TaxTMI 
TaxTMI 
2022 (9) TMI 1545
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....aised certain common grounds of appeal; facts in both the years are almost similar except variation of figures of various additions or disallowance. Therefore, with the consent of parties, all appeals were clubbed heard together and are decided by a consolidated order to avoid the conflicting decisions. 2. For appreciation of facts, facts in AY 2011-12 are treated as 'lead' case. The assessee in its appeal ITA No. 3053/AHD/2016 has raised the following grounds of appeals:- "1. The Learned Commissioner of income Tax, (Appeals)-3, Vadodara has erred in law and on facts of the case in confirming the finding of the Assessing Officer that the Appellant has not properly valued opening and closing stock of finished goods viz. MBP and Quinalphos and accordingly, confirming the addition of Rs. 16,40,988/- and Rs. 15,31,168/-respectively. 2. The Learned Commissioner of Income Tax, (Appeals)-4, Vadodara has erred in law and on facts of the case in confirming the finding of the Assessing Officer that the Appellant has undervalued closing stock of various finished goods item sold by the Appellant, and accordingly, erred in confirming the addition of Rs. 2,22,74,370/- made b....
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....1.2014 and furnished required details. In addition to furnishing required details, the assessee also stated that in the opening stock statement, submitted earlier and in the revised statement, the item-wise total value is not changed and it was the clerical error. The assessee explained that while furnishing details during assessment, at page 195 mistake has crept as recorded to the quantity of finished goods and work-in-progress, in fact, total quantity of 6300 kg instead of finished goods, and the quantity of 4525 shown as work-in-progress is nil. The assessees finished goods of 6,300 kilograms only. The assessee furnished revised statement and stated that the cost of MPB is Rs. 288 per kg. the assessee furnished the detailed in the following manner:- particulars Average rate of finished goods (Rs) Quantity (Kg) Value (Rs) MPB-finished goods 288 6,300 17,74,372/- MPB-Work in process* -- -- 58,07,035/- Total 75,81,407/- * As on 31 March 2011, the product MJPB was under production and certain raw materials were charged in the process. Some process has been carried out on these materials. Since the finished produ....
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....nder production and certain raw materials were charged in the process. Some process has been carried out on these materials. Since the finished products is not manufactured therefore no quantity is reflected in the WIP, but only value of the material and processing cost to the extent of process completed, in process has to be reflected and it has valued at Rs. 11,65,953/-..." 5. The assessee prayed to ignore their earlier submissions and to consider the aforesaid revised statement. The Assessing Officer on perusal of submission of assessee noted that quantity as well as value of closing stock consist of finished stock also work in on normal methodology adopted for working the value of closing stock, is the first identify the stock in respect of each item and at what stage i.e., stock in the form of raw material, stock which is lying as finished products, and the stock which would be in the process of production, once the same is done the next stage follows the valuing the same. Firstly, a particular item needs to quantify in respect of work-in-progress & finished stock. In case of MPB, as per chart at page 195, clearly indicate that closing stock of MPB differentiated by showing....
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.... utilities consumed and overheads charged are provided at Page No.697 to 704 for Rs. 58,07,035/- for WIP as on dated 31st March 2011 and at Page No.705 to 714 for Rs. 68,52,418/- for WIP as on dated 31st March 2010. In the statement we have worked out the valuation of WIP considering the quantum of Raw Material charged, Utilities consumed and the other Overhead expenses alongwith the supporting for stage-wise as under: Particulars Units/Kg/Ltr. Qty. Value (Rs) Ref.page Raw materials Kg/Ltr 93226 5110313 698 Utilities Fuel Scm 4866 82241 699 Electricity Kwh 62872 387163 699 Water KL 2008 43281 699 Labour cost 163255 700 Stores 11842 701 Transportation RM 8940 702 Total cost of Work-inprocess as on 31-03-2001 587035 697 Similarly for Work In Process as on 31-03-2010 for Quinalphos and MPB is as under: Work-in-process of MPB as on 31-03-2010 Particulars Units/Kg/Ltr. Qty. Value (Rs) Ref.page Raw materials Kg/Ltr 1....
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....e-work at Rs. 288/- per kg which is totally not convincing. The Assessing Officer also given certain other instances as recorded in two pages 18 & 19 of the assessment order and worked out suppression of valuation of stock of Rs. 16,40,988/- for MPB and Rs. 15,31,168/- for Quinalphos respectively. 7. The assessing officer on perusal of details in respect of opening stock and closing stock summary of work-in-progress of finished products, this finished stock was valued less than that of opening stock. Accordingly, show cause notice dated 07.11.2014 was issued to assessee with detailed queries as recorded in para-5.3 at pages 20 to 23 of the assessment order. The assessee filed its reply dated 29.01.2014 and explained as follows:- "3. As regard Query No.14 to 29, we state as under:- Kindly refer item 1EUR above, regarding the valuation of finished goods and Traded goods - AS per the Accounting policy, these items are valued at lower of cost or net realisable value. The stocks are valued at lower of cost / net realisable value where the items are not in saleable condition, i.e., they are in damaged condition of near expiry. The items which are damag....
