Elgi Electric And Industries Ltd., ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, CHENNAI ी ए. मोहन अलंकामणी, लेखा सद य एवं ी वी. दग ु ा$ राव, या%यक सद य केसम&

BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER

आयकर अपील सं./ITA No.2591/Mds/2014 %नधा$रण वष$ /Assessment Year : 2010-11

The Assistant Commissioner of M/s Elgi Electric and Industries Income Tax, Ltd., Company Circle I(2), v. 737-D, Elgi Towers, Green Fields, 63-A, Race Course Road, Pullakulam Road, Coimbatore. Coimbatore - 641 045.

PAN : AAACE 4787 H (अपीलाथ+/Appellant) (,-यथ+/Respondent)

अपीलाथ+ क. ओर से/Appellant by : Shri N. Madhavan, JCIT ,-यथ+ क. ओर से/Respondent by : None

सन ु वाई क. तार ख/Date of Hearing : 05.02.2015 घोषणा क. तार ख/Date of Pronouncement: 20.03.2015

आदे श /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.

2. Facts in brief are that the assessee-company, engaged in

the business of manufacturing of engineering goods , had filed its 2 I.T.A. No.2591/Mds/2014

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 3 I.T.A. No.2591/Mds/2014

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 4 I.T.A. No.2591/Mds/2014

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.

3. The assessee carried the matter in appeal before the

CIT(Appeals). The Ld. CIT(Appeals) deleted the addition made by

the Assessing Officer.

4. On being aggrieved, the Revenue carried the matter in

appeal before the Tribunal.

5. The Ld. D.R. has submitted that similar issue has come up

before the Tribunal for consideration for assessment year 2008-09

in I.T.A. No. 2160/Mds/2011 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.

6. None appeared on behalf of the assessee.

5 I.T.A. No.2591/Mds/2014

7. 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 I.T.A. No. 2160/Mds/2011 dated 29th April,

2013.

8. 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.

Sd/- sd/- (ए. मोहन अलंकामणी) (वी. दग ु ा$ राव) (A. Mohan Alankamony) (V. Durga Rao) लेखा सद य/Accountant Member या%यक सद य/Judicial Member

चे नई/Chennai, th >दनांक/Dated, the 20 March, 2015.

Kri. 6 I.T.A. No.2591/Mds/2014

आदे श क. ,%त@लAप अBेAषत/Copy to: 1. अपीलाथ+/Appellant 2. ,-यथ+/Respondent

3. आयकर आयुCत (अपील)/CIT(A)-I, Coimbatore

4. आयकर आयुCत/CIT-I, Coimbatore

5. Aवभागीय ,%त%न ध/DR

6. गाड$ फाईल/GF.