PJL CLOTHING INDIA LTD, MUMBAI v. ADDLCIT RG 7(1), MUMBAI

ITA 4940/MUM/2011 | 2006-2007
Pronouncement Date: 11-04-2014 | Result: Allowed

Appeal Details

RSA Number 494019914 RSA 2011
Assessee PAN AAACP2782R
Bench Mumbai
Appeal Number ITA 4940/MUM/2011
Duration Of Justice 2 year(s) 9 month(s) 19 day(s)
Appellant PJL CLOTHING INDIA LTD, MUMBAI
Respondent ADDLCIT RG 7(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 11-04-2014
Date Of Final Hearing 23-12-2013
Next Hearing Date 23-12-2013
Assessment Year 2006-2007
Appeal Filed On 22-06-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI R.C.SHARMA A M & DR.STM PAV A LAN J M ITA NO. 49 40 / MUM/20 11 ( ASSESSMENT YEAR : 200 6 - 07 ) M/S PJL CLOTHING (INDIA) LTD. LEFT SIDE 2 ND FLOOR KRISHNA HOUSE RAGHUVANSHI MILLS COMPOUND SENAPATI BAPAT MARG LOWER PAREL (W) MUMBAI - 400 013 VS. A DCIT RANGE - 7 (1) MUMBAI PAN/GIR NO. : A A AC P 2782 R ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : M S . VASANTI B. PATEL /REVENUE BY : MR. M.L.PERUMAL DATE OF HEARING : 2 ND APRIL 201 4 DATE OF PRONOUNCEMENT : 11 TH APRIL 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 21 - 1 - 2011 FOR THE ASSESSMENT YEAR 200 6 - 0 7 IN THE MATTER OF ORDER P ASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING OF GARMENTS. DURING THE COURSE OF SCRUTINY ASSESSMENT THE AO MADE ADDITION B Y DISREGARDING THE VALUATION OF CLOSING STOCK. HOWEVER THE CIT(A) HAS FURTHER ENHANCED THE ASSESSMENT. BEFORE THE CIT(A) IT WAS CONTENDED THAT ASSESSEE IS IN AGREEMENT FOR ADOPTING THE COMPUTATION ITA NO. 4940 / 11 2 METHOD AS MADE BY THE AO IN THE ASSESSMENT YEAR 2007 - 08 WI TH RESPECT TO VALUATION OF STOCKS I.E. AT AVERAGE COST . ACCORDINGLY THE VALUATION OF OPENING/CLOSING STOCK WAS REWORKED OUT BY THE ASSESSEE FOR AY 2006 - 07 IN THE SAME MANNER AS ADOPTED BY THE DEPARTMENT IN THE ASSESSMENT ORDER FOR A.Y.2007 - 08 AND THE DETA ILS OF THE SAME WERE ALSO FILED BEFORE THE CIT(A) . IT WAS REQUESTED TO THE CIT(A) TO TAKE THE SAME ON RECORD AND ACCEPT THE REVISED AND REWORKED COMPUTATION OF THE VALUATION OF INVENTORIES FOR A.Y.2006 - 07. THE CIT(A) STATED THAT THE ASSESSEE HAS AGREED WIT H THE METHOD OF VALUATION ADOPTED BY THE AO DURING THE ASSESSMENT PROCEEDINGS FOR A.Y.2007 - 08. IN THE ANNEXURE - A APPENDED WITH ITS REPLY THE ASSESSEE HAS GIVEN A WORKING OF VALUATION OF CLOSING STOCK AS WELL AS OPENING STOCK ON THE SAME METHOD. THE CIT(A) OBSERVED THAT AS PER REVISED WORKING OF VALUATION OF STOCK A NET ADDITION OF RS. 68 02 926/ - IS WARRANTED IN THIS CASE TO WHICH THE ASSESSEE HAS AGREED. THE CIT(A) ALSO CALLED FOR A REMAND REPORT WHEREIN THE AO HAS SUGGESTED TO FOLLOW THE VALUATION ITEMS M ENTIONED AT AVERAGE COST (IRRESPECTIVE OF DIFFERENT PRICES FOR DIFFERENT STYLES WITHIN THE ITEM) WHICH WAS ADOPTED BY THE AO IN ASSESSMENT YEAR 2007 - 08. AGAINST THE IMPUGNED ORDER OF CIT(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSI DERED RIVAL CONTENTIONS AND FOUND THAT THE AO HAS ADDED RS.3 11 67 958/ - TOWARDS THE UNDER VALUATION OF S TOCK BEING THE DIFFERENCE BETWEEN THE NET AMOUNT OF INCREASE IN THE VALUE OF CLOSING STOCK MINUS THE INCREASE IN THE VALUE OF THE OPENING STOCK. ITA NO. 4940 / 11 3 THE A.O. ON THE ISSUE OF VALUATION OF STOCK APPLIED THE COST PRICE PER UNIT WHICH WAS SALE PRICE AS REDUCED BY GROSS PROFIT MARGIN & ARRIVED AT THE FIGURES OF ADDITION OF RS.3 11 67 958/ - . 