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.... ARMY is 8,915 Ltrs of which 1,906 Ltrs are damaged of near expiry and therefore, 1,906 ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 310/- per Ltr. The value of saleable quantity is valued at Rs. 390/- per ltrs. GILFEN is 5,865 ltrs. of which 2,659 ltrs are damaged of near expiry and therefore 2,659 ltrs arte valued at 5% of the costs and therefore, the average cost is Rs. 100/- per ltrs. The value of saleable quantity is valued at Rs176/- per ltr. SANGRAM TOLL is 29,361 Ltrs. of which 4,404 ltrs are damaged of near expiry and therefore 4,404 ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 210/- per ltr. The value of saleable quantity 9 is valued at Rs. 245/- per ltrs. YODHA is 30,009 Ltrs of which 4,014 ltrs are damaged of near expiry and therefore 4,014 ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 279/- per ltrs. the value of saleable quantity is valued at Rs. 320/- per Ltr. GILRON is 7,508 of which 3,638 Ltrs are damaged of near expiry and therefore 3,638 Ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 133/- per Ltr. The value of sale....
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.... mathematical calculation to fabricate the figures to back its claim convincingly as no document is furnished by assessee. On the other item being 'Indoxa', the Assessing Officer noted that damaged goods in the opening stock inventory of 117.1 kg which is 1.58% of the total opening stock of 7422 kg. However, in the closing stock of damaged goods is 1625 kg out of total stock of 21996 kg which was served to 7.37% which is almost five times more as compared to opening stock which indicate that there has been more production loss in the year under consideration as compared to preceding year without shaking the production people to question and tap such damages. Thus, the assessee indulged in drawing fabricating figures by mathematical aid. The Assessing Officer made a details of quantity of its opening stock, quantity of damaged goods in opening stock, percentage of damaged goods, quantity of closing stock, quantity of damaged goods in opening stock, percentage of damaged good to finished goods in opening, quantity in closing stock, quantity of damaged goods in opening stock and percentage of damaged goods in closing stock in respect of 17 items, was prepared as mentioned in para-5.36....
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....tretch of imagination is considered as loan to Gharda Chemicals Ltd., and therefore the question of charging interest thereon does not arise at all. The assessee specifically contended that similar issue was raised in AY 2001-02, 2002-03 and 2003-04 to 2006-07 and on appeal before Hon'ble Tribunal, the similar disallowances were deleted in order dated 31.05.2011 and 27.03.2012 respectively. The assessee pleaded that in AY 2009-10 the same issue is decided by Tribunal in favour of assessee. 10. The Ld. CIT(A) after considering the submission of assessee allowed the relief to the assessee by taking view that similar issue related to disallowance of interest on the ground that assessee had transferred / diverted the borrowed funds to the holding Co. and allowed undue credit to it. The issue is covered in favour of assessee in assessees own case for AY 2009-10 in ITA No.556 & 675/AHD/2013 dated 19.07.2013. 11. On the disallowance of valuation of opening stock and closing stock of finished goods, the assessee made similar submission as made before the Assessing Officer. Similarly, for addition on account of valuation of closing stock, the assessee reiterated similar submission....
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.... Ld. CIT(A) concluded that it cannot be said that finished products are not manufactured and therefore no quantity reflected in work-in-progress but only value of material and processing stock to the extent process completed in process has to be reflected. The Assessing Officer has rightly pointed out the anomaly in the valuation of opening stock and closing stock of MPB and Quinalphos after proper appreciation of the facts of the case and dismissed corresponding grounds of appeal. 13. On the addition of under-valuation of closing stock, the assessee submitted similar contention as contended before Assessing Officer. The explanation of assessee is recorded by Ld. CIT(A) in para-4.2 by the order of Ld. CIT(A). 14. The Ld. CIT(A) after considering the submission of assessee held that each item of closing stock as mentioned in the chart has been valued by Assessing Officer at the rate on which the opening stock has been valued and the addition against each of the items as mentioned in the show cause notice has been made by Assessing Officer. The Assessing Officer worked out the addition in respect of each of the items of closing stock and worked out as figure of disallowance of ....
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....ase in reserves and surplus of Rs. 9,40,36,000/- during the same period as against which the interest free loan given to Gharda Foundation was Rs. 2,50,0000/-. The aforesaid facts reveal that there was sufficient fund available with the company in the form of reserves and surplus. Further nothing has been brought on record by Revenue to prove that interest bearing loans taken by the Assessee for the purpose of own business has been diverted for non business purposes or for lending to Gharda Foundation. No direct nexus has been proved either by Assessing Officer or by CIT(A) between the interest bearing loans taken and the interest free loans granted. The Hon. Bombay High Court in the case of CIT vs. Reliance Utilities (supra) has held that if there are funds available both interest free and over draft and or loans taken than a presumption would arise that investment would be out of interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investment. 11. In the case of CIT vs. Raghuvir Synthetics (supra), The Hon. Gujarat High Court has held as under: Head note: INTEREST ON BORROWED CAPITAL - INTERE....
