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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE SHRI R. C. SHARMA, AM & HON’BLE SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present two Appeals as well as cross objection have been filed by the revenue as well as assessee are against the order of Commissioner of Income Tax (Appeals)-8, Mumbai dated 18.10.16 and Commissioner of Income Tax-3, Mumbai, dated 18.03.14 for AY 2009-10.
Since, the facts raised in two appeals as well as C.O. filed by the revenue as well as the assessee are identical, therefore for the sake of convenience; they are clubbed, heard and disposed of by this consolidated order.
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd 3. First of all we take up appeal in filed by revenue for AY 2009-10.
As per the facts of the present case, the assessee is engaged in the business of manufacture of pesticides and plant growth nutrients, trade in pesticides, seeds and tanning material. The return of income was filed by the assessee on 29.09.2009 declaring total income of R.s 91,47,89,900/-. Thereafter a revised return of income was filed on 29.03.11 declaring total income at Rs. 84,33,81,255/-. Subsequently the case was selected for scrutiny and after serving statutory notices and seeking reply of the assessee, order of assessment u/s 143(3) of the I.T. Act was passed on 30.12.11, thereby determining the total income at Rs. 86,69,21,180/- and book profit at Rs. 1,05,20,51,256/-. The CIT- 3 Mumbai passed order u/s 263 of the Act on 18.03.14 setting aside the order passed u/s 143(3) of the Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee.
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd Now before us, the revenue as well as assessee have preferred their respective appeals. Firstly we are dealing with the appeal filed by the revenue.
The solitary ground raised by the revenue is against challenging the order of Ld. CIT(A) in deleting the disallowance of Rs. 2,80,95,000/- in respect of provision for slow and non- moving stock.
6 We have heard the counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that this ground is covered by the decision of the Coordinate Bench of Hon’ble ITAT in and 4316/Mum/2014 in assessee’s own case for AY 2010-11. The operative portion of the order of Hon’ble ITAT is contained in para no. 19 and the same is reproduced below:-
The issue raised in the grounds of appeal no.3 is against the deletion of disallowance of Rs.59,97,000/-
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd in respect of provision for slow and non moving stock by the ld. CIT(A) without appreciating the fact that notwithstanding the method of accounting or valuation of stock , the unascertainable expenditure is not allowed under the provisions of sections 28-44 of the IT Act.
The facts in brief are that the AO noticed upon perusal of the balance sheet that the closing balance in the provisions for slow and non –moving stock as on 31.3.2010 was Rs.340.92 lakhs, whereas the opening stock was Rs.280.95 lakhs and thus the provision of Rs.59,97,000/- was charged to the profit and loss account during the year. Accordingly, the AO issued show cause notice which was replied by the assessee submitting that the assessee is a manufacturer of critical chemicals, powders and pesticides, which are highly toxic having limited life and during the year 650 items of stock were slow-moving ,obsolete or damaged. The assessee submitted that the stocks are in the form of powder, liquid and is prone to easily evaporated or susceptible to damage. Besides, the ld. AR submitted that the assessee has been following the accounting method consistently and full and adequate disclosure have also been made by the assessee as per Schedule20-Notes to the Accounts. The inventory are 2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd valued on lower of the cost and net realizable value whichever is less. The ld. Counsel of the assessee also referred to accounting standard –II issued by Institute of Chartered Accountants of India which is mandatory . The contentions and submissions of the assessee did not find favor with assessing officer and ultimately he rejected the same resulting into addition of Rs.59,97,000/- to the total income of the assessee by observing as under:
“6.2 The contention of the assessee is examined and is not acceptable for the simple reason that the assessee himself states that there are 650 items of stock which are slow moving , obsolete or damages. The contention of the assessee that these are wastages in stock due to evaporation and reduced efficacy is mere general statement backed up by no evidence whatsoever. In fact all evaporation and wastage losses during the manufacturing process would ipso facto be accounted for the consumption of raw-material in the manufacturing process. This submission of the assessee goes against the very grain of creating provision for slow and non-moving stock.”
In the appellate proceedings, the ld.CIT(A) deleted the addition after taking into consideration the various
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd contentions and submissions of the assessee by observing and holding as under :
“11. GROUND NOS. 6 to 8 - DISALLOWANCE ON ACCOUNT OF PROVISION FOR SLOW AND NON- MOVING STOCK: The appellant during the year under consideration has made provision for slow, non- moving and damaged stocks of Rs.59,97,000/-. It was stated that the appellant follows AS-2 whereby stores/inventories are valued at cost or market value whichever is lower. This principle has also been upheld by the Hon'ble Supreme Court on numerous occasions, one of them being its judgment in the case of CIT vs. Hindustan Zinc. Ltd (2007) (291 ITR 391). He also referred to section 145A and stated that as per the principle of stock valuation upheld by the apex court, the method of valuation regularly adopted by the appellant is a recognized method and therefore, the same cannot be rejected. The items written down to the net realizable value are items of raw materials and stores. In paragraph 6.3 the Assessing Officer has wrongly presumed that these are finished goods. The Assessing Officer is in error when he says that the appellant has not been able to demonstrate that the stock is obsolete or slow-moving. The appellant has drawn attention to several items of stock which have 2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd not moved for several years and it is only for that reason that the appellant has considered that the stock is slow-moving. The Assessing officer also failed to consider that the provision made for writing down the stock is Rs.59.97 lakhs, as compared to the total stock of the appellant of Rs.148.24 crores, which is a paltry 0.4% to the total stock. He relied on the decision in the case of CIT v. Hughes Communication India Ltd. (Del) (ITA 383 and 385 of 2012); CIT v. Hotline Teletube & Components Ltd. (Del) (ITA 694/2008); CIT v. Wolkem India Ltd. (315 ITR 211 (Raj); IAC v. Consolidated Pneumatic Tool Co. India Ltd. (15 ITD 564) (Born); A.L.A. Firm v. CIT (189 ITR 285) (SC); Alfa Laval India Ltd. v. DCIT (266 ITR 418) (Born); DCIT v. Indroyal Fumiture Co. P. Ltd. (2 ITR (Trib) 628) (Cochin). It was stated that first two judgments specifically deal with the issue of provision for diminution in the value of stock. It was thus stated that the disallowance be deleted.”
