TMI Blog2016 (10) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... f closing stock of work in progress - Held that:- We find that the ld CITA had given categorical findings with regard to the treatment given by the assessee in the valuation of closing stock of work in progress as on 31.3.2007. The ld DR was not able to controvert any of the findings given by the ld CITA before us. Under these circumstances, we do not find it necessary to interfere with the order of the ld CITA in this regard. Accordingly, the ground raised by the revenue is dismissed. - I.T.A No. 2043Kol/2013 - - - Dated:- 3-8-2016 - Shri M. Balaganesh, AM And Shri K. Narasimha Chary, JM For the Appellant : Shri Sallong Yaden, Addl. CIT For the Respondent : Shri D. S. Damle, FCA ORDER Per Shri M. Balaganesh, AM This appeal by revenue is arising out of order of CIT(A), Central-II, Kolkata vide appeal No. 244/CC-X/CIT(A)C-II/10-11/Kol dated 31.03.2013. Assessment was framed by DCIT-1(1), Mumbai u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2007-08 vide his order dated 18.12.2009. 2. At the outset, we find that there is a delay of 23 days in filing the appeal before us by the revenue which is supported with condonat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure u/s 14A of the Act by applying 2.59% on interest payment of ₹ 3,87,00,000/- and arrived at the disallowance figure of ₹ 10,02,330/-. Before the ld CITA, it was submitted that the total interest (net) incurred is only ₹ 3,87,000/- and not ₹ 3,87,00,000/- which could be evident from the audited financial statements of the assessee company. This interest expenditure included a sum of ₹ 1.35 lacs paid towards interest on cash credit facility and ₹ 2.93 lacs incurred towards export bill discounting facility charges. The interest on cash credit was paid entirely in connection with working capital requirements of the business and the export bill discounting charges have nothing to do with the investment activities as they are paid to the bank for discounting the export bills of the assessee. The ld CITA observed that the assessee had totally paid interest on cash credit of ₹ 1,35,000/- and bill discounting charges of ₹ 2,93,000/- and received interest income of ₹ 41,000/- and hence the net interest is ₹ 3,87,000/-. This interest paid on borrowed funds were not utilized for making any investment and hence there is no q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The last ground to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of valuation of closing stock of work in progress in the sum of ₹ 1,68,57,093/- in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that on perusal of the details filed in respect of inventory of closing stock, it revealed that the assessee has shown the value of work in progress at ₹ 2,28,16,020/-. During the course of assessment proceedings, the AR of the assessee was required to submit the details of work in progress, indicating the names of the parties whose work are in progress indicating advances received for the orders. The Ld. AR of the assessee was also required to submit the basis of arriving at the figure of closing work in progress in order to cross check the correctness of the closing work in progress. The Ld. AR of the assessee was also required to submit copy of sales ledger for the month of April 2007. The ld AO observed that the perusal of the sales ledger of 2007 revealed that the assessee company has effected sales at higher rate than the value of work in progress discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year prima facie appears to be suppressed and accordingly, the value of closing work-in-progress in as at 31.03.2007 prima facie appeared to be suppressed as there are excessive sales in the subsequent month of April, 2007. In view of this discrepancy, the AR of the assessee was required to furnish the basis of arriving at the value of closing work-in-progress along with supporting documents. He observed that the AR of the assessee had expressed his inability to furnish such details stating that the assessee company had not maintained item wise work-in-progress and the purchases and consumption are common for all products. The ld AO did not accept the contention of the assessee in view of the fact that the assessee company has made substantial purchases in the month of March, 2007 itself totaling to ₹ 11,78,65,760/- and has consumed raw materials to the tune of ₹ 5,54,81,740/-. On the one hand, assessee has claimed expenses on account of purchase of raw materials and on the other hand, it has reduced the value of stock of raw materials as the same had been claimed to have been consumed. Further, the assessee company by showing lesser value of work-in-progress had infla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the explanations details furnished in support of value of closing WIP as on 31.3.07. The assessee was always in possession of the evidences to substantiate its explanations, reconciling the value of WIP with the sales value realised from the customers, on raising of the invoices in the subsequent financial year. If the ld AO had granted sufficient time to furnish the required information then the assessee would have certainly furnished the same. The ld CITA appreciating the various submissions of the assessee observed as under:- 16. I have considered the submissions of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant, the remand report submitted by the AO and the counter comments of the appellant. On examination of assessment order, it appears that the AO had made the addition to the closing value of WIP primarily for the reason that he was of the opinion that compared with the sale value realized by the appellant in April, 2007, the value of the work in progress disclosed by the appellant as on 31.03.2007 was substantially low. The wide variation between the said two figures i.e. the sale value in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 32%, the amount of GP comes to ₹ 1,13,78,712/-. Thus, as per the working of the AO, the correct value of the WIP should have been at ₹ 2,41,79,762/- i.e. (Rs.3,55,58,474 - ₹ 1,13,78,712). Since, the appellant had disclosed the closing WIP at ₹ 2,28,16,020/-, the difference comes to ₹ 13,63,742/- i.e. (Rs.2,41,79, 762 - ₹ 2,28,16,020). However, considering the submission of the appellant, documents produced and the verification made by the AO in the course of remand proceedings, I am of the opinion that no addition at all can be made to the value of the WIP disclosed by the appellant because if the contention of the AO as per the assessment order is accepted then it would mean that the appellant had not done any value addition to the WIP after 31.03.2007 and the goods were sold in the month of April, 2007 as such without any further manufacturing process. If it was so, then as on 31.03.2007, the WIP shown by the appellant was nothing but the stock of finished goods which was sold as it is. But, it is not factually correct. The appellant company had made further value addition to the WIP to manufacture the finished goods before selling them. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamination of these evidences but he was not able to point out any specific infirmity in the evidences filed. Under the circumstances, I am of the considered opinion that the AO was not justified in making addition to the value of closing WIP. 17. I also find force in the submissions of the appellant that in working out the alleged suppression of the value of the WIP; the AO wrongly considered the invoiced value of sales which inter-alia included Sales Tax Excise Duty for which liability arose only at the time of dispatch of goods in April 2007. In determining the value of WIP as on 31.03.2007; liability for the statutory levies was not includible. For example, in the case of machines supplied to Mangalam Cement Works invoiced value was ₹ 3,41,24,965/-, but the basic sale price i.e. net off Excise duty VAT, was only ₹ 2,80,11,940./-. Similarly, in the case of ACC Wadi the Invoice sale value was ₹ 2,47,35,153/- whereas basic sales value net of taxes was only ₹ 2,06,17,025/-. As regards sales to Birla Tyres, the Invoices value was ₹ 87,82,739/-, whereas, basic sales value was only ₹ 73,20,000/-. The above figures showed that for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his comparative chart for the machines sold in April 2007. In view of above facts, I am of the opinion that there was no understatement of the value of WIP as on 31.03.2007 as observed by the AO and, therefore, no addition can be made to the value of WIP. The AO is directed to delete the addition made by him. The ground no. 5(a) to 5(d) are allowed. 4.3. Aggrieved, the revenue is in appeal before us on the following ground:- 2. That on facts and circumstances the Ld. CIT(A) erred in deleting the closing work in progress entirely, though admitting that the Assessing Officer adopted the correct methodology to value the inventory of WIP. 4.4. The Ld DR vehemently relied on the order of the ld AO and the ld AR vehemently relied on the order of the ld CITA. 4.5. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee consisting of pages 1 to 143. We find that the ld CITA had given categorical findings with regard to the treatment given by the assessee in the valuation of closing stock of work in progress as on 31.3.2007. The ld DR was not able to controvert any of the findings given by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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