GAUTAM HIRALAL GANDHI, MUMBAI v. JCIT CIR 18(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA RA O J.M. ITA NO. 499/MUM/2009 ASSESSMENT YEAR: 2005-06 GAUTAM HIRALAL GANDHI APPELLANT 104 TURF ESTATE SHAKTI MILL LANE OFF E MOSES ROAD MAHALAXMI MUMBAI 400 011. (PAN AABPG7684F) VS. JOINT COMMISSIONER OF INCOME-TAX RESPONDENT CIRCLE 18(2) MUMBAI. APPELLANT BY : MR. KAMALESH S. VIKAMSEY RESPONDENT BY : MRS. JYOTI LAXMI . ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- XVIII MUMBAI PASSED ON 17/09/2008 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NOS. 2 &3 HAVE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US THER EFORE THE SAME ARE DISMISSED AS NOT PRESSED. 4. GROUND NO. 4 IS IN RESPECT OF CHARGING OF INTERE ST U/S 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE THEREFOR E THE AO IS DIRECTED ACCORDINGLY. ITA NO. 499/M/2009 GAUTAM HIRALAL GANDHI 2 5. THE ONLY GROUND TO BE ADJUDICATED BY US IS GROUN D NO.1 WHICH IS AS FOLLOWS:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN ADDING THE AMOUNT OF EXCISE DUTY OF RS. 73 19 623/- TO VALUE OF CLOSING STOCK R ESULTING INTO INCREASED TOTAL INCOME. THE LEARNED CIT(A) HAS ERRE D IN CONFIRMING THE ACTION OF THE AO HOWEVER THE CIT(A ) DIRECTED THAT THE SIMILAR TREATMENT BE GIVEN TO OPENING STOCK ALS O. THE AO BE DIRECTED TO DELETE THE ADDITION OF EXCISE ELEMENT I N CLOSING STOCK OF RS. 73 19 623/- AND REDUCE THE TOTAL INCOME ACCO RDINGLY AND ALSO REDUCE THE DEDUCTION ALLOWED UNDER SECTION 80I B ACCORDINGLY. 6. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAD NOT INCLUDED EXCISE DUTY IN THE VALUATION OF INVENTORIE S RELYING ON THE GUIDELINES ISSUED BY THE ICAI AS PER ACCOUNTING STA NDARD 2. THE AO WAS OF THE VIEW THAT AS PER PROVISION OF SECTION 14 5A FROM 01/08/99 IT IS COMPULSORY TO INCLUDE ANY TAX DUTY CESS OR FEES ACTUALLY PAID/INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION ETC. THE AO NOTICED THAT THE ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING OF EXCISE DUTY AS PER THE GUID ELINES OF THE ICAI WHICH IS NOT BINDING ON THE DEPARTMENT AS THE PROVI SION STANDS AMENDED AFTER THE HONBLE SUPREME COURTS DECISION IN THE CASE OF M/S INDO-NIPPON. THE AO ALSO RELIED UPON THE DECISI ONS IN THE CASE OF DCIT VS. OIL REFINERY AND IN THE CASE OF M/S WEST C OAST PAPER MILLS LTD. VS. ACIT. 7. ON APPEAL THE CIT(A) HELD THAT THE WORKING OF T HE AO IN RESPECT OF ADDITION OF RS. 73 19 623/- IS CORRECT BUT HOWEV ER THE SIMILAR TREATMENT IS ALSO LIABLE TO BE GIVEN TO OPENING STO CK. HE DIRECTED THE AO TO PROVIDE A SIMILAR TREATMENT AT PAR TO THE OPE NING STOCK OF THE ASSESSEE ALSO. 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSEE HAS TO CONSIDER PURCHASE AND SALE OF OPENI NG BALANCE AS WELL AS CLOSING BALANCE. ITA NO. 499/M/2009 GAUTAM HIRALAL GANDHI 3 9. ON THE OTHER HAND THE LEARNED DR HAS SUPPORTED THE ORDERS OF REVENUE AUTHORITIES. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVE RED BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. 297 ITR 77 (DELHI) WHEREIN THE HON BLE DELHI HIGH COURT HAS OBSERVED THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY THIS WILL AFFECT BOTH THE O PENING AS WELL AS THE CLOSING STOCK. IF ANY ADJUSTMENT WAS REQUIRED TO BE MADE BY A STATUTE EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CO NSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145 A BEGINS WITH A NON-ABSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SECTION 145A IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MARCH 31 1999 THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1 1998. THUS THE QUESTION OF DO UBLE DEDUCTION DID NOT ARISE SINCE NO ADJUSTMENT WAS MADE BY THE ASSES SEE IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING MARH 31 1998 . 11. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. 297 IT R 77 (DELHI) WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO RE- COMPUTE THE VALUATION OF CLOSING STOCK BY TAKING IN TO CONSIDERATION THE OPENING AND CLOSING BALANCES OF PURCHASES AND S ALES AND AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE MATTER. ITA NO. 499/M/2009 GAUTAM HIRALAL GANDHI 4 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 25 TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV ITA NO. 499/M/2009 GAUTAM HIRALAL GANDHI 5