PR. COMMISSIONER OF INCOME TAX - 1 vs. A.V VALVES LTD

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ITA/39/2021HC DelhiDLHC01002656202007 February 2024Bench: HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV,HON'BLE MR. JUSTICE YASHWANT VARMA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal raises no substantial question of law and consequently stands dismissed. The ITAT had noted that the rejected material valued at Rs. 3,67,85,716/- was duly accounted for in subsequent years and offered to tax. The CIT(A) had verified the ledger accounts and subsequent balance sheets of the assessee, confirming that amounts received against these rejections were shown as income in AY 2014-15, AY 2015-16, and AY 2016-17. The total amount offered to tax in these subsequent years was Rs. 3,60,26,233/-. The CIT(A) concluded that no loss to the Revenue was caused, as there was no change in slab rates, being a case of a company. The CIT(A) relied on the principle that the year of accounting does not affect the tax rate for a company. The High Court agreed with this reasoning, finding no substantial question of law to be decided.

What were the facts?

The appeal by the Pr. Commissioner of Income Tax - 1 challenges an order of the Income Tax Appellate Tribunal (ITAT) dated September 4, 2019. The dispute concerns the deletion of an addition of Rs. 3,67,85,716/- made by the Assessing Officer (AO) on account of the disallowance of a claim related to "Rejection & demurrage" account. The assessee is A.V. Valves Ltd. The assessment year relevant to the dispute is AY 2012-13. The Commissioner of Income Tax (Appeals) [CIT(A)] had upheld the deletion, and the ITAT concurred. The High Court notes that the solitary question pressed before it relates to the rejected material valued at Rs. 3,67,85,716/-.

What were the issues?

1. Whether, in law and in the facts and circumstances, the ITAT erred in upholding the CIT(A)'s order deleting the addition of Rs. 3,67,85,716/- made on account of disallowance of the claim under the “Rejection & demurrage” account, as per Section 37 of the Income Tax Act, 1961? 2. Whether, in law and in the facts and circumstances, the ITAT erred in upholding the CIT(A)'s order, given that there was no rejection of material during the relevant assessment year, as the event of rejection occurred in a subsequent year, and thus any loss could not be claimed in the previous year relevant to AY 2012-13? 3. Whether, in law and in the facts and circumstances, the ITAT erred in upholding the CIT(A)'s order, because the value of goods returned should have been included in the closing stock as per accounting principles, as the goods were subsequently sold instead of being written off entirely as “demurrage” in the books of accounts? Assessee's Contentions: The assessee argued that the rejected material was accounted for in subsequent years and offered to tax. The CIT(A) observed that the amounts received against these rejections were shown as income in subsequent assessment years (AY 2014-15, AY 2015-16, AY 2016-17). The assessee relied on the judgments in CIT vs. Vishnu Industrial Gases Pvt. Ltd. and CIT vs. Dinesh Kumar Goel, which held that it does not matter in which year the income is accounted for, as the tax rate remains the same for a company. Revenue's Contentions: The revenue contended that the rejection of material occurred in a subsequent year, and therefore, any loss could not be claimed in the previous year relevant to AY 2012-13. It was also argued that the value of goods returned should have been included in the closing stock.

Which sections of the Income-tax Act were involved?

Section 37

AI-generated summary — verify with the full judgment below

$~12 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 39/2021

PR. COMMISSIONER OF INCOME TAX - 1 ..... Appellant

Through: Ms. Hemlata Rawat and

Ms. Easha, Advs for Mr. Sanjay

Kumar, Adv.

versus

A.V VALVES LTD

..... Respondent

Through: Mr.Somil Agarwal, Mr.Prateek

Bhati and Ms.Astha Chhabra,

Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR

KAURAV

O R D E R %

07.02.2024

1.

