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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy
Praful Kumar Ratilal Somaiya………………………....…………………………………………………… Appellant C/o S.L. Kochar 5, Ashutosh Chowdhury Avenue Kolkata – 700 019 [PAN : ALWPS 4142 G] ACIT, Circle-43, Kolkata……………………………………………….……………….……………….……. Respondent 3, Govt. Place (W) Kolkata Appearances by: Shri Sallong Yaden , Addl. CIT, appeared on behalf of the Revenue. Shri Anil Kocchar, Advocate, appearing on behalf of the Assessee. Date of concluding the hearing : March 27th, 2018 Date of pronouncing the order : April 11th, 2018 ORDER Per J. Sudhakar Reddy, AM :-
This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-13, Kolkata, (hereinafter the ‘Ld. CIT(A)’), dt. 25/09/2017, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), relating to Assessment Year 2011-12.
After hearing rival contentions, I hold as follows:- 2.1. Ground Nos. 1, 5 & 6 are general in nature.
Ground No.2 is against the addition of Rs.1,38,145/-, made by the Assessing Officer to the closing stock. The Assessing Officer made this addition by observing as follows:- “Undervaluation of closing stock : The assessee has shown closing stock at Rs.2,35,77.702/- of finished goods. The assessee made purchases of items for Rs.49,82,45,190/- and uncured following direct expenses/cost: Direct Expenses/cost = Rs.2,91,93,771/- (Processing charge Rs.2,63,08,543/0 + Freight charge Rs.28,85,228/-) During the course of scrutiny it has been observed that while making valuation of closing, the proportionate direct cost for Rs.2,91,93,771/- has not been included in the Assessment Year: 2011-12 Praful Kumar Ratilal Somaiya valuation of stock. The A/R of the assessee has no explanation in this fact. Since the assessee is following the method of valuation of closing stock, proportionate amount of direct expenses as stated above is required to be added to the valuation of closing stock as per provision of Section 145A of the Inocme-tax Act, 1961. This view has also been ventilated by the Hon’ble Supreme Court in the case of CIT vs. British Paints India Ltd. (54 Taxman 499) (1991). In view of the above proportionate amount of above stated direct cost relating to purchase of goods is added to the valuation of closing stock. In absence of quantitative details the calculation come as under: Purchase = Rs.49,82,45,190/- Total direct cost = Rs.2,91,93,771/- In proportionate direct cost = (2,91,93,771 x 2,35,77,702 / 498245190) = Rs.1,38,145/- Thus, addition on account of undervaluation of stock is Rs.1,38,145/-. Penalty proceedings u/s. 271(1)(c) has been initiated separately in this regard.”
3.1. The ld. CIT(A) rejected the contention of the assessee by holding that Section 145 of the Act, confers sufficient power upon the Assessing Officer to make such computation in such a manner as he determines for deducing the correct profit and gains. He was of the view that the method of accounting which excludes, for the purpose of valuation of closing stock, of costs other than the cost of raw material for the goods in processed and furnished products would result in a distorted picture. He held that such a system of valuation would result in comparatively lower value of opening stock and closing stock and would result in shift of profits from one year to another. 3.2. The ld. Counsel for the assessee relies on Section 145 of the Act and submits that a method which is consistently being followed by the assessee over the years has to be adopted. Section 145A of the Act, reads as follows:- “145A. Method of accounting in certain cases.—Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be— (a) in accordance with the method of accounting regularly employed by the assessee; and Assessment Year: 2011-12 Praful Kumar Ratilal Somaiya (b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
3.2.1. It overrides Section 145 of the Act. The Section makes it mandatory to value purchases, sales and inventory in accordance with the method of accounting regularly employed by the assessee. Only adjustments are permitted to include any amount of tax due to cess or fees which is paid or incurred. Thus, inclusion of processing charges and freight charges is not contemplated in this Section. The ld. D/R, could not controvert the submission of the assessee that it is consistently following the method of account and the stock is being valued year after year in the same manner.
Under these circumstances, I delete the addition made on the ground that the same is not in accordance with Section 145A of the Act, and allow this ground of the assessee.
Ground Nos. 3 & 4 are against ad-hoc disallowances. 5.1. The ld. D/R, did not press for these grounds due to the smallness of the amounts on the condition that it would not be taken as a precedent. Hence these grounds are dismissed as not pressed.
In the result, appeal of the assessee is allowed in part.