Wasan Exports (P) Ltd., New Delhi v. DCIT, New Delhi

ITA 898/DEL/2010 | 2005-2006
Pronouncement Date: 20-08-2010 | Result: Allowed

Appeal Details

RSA Number 89820114 RSA 2010
Assessee PAN AAACW0159P
Bench Delhi
Appeal Number ITA 898/DEL/2010
Duration Of Justice 5 month(s) 17 day(s)
Appellant Wasan Exports (P) Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 20-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 20-08-2010
Date Of Final Hearing 06-07-2010
Next Hearing Date 06-07-2010
Assessment Year 2005-2006
Appeal Filed On 04-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `I : NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER I.T.A.NO.898/DEL/2010 ASSESSMENT YEAR : 2005-06 WASAN EXPORTS (P) LTD. DY. COMMISSIONER OF INC OME-TAX 5 ARADHNA ENCLAVE VS. CIRCLE 18(1) NEW DELHI. R.K. PURAM RING ROAD NEW DELHI. PAN: AAACW0159P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K APIL GOEL CA. RESPONDENT BY : MS. ANUS HA KHURANA SR. DR. O R D E R PER C.L. SETHI JUDICIAL MEMBER. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 0 7.12.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PE RTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DIRECTED AGAINST THE CIT(A)S ORDER IN SUSTAINING THE ADDITION MADE BY T HE ASSESSING OFFICER TO THE EXTENT OF RS.26 50 356/- ON THE FOLLOWING 2 COU NTS:- (1) DISALLOWANCE OF EXPENSES OF RS.6 70 160/- OUT OF TH E TOTAL EXPENSES OF RS.9 35 031/- DISALLOWED BY THE AO. 2 (2) CONFIRMING THE ADDITION OF RS.19 80 196/- ON ACCOUN T OF VALUATION OF CLOSING STOCK. 3. RELEVANT FACTS GIVING RISE TO THE ISSUE INVOLVED ARE STATED AS UNDER IN THIS CASE THE ASSESSEE FILED ITS RETURN OF INCOM E ON 31.10.2005 DECLARING A TOTAL LOSS OF RS.16 53 701/-. THE CAS E WAS SELECTED FOR SCRUTINY AND NOTICES UNDER SECTION 143(2) DATED 10.07.2006 F IXING THE CASE FOR 27.07.2006 WAS ISSUED AD SERVED UPON THE ASSESSEE. IN RESPONSE THERETO AN ADJOURNMENT WAS SOUGHT FOR BY ONE MR. JAGROOP. SUB SEQUENTLY THE AO ISSUED A QUESTIONNAIRE DATED 03.05.2007 ALONG WITH STATUTORY NOTICES UNDER SECTION 143(2)/142(1) FIXING THE MATTER FOR 17.05.2 007. AGAIN AN ADJOURNMENT WAS SOUGHT FOR. THE MATTER WAS FURTHER ADJOURNED AND FINALLY THE CASE WAS FIXED FOR HEARING ON 26.12.2007. HOWE VER NO COOPERATION WAS RECEIVED BY THE AO FROM THE ASSESSEE AND THEREFORE THE AO PROCEEDED TO MAKE THE ASSESSMENT EX PARTE UNDER SECTION 144 ON T HE BASIS OF MATERIAL AVAILABLE ON RECORD. IN THE ASSESSMENT THE ASSESS EES CLAIM OF EXPENSES OF RS.9 35 031/- DEBITED TO THE PROFIT & LOSS ACCOUNT WAS DISALLOWED BY THE AO BY OBSERVING THAT NO BUSINESS ACTIVITY WAS CARRI ED OUT BY THE ASSESSEE FOR THIS YEAR AND HENCE THE EXPENDITURE INCURRED WERE NOT LAID OUT FOR THE PURPOSE OF BUSINESS. THE AO ALSO REVALUED THE STOC K AND FOUND THAT THE ASSESSEE REVALUED THE STOCK ON LOWER SIDE TO THE EX TENT OF RS.19 80 196/- WHICH WAS DISALLOWED BY THE AO. 3 4. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 5. BEFORE THE LEARNED CIT(A) THE ASSESSEE FILED CE RTAIN ADDITIONAL EVIDENCES UNDER RULE 46A IN RESPECT OF WHICH A REMA ND REPORT WAS CALLED FOR FROM THE ASSESSING OFFICER. THE REMAND REPORT GIVEN BY THE AO HAS BEEN REPRODUCED BY THE LEARNED CIT(A) IN PARA 4 OF HIS ORDER. 6. IN RESPECT OF THE REMAND REPORT GIVEN BY THE AO THE ASSESSEE FILED A REJOINDER CONTENDING THAT WHATEVER EVIDENCES HAVE B EEN FILED BEFORE THE CIT(A) ARE ONLY THE ARGUMENTS AND DETAILS WHICH HAV E ALREADY BEEN PLACED ON RECORD OF THE AO. 7. AFTER CONSIDERING THE REMAND REPORT AND ASSESSEE S SUBMISSION THE CIT(A) ADMITTED THE EVIDENCES BY OBSERVING THAT THE ASSESSEE HAS NOT ACTUALLY ADDUCED ANY FRESH EVIDENCE AS ENVISAGED UN DER RULE 46A OF THE INCOME-TAX RULES BUT IT IS THE REJOINDER OF THE SU BMISSIONS THAT WERE MADE BEFORE THE AO. HOWEVER THE CIT(A) WAS OF THE VIEW THAT THE AO HAS RIGHTLY COMPLETED THE ASSESSMENT UNDER SEC. 144 AS ON SEVERAL OCCASIONS THE ASSESSEE FAILED TO COMPLY WITH THE NOTICES OF HEARI NG ISSUED BY THE AO. 8. WITH REGARD TO THE DISALLOWANCE OF EXPENSES OF R S.9 35 031/- THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE BUSIN ESS OF THE ASSESSEE WAS NOT COMPLETELY CLOSED BUT WAS TEMPORARILY SUSPENDED DUE TO VARIOUS REASONS 4 I.E. ADVERSE BUSINESS CONDITIONS NON-REALIZATION O F SALES PROCEEDS FROM ITS CUSTOMERS LEADING TO EROSION OF WORKING CAPITAL IN ABILITY TO PAY BACK BANK LOAN FREEZING OF ALL BANK ACCOUNTS AND DECLARING T HE BANK ACCOUNTS AS NON- PERFORMING ASSET BY THE BANKERS. IT WAS ALSO POIN TED OUT THAT THE COMPANY WENT INTO LITIGATION WITH ITS CUSTOMERS FOR RECOVER Y OF ITS DUES AND SOME COURT CASES WERE EVEN DECIDED IN FAVOUR OF THE ASSE SSEE AND RECOVERY OF THE AMOUNT WAS PENDING. IT WAS FURTHER STATED THAT THE COMPANY WAS IN THE PROCESS OF REGAINING ITS POSITION IN THE MARKET BY REALIZING SALE PROCEEDS AND BY CLEARING BANK DUES SO THAT NPA STATUS ASSIGNED TO THE ASSESSEE COULD BE REMOVED. IN THESE CIRCUMSTANCES IT WAS CONTENDED THAT THE AO WAS UNJUSTIFIED IN SAYING THAT THE COMPANY WAS NOT PURS UING THE BUSINESS DURING THE YEAR. IT WAS FURTHER CONTENDED THAT THE OBSERV ATION OF THE AO THAT IN ORDER TO HOLD THAT THE BUSINESS WAS IN EXISTENCE IN ANY YEAR IT WAS NECESSARY TO EARN PROFIT IS ERRONEOUS