ACIT 14(2)(2), MUMBAI vs. MULTIFORM MACHINERY (BOM) P.LTD, MUMBAI

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ITA 2793/MUM/2015Status: DisposedITAT Mumbai19 April 2017AY 2003-043 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the valuation difference in WIP, surrendered as business income, is eligible for deduction under Section 80HHC. The order of the CIT(A) was found to be fair and reasonable.

What were the facts?

During a survey, a difference in the value of work-in-progress (WIP) was found. The Assessing Officer (AO) denied deduction under Section 80HHC on this difference. The CIT(A) allowed the deduction, relying on a Rajasthan High Court judgment.

What were the issues?

Whether the difference in the value of work-in-progress found during a survey, when surrendered as business income, is eligible for deduction under Section 80HHC.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 133

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “J” BENCH, MUMBAI

Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH, JUDICIAL MEMEBR

Hearing: 15.02.2017Pronounced: 19.04.2017

अऩीराथी की ओय से / Appellant by : Shir Sambit Mishra प्रत्मथी की ओय से/ Respondent by : Shri R.V. Shah सुनवाई की तायीख / Date of Hearing : 15.02.2017 घोषणा की तायीख /Date of Pronouncement : 19.04.2017 आदेश / O R D E R

PER D. KARUNAKARA RAO, AM:

1.

This appeal filed by the Revenue on 11.5.2015 is against the order of the CIT (A)-22, Mumbai dated 16.2.2015 for the assessment year 2003-2004.

2.

The only issue raised in this appeal relates to the denial of deduction u/s 80HHC of the Act in respect of the amount relatable to the value difference of the work-in-progress (WIP)/ purchases found during the survey action u/s 133 of the Act held on 5.2.2003. Officers of the view that the deduction u/s 80HHC of the Act is available in respect of such excess value when the is no difference in the quantity of the WIP. Matter travelled to the first appellate authority. On appeal, CIT (A) examined the issue and relied on the judgment of the Hon’ble Rajasthan HC’s decision in the case of CIT vs. Haswani Art (83 DTR 81) (Raj HC). The contents of paras 3.6 and 3.7 of the CIT (A)’s order are relevant in this regard. 3. On hearing both the parties on this limited issue and after going through the said paras 3.6 and 3.7 of the CIT (A)’s order, we find, the same are relevant. Considering the significance and for the completeness of this order, the said paras 3.6 and 3.7 of the CIT (A)’s order are extracted as under:-

3.6. Appellant further contends that value of stock was due to valuation of closing stock at the time of survey and not assumptive value. Actual valuation done was suppressed by the AO. Hence, the appellant states that there is no suppression of goods / stocks as the valuation was done by the Department at the middle of the year and not at the end of the year. Further, appellant relied on Rajasthan HC’s decision in the case of CIT vs. Haswani Art 83 DTR 81 (Raj HC) wherein it was held as under:- “Deduction u/s 80HHC – Allowability – surrender of income during stock during survey – the is no allegation of sale or actual export of the additional closing stock during the course of relevant asstt year itself – it is undisputed that neither the sales declared by the assessee in the form of export have been disputed by the Revenue that against any such export sales made by the assessee, there was no realization of the convertible foreign exchange by the assessee –simply because the profit of the assessee during the AY is increased on account of surrender of income by the assessee, which is nothing but assumptive valuation of the closing stock by the authority concerned during the course of survey as no actual excess closing stock upon physical verification is found, it cannot be said that the assessee has not fulf8illed or satisfied the conditions for the grant of deduction under section 80HHC. Therefore, Tribunal was justified in allowing the deduction u/s 80HHC on the excess stock valuation of Rs. 9,39,170/- fund during the course of survey and surrendered as business income.

3.7. When we apply the facts of the above case to our present case, Hashwini Arts case also profit of the appellant during the assessment year is increased on account of surrender of income by the appellant, which is nothing but to assumptive valuation of closing by the authority concerned during the course of survey as no excess closing stock by the authority concerned as no actual excess closing stock upon physical verification is found. In the present case also there is no valuation of the quantity of the physical stock but only difference which was offered during the course of survey was under estimation of WIP. As in the present case, HC held that if there is an assumptive valuation on which profit is increased, then it cannot be stated that appellant had not fulfilled or satisfied the conditions for grant of deduction u/s 80HHC and HC also treated the excess stock valuation found during the course of survey and surrendered as business income is eligible for deduction u/s 80HHC. Following the above decision of HC here AO is directed to grant the deduction under section 80HHC as appellant is eligible for the actual stock valuation which is surrendered during the survey proceedings. AO is also directed to treat the above income as business income and not as income from the sources. Therefore, grounds of appeal are allowed.”

4. From the above, it is evident that the decision of the said Rajasthan High Court is relevant for the legal proposition that the said valuation in WIP is eligible for deduction u/s 80HHC of the Act. Nothing contrary is brought to our notice. Therefore, we are of the considered opinion, the order of the CIT (A) on this issue is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed.

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