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Income Tax Appellate Tribunal, KOLKATA BENCH “D”, KOLKATA
Before: SH. J.SUDHAKAR REDDY & SH. A.T.VARKEY
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This appeal filed by the Revenue against the order dated 05.04.2016 passed by CIT(A)-20, Kolkata for AY 2008-09.
The assessee is a company engaged in the business of iron ore mining and export. The appeal before us is on two issues:-
(a) Valuation of closing stock & (b) Depreciation on railway rakes.
We have heard Ld. CIT DR, Sh. A.K.Tiwari on behalf of the Revenue and Sh. Subash Agarwal, Advocate on behalf of the assessee.
On a careful consideration of the facts and circumstances of this case and material available on record, we find that the AO in this case made an addition of Rs.5,76,23,688.23 to the closing stock of the assessee company. The assessee submits that during mining operations, the company produced Lumps & Fines. These material are further crushed/screened as per the content of the extraction and the market requirements and the output is sold to different customers at ex- mines, FOR, FOB and CFR basis. Various material were lying at Mines, Crusher site, different railway sidings, different Ports etc. as on the year end i.e. 31.03.2008. The assessee also purchased iron ore fines to meet any export orders. As the entire material purchases was exported, no closing stock from out of purchases remained with the assessee.
The assessee consistently, over the years follows the policy of valuation of stocks at cost or market price whichever is lower. The cost is calculated based on the location at which the stocks are kept.
The assessee claims that stocks have been valued in the following manners:-
(a) Stocks at mines are valued at cost at which they come into existence. (b) Stocks at crusher/screening site are valued at mines after considering crushing/screening expenses, local transporting etc. (c) Stocks at different sidings/ports are valued after considering the freight cost incurred for making the material available at various points.
The assessee valued the closing stock at Rs.19,11,69,852.32. The AO after perusing the tax audit report arrived at the cost price per Metric Ton of iron ore at Rs. 356.7.75 and applied the same to the quantity of closing stock and the difference was added. This was disputed by the assessee and the matter was carried in appeal before the Ld.CIT(A).
Before Ld.CIT(A), the assessee pointed out that the AO committed an error in calculating the cost price per Metric Ton by including the cost of purchases of iron ore, railway freight expenses etc. He pointed out that the entire iron ore fixes which were purchased were admittedly exported during the year and hence cost of purchased can not be taken while valuing the closing stock as on 31.03.2008. The First Appellate Authority appreciated this point and at page 9 deleted the addition by holding as follows:-
“I have considered the finding of the AO on this issue in the assessment order and the written submission as well as oral submission made by the AR during the appellate proceedings. I have also considered orders/ decisions of different judicial authorities brought on record on this issue. I find that (a) the assessee has calculated the valuation of closing stock during the relevant assessment year in the same way and manner and adopting the same method of calculation which the assessee has been following in earlier years.
(b) that, in earlier assessment years, scrutiny assessment orders u/s 143(3) have been passed.
(c) That, in earlier assessment years, the method of calculation of closing stock by the assessee has not been disturbed by the department.
(d) That, in earlier assessment years, the department has accepted assessee's method of valuation of closing stock as a recognized method and so it was accepted.
(e) In the present assessment year, the AO has rejected assessee's method of valuation of closing stock without assigning any reason for that.
(f) The AO has also not disputed that the method of valuation of closing stock by the assessee is not a standard method.
(g) The AO has also not brought on record as to why the method of valuation of closing stock by the assessee, which was accepted by the department in earlier years, was not correct and why a new method of calculation adopted by the AO should be accepted.
After considering facts mentioned above and keeping in view the ratio decided by the Hon'ble the Punjab and Haryana High Court in the case of CIT vs Oswal Woollen Mills L (supra) wherein the Hon'ble Court has clearly observed "It was found that assessee applied same principle for valuation of opening stock, which was applied for valuation of closing stock and further same method was being applied consistently even in all subsequent years - Tribunal held that Assessing Officer had not given any logical basis for not accepting valuation of work-in-progress -Tribunal also observed that if Assessing Officer objected to valuation of closing stock, he should have also objected to opening stock on same basis, which was not done", I am of this view that the action of the AO of changing the method of valuation of closing stock without pointing out any reason for the rejection of valuation of closing stock which was accepted by the department in earlier assessment year, is not justified. Accordingly, assessee's appeal on this issue (ground no. 3) is allowed.”
We find no infirmity in this factual findings of Ld.CIT(A). The assessee has given the details in the Paper Book. These details from page 29 to 33 demonstrated that the findings of Ld.CIT(A) cannot be faulted with. The calculation mistake done by the AO has been corrected by the Ld.CIT(A). The assessee has been consistently following the same method of valuation of closing stock year after year. The AO has been accepting this method in the earlier years also. Hence even on the ground of consistency, the order of the AO on this issue had to be reversed. Hence, we uphold the order of the Ld.CIT(A) and dismiss this ground of the Revenue.
Ground No.2 is on the disallowance of depreciation on amortized wagon cost.
The company purchased railway rakes under Wagons Investment Scheme (in short “WIS”) from Indian Railways. This scheme provides that the investor would be the owner of the wagons. Under the scheme, the ownership of these wagons so procured, would get transferred to the Indian Railways after 10 years. If the assessee is not the owner, the question of transfer of ownership does not arise. No lease charges are payable under this scheme. The AO disallowed the depreciation on the ground that Indian Railways is the bonafide owner of the wagons and hence the assessee is not entitled to the claim depreciation. On appeal, the First Appellate Authority held as follows:-
“I have considered the finding of the AO and the written submission as well as oral submission made by the AR during the appellate proceeding. From the above discussion, following facts emerge. Such as (a) That, the assessee had invested/purchased two Railways wagons. (b) That, the assessee purchased them for the sake of its business. (c) That, under the WIS, the ownership of these wagons were to be transferred to the Indian Railways after 10 years.
(d) That, the assessee was the owner of these wagons for the initial 10 years. (e) That, the assessee got the value of Railways wagon amortized in its books of accounts as per the Company Act.
(f) That, the amortization amount alongwith the depreciation of other assets was added back to the book profit to calculate the taxable income of the assessee.
Keeping in view facts discussed above, it seems that AO failed to appreciate the fact that the assessee had offered the entire amortization amount alongwith the amount of depreciation of other assets and added back in its book profit in order to calculate the taxable income. As the AO has not taken this important and vital part of accounting system of the assessee, therefore, the AO wrongly concluded that the assessee had claimed amortization and depreciation off on the same assets simultaneously. While the fact and reality is not the same. Thus, keeping in view facts discussed above, assessee's action of disallowing depreciation on Railways wagons in WIS is not justified. Accordingly, assessee's appeal on ground no 4 is allowed.”
We find that under the scheme, the assessee would be the owner of the wagon in question. Unless he is the owner of the wagon, the question of transfer of ownership from the assessee to the Railways does not arise. Ld.CIT(A) has rightly pointed out that the decision of the Hon’ble Rajasthan High Court in the case of CIT vs Rajasthan Syntex Ltd.[2009] 178 Taxman 33 (Rajasthan) is not applicable, as is that case the wagons are taken on operating lease basis. In the case on hand, under sub-clause 5.5 of the agreement of WIS, no lease rent whatsoever is to be paid. The assessee has claimed depreciation @ 15% u/s 32 of the Act. Ld.CIT(A) has rightly allowed the claim of the assessee. We uphold the same and dismiss this ground of appeal of the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 24.08.2018.