CIT vs. SHREE BIHARI FORGINGS PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 357/2012 . . . CIT ..... Appellant . Through Mr. Kiran Babu, Sr. Standing Counsel. . . . versus . . . SHREE BIHARI FORGINGS PVT LTD ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 22.05.2012 . . . This an appeal by the Revenue relating to the assessment year 2006- . 07 in the case of M/s. Shree Bihari Forgings Pvt. Ltd, which is a company engaged in the business of manufacturing and trading of M.S. Ingots. It was incorporated on 15th March, 2004. The previous year ended on 31st March, 2006 is practically the first year of commercial operation of the business. . 2. A return of income declaring loss of Rs.1,29,89,398/- was filed by the respondent-assessee on 21st November, 2006. The assessment was, however, completed under Section 143(3) of the Income Tax Act, 1961 (Act, for short) on a loss of Rs.21,82,843/-, which included disallowances of Rs. 38,21,194/- and Rs.63,17,730/-. They were made on the following reasoning:- . ?On perusal of details furnished during the course of assessment proceedings, it is noticed that the assessee has a closing stock of Rs.1,39,60,118/- as per the summary of closing stock as on 31st March, 2006. However the assessee has credited the P and L account on account of increase in stock of Rs.1,01,38,924/-. Since this is the first year of commercial operation of the assessee company, there was a NIL closing stock in the last year. Hence whatever is the closing stock on 31-03- 2006, it should be credited as increase in stock in the P and L account. The assessee has thus reduced its profits by the amount of difference of Rs.38,21,194/-. The same is therefore added back as difference in closing stock. . (Disallowance of Rs.38,21,194/-) . Further on perusal of Sch. J to the P and L account, it is noticed that while computing cost of production the assessee has reduced an amount of Rs.38,21,194/- as cost of closing stock of Raw Material from its total cost to arrive at the Cost of Production at Rs.8,71,01,344/-. However, the closing stock of raw material is of Rs.1,01,38,924/- as per details filed. In this way, the assessee by reducing lesser amount of closing stock of raw material, has increased its cost of production and thereby understated its income by the amount of difference between these two figures. An addition of Rs. 63,17,730/- is therefore made on account of enhanced cost of production declared by the assessee. . (Disallowance of Rs.63, 17,730/-)? . . . 3. The assessee challenged the aforesaid additions in appeal before the CIT (Appeals) and placed its explanation before him in the written submissions. The CIT (Appeals) taking note of the written submissions and the facts and material brought on record, called for a remand report from the Assessing Officer by letter dated 20th March, 2009. Time of 10 days was given to the Assessing Officer, but no remand report was filed within the said period. Thereafter, a reminder was sent to the Assessing Officer on 5th May, 2009 again requesting him to comply with the remand order within 10 days, but this also went unheeded. The CIT (Appeals) thereafter waited for almost 10 months, but even within this period, no remand report was submitted by the Assessing Officer. No query was also . raised by the Assessing Officer from the assessee pursuant to the remand order and the reminders received from the CIT (Appeals). In this background, the CIT (Appeals) held that the Assessing Officer had nothing to say about the merits of the assessee?s claim and he proceeded to decide the case on the basis of the facts and material available on record. He noticed that the submissions made by the assessee explaining the factual matrix relating to the two additions are correct and in the light of the total silence and no objection by the Assessing Officer, he deleted both the additions observing as under:- . ?2.4 Whether the claim of the appellant is correct or not is essentially a question of fact. To determine the factual details a remand report was sought from the AO by forwarding application made by the appellant u/r 46A. The Ld AR on 19/02/10 has categorically stated till that date the applicant was never called upon by the AO in connection with remand proceedings for which application u/r 46A has been filed by the appellant company. The appellant is required to maintain the account as per the provisions of the law and as per the accounting . . . . . . . . . standard as prescribed in IAS. But when AO is not objecting the ground of the appellant at the remand stage and when the same is to be done as per the factual evidence as submitted u/r 46A, the AO?s is construed as his agreement specially in the present circumstances of the case. The addition made on a/c of difference in closing stock and enhanced cost of production of Rs.38,21,194/- and Rs.63,17,730/- respectively are hereby directed to be deleted.? . . . 4. The Revenue took the matter in appeal before the Income Tax Appellate Tribunal (for short, the tribunal), which endorsed the findings of the CIT (Appeals) in the absence of any objection or plea raised by the department. It was for the department, if it had any objection on the merits of the claim made by the assessee relating to the two additions, to adduce and refer to material to show that the findings of the CIT (Appeals) were incorrect or wrong. Even after it had missed several opportunities given to it by the CIT (Appeals) to file the objections, nothing had been done. Before us also except objecting to the procedure adopted by the CIT (Appeals) and stating that opportunity was granted by the Assessing Officer, nothing is argued on merits. It is not shown why and how the findings on merits are incorrect. Therefore, the order of the tribunal does not give rise to any substantial question of law. The appeal of the Revenue is accordingly dismissed with no order as to costs. . . . . . R.V.EASWAR, J . . . . . . . SANJIV KHANNA, J . . . MAY 22, 2012 . NA . . . . . . . . .