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Income Tax Appellate Tribunal, Conducted through E-Court, Rajkot
Before: SHRI WASEEM AHMED & SHRI T.R SENTHIL KUMAR
आदेश/O R D E R
PER WASEEM AHMED ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-3, Rajkot, (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2014-15.
The only effective issue raised by the revenue is that the Ld.CIT(A) erred in deleting the addition made by the AO on account of undervaluation of closing stock of Rs. 2,55,81,492/- only.
Briefly stated facts are that the assessee in the present case, a partnership firm, is engaged in the business of trading and export of fish/other marine products. The AO during the assessment proceedings found that the assessee has valued the closing stock on the market price without considering the benefit of export incentive i.e. DEPB/Duty Draw back/ Other export incentives. Thus, the AO worked out the value of the export incentive to Rs. 2,55,81,492/- which was to be included in the closing stock as on 31/03/2014 and added to the closing stock of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT(A) who deleted the addition made by the AO by observing as under: I have carefully considered the assessment order of the AO, the written submissions of the appellant and the rival contentions. At the outset is submitted by the appellant that in one of partner Smt. Gracy Thomas of appellant firm similar addition was deleted by id. CIT(A)- 3 vide order dated 23.02.2018 in appeal No. CIT(A)-3/A3/1063/14-15 for A.Y. 2012-13. Further reliance was also placed on the decision of Hon'ble ITAT, Rajkot Bench, Rajkot in the case of Gracy K. Thomas for A.Y.2010-11 wherein appeal filed by the department has been dismissed and same issue was involved. The relevant part of the combined appellate order, including in the case of one of the partners i.e. Smt. Thomas of appellant firm, in to 761/RJT/2014 dated 06.09.2017 relevant to AY 2010-11 is reproduced as under:- 4. During the course of the scrutiny assessment proceedings, the A.O. was not satisfied with the method of valuation of closing stock employed in the previous year by the assessee. On perusal of Tax Audit report, the AO found that the assessee has valued its closing stock lower of the cost or market value. The A.O. was of the opinion that the sale price actually realized by the assessee from its sales does not in facts reflect the true prevailing market price on the date as the assessee has determined the sale price considering the receipt of DEPB gains as hid business receipts The AO was of the firm belief that if the market price is computed taking into effect, the DEPB gains the actual market price sa computed would be more than the cost price to the assessee. According to the A.0, the stock has to be valued adopting the cost price as it would be the lower of cost or market value to the assessee. The A.0. concluded by holding that the assessee has undervalued the closing and proceeded by valuing the closing stock at Rs 4,81,72,674/- Since the assessee had shown the closing stock at Rs 4,41,60,187/ the A.0. determined the undervaluation of stock at Rs 40,12,487/-and made the impugned addition 5. Assessee assailed the assessment before the ld. CIT(A) and strongly contended that the A.0. has grossly erred in appreciating the facts in true perspective It was brought to the notice of the Id. CIT(A) that the assessee has furnished full quantitative details of raw materials. finished goods and valuation thereon. The A.0 has not pointed out any defect or irregularity of error in the trading details furnished by the assessee. It was further brought to the notice of the Id. CIT(A) that the assessee is consistently and regularly following the same method of valuation of closing stock which has been accepted by the Department in previous years.
6. After considering the facts and the submissions, the Id. CIT(A) was convinced that the A.0. has not brought any evidence/information and there is no case for disturbance of valuation of closing stock declared by the assessee and directed the A.0. to delete the impugned additions.
Aggrieved by this the revenue is before us. 8 The ld. D.R. strongly supported the findings of the A.O. Per contro, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. 9.We have given a thoughtful consideration to the orders of the authorities below. A perusal of the assessment order shows that the A.O has contradicted himself. On the one hand, the A.O says that the effect of DEPB would be that the market price would be lower than the cost price. On the other hand, the AO. has made the addition for undervaluation of closing stock, 10. Assuming, yet not accepting, if the effect of DEPB is to make the market price lower than the cost price then the closing stock would be valued at market price as the method of accounting employed by the assessee is lower of cost or market price.
The A.O. further erred in stating that the market price is computed taking into consideration, the DEPB gains the actual market price so computed would be more than the cost price. In fact, if the DEPB gains are considered then the market price would be less than the actual cost. 12 The undisputed fact is that the assessee has been consistently following the same method of accounting since past many years which has not been disturbed by the Department Therefore, we do not find any logic in disturbing the well recognized method of valuation of closing stock adopted by the Assessee. We do not find any error or infirmity in the findings of the ld. CIT(A) In view of facts and the circumstances of the case, respectfully following the decision of Hon. ITAT, Rajkot rendered in the case of one of the partners of the appellant on the same set of facts, in the case of the appellant, the grounds of appeal
no.2 and 3 are allowed.
5. Being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us.
Both the Ld. DR and the Ld. AR before us relied on the order of the authorities below as favourable to them.
7. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the ITAT in the group case of the assessee namely Gracy Thomas partner of the respondent firm has decided the issue in favour of the assessee and against the revenue which has been reproduced in the order of the Ld.CIT(A) in the preceding paragraph. At the time of hearing, the Ld. DR has not brought anything contrary to the argument advanced by the Ld. AR for the assessee. Thus, following the ratio laid down by the ITAT in the group case of the assessee as discussed above, we do not find any reason to interfere in the finding of the Ld. CIT(A). Hence, the ground of appeal of the revenue is hereby dismissed.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the Court on 12/07/2023 at Ahmedabad.