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Aaiswarya Prints Dyeing and Printing Mills Pvt. Ltd. Versus Addl. CIT, Range-1, Surat

2016 (5) TMI 524 - ITAT AHMEDABAD

Addition of undervaluation in closing stock of work-in-progress - Held that:- Assessee’s books of account have not been rejected u/s 145 of the Act, no specific defect has been pointed out in the quantitative records maintained by the assessee and above all ld. Assessing Officer has made addition just on the estimate basis and also due to the fact that in the next Asst. Year 2010-11 no addition has been called for by the same Assessing Officer on this ground on valuation of work in progress, we .....

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of the IT Act, 1961 (in short the Act) for Asst. Year 2009-10, by Add. CIT, Range-1, Surat on 29.9.2011. Assessee has raised following grounds in this appeal :- I. That on facts and circumstances of the case, the Id. CIT(A) has grossly erred in sustaining the addition of ₹ 15,56,197/-, as made by the AO alleging undervaluation in closing stock of work-in-progress in the activity of dyeing and printing job work of grey cloth, without appreciating that the said addition has been made by the .....

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g. 2. Briefly stated facts as culled out from the assessment records that assessee is a private limited company engaged in the business of dyeing and printing of cloth on job work basis. It filed its e-return of income on 23.09.2009 declaring total income at ₹ 3,33,69,066/- which was revised on 28.11.2009 showing total income at ₹ 3,34,76,405/-. The case was selected for scrutiny assessment and notice 143(2) of the Act was issued on 24.8.2010 and duly served upon the assessee. During .....

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rking in progress and he on the basis of prevailing market system of manufacturing, calculated the work in progress at ₹ 46,13,851/- and accordingly added the difference of ₹ 15,56,197/- (Rs.46,13,851 - ₹ 30,57,654/-) to the total income of the assessee. Ld. Assessing Officer made disallowance of ₹ 50,000/- towards factory expenses. In total out of the addition of ₹ 16,60,197/- (Rs.15,56,197/- + ₹ 50,000) after allowing a deduction on account of closing stock .....

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es not directly arise from present appeal The assessing officer verify the records and if an addition was made in the closing stock last effect of the same is to be given in the opening stock of this year under 54, The appellant may move an application u/s 154 of the Act , However, it is clarified that this issue cannot be decided does not directly arise from the assessment order, coming to the addition of Rs, 15,56,197/- in WIP, the A.O, has given detailed reasoning and working for arriving at .....

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year. Ld. AR also referred to the complete month-wise detail of work in progress and submitted that they have been duly maintained and no mistake has been pointed out by the Assessing Officer. Ld. AR also submitted that assessee company is consistently following accounting principles relating to valuation of work in progress, as per Accounting Standard -1 of disclosure of accounting policy and physical inventory was also taken and closing work in progress was calculated as per software developed .....

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ies. 7. We have heard rival contentions and perused the material on record. The assessee is in appeal against the order of ld. CIT(A) sustaining addition of ₹ 15,56,197/- made by Assessing Officer alleging under valuation of closing stock of working in progress without appreciating that the said addition has been made by the Assessing Officer purely on estimate basis even when party-wise work in progress has been given as per software maintained by the assessee. On going through the record .....

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he working of assessee company. From perusal of the assessment order we observe that ld. Assessing Officer has given following details to support his view of making addition of ₹ 15,56,197/- :- Therefore, the correct value of closing stock of WIP has to be worked out and added to the total income. The assessee has processed 207756558 metres during the year under consideration. Taking into consideration 26 days as working days per month, the total working days of the year works out to 312 d .....

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submitted by the assessee is ₹ 2.31 (Cost of material + Manufacturing expenses less VAT. discount, claim etc. -r meter processed). Considering the various stages of process, it would be reasonable to adopt 60% i.e. ₹ 1.39 per meter for arriving at value of work-in-process. Therefore, the closing stock of work-in-process in this case is worked out at ₹ 46.13.851/- (3329432 meters x ₹ 1.39) Since the work-in-progress shown by the assessee is on lower side and profit to tha .....

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hand, assessee apart from submitting quantitative and financial data during the course of assessment proceedings has also furnished synopsis showing details of job work done during the financial year 2008-09 as below :- Image No. 1 8. Looking to the above observation of the Assessing Officer and the synopsis of the data of the assessee we find that ld. Assessing Officer has resorted to a completely new methodology of estimating the manufacturing process of the assessee company on his own formul .....

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run on the same bench mark formula or process cycle and there ought to have been certain changes and variation due to available inputs and circumstances. 8.1 We further observe that assessment under sec.143(3) of the Act, of assessee in Asst. Year 2010-11 was framed by the same Assessing Officer and no such addition relating to estimation of work in progress was made in his assessment order dated 11.12.12 which means that the Revenue has accepted the valuation of work in progress of the assesse .....

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favour of the assessee by the latest decision in the case of ITO vs. M/s Rishabh Dyeing & Printing Mills (P) Ltd. (supra). In that judgment the Tribunal has held as under :- 3. Against this Ld. AR submitted that similar issue had come before the Tribunal in the case of Pratik Processors Pvt. Ltd v DCIT in ITA No.1956/Ahd/2007, wherein Tribunal has held that there cannot be any work-in-progress in a case where business of Dyeing and priming of cloth is done on job work basis. He referred to p .....

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b receipt of the likely stock remaining in process. However was deleted by the ld. CIT(A) by observing as under: 12 I have carefully considered the fact of the case and submissions made by the Id AR. As regards the addition made in respect of estimated work in progress, it is seen that the appellant in the instant case is a job-worker and process grey cloth for its customers according to their requirement. The appellant not engaged in any manufacturing activities of its own. The cloth processed .....

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, the appellant is entitled to receive its work charges. No interim payments or advances payments are received by the appellant from its customers during the pendency of the job work. The receipts from the job work are being accounted for by the appellant on completed contract method as per AS-9. The closing stock of materials used for processing of cloth, i.e. colour, chemicals etc. have been duly accounted for by the appellant in accordance with AS-9 In regard to the value addition made by the .....

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ther, in the definitions provided under item 3 of the AS-2 "Inventories" have been defined as "assets (a) held for sale m the ordinary course of business (b) in the process of production, for such sale" or (c) in the form of materials or supplies to be consumed in the production for sale" or in the rendering of services. Since the appellant was not engaged in the business of sale of the processed cloth or in the production for sale of the processed cloth but was engaged .....

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be required to be accounted for by it in the Form of stock, which has been done in the instant case. The method of accounting followed by the appellant is thus seen to be in accordance with the Accounting Principles laid down by the ICAI. 13 It is further seen that the aforesaid method of accounting of opening/closing stock has been regularly and consistently followed by the appellant company since the belonging The appellant has also consistently followed, the accounting policy of recognizing r .....

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of valuation is found to have no impact, as in the instant case, if the changed method adopted by the Assessing Officer were applied for valuation of the opening as well as the closing stock. 14 For reasons discussed above m details, m my opinion there was no basis or justification in making the any estimated addition on account of work-in progress is this case. The addition of ₹ 12.56.970/- made by the AO in respect of estimated work in progress is therefore deleted. This ground of appeal .....

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