The ld. DR vehemently submitted before us that the order of ld.CIT(A) was against the provisions of the Act and against the facts on records and also order was passed in a cryptic manner. The ld. DR submitted by referring to the provisions made for non movable and damaged items of stock material and packing
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd material filed at placed at pages 45 to 83 of the assessee‟s paper book to point out that three items viz clause 11 of schedule 20 at pages 61 of the annual report, consumption of raw materials, packing materials and stores and spare parts included provision of Rs.340.92 lakhs. The ld. DR also submitted that it is not clear from the facts whether the assessee claimed the said loss after evaluating the same by Technical Committee or done in summary manner. Finally, the ld.DR prayed that such depreciation are not admissible under the Act and therefore should not be allowed. The ld. DR relied on the decision of the Hon‟ble Delhi High Court in the case of CIT V/s Hughes communication India Ltd reported in (2013) 215 Taxman 0136 beside relying on the following case laws: a) CIT v. Hotline Teletube & Components Ltd. -175 Taxman 286 (Del. HC) b) CIT v. Hughes Communication India Ltd.- 33 taxmann.com 95 (Del HC) c) CIT v. IBM India Ltd. - 55 taxmann.com 515 (Kar.) d) CIT v. Indian Rare Earths Ltd. - 375 ITR 276 jBom.) e) Alfa Laval India Ltd. v. DCIT - 2661TR 418 {80m.)
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd f) IAC v. Consolidated Pneumatic Tool Co. (ind). Ltd.- 15 ITD 564 Mum Finally, the ld.DR prayed before us that by following the ratio laid down in the aforementioned decisions, the order of the ld.CIT(A) be set aside and that of AO be upheld.
The ld.AR relied heavily on the order of ld.CIT(A) by submitting that the assessee is a manufacturer of critical chemicals, powders and pesticides which are highly toxic and the raw materials used are in the form of liquids and powders of various which are highly vaporable and susceptible to damage and are not fit to be used in the manufacturing of the chemicals . The ld. AR took us through pages 198 to 199 of the paper book referring the Insecticides Rules, 1971(GSR 1650, Dt.9.10.1971. Para 10A of the said Rules provides that after expiry of stock the same shall be marked as not for sale, not for use or not for manufacturing, and shall be kept by the licensee in a separate place specifically demarcated for the purposes with a declaration “ date expired insecticide” to be exhibited on the conspicuous part of the place. All such stocks then shall be disposed of in an environment friendly manner as may be specified from time to time by the by the Central Government in consultation with the Central
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd Insecticides Board and shall not be used for manufacturing. The ld. AR also took us through the SC-7 and SC-13 of 62, Annual Report 2009-10 and submitted that these were actually stocks written off due to damage and expiry and not the provisions as alleged and observed by the AO. The ld. AR also took us through schedule-18 of the Annual Report under the head “Operative Expenses” wherein stores and Spares Consumed were shown at Rs. 402.80 lacs.
We have heard the rival submissions and perused the material placed before us. We find that during the year the assessee has written off stock of slow moving and expired items which are not fit for consumption in the manufacturing processes. The assessee itself has duly disclosed all the facts qua stock written off during the year in its audited accounts. Moreover, the stock register was prepared and maintained as per the Accounting Standard followed by the assessee regularly which also duly disclosed all stock in the accounts. Since the assessee is engaged in the manufacturing of chemical ,pesticides and powder which are easily evaporable or are susceptible to damage and cannot be used in the finished goods. Besides, the ld. AR submitted that the assessee has been following the accounting method regularly which 2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd is also duly disclosed in the audited financial statements. Since, the assessee is engaged in the manufacturing of chemicals and pesticides using inputs in the form of chemical powder and liquid which are evaporative and damageable. After considering the submissions of the rival parties and considering the facts of case, we do not find any infirmity in the order of ld.CIT(A). The case laws relied by the revenue have been examined and found to be not applicable to the present facts. Accordingly, we affirm his order and reject the ground taken by the Revenue.
Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT and in order to maintain judicial consistency, we apply the same findings in the present case which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the revenue stands dismissed.
In the net result the appeal filed by the revenue stands dismissed.
Now we take up C.O. No. 117/Mum/2018 filed by assessee.
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd 8. Since we have already decided the appeal filed by revenue in on merits. Therefore following our own decision in ITA No. 456/Mum/2017, we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assessee. 9. In the net result, the cross objection filed by the assessee is dismissed.
Now we take up filed by assessee. 10. Since we have already decided the appeal filed by revenue in on merits. Therefore following our own decision in ITA No. 456/Mum/2017, we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assessee. 11. In the net result, the appeal filed by the assessee is dismissed.
2728/Mum/2014 and C.O. No. 117/Mum/2018 M/s Rallis India Ltd 12. In the net result, both the appeals as well as cross objection filed by the revenue and assessee stands dismissed.