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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI A. MOHAN ALANKAMONY & SHRI V. DURGA RAO
आदेश /O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-I, Coimbatore, dated 04.07.2014 relevant to the assessment year 2010-11.
Facts in brief are that the assessee-company, engaged in the business of manufacturing of engineering goods , had filed its return of income. The return filed by the assessee was processed under Section 143(1) of the Income-tax Act, 1961 (in short 'the Act').
Thereafter, after due process, the assessment was completed under Section 143(3) of the Act. During the course of assessment proceedings, the Assessing Officer observed that on verification of stock statement filed by the assessee-company to the banks on 31.03.2010 and closing stock value taken for income-tax purpose, there was a difference of ` 2,90,31,034. The assessee-company was asked to furnish the reason for the difference in stock valuation. The authorized representative filed a letter dated 20th February, 2013 and explained the difference of stock valuation which is reproduced as under:-
“The reconciliation between closing stock as per balance as on 31.3.2010 and stock statement submitted to the bank is as under:
Particular Stock statement Stock as per Difference given to bank P & L Account Raw material 5,75,64,685 4,98,08,829 79,55,856 (including Consumables and stores) Work in 2,84,33,257 2,19,03,338 65,29,919 Progress Finished Goods 2,37,50,467 92,05,208 1,45,45,259 (including Traded Goods) Total 10,97,48,409 8,07,17,375 2,90,31,034
The closing stock of 10,=.97 Crores submitted to the bank was arrived at on a notional basis in order to avail necessary limits from Corporation Bank, State Bank of India and HDFC Bank. The company has been enjoying the following cash credit limits.
Corporation Bank 4.35 Crores State Bank of India 5.00 Crores HDFC Bank 2.92 Crores
At any given point of time, the company is expected to maintain the inventory and book debts well above the drawing limits. While arriving at the drawing power, the bank takes into account only the paid stock i.e. the trade creditors outstanding on the particular date are reduced from the value of inventory. In the case of the assessee company, the drawing power was calculated as under:
Total stock value 10,97,48,409 Less: Stock purchased on credit 5,59,71,121 5,37,77,288 Less: Promoters Margin @ 25% 1,34,44,322 Net value 4,03,32,966
The above figure 4.03 Crores coupled with the book debts outstanding for loss less than 90 days have been taken as total drawing power of the assessee company. Closing stock submitted to bank are taken at cost to enjoy the necessary limits from banks. Whereas closing stock taken in balance sheet is physically verified and taken at lower of cost or Net realizable value as per accounting standard 2 “Valuation of Inventories” of Institute of Chartered Accountants of India. The closing stock considered in the balance sheet is physically verified by the management and method of valuation is confirmed by the auditors of the company. There is no difference in the qualities of individual items constituting the total inventory. The difference is only in the method of valuation.”
The A.O. after considering the explanation given by the assessee has observed that as per the Accounting Standards 2 issued by Institute of Chartered Accountants of India, all the banks sanctioning credit limits to the companies on the basis of valuation of stock filed by them, which is valued at on cost price or net realizable value whichever is lower. In view of the above, difference between the value of the stock as reflected in the stock statement submitted to the banks and the value of stocks shown to the Income-tax Department in the return filed for assessment year 2010-11 amounting to ` 2,90,31,034/- is assessed under Section 69 of the Act.
The assessee carried the matter in appeal before the CIT(Appeals). The Ld. CIT(Appeals) deleted the addition made by the Assessing Officer.
On being aggrieved, the Revenue carried the matter in appeal before the Tribunal.
The Ld. D.R. has submitted that similar issue has come up before the Tribunal for consideration for assessment year 2008-09 in dated 29th April, 2013. The Tribunal remitted back the matter to the A.O. to consider the explanation of the assessee and decide in accordance with law and submitted that this may also be remitted to the A.O. for consideration afresh.
None appeared on behalf of the assessee.
We have heard Ld. D.R. and perused the records and gone through the orders of the authorities below. We find that the A.O. has not considered the explanation given by the assessee in proper manner. The Ld. CIT(Appeals) has also not considered the issue in detail. Therefore, we set the order passed by he Ld. CIT(Appeals) and direct the A.O. to consider the issue afresh keeping in view the order of the Tribunal in dated 29th April, 2013.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced on Friday, the 20th of March, 2015 at Chennai.