AND NOT A CORRECT VIEW IN THE LIGHT OF THE VARIOUS DECISIONS ON THE ISSUE. IT THUS CLARIFIED THAT IN EVERY BUSINESS AND AT ALL THE TIMES ONE CANNOT EARN PROFIT AND AT SOME STAGE OR PHASE MERELY EVERY BUSINESS GIVES LOSSES OR GOES THROUGH THE LULL PERI OD. IT WAS ALSO CONTENDED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THOU GH THE ASSESSEE COULD NOT MAKE ANY SALES BUT THE ASSESSEE TRIED TO INCREASE I TS EARNINGS BY WAY OF MACHINE HIRE CHARGES AND BY PUTTING SERIOUS EFFORTS TO RECOVER ITS DUES SO 5 THAT THE ASSESSEE CAN RESUME MANUFACTURING ACTIVITI ES IN THE NEAR FUTURE. IT WAS THUS CONTENDED THAT TAKING ALL THESE FACTS TOGE THER IT IS ESTABLISHED THAT THE ASSESSEE WAS IN BUSINESS IN THE RELEVANT YEAR A ND HAS NOT GONE OUT OF IT. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND AS SESSING OFFICERS ORDER THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE OF EX PENSES TO THE EXTENT OF RS.6 70 160/- OUT OF THE TOTAL DISALLOWANCE OF RS.9 35 031/- MADE BY THE AO. THE LEARNED CIT(A) DISALLOWED ALL THE OTHER EXPENSE S OTHER THAN THE CLAIM OF DEPRECIATION WHICH HAS BEEN ALLOWED IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAD SHOWN AN INCOME OF RS.4 86 979/- BY WAY OF HIRE CHARGES OF PLANT AND MACHINERY WHICH HAS BEEN CONSIDERED AS BUSINESS INC OME BY THE AO. THE OTHER EXPENSES IN THE NATURE OF SALARY ELECTRICITY EXPENSES CONSUMABLE PURCHASE TRAVELLING AND CONVEYANCE LEGAL AND PROF ESSIONAL CHARGES CURRENT REPAIR AND MAINTENANCE AND PAYMENT TO AUDITORS WER E HOWEVER DISALLOWED BY THE CIT(A). HENCE THE ASSESSEE IS IN APPEAL BE FORE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERA TED ALL THE SUBMISSIONS AND CONTENTIONS THAT WERE MADE BEFORE THE LEARNED C IT(A) AND SINCE THE ASSESSEES CONTENTION BEFORE THE CIT(A) HAS BEEN EL ABORATELY DISCUSSED ABOVE THE SAME ARE NOT REPEATED HERE FOR THE SAKE OF BREVITY. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE AOS ORDER AS W ELL AS THE CIT(A)S ORDER IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS.6 70 160/-. 6 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOT H THE PARTIES AND HAVE CAREFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD. 11. IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HA S CLAIMED EXPENSES OF RS.9 35 031/- REPRESENTING VARIOUS EXPENSES OF REVE NUE IN NATURE SUCH AS SALARY ELECTRICITY EXPENSES CONSUMABLE PURCHASE TRAVELLING AND CONVEYANCE LEGAL AND PROFESSIONAL CHARGES CURRENT REPAIR AND MAINTENANCE AND PAYMENT TO AUDITORS. 12. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXP ORT OF LEATHER LEATHER SHOES LEATHER SHOE-UPPERS ETC. THE ASSESSEE COMPA NY HAD ALSO TAKEN WORKING CAPITAL FACILITIES FROM THE BANK. DUE TO N ON-PAYMENT OF DUES PAYABLE TO THE BANK THE BANK MARKED THE ASSESSEE A S NON-PERFORMING ASSET (NPA). THE ASSESSEES BUSINESS WAS ADVERSELY AFFEC TED AND WAS AT A TEMPORARY HALT DUE TO VARIOUS REASONS SUCH AS ADVER SE BUSINESS CONDITIONS NON-REALIZATION OF DUES FROM CUSTOMERS LEADING TO E ROSION OF WORKING CAPITAL AND INABILITY OF THE ASSESSEE TO PAY BACK BANK LOAN ETC. THE ASSESSEE ALSO WENT INTO LITIGATION WITH ITS CUSTOMERS FOR RECOVER Y OF ITS DUES. DURING THE YEAR THE ASSESSEE HAS CLAIMED DEPRECIATION AMOUNTIN G TO RS.2 82 871/- ON BUILDING FURNITURE PLANT & MACHINERY GENERATOR OFFICE EQUIPMENT COMPUTER AND VEHICLE WHICH WAS REDUCED TO RS.2 12 424/- AS PER DEPRECIATION ALLOWABLE UNDER THE INCOME-TAX ACT. THE DEPRECIATION 7 CLAIMED BY THE ASSESSEE HAS BEEN ALLOWED BY THE LEA RNED CIT(A). THE ASSESSEE HAS SHOWN THE FOLLOWING INCOME DURING THE YAR:- (1) DIVIDEND FROM SHARES RS. 975/- (2) JOB CHARGES RECEIVED RS. 30 099/- (3) MACHINE HIRE CHARGES RS.3 00 000/- (4) DEFERRED TAX INCOME RS. 30 575/- (5) SUNDRY BALANCE WRITTEN OFF RS.1 25 330/- ----------------- TOTAL RS.4 86 979/- ----------------- THE AFORESAID INCOME OF RS.4 86 979/- HAS BEEN INCL UDED IN THE TOTAL INCOME ASSESSED BY THE AO. THE ASSESSMENT FOR SUBSEQUENT ASSESSMENT YEAR 2006- 07 HAS BEEN COMPLETED UNDER SECTION 143(3) OF THE A CT VIDE ORDER DATED 16.12.2008 WHERE THE ASSESSMENT WAS MADE DETERMININ G THE TOTAL INCOME UNDER SEC. 115JB AT RS.84 84 037/- AS TAX ON REGUL AR INCOME AS PER NORMAL PROVISIONS OF THE INCOME-TAX ACT AMOUNTING TO RS.14 08 509/- WAS LESS THAN THE TAX CHARGEABLE UNDER SEC. 115JB OF THE ACT. IN THE ASSESSMENT YEAR 2006-07 NO DISALLOWANCE OF BUSINESS EXPENSES HAS BE EN MADE BY THE AO. IT THUS MAKES IT CLEAR THAT THE AO HAS ACCEPTED THE PO SITION THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN ASSESSMENT YEAR 2006-07 WHICH GOES TO SHOW THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT Y EAR 2005-06 WHICH IS UNDER CONSIDERATION THERE WAS A TEMPORARY SUSPENSI ON OF BUSINESS ACTIVITY. IT IS WELL SETTLED THAT DURING THE TEMPORARY SUSPEN SION OR LULL PERIOD OF ANY BUSINESS IT CANNOT BE SAID THAT THE BUSINESS HAS B EEN DISCONTINUED FOR ALL 8 TIMES TO COME. IN THE LIGHT OF THE FACTS AND CIRCU MSTANCES OF THE CASE WE FIND THAT THE PRESENT CASE IS A CASE WHERE THE ASSE SSEE HAS NOT GONE OUT OF THE BUSINESS BY SELLING ITS BUSINESS ASSETS OR LETTING THEM OUT FOR ALL TIMES TO COME BUT IT IS A CASE OF TEMPORARY SUSPENSION OF BU SINESS ACTIVITIES DUE TO COMPELLING