Falgunbhai Hasmukhbhai Parikh, ... vs Assessee

अपीलाथ / अपीलाथ / (Appellant) ू यथ यथ / थ / (Respondent)

Assessee(s) by : Shri Anil R. Shah, AR Revenue by : Shri M.K. Singh, Sr. DR.

सुनवाई क# तार%ख/ / Date of Hearing : 25/02/2015 घोषणा क# तार%ख /Date of Pronouncement: 26/02/2015

आदे श/O R D E R

PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-XIV, Ahmedabad dated 28.06.2011 for Assessment Year 2007-08.

2. The brief facts of the case, as culled out from the records are as under:-

3. The assessee is an individual stated to be engaged in the business of manufacturing and trading of TEFLON parts etc in the name and style of M/s. Dip Flon Engineering Co. Assessee filed the Return of Income for AY 2007-08 on 31.10.2007 declaring total income of Rs 1,94,58,040/-. The case ITA No. 1980/Ahd/ 2011

- Falgunbhai Hasmukhbhai Parikh.

AY 2007-08

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was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 19.11.2009 and the total income was determined at Rs 1,99,35,190/-. Aggrieved by the order of Assessing Officer, the assessee carried the matter before Ld CIT(A) who vide order dated 28.06.2011 granted partial relief to the assessee. Aggrieved by the aforesaid order of Ld CIT(A), the assessee is now in appeal before us and has raised the following grounds:-

1. The CITA has erred in confirming addition of Rs.3,86,581 made to the value of closing stock on account of inclusion of VAT/Excise Duty u/s.

145A.

It is submitted that as per the workings contained in the Audit Report u/s. 44AB and working with explanations and Case Laws filed before the CITA, addition of Rs.3,86,581 from the value of closing stock is required to be deleted.

2. Alternatively, the CITA has erred in not granting set off of addition on the similar grounds to the value of the opening stock of the year.

It is submitted that as per Sec. 145A, adjustment is required to be made in the inventory and hence, adjustment on the equal basis should also be made to the value of the opening stock in order to ensure correct and complete effect of Sec. 145A.

3. The CITA has erred in confirming disallowance of Rs.44,900 being 20% out of telephone expenses, Rs.29,327 being 20% of Staff Welfare Expenses and Rs. 16,342 being 20% out of staff motor car expenses treating the same to be in the nature of non business expenses.

It is submitted that as per the facts and circumstances of the case and evidences filed before the AO as well as the CITA, the entire expenses referred to above are wholly and exclusively incurred for the purpose of business and there is no element of non business expenditure involved and wherever there is an elementof non business expenditure, the same has been taken care of by way of disallowance in the statement of income filed by the Appellant himself and hence, the above disallowances are wrongly made and the same are required to be deleted.

ITA No. 1980/Ahd/ 2011 - Falgunbhai Hasmukhbhai Parikh.

AY 2007-08

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4. The CITA has erred in holding that interest charged U/S.234A/B/C/D is consequential and the ground taken against charging the above interest is dismissed.

4. Before us, Ld. AR submitted that ground nos. 1 & 2 are interconnected and are in connection with addition made to closing stock and therefore can be considered together.

5. During the course of assessment proceedings, the Assessing Officer noticed that while valuing the closing stock, the assessee had not included VAT and excise duty of Rs 3,86,581/- to the value as required by provisions of s. 145A of the Act. He accordingly added the amount of Rs 386581 to the value of closing stock and thus addition to that extent was made to total income. Aggrieved by the order of Assessing Officer, the assessee carried the matter before CIT(A) who dismissed the ground of the assessee and upheld the order of the Assessing Officer by holding as under:

"2.3 I have carefully considered the assessment order and submission filed by the AR's of the appellant. The appellant's submission mainly relies on the accounting guidelines of ICAI. It has been submitted by him that as per ICAI guideline, if the element of VAT and excise duty are included in the valuation of closing stock, the same will show artificially inflated figure of profit and it will not reflect true and fair position. He has not disputed this fact that he has not incurred any Excise Duty or VAT on the goods included in the closing stock. He has not made this factual distinction neither in the submission given before the A. O. nor before me in the appellate proceedings. Therefore, in view of the factual position, the addition made by the A. O. by including excise duty and VAT in the valuation of closing stock is justified.

The claim of the appellant that in case the closing stock valuation is being done on inclusive method, the valuation of opening stock should also be accordingly adjusted. The claim of the appellant is not justified. The suitable adjustment shall be made by the A.O. in the opening stock of next year but similar adjustment in the opening stock of the present year will not be practical as it will have a cascading effect and, therefore, it would not be ITA No. 1980/Ahd/ 2011

- Falgunbhai Hasmukhbhai Parikh.