4 . IN APPEAL BEFORE THE CIT(A) THE ASSESSEE COMPANY REPRESENTED THAT SINCE THE GROSS MARGIN ON DIFFERENT CATEGORY OF PRODUCTS DIFFER IT IS NOT CORRECT TO VALUE THE STOCK BY DEDUCTING THE AVERAGE MARGIN FROM THE PER UNIT AVERAGE SALE PRICES OF DIFFERENT CATEGORIES OF PRODUCTS TO ARRIVE AT PER UNIT MANUFACTURING COST. THE WO RKING W HERE OPENING/CLOSING STOCK WAS VALUED BY ADOPTING THE AVERAGE RATE AND APPLYING THE AVERAGE RATE TO THE QUANTITIES OF STOCK VALUED BY CO. AT NET REAL ISABLE VALUE FILED WITH AO. THE WORKING OF THE CO. WAS ACCEPTED WITH THE NET ADDITION OF RS. 68 02 926/ - . HOWEVER THE CIT(A) DID NOT GIVE THE BENEFIT OF INCREASE IN OPENING STOCK OF A.Y.2006 - 07 WHICH WAS WORKED OUT BY THE AO AT AVERAGE COST AND ENHANCED THE ADDITION TO RS. 6 14 64 078/ - . 5 . THE CONTENTION OF THE LEARNED AR WAS THAT THE CIT(A) HAS E NHANCED THE INCOME WITHOUT GIVING SHOW CAUSE NOTICE OF SUCH ENHANCEMENT. AS PER LEARNED AR FOR CIT(A) S POWER OF ENHANCEMENT IS SUBJECT TO LIMITATION AS PROVIDED UNDER SECTION 251(2) OF THE ACT AND SUCH POWER CAN BE EXERCISED ONLY IF SHOW CAUSE WAS GIVEN IN THAT REGARD. ON MERITS IT WAS ARGUED THAT THE CIT(A) WAS NOT JUSTIFIED IN NOT GIVING BENEFIT OF CORRESPONDING ADJUSTMENT OF RS. 5 46 61 152/ - TO BE MADE TO THE OPENING STOCK OF THE ASSESSMENT YEAR 2006 - 07 I.E. THE ITA NO. 4940 / 11 4 OPENING STOCK SHOULD ALSO BE VALUED IN THE SAME MANNER AS THE CLOSING STOCK. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ADDITION WAS MADE BY THE AO TOWARDS VALUATION OF STOCK. THE AO HAS APPLIED COST PRIC E PER UNIT WHICH WAS SALE PRICE AS REDUCED BY GROSS PROFIT MARGIN AND ARRIVED AT A FIGURE OF ADDITION. SINCE THE GROSS MARGIN OF D IFFERENT CATEGORY OF PRODUCTS DIFFER IT IS NOT CORRECT TO VALUE THE STOCK BY DEDUCTING THE AVERAGE GROSS PROFIT MARGIN FROM T HE PER UNIT AVERAGE SALES PRICES OF VARIOUS CATEGORIES OF PRODUCTS TO ARRIVE AT PER UNIT MANUFACTURING COST. FROM THE RECORD WE ALSO FOUND THAT IN THE ASSESSMENT YEAR 2007 - 08 THE AO HAS FRAMED ASSESSMENT UNDER SECTION 143(3) WHEREIN THE AO MADE THE REWO RKING WHERE OPENING/CLOSING STOCK VALUED BY ADOPTING THE AVERAGE RATE AND APPLIED THE AVERAGE RATE TO THE QUANTITIES OF STOCK VALUED BY CO. AT NET REALIZABLE VALUE. IN APPEAL BEFORE THE CIT(A) WITH REGARD TO THE GROUND TAKEN FOR ADDITION OF RS. 3 17 72 533 / - TOWARDS SUPPRESSION OF THE VALUE OF STOCK WAS WITHDRAWN BY THE ASSESSEE BY ACCEPTING THE ADDITION MADE BY THE AO. IN THE ASSESSMENT YEAR 2008 - 09 SCRUTINY ASSESSMENT WAS FRAMED UNDER SECTION 143(3) WHEREIN THE ASSESSEE COMPANY HAS ACCEPTED THE REWORKIN G OF OPENING/CLOSING STOCK AT AVERAGE COST AND ACCEPTED THE ADDITION OF RS. 70 84 114/ - . LIKEWISE IN THE ASSESSMENT YEAR 2009 - 10 FRAMED UNDER SECTION 143(3) THE ASSESSEE HAS REVISED RETURN OF INCOME DUE TO REWORKING OF THE ITA NO. 4940 / 11 5 OPENING/CLOSING STOCK AT AVERAGE COST. SIMILARLY IN ASSESSMENT YEAR 2010 - 2011 ASSESSEE HAS REVISED RETURN OF INCOME DUE TO REWORKING ON OPENING/CLOSING STOCK AT AVERAGE COST. 7 . IN VIEW OF THE ABOVE CONSISTENT APPROACH OF DEPARTMENT AS DISCUSSED ABOVE THE ENTIRE MATTER IS RESTORED TO THE FILE OF THE AO FOR REWORKING OF OPENING/CLOSING STOCK AT AVERAGE COST AND FOR DECIDING THE MATTER AFRESH AS PER LAW . NEEDLESS TO SAY THAT BEFORE DECIDING THE APPEAL ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY. 8 . IN THE RESULT APPEAL FILED BY THE ASS ESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH APRIL . 201 4 . 11 TH APRIL 2014 SD / - SD/ - ( ) ( DR. S.T.M.PAV A LAN ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 11 /04 /2014 /PKM PS COPY OF THE ORDER FORWARDED TO : / BY ORDER ( ASSTT. REG ISTRAR) 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) MUMBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY// ITA NO. 4940 / 11 6 / ITAT MUMBAI