TMI Blog2014 (3) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... th no specific arguments in the matter having also been made – thus, the matter remitted back to the CIT(A) for adjudication – Decided in favour of Revenue. - I.T.A. No. 7756/Mum/2010 - - - Dated:- 26-2-2014 - Shri Sanjay Arora, AM And Shri Vijay Pal Rao, JM,JJ. For the Appellant : Shri Sanjeev Jain For the Respondent : CA Dharan Gandhi ORDER Per Sanjay Arora, A. M. This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-19, Mumbai ('CIT(A)' for short) dated 14.09.2010, partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2005-06 vide order dated 10.12.2007. 2. The only issue raised by the Revenue per its instant appeal is the non-inclusion of the demurrage charges paid by the assessee to the Port Authorities in the valuation of the closing stock as at the year-end, in departure with its consistent past practice of valuing its closing inventory by including the same as an element of cost, alluding to s.145A. 3. We have heard the parties, and perused the material on record. 3.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be necessarily held in a particular manner, entailing cost, for a defined period, prior to their further processing, i.e., itself represents a process integral to their conversion, so that it represents a process and, thus, conversion cost. There is accordingly no question of the same being added to its value. A simple question would clarify the issue, i.e., whether rent, were the goods, instead of lying at the port, removed expeditiously to a rented premises, saving demurrage, or the cost of the staff attending thereto (godown) or otherwise supervising the storage, etc. be said to form part of the acquisition or conversion cost of the goods or otherwise incurred in bringing the same to their present location and condition, so as to be included in their valuation? Surely not. The third element of cost, i.e., other than toward acquisition and conversion, it would be noted, is broadly worded, so that it could in fact be said to include the cost of acquisition and conversion as well. It is only the direct cost incurred toward so bringing that could be included inasmuch as it adds value. In fact, the demurrage/detention charges, being toward the cost for the delay in removal of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould itself become a source of distortion. Though normally both the opening and the closing stock are to be valued on the same basis, it cannot also be denied that the valuation of the opening stock has to agree with that of the closing stock for the immediately preceding year. It is not in dispute that the value of opening stock, as assumed by the assesse, is the same as adopted in respect of the closing stock for the immediately preceding year. Any change would lead to a distortion - to the extent of the change - in the year the same is effected, so that the same is incidental thereto, and the fundamental question that would need to be addressed and answered is if the change is valid. We have found it as so. Further, altering the value of the opening stock would amount to effectively modifying the closing stock and, thus, the income for the immediately preceding year, which stands assessed. The change thus gets effectively shifted to that year. The argument qua uniformity in the valuation of opening and closing stock would then stand to be assumed for that year, leading to a modification in the value of the opening stock for that year, and so on, thus causing a ripple effect. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening stock where the value of the closing stock (for that year) is determined by adopting a different method of valuation. However, as would be apparent from a reading thereof (refer para 5/pg.792D), the hon'ble court made it clear that it was not concerned with the correctness (or otherwise) of the method (of valuation) adopted for determining the cost price, observing that that was not an issue at any stage of the proceedings, nor dealt with by the tribunal. Reference was made by it to a booklet on accepted accounting principles for valuing stock and WIP (by G. P. Kapadia), which is again on the premise of change from one valid basis to another, so that under such circumstances no change in the valuation of opening stock of the base year, i.e., that of change, was required to be made, which would thus continue to be valued as per the closing stock for the immediately preceding year. The same is inapplicable in the instant case, with we having found the valuation of stock inclusive of demurrage charges as not a valid basis of valuation, i.e., for determining the correct profit or income. Further, the decisions followed by the hon'ble court, viz. CIT vs. Mopeds (India) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (refer: S.N. Namasivayam Chettiar vs. CIT [1960] 38 ITR 579 (SC) and A. Krishnaswami Mudaliar (supra)). However, integral thereto is the question of a corresponding change in the value of the opening stock, which would otherwise continue to be valued per the old method, since held as invalid. It is axiomatic that determination of correct profit would require proper valuation of inventories, both as at the beginning as well as the end of the relevant accounting period, as stands clarified by the apex court in, among others, British Paints India Ltd. (supra) and Chainrup Sampatram vs. CIT [1953] 24 ITR 481 (SC). This is also in essence the rule of the non obstante provision of section 145A, since statutorily mandated. The issue is legal, and goes to the root of the matter. The same would accordingly get decided on the basis of legal precedents, including an analysis thereof. The issue arising directly out of our decision validating the change by the assessee, having not been dealt with by the ld. CIT(A) - who in fact approved the change in the first instance, with no specific arguments in the matter having also been made before us, we only consider it fit and proper to refrain f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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