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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
ITA No. 2590/Ahd/2014 Lakshmi Steel Rolling Mills Vs. JCIT Assessment year: 2010-11 Page 1 of 3 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD [Coram: Pramod Kumar AM and Rajpal Yadav JM] ITA No. 2590/Ahd/2014 Assessment Year: 2010-11 Lakshmi Steel Rolling Mills (Unit-II) ............…………......Appellant 241, Madhav Darshan, Waghawadi Road, Bhavnagar [PAN : AAAFL 7116 L] Vs. The Joint Commissioner of Income-tax ...........................Respondent Range-2, Bhavnagar
Appearances by:
BR Popat for the assessee Mudit Nagpal for the Revenue Date of concluding the hearing : 05.03.2018 Date of pronouncing the order : 06.06.2018
O R D E R Per Pramod Kumar, AM:
By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)’s order dated 28.08.2014 in the matter of assessment under section 143(3) of the Income-tax Act, 1961 for the assessment year 2010-11.
Grievances raised by the appellant are as follows:-
“The learned CIT(A)-XX, Ahmedabad has erred in law and on facts in – 1. Confirming the rejection of the books of account for the reason as stated in the order; 2. Confirming the addition to the extent of Rs.17,50,000/- out of the total addition of Rs.35,00,000/- made by the AO by holding that there is abnormal decrease in Gross Profit and higher shortage and then by attributing the same to the alleged sale of certain machinery items out of books for this amount;
Confirming the action of the AO in making an addition of Rs.51,55,133/- by disturbing the valuation of closing stock and by holding that since the closing stock predominantly consisted of DG sets and machineries, which had generated substantially higher price in the succeeding year, the same ought to have been valued at the actual price realized as reduced by the overall Gross Profit margin;
ITA No. 2590/Ahd/2014 Lakshmi Steel Rolling Mills Vs. JCIT Assessment year: 2010-11 Page 2 of 3 4. Confirming the addition to the extent of Rs.4,00,000/- out of the total addition of Rs.8,29,783/- originally made by the AO by arbitrarily holding that the difference between the estimated quantity of oil that was available at the time of boarding of vessel and the corresponding quantity recovered and sold represents unaccounted sales;
Confirming the addition to the extent of Rs.5,000/- out of the total addition of Rs.28,725/- made by the AO by disallowing 1/5th of the telephone and vehicle running & maintenance expenses.”
So far as ground numbers 1 and 4 are concerned, learned Counsel for the assessee fairly accepts that these issues are covered against the assessee and does not press the same. As regards ground no.5, learned Counsel accepts our suggestion of not pressing the same on account of smallness of amount. Ground nos. 1, 4 & 5 are thus dismissed as not pressed.
We take up ground no.2 which is directed against learned CIT(A) sustaining the addition to the extent of Rs.17,50,000/- in respect of alleged sale of certain machinery out of books of accounts.
Learned representatives fairly agree that this issue is now covered, in favour of the assessee, by a co-ordinate bench decision in the case of P. Patel Ship Breaking Co. Vs. JCIT and vice-versa (ITA No.2102 and 2276/Ahd/2014; order dated 31.01.2018) wherein the addition has been restricted to the profit element, estimated at 4.5%, of the alleged sales. The co-ordinate bench has, inter alia, observed as follows:-
“10. Now comes to equally important latter question as to whether the CIT(A) ought to have affirmed the impugned disallowance of Rs.55lacs in entirety or to the tune of lump sum figure of Rs.10lacs only. The Revenue's case is that it is entire disallowance amount which should have been confirmed in lower appellate proceedings whereas the assessee seeks to add only GP component therein. We find in this backdrop that a co-ordinate bench order in M/s. Madhav Steels vs JCIT ITA Nos. 1963 & 2274/Ahd/2014 has restricted an identical disallowance of unaccounted sales of machinery/engine sets to the extent of profit element embedded therein only than the entire amount. We accordingly support there from to reject Revenue's grievance in supporting Assessing Officer's action adding the entire sum of estimate sale price. Mr. Hemani highlights assessee's NP in the impugned assessment year @2.65% only. We find no substance in the instant appeal for the reason that profit element in account and unaccounted sales figures may not be uniform on presumption basis. We therefore direct the Assessing Officer to compute the impugned addition by taking NP @4.5% qua the addition amount of Rs.55lacs. The assessee gets part relief in its second substantive ground.”
We see no reasons to take any other view than the view so taken by the co- ordinate bench. Respectfully following the same, direct the Assessing Officer to restrict the disallowance to profit element @ 4.5% in the alleged suppressed sale. To this extent, grievance of the assessee is upheld.
Ground no.2 is thus partly allowed.
ITA No. 2590/Ahd/2014 Lakshmi Steel Rolling Mills Vs. JCIT Assessment year: 2010-11 Page 3 of 3
So far as ground no.3 is concerned, the material facts are like this. During the course of scrutiny assessment proceedings, the Assessing Officer noted that the assessee had shown the closing stock of MV Mol at Rs.16,98,133 (by applying rate of 13,585 per MT on 125 MT) but as the subsequent sale indicates, it was worth Rs.17,79,820/- - much more than the rate worked out on the basis of 3.20% profit. On this basis, the Assessing Officer made an addition of Rs.51,55,133/- to the value of closing stock. In appeal, learned CIT(A) has confirmed the addition. Not satisfied, assessee is in second appeal before us.
Having heard the rival contentions and having perused the material on record, we find no merits in the impugned addition. The mere fact that the stock has subsequently been sold at a substantially higher price cannot be a ground enough to make addition in the value of closing stock. The assessee has bought the ship/material on weight basis and the stock has been valued on that basis. As long as the cost of purchases is not doubted, and the fact of ship having been bought on weight basis is not doubted, there cannot be an occasion to disturb the value of stock. Some parts of the ship may fetch a higher price on sale, as in the present case, but that does not disturb the cost of acquisition and the stock can only be valued on the basis of cost price or market price whichever is less. Whatever be the certainty of realising a higher value of purchase, the income in respect of the same cannot be booked at a point of time earlier than actual sale of stock, as is the mandate of principle of conservatism in accountancy duly recognized by Hon’ble Supreme Court in the case of Chainrup Sampatram vs. CIT (24 ITR 481). In view of these discussions, and bearing in mind entirety of the case, we uphold the grievance of the assessee, and, direct the Assessing Officer to delete the impugned addition of Rs.51,55,133/-.
Ground no.3 is thus allowed.
In the result, the appeal is partly allowed in the terms indicated above. Pronounced in the open court today on the 6th June, 2018
Sd/- Sd/-
Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 6th day of June, 2018 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad