THE COMMISSIONER OF INCOME TAX -III PUNE vs. SERICOL INDIA PVT. LTD.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.4168 OF 2010 The Commissioner of Income Tax-III, PMT Bldg. B Wing, 3rd floor, Swargate, Shankarsheth road, Pune-400037. ...Appelllant. Vs. Sericol India Pvt. Ltd., 10/11,B.U. Bhandari Industrial Estate, Tal.Shirur, Sanaswadi, Pune 412 208. (Pan AABCS 0098L.) ...Respondent. Mr.Vimal Gupta,Advocate for the Appellant. Mr.S.N.Inamdar along with Mr. Mihir Naniwadekar for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ. DATE : 08th August, 2012 JUDGMENT ( Per M.S. SANKLECHA, J.) : This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as (“the Act”) challenges the order dated 30/10/2009 of the Income Tax Appellate Tribunal (“the Tribunal”) relating to the assessment year 2003-04 and arising out of Income Tax Appeal No.1050/PN/2007. 2) Being aggrieved the respondent has formulated the following questions of law for the consideration of this Court. i) Whether the ITAT is correct in law and on facts in deleting the addition of Rs.21,46,479/- on account of provision during the A.Y. 2003-04 included in accumulated provision of Rs.69,98,363/- without appreciating the fact that the assessee failed ASN 1/5 ITXA-4168.sxw CNR No : HCBM020099332010 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:58

to discharge the burden of proof cast upon it to prove that the actual market value of such stock has gone down by Rs.21,46,479/- as compared to its cost of acquisition during the relevant assessment year? ii) Whether the ITAT is correct in law and on facts in deleting the addition of Rs.21,46,479/- included in accumulated provision of Rs.69,98,363/- on the basis of its observation that this method of accounting is followed by the assessee for 7/8 years and is bonafide, ignoring the fact that such a valuation is contrary to law which says that closing stock has to be valued as per cost or market value or whichever is lower basis? iii) Whether the ITAT is correct in law and on facts in giving relief to the assessee on the basis of accounting policy whereas it is trite laws that where there is conflict between accounting policy and law, the law holds the field as has been held by the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. As reported in 227 ITR 172? iv) Whether the ITAT is correct in law and on facts in deleting addition of Rs.21,46,479/- without appreciating the factual and legal matrix of the case as brought out in the assessment order? ASN 2/5 ITXA-4168.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:58

3) The respondent-assessee is engaged in the manufacture and trading of screen printing inks, digital inks etc. During the course of the assessment proceedings for the assessment year 2003-04 the Assessing officer by an order dated 9/3/2006 noted that the closing stock as on 31/3/2003 was valued at Rs.379.00 crores and from which an amount of Rs.69.98 lacs was deducted as non moving/slow moving stock by making a provision for the same and the net value of the closing stock was disclose in its account at Rs.3.09 crores. The explanation of the respondent company for reducing the value of the closing stock was that chemical composition of the inks deteriorate due to the storage and passage of time. Consequently, the quality as well as the effective life of the chemicals gets eroded resulting in reduction of value. However, the Assessing officer did not accept the respondent-assessee's explanation and disallowed the deduction of Rs.69.98 lacs claimed by the assessee-company on account of non moving/slow moving stock. 4) In appeal, the Commissioner of Income Tax (Appeals) by an order dated 26/4/2007 allowed the respondent-assessee's appeal. In the order, it was held that the respondent was valuing its stock at cost or market value whichever was lower. The provision of Rs. 69.98 lacs on account of non moving/slow moving stock was an accumulated provision for the assessment year 1996-97 onwards and the provision with regard to reduction of value of stock for the assessment year 2003-04 was only Rs.21.46 lacs. Further, it was held that in respect of provision made for non moving/slow moving stock when sold was credited to the trading account and shown as profit. It was for this ASN 3/5 ITXA-4168.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:58

reason that the value of stock was shown in a separate account in the original costs. In the circumstances, the Commissioner of Income Tax (Appeals) held that even addition of Rs.21.46 lacs being the provisions made during the assessment years 2003-04 was even not sustainable. 5) On appeal by the revenue, the Tribunal by its order dated 30/10/2009 upheld the order of Commissioner of Income Tax (Appeals) dated 26/4/2007. The Tribunal held on fact that the reasons for providing lower value to non moving stock was deterioration in quality of the ink resulting in erosion of its value. The basis for reaching the aforesaid conclusion was the certificate produced of a Chemical Engineer. The Tribunal held that the Assessing officer had not rejected the method of valuation adopted by the assessee so as to entitle him to rework the valuation of the closing stock. The Tribunal held that it is well settled law to reduce the valuation of non moving stock and the entire exercise is bonafide. 6) We find that appropriate valuation of the closing stock is essentially a question of fact. Both the authorities i.e. Commissioner of Income Tax (Appeals) and the Tribunal have accepted the respondent- assessee's valuation of closing stock after having reduced the amount attributable to loss on account of slow moving/ non moving stock. It is not alleged that the finding of the authorities is perverse. Further, we find that it is not disputed that the valuation of the closing stock has been taken as the valuation of the opening stock in the subsequent assessment year. It is also not disputed that the valuation of the inks gets depreciated due to passage of time as a consequence of ASN 4/5 ITXA-4168.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:58

deterioration of quality. The respondent-assessee had also led evidence of the Chemical Engineer to support its contention that value of some chemicals in stock had eroded and consequently they had to be revalued. In the circumstances, we do not find that question (i) to (iv) as formulated by the appellant revenue raises any substantial question of law warranting consideration by this Court. 7) The appeal is dismissed with no order as to costs. ( M.S. SANKLECHA, J. ) ( S. J. VAZIFDAR, J.) ASN 5/5 ITXA-4168.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:53:58 Powered by TCPDF (www.tcpdf.org)