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TMI Blog2010 (11) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the, Learned CIT(A) erred in not allowing the value of transit loss of stock in trade as deduction. (v) Appellant craves to leave to add further grounds or amend or alter the existing grounds at the time of hearing. 3. The chronology of dates that are relevant are given below: Assessment Year: 2002-03 Return filed on: 29.10.2002 Order u/s. 143(3): 29.09.2004 148 Notice issued on: 20.03.2007 Order u/s. 143(3) r/w 148: 25.09.2007 During the previous year relevant to the Assessment Year 2002-03, the assessee imported 4441.75 MTs of RBD Palmolein Edible Oil from Malaysia at a landed cost of Rs.13,90,05,970/-. It has also imported 29,839.59 MT of degummed Soyabean Oil for Rs.78,19,62,338. There was no sale of RBD Palmolein Oil during the year and the material that came in from Malaysia was stored in the Kakinada Port, Andhra Pradesh. As per the policy followed by the Assessee, the closing stock of material lying in the storage tanks at Kakinada was physically verified by Messrs. Stuart Surveyors and Assessors Pvt. Ltd. (page 24 to 26 of the Paper Book) and they certified that the physical stock of RBD Palmolein oil was 4403.967 MT only. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the notice u/s. 148 was issued within four years from the end of the relevant assessment year, therefore, the condition of "failure on the part of the appellant to disclosure fully and truly all material facts" was not applicable. As per provisions of section 147, the A.O. could issue notice u/s. 148 if he had reason to believe that income chargeable to tax escaped assessment. Such reason to believe should be based on some material/information in possession of A.O. In the case under consideration, the A.O. formed his belief on the basis of information available in the tad audit report. In the Tax Audit Report, the opening quantity of RBD Palmolein oil was shown at 4441.71M.T. valued at Rs.13.90 crore and closing stock was shown at 4403.97 MT valued at Rs.13.21 crore. It was also explained therein that the closing stock was shown after adjusting for shortage of 37.69 MT on physical verification. However, the information contained therein regarding the shortage of stock was not self explanatory as it was not clear as to why there was shortage of stock on physical verification. Thus, the A.O. was having information in his possession that the closing stock was under valued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, as per chart mentioned in the order, without addressing the issue relating to assessability of capital gain of casual income, notice u/s. 148 issued by A.O. after applying his mind cannot be said to be based on mere change of opinion. In the case under consideration, the A.O. passed assessment u/s. 143(3) without going into the issue of shortage of closing stock. Therefore, it could not be said that in the original assessment proceedings, the A.O. accepted appellant's claim and consequently, the reopening on the same issue was on the basis of change of opinion. Though in various cases the Courts have upheld the issue of notice u/s. 148 on the basis of change of opinion also, but in the case under consideration, there was no change on opinion. During the appellate proceedings, the appellant has filed copies of decision of the Courts and ITAT. The same have been considered. The same were not applicable in the case of appellant as in most of the cases, the notice u/s. 148 were issued after end of four years from the end of the relevant assessment year, whereas in appellant's case, the notice was issued within four years of the end of relevant assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. The net realisable value being lower the stock was valued at a lesser value and the loss due to fall in the net realisable value was Rs.57,08,932/- and the loss on account of transit and shortage loss was Rs.11,35,089/-. Then he referred to the order of the CIT(A) to submit that the CIT(A) has accepted the loss in net realisable value in the order but has not considered the same and dismissed the whole ground without realising that the closing value, to a large extent, is due to fall in the net realizable value. It was his submission that on merits there is no need for any addition. 9. The learned D.R., however, could not controvert the facts but submitted that the claim cannot be allowed. 10. We have considered the issue. Before adverting to the issue of reopening, it is necessary to examine whether the A.O. has considered the issue of closing stock valuation at the time of assessment under section 143(3). As seen from the statements enclosed to the P and L Account and audit report the assessee has fairly reported that there is excess stock of Degummed Soya Bean Oil and shortage of RBD Palmolein as stated in Schedule 14 of the annual accounts. However, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide his order dated 28.06.2006. 11. In Chainrup Sampatram vs. CIT 24 ITR 481 a Constitution Bench of the Hon'ble Supreme Court referred to the principle that "closing stock is to be valued at cost or market price whichever is lower" and the Hon'ble Supreme Court has held that this is now generally accepted as an established rule of commercial practice and accountancy. The same principle was reiterated in a subsequent decision of the Hon'ble Supreme Court in the case of CIT vs. British Paints India Ltd. 188 ITR 44 wherein the Hon'ble Supreme Court once again considered it to be a well recognised principle of commercial accounting to enter in the P and L Account the value of stock-in-trade at the begging and end of the accounting year at cost or market price, whichever lower. In view of this accounting principle, we are of the opinion that the assessee has correctly valued the stock at the realisable value which is lower than the purchase cost and accordingly the loss to the extent of Rs.57,08,932/- arising out of the difference between the import cost and net realisation value was correctly accounted for in the books of account which does not require any modification. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of transit loss has not been placed before the A.O. nor these were enquired into. Eventhough certain facts have been mentioned in the annual report about the physical availability of the stock, consequent fall in valuation/transit loss had not been specifically placed on record at the time of original assessment. Consequently, we are of the opinion that the A.O. is well within his rights to reopen the assessment within four years. Since the A.O. has not formed any opinion on the issue of closing stock valuation at the time of original assessment, we are of the view that the principles established by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. 320 ITR 561 does not apply to the facts of the case. 14. The learned counsel placed on record the order of the Hon'ble Bombay High Court in the case of IOT Infrastructure and Energy Services Ltd. dated 21.06.2010. The Hon'ble Bombay High Court has considered the Writ Petition on the jurisdiction of the A.O. in reopening under section 147. The facts in the case as stated by the Hon'ble Bombay High Court in para 5 are as under:- "5. In order to appreciate the basis on which the assessment is sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be regarded as being in the nature of capital expenditure. The assessee relied on precedents to support its contention. The AO dealt with the objections of the assessee in his order dated 22.03.2010 and accepted the factual position that the amount of Rs.1.12 crores out of Rs.1.41 crores had been disallowed by the assessee in the return of income. However, the balance of Rs.29.23 lakhs was treated by the AO to be of a capital nature. At this stage, it appears from record that the objection of the assessee that a write down in the value of slow moving inventory could not be treated as of a capital nature was not dealt with in order of the AO. 15. In this judgement, it was stated that the question of the A.O. forming a reason to believe that income has escaped assessment does not arise because the assessee itself disallowed in its computation and has been accepted in the order passed subsequently. With reference to the balance amount of Rs.29.23 lakhs the claim pertains to writing down of inventory which can never be treated as capital in nature. In view of this,after analysing the decision in the case of Kelvinator of India Ltd. the Hon'ble Bombay High Court came to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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