TMI Blog2016 (5) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... valued on net realizable value which was lower than the cost in the instant case . The ratio of the decision of Hon’ble Supreme Court in the case of Reliance Petro products Private Limited [2010 (3) TMI 80 - SUPREME COURT ] is squarely applicable in the instant case. We do not find any infirmity in the well reasoned and detailed order dated 04-01-2013 passed by the learned CIT(A) deleting the penalty levied by the A.O. and we uphold the same. - Decided in favour of assessee - I.T.A. No. 2663/Mum/2013 - - - Dated:- 16-5-2016 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Revenue : Shri Ritesh Misra D.R. For the Assessee : None ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the Revenue, being ITA No. 2663/Mum/2013, is directed against the order dated 04-01-2013 passed by learned Commissioner of Income Tax (Appeals)- 18, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2003-04, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 25-3-2009 passed by the learned Assessing Officer (hereinafter called the A.O. ) under section 271(1)(c) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of ₹ 65,77,000/- was net of diminution in the value of the inventories by ₹ 1.95 crores. The assessee company s contention was that closing WIP as at 31-03-2003 had been revalued after technical evaluation of the materials obtained by the assessee company which were in the position to be sent for delivery but were not accepted by the customers due to non-fulfillment of commitments by the buyer owing to lean period in the textile industry and the assessee company is trying to utilize the material in other similar jobs and accordingly stock has been carried at net realizable value which is in compliance with Accounting Standards AS-2 prescribed by the Institute of Chartered Accountants of India. The contention of the assessee company was rejected by the A.O. in the quantum assessment proceedings on the ground that the assessee company is following mercantile system of accounting consistently and no change has been adopted during the year. There was no mention in the tax audit report regarding the change in the method of valuation of the WIP. In support, the A.O. relied on the decision of Hon ble Supreme Court in the case of British Paints India Ltd., (1993) 199 ITR 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res) by the AO vide penalty orders dated 25.03.2009 passed u/s 271(1)(c) read with explanation 1 of the Act. 5. Aggrieved by the penalty orders dated 25.03.2009 passed by the AO u/s 271(1)(c) of the Act levying , inter-alia, penalty of ₹ 71,66,250/- (with respect to the afore-stated addition of ₹ 1.95 crores) on the assessee company, the assessee company filed first appeal before the learned CIT(A). 6. Before the learned CIT(A) , the assessee company submitted that the goods were in a position to be sent to the customer for delivery but were not accepted by the customers which is mainly owing to the textile industry going through lean period since last few years and the customers have not fulfilled their commitment by refusing to take deliveries , hence the value of the closing WIP as at the year end as on 31-03-2003 as shown in the books of accounts was reduced by ₹ 1.95 crores based on technical evaluation obtained by the assessee company regarding valuation of the material based on net realizable value which is consistent with Accounting Standards AS-2 issued by the ICAI. The assessee company submitted that the claim made of the reduced WIP as at 31-03-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the A.O. on the amount of ₹ 1.95 crores is not sustainable and accordingly the penalty levied by the AO was deleted by the learned CIT(A) , vide orders dated 04-01-2013. The learned CIT(A) relied upon the decision of Hon ble Supreme Court in the case of Reliance Petro Products Private Limited(supra) and held that the facts of the instant case are squarely covered by the decision of Hon ble Supreme Court in the case of Reliance Petro Products Private Limited(supra). 7. Aggrieved by the orders dated 04-01-2013 of the learned CIT(A), the Revenue is in appeal before the Tribunal. 8. The ld. D.R. submitted that the quantum addition has been sustained by the learned CIT(A). No appeal has been filed by the assessee company with respect to the quantum assessment before the Tribunal and hence the order of the learned CIT(A) has attained finality. The ld. D.R. supported the order of the A.O. 9. We have heard the arguments of ld. D.R. and perused the material available on record including case laws relied upon . We have observed from the facts emerging from the records that the assessee company has reduced the closing WIP by ₹ 1.95 crores as at 31-03-2003 which is due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue , which also attained finality after confirmation by the learned CIT(A) in quantum proceedings . The assessee company has given bona fide explanations and was also able to substantiate with respect to devaluation of closing WIP by ₹ 1.95 crores owing to not acceptance of the goods by the customers due to non-fulfillment of their commitments owing to lean period in textile industry. The said goods being closing WIP (inventories) were devalued as per technical evaluation obtained by the assessee company based on the net realizable value which was lower than the cost by ₹ 1.95 crores, which method of valuation of inventories is consistent with the Accounting Standard AS-2 prescribed by the ICAI . The goods which were made by the assessee company as to the specification of the customers and which were not accepted for delivery due to non fulfillment of commitments by the buyers will in the normal circumstances have lower value as the goods were manufactured as per the specific requirements of a specific clients which may not found acceptability with the other clients, which in any case were valued by the assessee company after obtaining technical evaluation keeping in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WIP of relevant previous year shall be opening WIP of immediately succeeding financial year and any adjustment to closing WIP has to be necessarily followed by corresponding adjustment to opening WIP of immediately succeeding financial year making it tax neutral whereby no prejudice is caused to the Revenue. Moreover, the claim of the assessee company is being made by following Accounting Standard AS-2 which requires closing inventory to be valued at cost or net realizable value whichever is lower and the closing WIP being valued on net realizable value which was lower than the cost in the instant case . The ratio of the decision of Hon ble Supreme Court in the case of Reliance Petro products Private Limited (supra) is squarely applicable in the instant case. We do not find any infirmity in the well reasoned and detailed order dated 04-01-2013 passed by the learned CIT(A) deleting the penalty of ₹ 71,66,250/- (with respect to the afore-stated addition of ₹ 1.95 crores) levied by the A.O. and we uphold the same. Thus, we order the deletion of the penalty of ₹ 71,66,250/- (with respect to the afore-stated addition of ₹ 1.95 crores) levied u/s 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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