M/S GANGA RASAYANIE (P) LTD.,KOLKATA vs. DCIT, CIRCLE-12, KOLKATA, KOLKATA

- This assessee’s appeal for assessment year 2010-11 arises against the Commissioner of Income Tax (Appeals)-18, Kolkata’s order dated 09.09.2016, passed in case No.523/CIT(A)-18/2016-17/Circle11/Kol, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.

The assessee has raised two substantive grounds in this appeal in seeking to challenge both the lower authorities unanimously action making addition of ₹3,07,041/- regarding closing stock valuation followed by sec. 14A r.w.s. Rule 8D disallowance of ₹1,01,369/- made in assessment as affirmed in lower appellate proceedings.

The assessee’s former substantive grievance challenges correctness closing stock valuation is no more res integra since this Tribunal co-ordinate bench’s order in preceding assessment year 2009-10 in ITA 1019 & 933/Kol/2014 decided on 07.06.2017 has restored the very issue back to the Assessing Officer with the following directions:- “7. We have heard the arguments of both the sides and also perused the relevant material available on record. it is observed that the difference in the valuation of closing stock of finished goods as pointed out by the Assessing Officer during the course of assessment proceedings was explained by the assessee by submitting that the relevant finished goods lying in the closing stock were of inferior or off-grade quality. Since the said explanation offered by the assessee was not supported by any documentary evidence, the Assessing Officer rejected the same. During the course of appellate proceedings, an altogether different stand, however, was taken by the assessee by submitting that the stock of finished goods was valued at cost or net realisable value by following the Accounting Standard 2. The working of cost of some of the items of finished goods was also furnished by the assessee before the Id. CIT(Appeals) to show that the value adopted by it for some of the finished goods lying in the closing stock was at actual cost. It was further submitted on behalf of the assessee before the Id. CIT(Appeals) that the average selling price adopted by the Assessing Officer for working out the 'difference in the value of closing stock of finished goods was not correct. The working in this regard was also furnished by the assessee to show the average selling price of the corresponding items of finished goods lying in the opening stock on the basis of sales made in the month of March. In the working so furnished, the gross profit @ 12% was reduced by the assessee from the average selling price worked out by it to show that the net realisable value so determined was correctly taken for the purpose of valuation of closing stock of finished goods. As rightly contended by the Id. D.R., all these workings prepared and furnished by the assessee for the first time before the Id. CIT(Appeals) in support of an altogether new stand taken to explain the difference in the valuation of closing stock of finished goods was not forwarded by him to the Assessing Officer for giving an opportunity to verify the same, as required by Rule 16A of the Income Tax Rules, 1962 and there is thus a clear violation of the said Rule by the Id. CIT(Appeals) while giving relief to the assessee on this issue. When this position was confronted to the Id. counsel for the assessee and he was asked to offer his explanation in the matter, he has submitted that the relevant stock records are maintained by the assessee and it is possible to ascertain the exact cost of the relevant finished goods lying in the closing stock. The Id. representatives of both the sides have also agreed that if the actual cost of the relevant finished goods lying in the opening stock can be ascertained from the relevant stock records, the