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Income Tax Appellate Tribunal, ‘A’ BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is directed against the order dated 12-11-2013 passed by the Commissioner of Income Tax(Appeals)-VI, Kolkata for the assessment year 2007-08.
2. In this appeal, the Revenue has raised the following grounds:- 1. That on the facts and circumstances of the case, the CIT(A) erred in holding that the order u/s. 147 was not sustainable as the notice u/s 148 was issued on the basis of change of opinion, ignoring the fact that the case was reopened on the basis of reason to believe on tangible materials that there was under- assessment of taxable income as decided by the Hon'ble Supreme Court in the case of CIT Vs Sun Engineering Works (P) Ltd. reported in (198 ITR 297) wherein it is held that the term "escaped assessment" includes both non assessment and under- assessment" . M/s. Hindustan Paper CorprnLtd 1
2. That on the facts and circumstances of the case, the CIT(A) erred in law as well as on facts in holding that the provisions for diminution of stock & spare created in earlier years was business loss, ignoring the fact that the provision for diminution of value of stores and spares created in the earlier years as provision for written back of Rs. 646.36 lacs did not qualify for allowable expenses as per provisions of section 36(2) of the Act.
That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.”
3. At the outset, the Ld.AR submits that the appeal filed by the Revenue is arising out of same assessment order dated 22-3-2013 framed u/s. 143(3) of the Act along with Cross Objection filed by the assessee have been disposed off by “C” Bench of Tribunal by a consolidated order dt. 05-11-2015 in and CO No. 19/Kol/2011 respectively for the assessment year 2007-08, wherein the Tribunal accepted the contention of the assessee that writing off Rs. 656.36 was being the value of identified items of obsolete and damaged stores and spares basing on the Valuation Report of M/s. Bandyopadhyay & Associates, Cost Accountants. The Tribunal also decided the ground involving Rs. 10 lakhs and after examination of relevant facts on record, the Tribunal held that the amount of Rs. 10 lakhs which is remaining amount out of Rs.656.36 lakhs was debited to profit & loss account.
4. As matter stood thus, the Revenue reopened the assessment u/s. 147 of the Act while the original assessment was made u/s. 143(3) of the Act. During such proceedings, the AO found that the assessee did not comply with the procedure contemplated to value the raw materials under AS-2 valuation of inventories, thereby the AO added/disallowed the entire amount of Rs.656.36 lakhs. M/s. Hindustan Paper CorprnLtd 2
5. The CIT-A held that the provisions for determination of stock and spare was a business loss of earlier years. He also held that the re-opening of assessment was also bad in law against which the present appeal is filed challenging the order of CIT-A by raising the aforementioned grounds.
Heard rival submissions and perused the material available on record. We find that the “C” Bench of Kolkata Tribunal supra decided the issue in favour of assessee and against the revenue. Relevant portion of observations is reproduced herein below for the sake of better understanding:-
First we take up (Revenue’s appeal). The first issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance made by AO of provisions for write off of spares at Rs.10 lacs. For this, revenue has raised following ground no.1: “1. That Ld. CIT(A)-VI, Kolkata has erred in law as well as on facts of the case in deleting the addition on account of disallowance of provision for write off of spares of Rs.10 lacs without going into the merit of the case.”
