Machinfabrik, Mumbai vs Assessee

These appeals are directed against the order passed by CIT(A) 33, Mumbai and they pertain to A.Y. 2006-07 and 2007-08.

2. In respect of A.Y. 2006-07 assessee declared total income of `70,29,348/-. Assessee is engaged in the business of manufacture of pharmaceutical machinery. During the course of scrutiny assessment proceedings the AO noticed that the assessee valued its work-in-progress at the value equal to the raw material consumed, i.e. by excluding labour charges and other manufacturing expenses. According to the AO, though the assessee had been consistently following the practice of valuing closing 2 ITA No. 2460, 141 & 2549/Mum/2011 M/s. Machine Fabrik

work-in-progress at material cost only, but as per the normal accounting practice closing stock has to be valued at cost and such cost include cost of raw material as well as other direct manufacturing expenses. In this regard the AO relied upon the decision of the Hon'ble Bombay High Court in the case of Melmould Corporation 202 ITR 789 wherein the court observed that in case where an assessee is following consistent method of accounting, which is not in accordance with the accounting principles, the closing stock has to be revalued but it should not alter the opening stock values. Assessment was accordingly made on a total income of `1,54,72,000/- and `1,58,63,820/- for A.Y. 2006-07 and 2007-08, respectively.

3. Aggrieved, assessee preferred appeals before the CIT(A) contending, inter alia, that the AO wrongly made the addition by changing the method of valuing of work-in-progress adopted by the assessee. It was contended that if there is any mistake in valuation of closing stock it cannot be rectified by raising closing stock only; valuation of both opening and closing stock had to be raised. Reliance was also placed upon the latest decision of the Hon'ble Bombay High Court in the case of Mahalaxmi Glass Works (P) Ltd. 318 ITR 116 to contend that in the event of changing the method of valuing the closing work-in-progress the same method has to be followed for the opening work-in-progress also. It is also contended that the decision of the Hon'ble Bombay High Court in the case of Melmould Corporation (supra) is distinguishable on facts in as much as in the said case the assessee had inadvertently/deliberately valued the work-in-progress wrongly every year whereas prior to the introduction of section 145A both the methods are recognised methods and if inclusion method has to be thrust upon the assessee the opening stock of inventory has also to be changed. Accordingly, for A.Y. 2007-08 the matter was restored to the file of AO for recomputation of opening stock value. However, for A.Y. 2006-07 the CIT(A) observed as under: -

"Respectfully, following the decision of the Bombay High Court, the Assessing Officer is directed to ask for details of direct expenses for the purpose of inclusion in opening stock and to add only the net effect of the two figures."

3 ITA No. 2460, 141 & 2549/Mum/2011 M/s. Machine Fabrik

4. Revenue is in appeal against the order passed by CIT(A) for A.Y. 2007- 08 whereas assessee filed appeals for A.Y. 2006-07 and A.Y. 2007-08 on the same issue.

5. At the outset it may be noticed that there is a delay of 28 days and 18 days in filing assessee's appeals for A.Y. 2006-07 and A.Y. 2007-08, respectively. Notices issued to the assessee at the address furnished in Form No. 36 were returned unserved with postal remarks "Left" and assessee has not furnished any new address to the Registry. Assessee has also not provided any reasonable cause for delay in filing the appeals. Even today none appeared on behalf of the assessee. Under these circumstances we are of the view that the appeals filed by the assessee deserve to be dismissed as unadmitted. Apart from this, we may also notice that the decision of the learned CIT(A) is in consonance with the view taken by the Hon'ble Bombay High Court in the case of Mahalaxmi Glass Works (P) Ltd. and we fail to understand as to why the assessee preferred the appeals. Thus on both reasons the appeals filed by the assessee are dismissed.

6. In respect of the appeal filed by Revenue it is not in dispute that Revenue is challenging the view taken by the Hon'ble Bombay High Court in the case of Mahalaxmi Glass Works (P) Ltd. (supra), which was in turn followed by the ITAT Mumbai Benches consistently since it is the later decision of the Hon'ble Bombay High Court wherein this specific issue was considered while arriving at the conclusion that when closing stock valuation is changed, even the opening stock valuation has to be suitably amended. Since the learned CIT(A) followed the view taken by the Hon'ble Bombay High Court, we do not find any infirmity in order passed by the CIT(A) for A.Y. 2007-08.

7. In the result, the appeals filed by assessee and Revenue are dismissed.

Order pronounced in the open court on 4th March, 2015.

Sd/- Sd/- (Chandra Poojari) (D. Manmohan) Accountant Member Vice President

Mumbai, Dated: 4th March, 2015 4 ITA No. 2460, 141 & 2549/Mum/2011 M/s. Machine Fabrik

Copy to:

1. The Appellant 2. The Respondent 3. The CIT(A) - 33, Mumbai 4. The CIT- 22, Mumbai City 5. The DR, "B" Bench, ITAT, Mumbai

By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.