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....74,372 Total 70,54,211 23. The ld. AR of the assessee submits that on 31/03/2011 MPB was under production and certain raw material was used in the process. Since finished products was not manufactured therefore no quantity is reflected in WIP. However, value of material and processing cost to the extent the process is completed has been reflected and valued at Rs 58,07,035A as stated above. Particulars Quantity (in kg) Rate per kg Amount Rs A Quinalphos WIP Nil Nil 11,65,953 Finished stock 12375 248 30,71,255 Total 42,37,208 24. The ld. AR submits that as on 31/03/2011 Quinalphos was under production and certain raw material was used in the process. Since finished products were not manufactured therefore no quantity is reflected in WIP. However, value of material and processing cost to the extent the process is completed has been reflected and valued at Rs 42,37,20s/- as stated above. The rate per kg is around Rs 342/- per kg (4237208/12375). Therefore, the value per kg of closing stock being Rs 342/- per....
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....making submission before us, the ld AR for the assessee submits that the details given in her written submissions are final and she is ready to explain before the assessing officer that there is no inconsistency in the stand of the assessee on the opening and closing stock of finished goods viz; MPB and Quinalphos. We find that there is variation in the stand of the assessee, therefore, we restore this issue of opening and closing stock of finished goods i.e. MPB and Quinalphos to the file of assessing officer to consider the submissions of the assessee, as submitted before us and pass the order in accordance with law. Needless to direct that before passing the order, the assessing officer shall allow reasonable opportunity to the assessee of being heard. In the result, Ground No. 1 in assessees appeal is allowed for statistical purpose. 28. Ground No.2 relates to confirming the addition of undervaluation of closing stock of various finished goods of Rs. 2.22 crores. The Ld. AR of the assessee submits that during the course of assessment, the details with respect of opening and closing stock of WIP and finished product were called for and submitted by the assessee. The Assessing....
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....ted at 5% of the value of closing stock. The supporting documents for one of such items viz. Paramveer, as a sample case for closing stock of saleable / un-saleable or damaged material at various locations was submitted for verification. The Ld. AR of the assessee submits that it can also be seen that the closing stock has been certified by Chartered Accountant at all the locations. The Assessing Officer has not at all considered and has proceeded to reject the contention on presumption and assumption basis and not bringing out any contrary evidences to the facts of the case. The ld. AR of the assessee submitted that there is no suppression of closing value of finished goods. To support her submissions, the Ld. AR of the assessee relied on the following decisions; CIT Vs Hughes Communications (33 taxmnn.com 95) (Delhi), Goodwill Fabrics Pvt Ltd Vs ACIT (ITA No 525/JP/2Q18) (Jodh-Trib), M P Bros Vs DCIT (102 Taxman 300) (Mum-Trib), DCIT Vs Dawaat Foods Ltd (128 taxmann.com 432)(DeI)(Trib) and ITO Vs Wasan Exports (P) Ltd (106 taxmann.com 21) (Del-Trib). 30. The ld. AR of the assessee prayed to delete the addition of Rs. 2,22,74,370/-. ....
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.... the stock of 17 items as per the chart is 7.5% to 28%, which is about four-time rise, which is unusual. The ld CIT(A) also recorded the valuation of certain items, like Indoxica was valued at Rs. 1740/- per kilograms which is less than the opening stock which is valued at Rs. 2274/- per kilograms and such discrepancies are not substantiated by the assessee. On the basis of such various references the ld CIT(A) upheld the addition. 33. Before us, the ld AR for the assessee vehemently submitted that the assessing officer estimated the percentage of damaged stock in the opening and closing stock of each of the item by taking view that there is increase in percentage of damaged goods. The ld AR for the assessee impressed that the goods prepared by the assessee are governed by Insecticides Act and the damaged or expired goods cannot be sold being not saleable. And relied on various case laws. We find that the facts of all the case laws relied by her are at variance. 34. In CIT Vs Hughes Communication India Ltd (supra), the Hon'ble Court held that where same method of valuation of stock was consistently followed by assessee, resulting in no distortion of profit, any alleged differ....
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.... 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of Rs. 2,40,58,000/- made by the Assessing Officer being interest free credit granted to the holding company M/s Gharda Chemicals Ltd., thereby the assessee had diverted interest bearing funds to its holding company defined u/s 40A(2)(b) of the Act. 2. The Ld. CIT(A) erred in holding that provisions of section 40A(2)(b) is not applicable on the assesses transactions with Gharda Chemicals Ltd., as the extra benefit granted was a normal commercial transaction without appreciating the fact that interest bearing funds were parked with holding company. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of Rs. 21,24,160/- out of repairs and maintenance to plant and machinery without appreciating the fact that the old replaced item were used independently which are having life span of more than 25 years, therefore, replacement of such items would give benefit of enduring nature to the assessee company. 39. We find that the ground No. 1& 2 raised by the revenue is similar to t....