The instant appeal is directed against the order of the Income Tax Appellate Tribunal ['ITAT'] dated 04 September 2019. 2. The appellant proposes the following questions of law for our consideration:- (a) Whether in the facts and circumstances of the case and in law, ITAT erred in upholding the order of Commissioner of Income Tax (Appeals) ["CIT(A)"], deleting the addition of Rs 3,67,85,716/- made on account of disallowance of claim under “Rejection & demurrage” account? (b) Whether in the facts and circumstances of the case This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:52

and in law, ITAT erred in upholding the order of CIT(A), because there was no rejection of material during the year as event of rejection occurred in the subsequent year, hence loss if any can’t be claimed in the previous year relevant to the AY 2012- 13? (c) Whether in the facts and circumstances of the case and in law, ITAT erred in upholding the order of CIT(A), because even otherwise the value of goods returned should have been included in the closing stock as per the accounting principle as subsequently goods were sold instead of writing off it entirely in the books of accounts as “demurrage’'? 3. We also take note of the observation which appear in our order dated 15 February 2021. Quite apart from the issues which stood flagged by us in that order, we note that the solitary question which is pressed before us is with respect to the rejected material valued at Rs.3,67,85,716/- 4. The ITAT has noted that the aforesaid had been duly accounted for in the subsequent years and offered to tax. It was in the aforesaid backdrop that it ultimately held that no loss to the Revenue was caused. 5. We take note of the following extracts from the order of the CIT(A) which have also been noticed by the ITAT:- "6. After considering the facts and submissions. Id. CIT(A) observed as under:-

"I have examined the details placed on record which include the ledger accounts of these parties, where these rejections were credited in their accounts, and subsequent ledger accounts of the subsequent years when these parties were debited again against the rejected material after rectifications made in the defective material. I have also verified the subsequent years balance This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:52

sheets of the appellant assessee, where these amount received against these rejection has been shown as income. Appellant has furnished a chart showing the income in the subsequent years against the rejected claimed in Asstt. Year 2012-13. For the sake of convenience the same is reproduced here under:

DETAILS of REJECTION INCORPORATED IN NON-

OPERATIONAL INCOME (WARRENTY WRITTEN BACK)

SUMMARY OF NON-OPERATIONAL INCOME OFFERED FOR TAXATION IN FOLLOWING ASSESSMENT YEARS:

1 AY.2014-15 9978301 2 AY.2015-16 16124685 3 AY.2016-17 10682729

36785715

I have verified the Profit and Loss accounts for these subsequent years and find that except an amount of Rs. 7,59,482/- the entire balance amount of Rs.3,60,26,233/- (Rs. 3,67,85,715/- - Rs. 7,59,482/-) has been shown by the assessee as its income in the Asstt. Years 2014-15, 2015-16 an AY 2016- 17. Thus, there is no loss to the Revenue as there is no change in slab rates as well being it a case of a company. The appellant had relied upon the judgment Hon’ble Delhi High Court in the case of CIT vs Vishnu Industrial Gases Pvt. Ltd. ITA 229/1988 dated 06.05.2008 and CIT vs Dinesh Kumar Goel 331 ITR 10 (Del.) wherein it is held that it does not matter in which year the income is accounted for, the tax rate is same".`

REMARK

NAME OF THE PARTY PLACE CONSIGNEE BILL NO BILL AMOUNT REJECTION AMOUNT LATE DELIVERY DEDUCTION AGAIN INCORPORATED IN NON- OPERATIONAL INCOME

DATE AMOUNT RELEVAN

BHEL LTD NOIDA TALCHAR SITE 55/360 5051527 5051527

31.03.201

508080 31 9978301 2014-15 BHEL LTD NOIDA TALCHAR SITE 55/361 5434854 5434854

31.03.2014

BHEL LTD NOIDA KAKATAIYA 55/350 5627746 5627746

31.03.2015 5627746 2015-16 BHEL LTD NOIDA KHANDWA SITE 55/364 4088120 4088120

31.03.201 4088120 2015-16 BHEL LTD NOIDA KHANDWA SITE 55/365 4816431 4816431

31 4816431 2015-16 MCCAPTA KOIKATT

55/215 1843790 1843790 251402 31.03.201 159288 2015-16

ANRAK ALUMINIU

VISHKHAPATNAM 55/336 5961474 4974707

31.03.2016 4974707 2016-17 SMS GURGAON

55/279 4948540 4948540

31 4948540 2016-17

37772482 36785715 759482

36026233

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:52

6.

In view of the aforesaid, we find that the appeal raises no substantial question of law. It shall consequently stand dismissed.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. FEBRUARY 07, 2024/MJ

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 16/12/2024 at 14:31:52

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