ITO, BADDI vs. M/S HIMACHAL WINDING WIRE PRODUCTS, SOLAN

"On the facts and in the circumstances, the Ld. CIT(A) has erred in deleting the addition amounting to Rs. Rs. 27,12,972/- made on account of excess stock found."

On the facts and in the circumstances of the case, the Ld. CIT(A) erred in admitting additional ground of appeal regarding explanation of difference in value of stock.

The Ld. CIT(A) has further erred in deleting the addition of Rs. 11,96,000/- made on account of donation expenses debited in the profit & loss account.

Assessment in this case was completed under section 143(3) of the I.T. Act, 1961 vide order dated 30-09-2008. While completing the assessment, the deduction claimed under section 80-IC of the I.T. Act amounting to Rs. 12,08,33,314/- was disallowed treating the income not derived by manufacturing activities (Rs. 10,15,17,475/- treated as income from other sources and Rs. 1,93,15,839/- determined from business activities but not derived from mfg. activities). Besides this, addition on account of difference in stock noticed during the course of assessment proceedings amounting to Rs. 27,12,972/- was also made. Expenses amounting to Rs. 11,96,500/- claimed on account of donation in the profit and loss account were also disallowed being not related to business activities. The Ld. CIT(A) Shimla dismissed the appeal filed by assessee vide order passed in appeal No.IT/183/08-09/SML dated 24-08-2009. Not satisfying with the order of the Ld. CIT(A), the assessee went in appeal before the Hon'ble ITAT, Chandigarh, who vide its order passed in appeal No. ITA/997/2009 dated 31-12-2009 decided the appeal of the assessee and addition made on account of deduction disallowed amounting to Rs. 12,08,45,198/- was deleted and regarding other additions, the matter was restored to the file of the CIT(A) for fresh adjudication.

In the second round of appeal the Ld. CIT(A) has deleted the addition of Rs. 27,12,972/- made on account of excess stock and Rs. 11,96,000/- made on account of donation expenses debited to P&L Account, hence the appeal of the Revenue.

1 Since during the course of survey conducted u/s 133A of the I.T. Act, job work stock of M/s Su-Kam Power Systems was stated to be lying at its premises which was of Rs. 1,14,000/-, credit for it was allowed at the time of assessment and difference of Rs. 27,12,972/-(Rs. 28,26,972/- minus 1,14,000/-) was added to assessee's total income.

2 The appellant further reconciled the remaining difference by stating that the same was due to estimation / guess work done by the survey party with regard to the material running on machines and also excessive valuation done in respect of enameled wire @ Rs. 310/- per kg instead of Rs. 195/- per kg being the yearly average selling rate. It was noticed that the Ld. A.O. raised such issue on the ground that the appellant showed its inability to give average sale rate (size wise) of the wire. The A. O. stated in the assessment order vide para 9.3 that "Moreover on taking the average sale rate of different sizes of wire on the basis of average sale of rate of Feb, 2006, the month in which survey was conducted, the sale rate comes to almost the same which was quoted by the assessee at the time of survey. Hence, the plea of the assessee on this issue is rejected".

3 The Id A/R has dealt with these observations of Ld. A.O. vide para nos 1.13 of his written arguments. I find force in the argument made by him and feel that since the appellant once adopted the basis for valuing its closing stock - raw material at cost and finished goods at yearly average selling rate, the same basis for valuing the stock as on survey date should be applied. It is further noticed that Ld. A. C himself accepted the cost for valuing the closing stock as on 31.03.2006. It is also noticed that the Id. AO. did not mention in the assessment order that there was any difference in the quantities of the stocks as on survey date and also that he did not file any discrepancy in the purchase, sale, receipt or expenses. Therefore, I do not see any justification to uphold the addition of Rs 27,12,970/- made on account of stocks. Accordingly, the addition of Rs. 27,12,970/- is deleted

Before us the Ld. DR argued that the rate of Rs. 310 per kg is as per the rate determined as per the books of accounts. It was argued that nowhere during the survey the job work stock belonging to Havells India and Sharda Enterprises have been brought to the notice of the survey team and the assessee showed inability to provide average sale rate (size wise) of the wire. The Ld. DR relied on the order of the Assessing Officer.

The Ld. AR relied on the submissions made before the Ld. CIT(A) and argued that there was no difference in the quantity found to the extent there is no excess stock per se as per the books of accounts. It was submitted that 2062 Kgs of enameled copper wire belonging to Havells India Ltd. valued Rs. 310 per kg and bare copper wire weighing 1940 Kg belonging to Sharda Enterprises valued to Rs. 195 per kg have to be given the benefit of. It was further argued that the addition was primarily based on the difference in the valuation of the stock but not based on the difference of the quantity of stock.

On going through the record we find that the pricing has been taken @ Rs. 310 per kg being the selling rate of the finished goods whereas Rs. 195 per kg is the value of the job work and the rate of the raw material. The evidences have been filed for the reconcile stock in the form of job work excise challans,

The Ld. DR argued that the Deptt. has filed appeal to the Hon'ble High Court against allowing of deduction under section 80-IC.

Ld. AR relied on the order of the Ld. CIT(A) and the judgment in the case of CIT Vs. Allied Industries 31 DTR 323 (H.P).

The disallowance of donation ultimately leads to increased in the profits and as per the provisions of the Act applicable to the assessee pertaining to Section 80IC, he would be automatically gets benefitted in the scheme of computation of income and consequent deduction under Chapter-VIA. Hence the action of the Ld. CIT(A) is upheld.

In the result, appeal of the Revenue is dismissed.