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The Deputy Commissioner of Income Tax Versus M/s. Advance Power Display Systems Ltd. And Vice-Versa

2016 (9) TMI 1209 - ITAT MUMBAI

Valuation of material - addition on the account stock lying with the assessee u/s 28(iv) - ownership of the said stock was not vested with the assessee - During the subsequent years, assessee used such stock as raw material - Held that:- We find that the assessee has taken a consistent plea during the all rounds of litigation that the material used by the assessee was taken at no cost and that the corresponding sales were offered for taxation. However, the Ld. CIT(A) has rejected the contention .....

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reshipped the goods worth ₹ 7,18,25,299/-. Out of the remaining material worth ₹ 1,91,54,094/-, the Customs & SEEPZ Board Authorities have destroyed the material worth ₹ 1,58,33,067/-. - So far as the remaining material of ₹ 33,25,027/- is concerned, the plea of the assessee is that the worth value of the material at the time of use was not that of invoice value. The material at the time of use had reduced to the scrap value which was used by the assessee for its manu .....

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as already been taxed and adding the bill value of the goods at ₹ 33,25,027/- would amount not only to the excess addition but also to the double addition. We, therefore, direct the AO to verify whether the raw material worth ₹ 33,25,027/- (as per their original bill value) was used in the manufacturing activity at ‘zero’ cost and if the corresponding profit from the sale of goods manufactured from the use of the said raw material has been offered for taxation, then no additions be m .....

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en preferred against the order dated 07.03.2011 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 1997-98. 2. The facts in brief as extracted from the impugned order of the Ld. CIT(A) are that the assessee is a 100% export oriented unit located in SEEPZ, Andheri (E). It manufactures Switch Mode Power Supplies used in the Computer Industry. The assessee submitted that the raw-material comprises electronic components which are largely i .....

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rial imported against this order remained of no use to the assessee. The assessee wrote to Dynamic Systems Limited (USA) and Quality Components and Systems Pte Limited (Singapore) requesting interalia to take back the material latest by 31st March 1997 otherwise the material will be scrapped by the assessee. Since the assessee factory was in SEEPZ / the goods could not be removed except without the extant approval of the Deputy Commissioner of Customs SEEPZ, Andheri (E), Murnbai. Accordingly ass .....

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with the assessee at the risk and cost of the said parties. The assessee was not the owner of the said goods. The said parties were in fact the owner of the said goods. As the ownership of the said stock was not vested with the assessee, the said stock can never be treated as assessee s stock so as to attract the provisions of the Section 28(iv) of the Act. In order to substantiate its averment, the assessee placed following evidences before the AO. (a) Letter dated 21st October 1996 of appella .....

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ested the party to take back the material immediately. (d) Letter dated 10th October, 1996 addressed by Dynamic Systems Limited to the appellant requesting the appellant to hold the raw-material until further notice. (e) Letter dated 08th February, 2002 addressed by Quality Components & Systems Pte Limited to the appellant permitting the appellant to scrap the said raw-material. (f) Letter dated 08th February, 2002 addressed by Dynamic Systems Limited to the Assessee permitting the Assessee .....

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ssessee to the Deputy commissioner of Customs informing that the Assessee has destroyed the said raw-material in the presence of Custom Officers. (j) Letter dated 24th December, 2002 issued by Deputy commissioner of Customs informing the Assessee that action of destruction in respect of goods belonging to Quality Components & Systems Pte Limited valuing ₹ 85,25,169/- has been completed under supervision of customs. (k) Letter dated 24th December, 2002 written by the Deputy Commissioner .....

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er dated 22nd March, 2005 written by Deputy Commissioner of Customs, SEEPZ-SEZ confirming the information & authenticating the evidence in respect of obsolete raw-material. 3. The assessee submitted that from the aforesaid evidences that it was clear that the assessee was holding the said raw material on behalf of the aforesaid two parties and the said raw-material was totally in obsolete condition and in fact the said raw-material was destroyed in presence of the Customs Authorities. The as .....

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r the scrap was disposed off by the Custom Authorities. The AO, however, did not accept the contention of the assessee and held that the raw material worth ₹ 1,91,54,094/- was in good condition and was held as stock in trade. The assessee had not included the same as its closing stock. Thus, it was a benefit accrued to the assessee in terms of sec. 28(iv) of the Act and taxed this amount accordingly. 4. In appeal before the Ld.CIT(A), the assessee explained that the material not shipped ba .....

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nded that no additions were warranted in this case as the profits from subsequent seats were offered for taxation. The Ld. CIT(A), considering the submissions of the assessee observed that it was proved on the file that the material worth ₹ 1,58,33,067/- was destroyed by the SEEPZ Board and Customs Authorities on the request of the assessee and the scrap arising from such destruction was sold at ₹ 4,46,316/- and a custom duty of ₹ 1,50,211/- was imposed by the Customs Authoriti .....

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tion 28(iv) accrued to the assessee in the year under consideration as the assessee was fully aware that the items lying with him could be used by it for its manufacturing activity. The Ld. CIT(A), therefore, confirmed the addition to the extent of ₹ 33,25,027/- in respect of the raw material which was subsequently used by the assessee for its manufacturing activity. He rejected the contention of the assessee that in subsequent year there was high profitability as raw material utilized by .....

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ion of the Ld. CIT(A) in deleting the remaining part of the additions made by the AO. 5. Before proceeding further, we may point out that this is a fourth round of litigation/appeal before us. In the first round, the assessee has agitated the reopening of the assessment and the consequent additions made by the Assessing Officer (hereinafter referred to as the AO) on account of the material worth ₹ 9,09,79,393/- lying with the assessee unused/not taken back by the concerned supplier. The AO .....

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deleted the additions in this respect. However, the Ld. CIT(A) invoked his revisional powers under section 263 of the Act and held that the AO had not correctly appreciated the facts. He, therefore, directed the AO for denovo assessment. The matter travelled to the Tribunal again. The Tribunal upheld the action of the Ld. CIT(A) in exercising his revisional jurisdiction under section 263 of the Act. In the third round of appeal, the dispute before the Tribunal was whether an appeal lies to the .....

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essee has been destroyed by the SEEPZ Board and Customs Authorities. In respect of the remaining material worth ₹ 33,25,027/- the Ld. CIT(A) confirmed the additions. 6. After considering the rival submissions of the parties, we find that the assessee has taken a consistent plea during the all rounds of litigation that the material used by the assessee was taken at no cost and that the corresponding sales were offered for taxation. However, the Ld. CIT(A) has rejected the contention observi .....

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