AY 2007-08

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prudent to disturb the working. The judicial pronouncement in the case of British Paints Ltd. [188 ITR 34] quoted by the appellant is of no help to him as the decision was regarding the practice of valuation of the opening and closing stock in trade. The section which was discussed by the Hon'ble Court was Section 145, whereas in the present case, the section involved is 145A. In Section 145A, a specific provision has been made by the legislature to include the Excise Duty, VAT etc. in the valuation of stock. It provides for further adjustment on account of tax duty etc. after considering the valuation in accordance with the method of accounting regularly employed by the assessee. Therefore, the amount of excise duty and VAT will have to be taken into consideration for working out the closing stock of the appellant which has been correctly done by the A. O.

The claim of the appellant that the similar method of accounting has been accepted for earlier years, and therefore, it should not disturbed in the present year is also not tenable as it is the duty of the A. O. to consider whether the books of accounts disclose the true state of accounts and the correct income can be deduced there from. The appellant cannot contend that the A. O. was bound to accept the system of accounting regularly employed by the appellant, the correctness of which has not been questioned in the past. The principle of estoppels is not applicable in the Income Tax Assessment and the A. O. was not bound by the method followed in the earlier year. The reliance is placed on British Paints Ltd. [188 ITR 34],

The ground of appeal is, therefore, dismissed. However, the A. O. is directed to take the value of opening stock of A. Y. 2008-09 as the value of closing stock determined in his order for this year."

6. Aggrieved by the order of CIT(A), the assessee is now in appeal before us.

7. Before us, Ld. AR reiterated the submissions made before Assessing Officer and CIT(A); and further submitted that the assessee follows exclusive method for the valuation of closing stock and therefore the value of excise duty and VAT is neither included in the closing or opening stock and if adjustment is made to closing stock corresponding adjustment will also have to be made to the opening stock and further the exercise is Revenue neutral and the same has also been certified by the Chartered ITA No. 1980/Ahd/ 2011

- Falgunbhai Hasmukhbhai Parikh.

AY 2007-08

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Accountant in the tax audit report. He pointed to page 35 of the paper book being the adjustment statement u/s 145A. He further submitted that the assessee has been consistently following the same system of accounting for the valuation of closing stock and the same has been accepted by the Revenue while framing the assessments u/s 143(3) in the immediately preceding and succeeding assessment years and in support of which he placed assessment orders for AY 2002-03, 03-04, 04-05, 06-07 and 08-09 at page no 54 to 74 of the paper book. He therefore submitted that no addition could be made in a single year when the facts are similar in other others.

8. The Ld. DR, on the other hand, supported the order of Assessing Officer and CIT(A).

9. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition of excise duty and VAT to the value of closing stock. Before us, it is assessee's submission that assessee is consistently following exclusive method of accounting for the purpose of valuation of closing stock and thereby not including the VAT and Excise duty to either the closing stock and opening stock. It is also the assessee's submission that the method adopted by the assessee has been accepted by the Revenue authorities. Before us, no material has been brought by the Revenue to controvert the submissions of the assessee. We further find that the auditor in the tax audit report has certified in the statement made for adjustment u/s 145A that the exercise of including excise duty and VAT to the stock is revenue neutral. Before us, Revenue has not pointed out any mistake in the aforesaid statement which has been certified by the Chartered Accountant. Further, when the method of valuation of stock has been accepted by the Revenue authorities in ITA No. 1980/Ahd/ 2011

- Falgunbhai Hasmukhbhai Parikh.

AY 2007-08

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preceding and succeeding years and there being no change in the facts, we are of the view that the Assessing Officer was not justified in making addition to the closing stock. We thus direct the deletion of addition made by the Assessing Officer and thus, this ground of the assessee is allowed.

10. Before us, Ld. AR submitted that he did not wish to press ground No.3 with respect to disallowance of telephone expenses, staff welfare expenses. Thus, this ground is dismissed as not pressed.

11. In the result the appeal of the Assessee is partly allowed.

Order pronounced in the Court on Thursday, the 26th of February, 2015 at Ahmedabad.

Sd/- Sd/-

(SHAILENDRA KUMAR YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 26/02/2015 *Biju T, PS

आदे श क# ूितिल+प अमे+षत/Copy षत of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. संबिं धत आयकर आयु- / Concerned CIT 4. आयकर आयु-(अपील) / The CIT(A),

5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

//TRUE COPY// उप/ उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad