IS THE OPENING STOCK 17 17 OF SUBSEQUENT YEAR AND HENCE A CONSISTENT METHOD ADOPTED FOR VALUATION BY THE ASSESSEE SHOULD NOT BE DISTURB ED. THEREFORE THE SAME METHOD ADOPTED IN THE YEAR UNDE R CONSIDERATION FOR VALUING THE STOCK AS HAS BEEN AD OPTED IN THE PREVIOUS YEARS CANNOT BE SAID TO BE UNJUSTIFIED. 11. IN VIEW OF THE ABOVE DECISION IN OUR CONSIDERE D OPINION ON THE FACTS AND CIRCUMSTANCES MENTIONED ABOVE WE DO NOT FIND ANY ERROR IN THE CONSISTENTLY FOLLOWED SYSTEM OF VALUATION OF S TOCK BY THE ASSESSEE. AS THE SAID SYSTEM WAS ACCEPTED BY THE DEPARTMENT ALSO IN PAST IN THE CASE OF THE ASSESSEE WE DO NOT FIND ANY GOOD REASON FOR DEPARTURE FROM THE SAID ACCEPTED METHOD. THE CLOSING STOCK OF ONE YEAR IS THE OPENING STOCK OF THE NEXT YEAR AND HENCE A CONSISTENT METHOD ADOPTED FOR VALUATION BY THE ASSESSEE SHOULD NOT BE DISTURBED WITHOUT GOOD REASONS. WE THEREFORE S ET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITION(S ) OF RS.5 38 976/- IN ASSESSMENT YEAR 2004-05 AND RS.90 379/- IN THE ASSE SSMENT YEAR 2005-06. THUS THE GROUNDS OF APPEAL OF THE ASSES SEE ARE ALLOWED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL IN OUR C ONSIDERED OPINION THE ADDITION OF RS.4 76 983/- MADE IN THE INSTANT C ASE ON ACCOUNT OF CLOSING WORK-IN-PROGRESS IS NOT WARRANTED. WE THER EFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDI TION OF RS.4 76 983/- THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. 26 IN THE RESULT THE APPEAL OF THE ASSESSEE IN IT A NO.608/AHD/2007 FOR ASSESSMENT YEAR 2003-04 IS PART LY ALLOWED AND APPEAL OF THE ASSESSEE IN ITA NO.3217/AHD/2007 FOR ASSESSMENT YEAR 2004-05 IS ALLOWED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING ON 29-01- 2010. SD/- SD/- - (MAHAVIR SINGH) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 29-01-2010 18 18 COPY OF THE ORDER FORWARDED TO : 1. ANNAPURNA INDUSTRIES PVT. LTD. 210-B GIDC PAN DESARA SURAT 2. THE ITO WARD-1(1) SURAT 3. CIT CONCERNED 4. CIT(A)-I SURAT 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABA