DCIT 17(1), MUMBAI v. M/S S.M. STEEL, MUMBAI

ITA 2539/MUM/2013 | 2009-2010
Pronouncement Date: 19-10-2016

Appeal Details

RSA Number 253919914 RSA 2013
Assessee PAN AAAFS1036L
Bench Mumbai
Appeal Number ITA 2539/MUM/2013
Duration Of Justice 3 year(s) 6 month(s) 15 day(s)
Appellant DCIT 17(1), MUMBAI
Respondent M/S S.M. STEEL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-10-2016
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 19-10-2016
Date Of Final Hearing 31-08-2015
Next Hearing Date 31-08-2015
Assessment Year 2009-2010
Appeal Filed On 03-04-2013
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI R.C. SHARMA(ACCOUNTANT MEMBER) AND SHRI AMARJEET SINGH (JUDICIAL MEMBER) ITA NOS. 6579/MUM/2012 ASSESSMENT YEARS: 2008 - 09 JCIT 17(1) VS. S.M. STEELS 1 ST FLOOR R.NO. 113 161/B RETO BUNDER REAY RD. PIRAMAL CHAMBERS DAURKHANA LALBAUGH PAREL MUMBAI - 400010 MUMBAI PAN NO. AAAFS1036L & ITA NOS. 2539/MUM/2013 ASSESSMENT YEARS: 2009 - 10 DCIT 17(1) VS. S.M. STEEL 1 ST FLOOR R.NO. 113 B - 501 AVIRAHI APAR TMENT PIRAMAL CHAMBERS ABOVE ADIDAS LALBAUGH PAREL S.V. ROAD BORIVALI(W) MUMBAI MUMBAI - 400092 PAN NO. AAAFS1036L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI. PRADEEP ARYA ASSESSEE BY : SHRI. I.P. RATHI DATE OF HEARING : 22/09/2016 DATE OF PRONOUNCEMENT : 1 9 / 1 0 /2016 ORDER 2 PER R.C. SHARMA ACCOUNTANT MEMBER : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) FOR THE AY 2008 - 09 AND 2009 - 2010 IN THE MATTER OF ORDER PASSED U NDER SECTION 143(3) OF THE INCOME TAX ACT. 2. IN BOTH THE YEARS REVENUE IS AGR IEV ED FOR DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 3. RIVAL CONTENTIONS HAVE BEEN HEAR D AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND SUPPLY OF IRON AND STEEL AND DEALS WITH VARIETY OF ITEMS . IN THE AY 2008 - 09 T HE ASSESSING OFFICER ANALYZED THE PURCHASES OF IRON & STEEL PRODUCTS IN T HE MONTH OF FEBRUARY & MARCH FURNISHED BY THE ASSESSEE WHICH WORKED OUT THE AVERAGE COST OF PURCHASES A T RS. 39 587/ - PER MT. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER FIFO METHOD OF VALUATION THE ENTIRE CLOSING STOCK AVAILABLE AS ON 31/03/2008 SH OULD BE OUT OF THE PURCHASES MADE IN THE MONTH OF MARCH ONLY. A.O. FOUND THAT S UBSTANTIAL PURCHASES WERE MADE IN THE MONTH OF MARCH BY THE ASSESSEE WHICH WAS LYING AS CLOSING STOCK THE VALUE OF THE SAME CANNOT BE LESS THAN THE PURCHASE PRICE AND ACCORDING LY HE WORKED OUT UNDER VALUATION OF CLOSING STOCK BY TAKING THE AVERAGE COST OF PURCHASE A T RS. 40 768/ - PER MT. (BASED ON THE PURCHASE FOR MARCH 2008) APPLYING THIS RATE ON THE CLOSING STOCK THE ASSESSIN G OFFICER ARRIVED AT THE VALUE OF RS. 11 35 65 175/ - . FURTHER THE ASSESSING OFFICER HAS ADDED PROPORTIONATE AMOUNT OF THE DIRECT COST ATTRIBUTABLE 3 SUCH AS TRANSPORT CHARGES AND OCTROI CHARGES TO THE VALUE OF THE CLOSING STOCK AND FINALLY ARRIVED AT THE VALUE OF RS. 40803.17 PER MT AND WORKED OUT RS. 9 53 622/ - WHICH WAS ALSO ADDED TO THE VALUE OF THE CLOSING STOCK. THUS THE ASSESSING OFFICER HAS CONCLUDED THAT THE APPELLANT HAS SUPPRESSED RS. 42 41 946/ - WHILE VALUING THE CLOSING STOCK. 5. BY THE IMPUGNED ORDER LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER: 6. I HAVE G O N E THROUGH THE SUBMISSIONS OF THE AR CONTENTS OF THE IMPUGNED ASSESSMENT ORD E R S T ATEME NT OF FACTS A L ONGWITH THE MATER I AL ON RECORD . I HAVE ALSO PERUSED THE PAP E R B OO K. T H E A V ERAGE P U RCHASE COST TO THE ASSESSEE BASED ON THE PURCH A SES M A D E I N THE MONTH OF FEBRUARY 2008 AND MARCH 2008 COMES TO RS .3 9 58 7/ - PER METRIC TON AND THE APPELLANT HAS VALUED THE CLOSING STOCK AT RS . 39 587/ - MT ON 2785 . 645 MT . THE AVERAGE RATE OF PURCHASE IN THE MONTH OF MARCH 2008 WORKED OUT BY THE A O WAS RS 40 787/ - .(RS. 17 80 77 263/4368.056 MT. 40 787) TH I S C L EARLY SHOWS THAT THE AVERAGE RATE OF PURCHASE IS MUCH MORE THAN THE VALUE ADMITTED IN THE CLOSING STOCK WHICH HAS PROMPTED THE ASSESSING OFFICER TO MAKE THE ADDITION. IT IS RELEVANT TO POINT HERE THE SUBMISSION OF THE APPELLANT THAT THE CLOSING STOCK DID NOT COMPRISE ONLY OF THE PURCHASES MADE IN THE MONTH OF MARCH AND IT COMPRISES OF VARIOUS ITEMS STEEL PURCHASED IN THE WHOLE YEAR . I N SUPPO RT OF TH I S CONTENTION DETAILS SUCH AS ITEM DATE OF P URCHASE AND BILL NO DATE AND QUANT IT Y SO L D THE BALANCE QUANTITY LEFT AND IT ' S VALUE FOR THE PURPOSE OF CLOSING STOCK WERE FUR N I SHED WHICH IS AVA IL ABLE IN PAGES 1 TO 8 OF THE PAPER BOOK. 7 . I T I S TH E CL AIM OF THE APPE LL ANT THA T MOS T OF THE PURCHASES MADE IN THE MONTH OF MARC H W AS SOLD I N THAT MONTH ITSELF . THE APPE LL ANT HAS G I VEN THE DETA IL S OF THE SAME I N PAGES 1 TO 15 OF THE PAPER BOO K. DETAILS SUCH AS DATE NAME OF THE SUPP LI E R INV O I CE NO QUANTITY PURCHASED AND DETA IL S FOR THE SALES DATE I NVOICE NO Q UAN TI TY SO L D AND BALANCE REMA I N I NG AFTE R THE SALES ARE AVA I LABLE I N THESE PAGES . THE PERUSAL O F T HE DETA IL S CLEARLY SHOWS THAT MOST OF THE PURCHASES MADE I N MARCH WERE SOLD IN MARCH I TSELF. FOLLOW I NG ARE FEW EXAMPLES : - 4 PURCHASES SALES DATE PURCHASE PARTY BILL NO. QTY DATE SALES PARTY BILL NO. QTY BAL. QTY 1/03/08 PRABHAT STEEL TRADERS PVT. LTD. 690 3.850 1/03/08 NAVDEEP TRDS. (M - 3) 11627 3.850 0 1/03/08 STEEL AUTHORITY OF INDIA LTD. 25764 7.290 3/3/08 RAJESH STEEL (I) P. LTD. 4205 3.020 0 3/3/08 RAJDEEP STEELS 4202 4.200 0 1/3/08 MONNET ISPAT & ENERGY LTD. 473 20.290 5/3/08 PARAGON YARN MFG. CO. PVT. 4240 9.485 0 1/3/08 MONNET ISPAT & ENERGY LTD. 474 6.200 5/3/08 VIJAY MEHTA & CO (M - 10) 4245 5.780 0 5/3/08 BALAJI MKTG. AGENCY 4246 6.880 0 5/3/08 RAJ DARSHAN ENTERPRISE 4248 4.210 0 26.49 26.355 0.135 25/3/08 PRABHAT STEEL TRADERS P. LTD. 744 8.220 25/3/08 SHIV AUM STEELS PVT. LTD. 11687 8.220 0 25/3/08 TIRUPTI STEEL TRADERS (PUR) 499 16.300 25/3/08 TILAKNAGAR INDUS. 11687A 16.300 0 25/3/08 RASHTRIYA ISPAT NIGAM LTD.(M) 2007015410 0.650 25/3/08 M.K. STEEL CORPN 11683 22.140 0 25/3/08 RASHTRIYA ISPAT NIGAM LTD. 2007015411 21.490 THE ABOVE CLEARLY PROVES THAT THE AO HAS SIMPLY PRESUMED THAT THE PURCHASES MADE IN THE MONTH OF MARCH ONLY CAN REMAIN AS CLOSING STOCK WITH OUT ANALYZ I NG THE FACTUAL POSITION DISCUSSED ABOVE . 5 8 AS FAR AS THE PURCHASE OF STEEL IS CONCERNED THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF WEIGHTED AVERAGE COST RIGHT FROM INCEPTION OF THE BUSINESS . FURTHER AS POINTED OUT BY THE A . R . THE A . O. HAS CONSIDERED THE PURCHASES MADE ONLY IN THE LAST MONTH OF THE FINANCIAL YEAR TO ARRIVE AT THE AVERAGE COST . THE RELEVANT PORTION OF THE SUBMISSION IN THIS REGARD IS REPRODUCED AS UNDER: ' AS EXP L A I NED IN THE FACTS OF THE CASE THE APPELLANT DEALS IN VARIETY OF ITEMS OF STEEL A N D H ENCE THE DIFFICULTY ARISES IN MAINTAINING THE SEPARATE STOCK RECORDS FOR ALL THE IT E M S A ND T O VA L UE THE CLOSING STOCK BY TAKING EACH ITEM OF STOCK SEPARATELY AND H ENCE T H E S TO C K WAS VALUED ON THE PR I CES BASED ON THE AVERAGE PURCHASE PRICE S I N CE I N CEPT I ON A N D TH E SAME BAS I S WAS ACCEPTED. TH E R E A R E C E R TA I N STOCK S WHI C H A R E P UR CHASED AGA I NST CONF I RMED SALES AND DELIVERED DIRECTLY OR WITHIN 2/ 3 DAYS A ND S U C H SA L ES A N D P URCHASES CAN BE IDENT I F I ED BILL WISE. CERTAIN ITEMS WE PU R C H ASED IN BU L K BUT SO L D ON R EG UL AR BAS I S . HENCE WH IL E VA L UING CLOSING STOCK WE HAVE TO C ON S I DE R T H E A V E R AGE PER I O D O F H O LDIN G I GNOR I NG THE GOODS PURCHASED AND SOLD IDENTIFIABLE. AND FOR TH I S R EASO N W E H A D V A LU E D TH E C L OS I NG STOCK BY TAKING AVERAGE PURCHASE PRICE OF LAST TWO MONTHS. ' 8 .1 T H E APP E LL A NT H AS A L SO FU RN I S H E D T H E COPY OF TH E F ORM 3 CD R E P O RT T O S H OW THAT THERE I S NO ADVERSE F I ND I NGS IN RESPECT OF THE VA L UE OF C L OS I NG STOC K BY THE AUDITOR . IT I S ALSO A FA C T THAT FOR OVER THE LAST SEVERAL YEARS THE DEPARTMENT H AS BEEN ACCEPTING THE CLOSING STOCK VA L UATION ADOPTED BY THE APPELLANT CONSISTENTLY. IN SUPPORT OF THIS THE ASSESSMENT ORDER PASSED U/S 143(3) FOR THE AYS. 2005 - 06 TO 2007 - 08 WERE FURNISHED. THE PERUSAL OF WHICH 6 INDICATES THAT DEPARTMENT HAS ACCEPTED THE VALUE ADOPTED BY THE APPELLANT FOR CLOSING STOCK FOR AY . 2005 - 06 & 2006 - 07 . DURING THE AY. 2007 - 08 THE ASSESSING OFFICER ATTE MPTED TO ADD PROPORTIONATE AMOUNT OF DIRECT COSTS INCURRED SUCH AS TRANSPORT CHARGES AND OCTROI CHARGES TO THE VALUATION OF CLOSING STOCK. OTHERWISE THE AVERAGE COST OF PURCHASES ADOPTED BY THE APPELLANT TO ARRIVE AT THE VALUE OF THE CLOSING STOCK HAS NOT BEEN DISTURBED BY THE ASSESSING OFFICER . THE RULE OF CONSISTENCY CANNOT BE IGNORED BY THE ASSESSING OFFICER AND HENCE THE CLOSING STOCK VALUATION ADOPTED BY ASSESSING OFFICER IS NOT JUSTIFIED . 9 THE GENERAL RULE OF FIFO METHOD OF VALUATION IS NOT APPLICABLE TO THE STEEL ITEMS . AS FAR AS THE STEEL AND RELATED ITEMS ARE CONCERNED WHATEVER STOCK RECEIVED EARLIER GOES TO THE BOTTOM OF THE STOCK AND THE RECENT ONES COMES TO THE UPPER LAYER OF THE STOCK AND HENCE LAST OF THE STOCK IS DISPOSED OFF FIRST . AND IT IS NOT THE FIRST OF THE STOCK WHICH IS RECEIVED. THIS CAN BE PROVED BY THE FACTS DISCUSSED IN PARA - 7 AND WHAT IS EVIDENT IS THAT MOST OF THE STOCKS PURCHASED IN MARCH WAS SOLD IN MARCH ITSELF AND THE CONCLUSION DRAWN BY THE ASSESSING OFFICER IS F ACTUALLY INCORRECT . 10 MOREOVER ACCOUNTING STANDARD - 2 RECOGNIZES THE WEIGHTED AVERAGE COST M ET H OD F O R VA L UATION OF INVENTORY . PARA 16 OF THE AS - 2 IS REPRODUCED BELOW: ' TH E COST OF INVENTORY TO THE OTHER THAN THOSE DEALT WITH WITH I N P A RA 1 4 SHOULD BE ASSIGNED BY USING THE FIRST AND FIRST OUT ARE W E I GHT ED AVERAGE COST OF THE FORMULA . THE FORMULA USED REFLECT TH E F A I RN ESS BUT POSS I B L E PROX I M I SATION TO THE COST INCURRED IN BR I N G IN G T H E I T E M S OF I NVENTO R Y TO THEIR PRESENT LOCATION AND CONDIT I ON: 7 AS - 2 RECOGNIZES BOTH FIFO AS WELL AS WEIGHTED AVERAGE COST. THE APPELLANT HAS FOLLOWED THE LATER AND THERE IS NOTHING WRONG IN FOLLOWING THE WEIGHTED AVERAGE COST METHOD . 11. SECTION 145A CLEARLY STIPULATES THAT THE VALUATION OF THE INVENTORY SHOULD BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT. WH E N TH E APP E LL A NT H AS B EE N F O LL O WIN G CO N S I S T E NT LY O N E P A RT I C U L A R M E TH OD O F VALUAT I ON OF I NVENTORY THE AO . CANNOT TH I NK OF A L TERING THE SAME UNLESS HE IS SATISF I ED W I TH THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE APPELLANT . 12 IN THE CASE CHAINRUP SAMPATRAM V. CIT [1953] REPORTED IN 24 ITR 481 THE HON ' BLE SUPREME COURT HAD LAID DOWN FIRSTLY THAT PROFITS DO NOT ARISE OUT OF VALUATION OF CLOSING STOCK. SECONDLY THAT VALUATION OF UNSOLD STOCK AT THE CLOSE OF THE ACCOUN T ING PERIOD IS A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULTS AND I T CANNOT BE REGARDED AS SOURCE OF SUCH PROF I TS . THE ADDIT I ON MADE TO THE C L OS I NG STOCK CANNOT BE REGARDED AS A S OURCE OF PROF I T WHICH IS NOTHING BUT A PRINCIP L E O F BA L ANCING. THE TRUE PURPOSE OF CREDIT I NG THE VALUE OF UNSO L D STOCK IS TO BALANCE TH E COST ENTERED ON THE OTHER S I DE OF T HE ACCOUNT AT THE TIME OF THEIR PURCHASE SO THAT THE CANCELLING OUT OF ENTR I ES RE L AT I NG TO THE SAME STOCK FROM BOTH THE S I DES OF THE ACCOUNTS WOULD LEAVE ONLY T HE TRANSACT I ON ON WHICH THERE H AS BEEN ACTUA L SA LE S TO SHOW THE PROF I T OR LOSS ACTUAL L Y REALIZED . THE REVENUE IMPACT ON SUCH ADDIT I ON RESULT I N A REVENUE NEUTRAL SITUATION . WHATEVER ADDITION ONCE MADE TO THE CLOS I NG STOCK I T IS GOING TO THE OPENING STOCK IN NEXT YEAR . IN FACT THERE WILL NOT BE ANY LEAKAGE OF REVENUE. THE ABOVE PROPOSITION HAS BEEN LAID DOWN IN THE CASE OF CIT VS. INDO NIPPON CHEMICAL COMPANY LTD. 245 ITR 384 (BORN.) . 8 1 3 THE VALUATION OF STOCK ON THE BASIS OF AVERAGE PRICES HAS BEEN HELD AS V A LI D IN T H E CASE OF CIT VS. FAZILKA CO.OPERATIVE SUGAR MILLS LTD. REPORTED IN 255 I TR 4 1 1 ( P& H) . THE HEAD NOTE IS AS UNDER : ' THE ASSESSEE F ILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 199 1 - 92. IT DEC L ARED A L OSS O F RS . 7 52 53 863 . ON DECEMBER 7 1992 THE ASSESS I NG OFF I CER C OMP L E T ED THE A S SE SSME NT AND MADE AN ADD I T I ON OF RS . 10 63 977 ON ACCOUNT OF R E V A L U A TI ON O F TH E C L O S ING S T OC K . THIS ADDITION WAS MADE ON THE HYPOTHESIS THAT TH E V A LU A TI ON OF TH E CL OS IN G STOCK HAD TO BE DONE ON THE BASIS OF THE AVERAGE PRIC E FOR THE MONTH O F M A R CH 1991 . THUS TH E FI NA L F I GURE OF L OSS WAS F I XED AT RS . 7 37 64 371/ - . THIS A DD I TI O N W AS A FF I RM ED BY THE CO MMI SS I ONER O F I NCOME - TAX (APPEALS). THE TRIBUNAL HOWEVER HELD THAT TH E R E WAS NO JU S TIFIC A TI O N IN T HE ADD ITI ON ON ACCOUNT OF VALUATION OF CLOSING STOCK. ON FURTH ER APPE A L TO THE HIGH CO U R T . HELD: DISMISSING THE APPEAL TH A T A P E R U SA L O F T H E ORDER PASSED BY THE TRI B U NA L SHOWED TH A T THE R ES P O N D E NT - ASSESSEE H AD F O LL O W ED A CONS I STENT PRACT I CE OF F I XING T H E V A L U E OF T H E STOCK ON TH E B AS I S O F TH E AV E R A GE PR I C E FOR THE AS SE SS MENT Y EA R. T HI S PR AC TI CE H A D BEEN ACCEPTED BY THE REVENUE . IT HAD BEEN FURTHER FOUND THAT DESPITE HAVING MADE AN ADDITION OF MORE THAN RS . 7 00 000 IN THE VALUE OF THE STOCK IN HAND NO CORRESPONDING BENEFIT WAS GIVEN BY THE REVENUE TO THE ASSESSEE FOR THE ASSESSMENT YEAR 1992 - 93. THIS FACTUAL POSITION HAD NOT BEEN DISPUTED. IN FACT THE ADDITION TO THE VALUE OF THE S TOCK IN HAND HAD NOT RESULTED IN ANY LOSS TO THE REVENUE. THE VALUE WHICH HAD BEEN SHOWN BY THE ASSESSEE HAS BEEN CARRIED FORWARD TO THE NEXT YEAR. THUS THERE WAS NO LOSS OF TAX SO FAR AS THE REVENUE IS CONCERNED . IN ANY CASE THE ULTIMATE POSITION WAS TH AT THE ASSESSEE HAD SUFFERED LOSS . IT HAD NOT BEEN 9 SHOWN THAT THE VALUATION SHOWN BY THE ASSESSEE WAS LESS THAN THE COST PRICE. THAT BEING SO THERE WAS NO INFIRMITY IN THE VIEW TAKEN BY THE TRIBUNAL . NO SUBSTANTIAL QUESTION OF LAW AROSE FROM ITS ORDER . ' 14 THE ASSESSING OFFICER HAD NEITHER MADE ANY COMMENT ON THE STOCK STATEMENT SUBM I TTED BY THE APPELLANT NOR POINTED OUT ANY DEFECT IN THE AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT AND THEREFORE THE ASSESSING OFFICER HAS CONSIDERED THE STOCK OF FINISHE D GOODS AND RAW - MATERIALS AS HAS UNDER VALUED BASED ON SOME PRESUMPTIONS SURMISES & CONJUNCTURES AND WITHOUT ANY EVIDENCE ON RECORD . THIS WAS HELD IN THE CASE OF ACIT VS. MAITAN SMELTERS REPORTED IN 307 ITR (AT) 225 (CAL) . THE VALUATION OF INVENTORY AS PER AVERAGE COST METHOD HAS ALSO BEEN APPROVED BY THE H I MACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS. H.P. STATE CIVIL SUPPLIES CORPORATION LTD REPORTED IN 309 ITR 102 (HP) IT WAS H E L D I N THE CASE OF CIT VS. DEWAN STEEL LTD. REPORTED IN 311 ITR 161 TH AT AVERAGE C OST METHOD OF VALUATION OF CLOSING STOCK CONSISTENTLY FOLLOWED BY THE AOOE LL A N T AND AC CE PT ED B Y THE REVENUE I N THE EARLIER YEARS CANNOT BE REJECTED AND THE AVERAGE COST METHOD WA S IN ACCO R DA N CE W I TH THE WELL ACCEPTED ACCOUNTING PRINCIPLES. 15. ALL THE AB O V E DE C I S I O N S I N D I CATES THAT WE I GHT E D A V E R AGE METHOD OF COST OF VALUATION OF INVENTORY HAS BEEN APPROVED AND IT HAS BEEN RECOGNIZED BY ACCOUNTING STANDARD 2. IN THE PRESENT CASE THE A PPE LL ANT HAS F O L L OWED TH E W E LL R ECO G N I ZED METHOD A ND TH E A SSESS I NG OFF I CER CANNOT F I ND F A U L T WITH THE SAME UNL ESS T H E ASSESSING OFFICER IS NOT SATISFIED W I TH THE CORRECTNESS AND 10 COMP L ETENESS OF THE METHO D ADOP TED BY THE APPELLANT . THE ASSESSING OFFICER HAS NOT MADE ANY ADVERSE COMMENTS ON THE AUDIT REPORT ALSO IN THIS REGARD. FURTHER CONSISTENTLY THE DEPARTMENT HAS BEEN ACCEPTING THE ABOVE METHOD OF VALUATION AND HENCE IT IS NOT OPEN TO THE ASSESSING OFFICER TO SUDDENLY CHANGE THE METHOD WHICH HAS BEEN REGULARLY FOLLOWED BY THE APPELLANT . THE AO HAS NOT GIVEN ANY REASON AS TO WHY THE CONS I STENT METHOD FOLLOWED TOWARDS VALUATION OF THE CLOSING STOCK WAS DISREGARDED BY THE ASSESSING OFFICER . IN THIS REGARD I RE L Y ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT V. CITIBANK N. A . REPORTED IN [1994] 208 IT R 930 (BORN). THE HEAD NOTE IS AS UNDER: - HELD D I SMISSING THE APPEALS (I) THAT THE SYSTEM OF ACCOUNTING EMPLOYED BY THE ASSESSEE WAS IN CONSONANCE WITH THE ACCOUNTING STANDARD PRESCRIBED IN INDIA AND A L SO OUTSIDE INDIA. THE CONTRACT PRICE WAS F I XED UNDER THE CONTRACT AND I F DURING THE CONSTRUCTION PERIOD THE COST INCURRED EXCEEDED THE CONTRACT PRICE LOSS ACCRUED TO THE ASSESSEE TO THE EXTENT OF THE EXCESS EXPENDITURE . SUCH LOSS WAS NOT CONTINGENT BECAUSE SUCH ESCALATION CLAUSE WAS NOT IN EVERY CONTRACT AND WHEREVER THERE WAS AN ESCALATION CLAUSE THE PROVISION WAS MADE OF SUCH ESCALATION PRICE ON ESTIMA T E BASIS. THEREFORE THE SYSTEM OF ACCOUNTING EMPLOYED BY THE ASSESSEE CONSISTENTLY FOR DECADES COULD NOT BE REJECTED.' I FURTHER RELY ON THE D ECISION OF JUR I SDICTIONAL ITAT IN THE CASE OF DEPUTY COMMISSIONER OF INCOME - TAX V. OTIS ELEVATOR CO. (I) LTD REPORTED IN 284 ITR ( AT) 173 ( ITAT MUMBAI). THE HEAD NOTE I S AS UNDER: - 11 METHOD OF ACCOUNT I NG -- ENTIRELY WITHIN ASSESSEE ' S DISCRETION -- POWER OF ASSESSING O FFI CER T O I NVOK E F I RST PROV I SO TO SECTION 145 ONLY WHERE SYSTEM DOES NOT SHOW TRUE P I CT UR E OF P R OF I TS A ND GA IN S -- I NCOME - TAX ACT 1961 S . 145. METHOD OF ACCO U NT I NG - C ONTR AC T O R -- CON T RACT COMPLETION METHOD ASSESSEE ACCUMULATING E X P E ND I TUR E Y EAR A FTER YE A R ON EAC H CONTRACT AND CRED I T I NG CONTRACT PRICE IN YEAR IN WHICH CONTR AC T COMP L ETED AND SH O W I N G R ES ULT A NT PRO FI T IN T H AT Y EAR -- EXPENDITURE EXCEEDING CONTR AC T E D PR I CE - S H O WN AS L OS S AND ONLY C ONTR AC T ED P RI CE CARRIED FORWARD TO NEXT YEAR - LO SS I N P A RT I C U L A R CONTRACT S HOWN I N MOR E TH A N ONE YEAR - PROVISION FOR ESTIMATING ESCA L A T I O N P R I CE I N CONTRACT - JUD I C I A L LY RECOGNIZED METHOD - - IN COME - T A X ACT 196 1 S . 145 . IT IS THE DUTY OF THE ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE ONLY EXCEPTION TO THE LEGAL POSITION IS PROVIDED IN THE FIRST PROVISO TO SECTION 145 OF THE INCOME - TAX ACT 1961 I E. WHERE TRUE PROFITS CANNOT BE DEDUCED FROM THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. IF SUCH METHOD OF ACCOUNTING DEPICTS A DISTORTED PICTURE OF THE PROFITS OF BUSINESS CARRIED ON BY THE ASSESSEE THEN THE ASSESSING OFFICER CAN INVOKE THE FIRST PROVI S O TO SECTION 145 EVEN THOUGH SUCH METHOD IS BEING EMPLOYED CONS I ST EN T L Y . BUT THE POWERS OF THE ASS E SSING OFF I CER UNDER THE FIRST PROVISO ARE NO T A RB IT RARY AND MUST BE EXERC I SED I N A JUDICIOUS MANNER . THE SUPREME COUR T DEC I S I O N IN THE CASE OF CALCUTTA CO. LTD. V. CIT [1959] 37 ITR 1 (SC) FO L LOWED . 1 6 . T HE RE CE N T DECISION OF DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. JAGATJIT INDUSTRIES LTD. REPORTED IN 339 ITR 382 IS WORTH MENTION I NG HERE . T H E FIN DINGS OF HON . HIGH COURT WAS T HAT WHEN THE DEPARTMEN T H AS ACCEPTED A P ARTICULAR 12 M E T HOD OF ACCOUNT I NG SYS T E M F O L LOWED BY THE ASSESSEE CO N S I S T ENTLY T HEN T H E S A M E CANNOT BE RE J ECTED WITHOUT VA L ID REASON . THE ASSESSING O F F I CER HAS TO F OLLOW T HE DOCTR I NE OF CONS I STENCY . THE HEAD NOTE IS AS UNDER : - ME TH OD OF ACCOUNTING -- RULE OF CONS I STENCY -- MERCANT I LE SYSTEM OF ACCOUNT I NG -- P RI O R PE RI OD EXPENSES DEBITED IN FOLLOWING YEAR -- METHOD CONS I STEN TL Y FO LL OWED BY ASSESS EE A N D ACCEPTED BY D EPARTMENT -- NO EVIDENCE OF DISTORTION OF P R O FIT S METHOD COULD NOT BE R E J ECTED -- INCOME - TAX ACT 1 96 1 S . 145. IF A PARTI CU L A R ACCOUNTING SYSTEM HAS BEEN FOLLOWED AND ACCEPTED AND THERE IS NO ACCEPTABLE R EASON TO D IFF ER WITH I T THE DOCTR I NE OF CONSISTENCY WOULD COME I NTO PL A Y. T H E METHOD OF ACCO UNTIN G CA N NO T BE REJ EC T ED . TH E ASSESSEE WAS FOLLO W IN G THE M ERC AN TI LE SYS T EM OF ACCOU NTI NG. ACCORDING TO PA S T BU S IN ESS P R ACT I CE THE E XPENDITURE S PILL E D O VER TO TH E NEX T YEA R AND WAS DEBITED IN THE S EC OND Y EA R A N D W AS A LL OWED BY THE A SS E SS ING OFFI CE R. THE A SSESS I NG OFFICER FOR THE ASSESS M E NT Y EA R IN Q U ES TI O N D I SA LL OWED R S .13 46 299 CL A I ME D AS EXPENDITURE OF PRIOR PER I OD A LL O W A BL E IN TH E CU R RENT YEAR . T H E COMMI SS I ONER (APPEALS) DELETED THE D I SA LL OW A NC E A ND TH I S W AS UPH E L D BY THE TR I BUNA L . ON A P PEA L TO THE HIGH COURT : - HE L D D I SM I S S I NG TH E APPEA L TH A T THE AS S ESSEE H A D CL A I M ED PRIOR PE RI O D E XP ENSES ON TH E GRO UN D THAT THE VOUCHERS FOR SUC H EXPENSES FROM THE EMP L OYEES / BRANCH EMPLOYEES WERE RECEIVED AFTER MARCH 31ST OF THE FINANCIAL YEAR . IT HAD BRANCH OFFICES THROUGHOUT THE COUNTRY. IT DEBITED THE EXPENDITURE SPILL OVER THE SUBSEQUENT YEARS AND THE ASSESSING OFFICER HAD BEEN ALLOWING IT IN 13 THE PAST . THE ACCOUNTING PRACTICE HA D BEEN CONSISTENTLY FOLLOWED BY IT AND ACCEPTED BY THE REVENUE . NOTHING HAD BEEN BROUGHT ON RECORD TO SHOW THAT THERE HAD BEEN D I STORTION OF PROFITS OR THAT THE BOOKS OF ACCO U NT D I D NOT REFLECT THE CORRECT P I CTURE . IN THE ABSENCE OF ANY REASON WHATSOE VER THE R E WAS NO WARRANT OR J U ST I F I CA TI ON TO DEPART F R OM THE PREVIOUS ACCO U N TI NG S Y ST EM WH I CH WAS ACCEP T ED BY THE DEPARTMENT I N RESPECT OF THE PREV I OUS YEA R S . / I 17 . TO CONC L UDE THE ASSESSING OFFICER HAS FAILED APPRECIATE THE ACTUA L FACTS BROUGH T O UT B Y ME IN PARAS 7 TO 9 BEFORE MAK I NG TH I S ADDITION AND AT THE SAME T I ME D I SREGA R DED T HE RU L E OF CONSISTENCY . I N V I EW OF THE ABOVE DISCUSSION THE ADDITION MADE RS. 42 41 9461 - BY THEASSESSING OFFICER IS HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FIND THAT AFTER GIVING DETAILED FINDINGS CIT(A) REACHED TO THE CONCL USION THAT ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF WEIGHTED AVERAGE COST FOR VALUATION OF CLOSING STOCK AND NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THERE HAS BEEN DISTORTION OF PROFITS OR THAT THE BOOKS OF ACCOUNT DID NOT REFLECT THE CORRECT PICTURE. IN THESE CIRCUMSTANCES THE CIT(A) CONCLUDED THAT THERE WAS NO WARRANT OR JUSTIFICATION TO DEPART FROM THE PREVIOUS ACCOUNTING SYSTEM WHICH WAS ACCEPTED BY THE DEPARTMEN T IN RESPECT OF EARLIER YEARS. THE DETAILED FINDINGS SO RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERTED BY THE LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. 14 ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) RESULTING INTO DELETION OF ADDITION MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK. 7. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 8. FACTS AND CIRCUMSTANCES IN THE AY 2009 - 10 ARE SAME. THE LD. CIT(A) AFTER RECORDING DETAILED FINDINGS IN PARA 3.16 TO 4.2 HAS DELE TED THE ADDITION WHICH HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. ACCORDINGLY FOLLOWING THE REASON ING GIVEN H EREIN ABOVE IN THE AY 2008 - 09 W E DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 9. IN THE RESULT BOTH THE APPEALS OF REVENUE ARE D ISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 1 9 / 1 0 /2016 . S D / - S D / - ( AMARJEET SINGH ) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 1 9 / 1 0 /2016 AG (ON TOUR) 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 15