INDOKEM LTD,MUMBAI vs. ASST CIT CIR 6(1), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 13-8-2013, for the assessment year 2009-2010, in the matter of order passed u/s.143(3) of the IT Act.

In this appeal, the assessee is aggrieved by the action of the AO for not allowing reduction in the valuation of work-in-progress by 5%. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of manufacture and trading of synthetic dyestuffs, chemicals and dyes. From the record we found that the assessee company is valuing work-in- 2 progress at lower of cost or net reliable value. The appellant Company is consistently following the said method of valuation of work- in-progress. During the subject year, the appellant Company has reduced by 5% its inventory of non-moving work-in-progress at Ankleshwar Factory, which came to Rs.35,92,OOO/-. During the course of the assessment proceedings, the appellant Company was asked to give justification for such 5% reduction in the value of work-in-progress. The said justification has been given by the assessee Company by means of a Note. The main reason for reduction in the value of work- in-progress was that until F.Y. 2007-08, the appellant Company was manufacturing Crude Vat Dyestuffs and exporting the same to the U.S. Market and only a small portion of the production of Crude Dyestuffs was used for formulated products. The demand for Crude Vat Dyestuffs started decreasing in 2008 and by mid 2008 the export orders of Crude Dyestuff had more or less stopped. Since the plant of the Company was designed to produce Crude Dyestuffs, the Company continued production in low profile and changed the product mix so as to get fresh market. However, the intermediates produced earlier were lying in stock for longer period, which has resulted in deterioration of quality due to over exposure. The management of the Company then re-assessed the work-in-progress at the end of the year and found that about 5 to 6% of the inventory of work- in-progress has degraded in quality and was not reuseable. Hence, the management of the Company took a cautious decision of 5% value reduction on an overall basis for such work-in-progress. Accordingly, we do not find any merit in 3 ITA No.6402/M/13 the action of lower authorities for not allowing 5% reduction in the value of work-in-progress, which was made in respect of work-in-progress in degraded quality and was not reuseable. 4. In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 30/10/2015. आदेश की घोषणा खुरे न्मामारम भें ददनािंकः 30/10/2015 को की गई ।