CIRCUMSTANCES. IN THE CASE OF L. VE. VA IRAVAN CHETTIAR VS. CIT (1969) 72 ITR 114 (MAD.) THE HONBLE MADRAS HIGH CO URT HAS TAKEN A VIEW THAT IT IS NOT NECESSARY THAT A BUSINESS TO BE IN E XISTENCE SHOULD HAVE WORKED ALL THE TIME. THERE MAY BE LONG INTERVAL OF ACTIVI TY AND A CONCERN MAY STILL BE A GOING CONCERN THOUGH IT MAY FOR SOMETIME BE QU ITE AND DORMANT. IN THAT CASE AS THE ASSESSEE WAS MAINTAINING THE ESTA BLISHMENT AND WAS WAITING FOR IMPROVED MARKET CONDITIONS IN ARECANUTS AND THE RE WAS NOTHING SO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER THE BUSINESS MUST BE DEEMED TO BE CONTINUING. APPLYING THE SAID PRINCIPLE TO THE PRESENT CASE IN HAND WE HOLD THAT HAVING REGARD TO THE FAC TS AND CIRCUMSTANCES OF THE PRESENT CASE THE ASSESSEES BUSINESS MUST BE D EEMED TO BE CONTINUING INASMUCH AS THE ASSESSEE HAS NOT COMPLETELY ABANDON ED OR CLOSED ITS BUSINESS ACTIVITIES BUT WAS UNDER COMPULSION TO SUS PEND THE BUSINESS ACTIVITIES DUE TO COMPELLING CIRCUMSTANCES. IT WA S NOT NECESSARY THAT ALL THE BUSINESS ACTIVITIES SHOULD BE CARRIED ON IN ALL THE YEARS. WHAT IS RELEVANT IS TO SEE AS TO WHETHER THE ASSESSEE HAS COMPLETELY AB ANDONED OR CLOSED THE 9 BUSINESS OR WHETHER IT WAS MERELY A LULL PERIOD. I N THE CASE OF THE BUSINESS HAVING A LULL PERIOD IT CANNOT BE SAID THAT THE BU SINESS HAD COMPLETELY CLOSED OR DISCONTINUED. SIMILARLY IN THE CASE OF C IT VS. VIKRAM COTTON MILLS LTD. (1988) 169 ITR 597 THE ASSESSEE WAS HEL D TO BE CONTINUED IN BUSINESS WHEN DUE TO HEAVY LOSSES THE MANUFACTURIN G ACTIVITY WAS PUT TO HALT AND COMPANY HAD GIVEN ITS PLANT AND MACHINERY ON LEASE FOR 10 TO 19 YEARS WITH AN INTENT TO REVIVE THE BUSINESS. THE R ELEVANT PORTION FROM THIS JUDGMENT IS AS UNDER:- IN SUCH A CIRCUMSTANCE IT CANNOT BE SAID THAT N O BUSINESS WAS CARRIED ON AND THEIR INCOME DERIVED FROM THE MA CHINE LETTING WAS ONLY A RENTAL INCOME. THERE WAS A TEMP ORARY SUSPENSION OF BUSINESS FOR A TEMPORARY PERIOD WITH THE OBJECT OF TIDING OVER THE CRISES CONDITION. THERE WAS NEVER ANY ACT INDICATING THAT THE ASSESSEE NEVER INTENDED TO CARR Y ON THE BUSINESS. 13. IN THE PRESENT CASE BEFORE US THE DEPARTMENT H AS NOT BROUGHT ANY MATERIAL OR EVIDENCE TO INDICATE THAT THE ASSESSEE NEVER INTENDED TO CARRY ON THE BUSINESS IN SUBSEQUENT YEAR RATHER IN THE SUBSE QUENT ASSESSMENT YEAR ALL THE BUSINESS EXPENSES HAVE BEEN ALLOWED BY THE AO B Y MAKING AN ASSESSMENT UNDER SEC. 143(3) OF THE ACT. MOREOVER DEPRECIATION ON VARIOUS ASSETS HAS BEEN ALLOWED BY THE CIT(A) AGAINST WHICH DEPARTMENT HAS NOT FILED ANY APPEAL AND FOR THAT REASON THE TOTAL DISA LLOWANCE