3. Briefly stated facts are that the assessee has debited a sum of Rs. 10 lac under the head loss on account of diminution in value of stores and spares. The AO required the assessee to explain the same. The assessee explained vide reply dated 26.10.2009 but the AO has not accepted the reply of the assessee and hence, he disallowed the provision for write off of stores and spares as not allowable expenditure. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by relying on the order of AY 2004-05 and also observing that even the AO has not made any addition on the same issue for AY 2006-07. For this, he observed as under: “I have considered the submissions of the appellant and also the details furnished by the appellant. The AO made the disallowance since the “provision for write off of stores and spares” is not an allowable expenditure, stores and spares are consumable items of a manufacturing business and, therefore, consumption of stores is an ordinary incidence of manufacturing business. I agree M/s. Hindustan Paper CorprnLtd 3 with the decision of CIT(A)-V, in in the appellant’s own case for the AY 2004-05, based on which the AO has not made any addition on the same issue for the AY 2006-07. Since facts and circumstances of the present appeal are the same, AO is directed to allow the sum of Rs.10,00,000. This ground is allowed.” Aggrieved, revenue is now in appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. We find that assessee had written off in its Profit & Loss Account the value of obsolete stores and spares amounting to Rs. 656.36 lacs. The assessee deducted the provision created till 31.03.2006 for an amount of Rs. 646.36 lacs and the remaining sum of Rs. 10 lacs was debited to the profit and loss account for the year ended 31.03.2007. Assessee claimed that it carries substantial inventory of raw materials, stores and spares. According to the assessee, its plants are located in remote and inaccessible areas of Assam and hence these plants carry substantial inventory of raw material stores and spares. Due to heavy rains as also substantial use of water and chemicals in manufacturing process, there is high incidence of corrosion and damage. From the records, we find that the assessee regularly carries out physical inspection of materials, stores and ascertain the diminution in value of stores and also damaged and obsolete stock. It is also a fact that physical inspection is conduced both departmentally as also by external agencies. During the year under consideration M/s. Bandyopadhyay & Associates, Cost Accountants, carried out the valuation of spares at Nagaon and Cachar Paper Mills and identified items of obsolete and damaged stores and spares and furnished report on valuation of stores and spares. Based on the valuation report that assessee written off Rs.656.36 lacs in its profit and loss account for the year ended 31.03.2007. However, in respect of the very same items assessee had created provision in the earlier years to the extent of Rs.646.36 lacs and therefore adjusting such provisions, the net additional sum of Rs. 10 lacs only was debited in the profit and loss account. We further find that similar write off were also made by the assessee in the financial year 2003-04 and 2005-06. The disallowance made by the AO in AY 2004-05, was deleted by the CIT(A) and thereafter COD refused permission to file ITA No. 281/Kol/14 M/s. Hindustan Paper CorprnLtd 4
appeal against the said appellate order. In AY 2006-07 also the assessee had written off Rs.184.07 lacs. In the regular assessment u/s. 143(3) for A. Y. 2006-07 the same AO after due consideration of the explanation and the CIT(A)’s order for AY 2004-05, had refrained from making any disallowance. In view of the facts and circumstances of the present case, We are of the view that the claim of assessee, writing off in its Profit & Loss Account, the value of obsolete stores and spares, is a genuine claim and CIT(A) has rightly allowed the same.
In this appeal, the revenue raised two grounds, the one being questioning the order of CIT-A in holding the order passed under section 147 of the act is not sustainable. It is observed that the reasons recorded under section 148(2) where in the AO opined that the assessee shown separately in profit and loss account regarding the loss on diminution of value of stores and spares to an extent of Rs.656.36 lacs in the year under consideration and written off with that of a provision created to an extent of Rs.646.36 in earlier years and in respect of remaining Rs. 10 lacs was debited to the profit and loss account of the relevant year under consideration. We find that the original assessment was completed and passed order thereon under section 143(3) of the act, wherein the AO examined all the relevant evidence in the scrutiny proceedings and thereafter on going through the assessment records which were the same made available in the assessment proceedings and the reopening of such assessment without there being any new material on record is not permissible.
In respect of writing off Rs.634.36 laks, the CIT-A treated the same as business loss. We find that similar write off were also made by the assessee in the financial year 2003-04 and 2005-06. The disallowance made by the AO in AY 2004-05, was deleted by the CIT-A and COD did not grant permission to file appeal against the said appellate order. In AY M/s. Hindustan Paper CorprnLtd 5 2006-07 also the assessee had written off Rs.184.07 lacs. The AO did not make any disallowance taking into consideration the explanation offered by the Assessee and order of the CIT-A for AY 2004-05 in the assessment u/s. 143(3) for A. Y. 2006-07. The Tribunal supra found that assessee had written off in its Profit & Loss Account the value of obsolete stores and spares amounting to Rs. 656.36 lacs and deducted the same to the provision created till 31.03.2006 to an amount of Rs. 646.36 lacs and the remaining sum of Rs. 10 lacs was debited to the profit and loss account for the year ended 31.03.2007. In view of the above discussion and following the finding of the “C” Bench of Tribunal, We are of the view that the claim of assessee, writing off in its Profit & Loss Account, the value of obsolete stores and spares, is a genuine claim and CIT(A) has rightly allowed the same. Thus, ground no’s 1and 2 raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order Pronounced in the Open Court on 21st September, 2016