OF RS.9 35 031/- MADE BY THE AO HAS BEEN REDUCED TO RS.6 70 160/- BY THE CIT(A). WHEN 10 THE DEPRECIATION HAS BEEN ALLOWED ON ASSETS HELD AN D USED FOR THE PURPOSE OF BUSINESS THE QUESTION OF DISALLOWING OTHER EXPENSE S DOES NOT ARISE INASMUCH AS IT HAS BEEN ADMITTED THAT LETTING OUT THE PLANT AND MACHINERY FOR A TEMPORARY PERIOD WAS A BUSINESS INCOME AGAINST WHIC H DEPRECIATION WAS ALSO ALLOWED. WE THEREFORE HOLD THAT ALL OTHER EX PENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT ARE TO BE ALLOWED AS BUSINESS EXPENS ES INASMUCH AS THE ASSESSEE HAS NOT GONE OUT OF THE BUSINESS IN THE YE AR UNDER CONSIDERATION. 14. COMING TO THE MERIT OF THE ALLOWABILITY OF VARI OUS EXPENSES WE FIND THAT THESE EXPENSES ARE NORMAL EXPENSES INCURRED DU RING THE COURSE OF CARRYING ON BUSINESS AND NECESSARY EVIDENCES HAVE BEEN FILED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. THE ASSESSE ES BOOKS OF ACCOUNT WERE ALSO AUDITED AND NOTHING ADVERSE WAS DETECTED BY TH E AO OR BY THE LEARNED CIT(A) WHILE EXAMINING THE SAME. WE THEREFORE HOL D THAT OTHER EXPENSES WHICH HAVE BEEN DISALLOWED BY THE AO AND SUSTAINED BY THE CIT(A) ARE TO BE ALLOWED AS DEDUCTION. WE ORDER ACCORDINGLY. TH E AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 15. NEXT ISSUE IS WITH REGARD TO THE VARIATION OF C LOSING STOCK. 16. IN THIS CASE THE ASSESSEE HAS REVALUED THE OPEN ING STOCK AS ON 1 ST APRIL 2004 AMOUNTING TO RS.1 83 81 266/- TO RS.1 64 01 07 0/- BEING THE MARKET VALUE OF CLOSING STOCK AS ON 31.03.2005. THUS THE RE WAS A REDUCTION IN THE 11 VALUE OF STOCK TO THE EXTENT OF RS.19 80 196/- AS C OMPARED TO THE VALUE OF OPENING STOCK AS ON 1 ST APRIL 2004 WITH THE VALUE OF CLOSING STOCK AS ON 31.3.2005. THE AO DISALLOWED THE REDUCTION IN THE VALUE OF CLOSING STOCK BY SAYING THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVI DE ANY EVIDENCE FOR CLAIM OF LOSS IN REVALUATION OF STOCK AND EVEN HAS NOT FU RNISHED ANY VALUERS REPORT. 17. ON AN APPEAL THE CIT(A) CONFIRMED THE AOS ACTI ON BY AGREEING WITH THE FINDINGS OF THE AO THAT THE ASSESSEE HAS NOT PR ODUCED ANY EVIDENCE IN SUPPORT OF REDUCTION IN THE VALUATION OF CLOSING ST OCK OR HAS FAILED TO FURNISH ANY VALUERS REPORT IN THAT REGARD. STILL AGGRIEVE D THE ASSESSEE IS IN APPEAL BEFORE US. 18. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE ITEMS OF CLOSING STOCK WERE LYING WITH THE ASSESSEE COMPANY FOR ABOUT LAST 8 TO 10 YEARS AND EVEN IF THEY ARE MAINTAINED PROPERLY CO NDITION AND VALUE OF MATERIAL IS BOUND TO GET DETERIORATED. THEREFORE THE ASSESSEE VALUED THE INVENTORIES AS PER ACCOUNTING NORMS BY ADOPTING THE METHOD OF VALUING THE CLOSING STOCK AT LOWER OF COST OR MARKET VALUE AND THE MANAGEMENT BEING WELL CONVERSANT WITH THE QUALITY OF STOCK HAS DETE RMINED THE VALUE OF THE CLOSING STOCK EVERY YEAR AT NET REALIZATION VALUE B EING THE LOWER OF THE COST PRICE TO THE ASSESSEE. HE FURTHER POINTED OUT THAT IT IS NOT ONLY IN THE YEAR 12 UNDER CONSIDERATION THE VALUE OF THE STOCK HAS BEE N REDUCED BUT THE ASSESSEE COMPANY HAS BEEN DOING IT IN THE PAST ALSO. HE THE REFORE SUBMITTED THAT THE ASSESSEE HAS TAKEN THE VALUE OF CLOSING STOCK AS PE R THE ACCOUNTING NORMS REGULARLY FOLLOWED BY THE ASSESSEE IN THE PAST. IT WAS THEREFORE CONTENDED THAT THE AUTHORITIES BELOW WERE VERY MUCH NOT JUSTI FIED IN REJECTING THE ASSESSEES VALUATION OF CLOSING STOCK AND TAKING T HE VALUE OF CLOSING STOCK AS ON 31.03.2005 AS EQUAL TO THE VALUE SHOWN AS ON 1 ST APRIL 2004. IT WAS THUS CONTENDED THAT THE DISALLOWANCE SO MADE BY THE AO A ND FURTHER CONFIRMED BY THE CIT(A) IS TO BE DELETED. 19. THE LEARNED DR ON THE OTHER HAND REITERATED TH E AOS CONTENTIONS TO SUBMIT THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTAB LISH THAT THE VALUATION MADE AS ON 31.3.2005 WAS CORRECT AND TRUE AS PER AC COUNTING NORMS AND NO VALUATION REPORT IN THAT REGARD HAD BEEN SUBMITTED. 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY THE OPENING STOCK VALUED AT RS .1 83 81 266/- ON 1 ST APRIL 2004 HAS BEEN REVALUED BY THE ASSESSEE AT LO WER VALUE OF RS.1 64 01 070/- AS ON 31.3.2005. THUS THERE WAS A REDUCTION IN THE VALUE OF CLOSING STOCK BY RS.19 80 196/- AS COMPARED BETW EEN THE VALUE OF OPENING STOCK VIS--VIS OF CLOSING STOCK. IT IS AL SO NOT IN DISPUTE THAT THE ASSESSEE HAS BEEN FOLLOWING THE METHOD OF VALUING O F CLOSING STOCK AT COST OR 13 MARKET VALUE WHICHEVER IS LOWER. THEREFORE THE V ALUE OF THE CLOSING STOCK AT THE END OF EACH AND EVERY YEAR IS TO BE TAKEN AT COST OR MARKET PRICE WHICHEVER IS LOWER. DURING THE YEAR UNDER CONSIDER ATION NO NEW PURCHASES HAVE BEEN MADE. THERE WAS NO SALE OF OPENING STOCK BROUGHT FORWARD FROM EARLIER YEAR. THE ASSESSEE IS IN THE BUSINESS OF E XPORT OF LEATHER LEATHER SHOES LEATHER SHOE-UPPERS ETC. IN RESPECT OF WHIC H THE ASSESSEE HAD A CLOSING STOCK OF RAW-MATERIALS AND FINISHED GOODS I N THE NATURE OF RAXINE CAMBRELL LINING SKINFIT BLACK NYLON THREAD ELAST IC TAPE COW FINISHED LEATHER FINISHED PRODUCTS OF SHOES CHEMICALS RAW HIDE ETC. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS BEEN KEEPING THE STOC K OF THESE ITEMS SINCE LAST SO MANY YEARS. THE ASSESSEE HAS FURNISHED THE DETA ILS OF WORKING OF REVALUATION OF STOCK AS THE STOCK WAS DETERIORATED IN QUALITY FROM YEAR TO YEAR. THE CLOSING STOCK TAKEN IN THIS YEAR HAS BEE N TAKEN AS OPENING STOCK IN THE NEXT ASSESSMENT YEAR. THE ASSESSMENT OF THE NE XT YEAR I.E. ASSESSMENT YEAR 2006-07 HAS BEEN COMPLETED ON THE BASIS OF BOO K RESULTS WHERE THE OPENING STOCK WAS TAKEN AT THE SAME AMOUNT OF CLOSI NG STOCK AS ON 31.03.2005. IT IS THUS CLEAR THAT THE AO HAS ACCE PTED THE REDUCED VALUE OF CLOSING STOCK AS ON 31.03.2005 AS VALUE OF OPENING STOCK AS ON 1 ST APRIL 2005 WHILE COMPLETING THE ASSESSMENT FOR THE ASSESS MENT YEAR 2006-07. FURTHER HAVING REGARD TO THE NATURE OF THE ITEMS IT IS CLEAR THAT THESE ITEMS 14 ARE ALL PERISHABLE IN NATURE AND THEREFORE QUALITI ES ARE BOUND TO BE DETERIORATED. THE ASSESSEE HAS ESTIMATED THE NET R EALIZABLE VALUE OF THE CLOSING STOCK AND HAS TAKEN THE SAME AS VALUE OF ST OCK AS ON 31.03.2005. THE VALUE OF EACH AND EVERY ITEM HAS BEEN TABULATED WHICH HAS NOT BEEN FOUND TO BE UNBELIEVABLE OR UNFOUNDED. THE AO HAS NOT POINTED OUT ANY ITEM IN RESPECT OF WHICH THE NET REALIZABLE VALUE T AKEN BY THE ASSESSEE IS NOT CORRECT. NO ENQUIRY HAS BEEN MADE BY THE ASSESSING OFFICER EXCEPT BY HAMMERING UPON THAT THE ASSESSEE HAS FAILED TO PROD UCE ANY VALUATION REPORT. IN ORDER TO VALUE THE CLOSING STOCK THE BUSINESSMA N USED TO APPLY HIS KNOWLEDGE AND INFORMATION CONNECTED TO HIS BUSINESS ACTIVITY AND THEN DETERMINE THE VALUE OF CLOSING STOCK EITHER AT COST OR AT MARKET PRICE WHICHEVER IS LOWER. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ITEMS WHICH WERE VALUED AS ON 31.03.2005 AT A PARTICULAR AMOUNT WERE SOLD IMMEDIATELY THEREAFTER AT A PRICE HIGHER THAN THE P RICE TAKEN BY THE ASSESSEE IN THE CLOSING STOCK. IN THIS VIEW OF THE MATTER A ND HAVING REGARD TO THE CONSISTENT METHOD OF ACCOUNTING FOR VALUING THE CLO SING STOCK FOLLOWED BY THE ASSESSEE WE ARE OF THE OPINION THAT THE ASSESS EES CLAIM OF REDUCTION IN VALUATION OF CLOSING STOCK AS ON 31.03.2005 AS COMP ARED TO THE VALUE OF THE OPENING STOCK OF THE SAME ITEM AS ON 01.04.2005 IS JUSTIFIED AND IT IS TO BE ALLOWED WHILE DETERMINING THE ASSESSEES INCOME FRO M BUSINESS. WE 15 THEREFORE DELETE THE ADDITION SO MADE BY THE ASSES SING OFFICER AND FURTHER CONFIRMED BY THE CIT(A) AND ALLOW THIS GROUND RAISE D BY THE ASSESSEE. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 21. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 22. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 20 TH AUGUST 2010. SD/- SD/- (K.D. RANJAN) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH AUGUST 2010. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.