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TMI Blog2022 (9) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in both the years are almost similar except variation of figures of various additions or disallowance. Therefore, with the consent of parties, all appeals were clubbed heard together and are decided by a consolidated order to avoid the conflicting decisions. 2. For appreciation of facts, facts in AY 2011-12 are treated as 'lead' case. The assessee in its appeal ITA No. 3053/AHD/2016 has raised the following grounds of appeals:- "1. The Learned Commissioner of income Tax, (Appeals)-3, Vadodara has erred in law and on facts of the case in confirming the finding of the Assessing Officer that the Appellant has not properly valued opening and closing stock of finished goods viz. MBP and Quinalphos and accordingly, confirming the addition of Rs. 16,40,988/- and Rs. 15,31,168/-respectively. 2. The Learned Commissioner of Income Tax, (Appeals)-4, Vadodara has erred in law and on facts of the case in confirming the finding of the Assessing Officer that the Appellant has undervalued closing stock of various finished goods item sold by the Appellant, and accordingly, erred in confirming the addition of Rs. 2,22,74,370/- made by the Assessing Officer." The Revenue in its appeal ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails, the assessee also stated that in the opening stock statement, submitted earlier and in the revised statement, the item-wise total value is not changed and it was the clerical error. The assessee explained that while furnishing details during assessment, at page 195 mistake has crept as recorded to the quantity of finished goods and work-in-progress, in fact, total quantity of 6300 kg instead of finished goods, and the quantity of 4525 shown as work-in-progress is nil. The assessees finished goods of 6,300 kilograms only. The assessee furnished revised statement and stated that the cost of MPB is Rs. 288 per kg. the assessee furnished the detailed in the following manner:- particulars Average rate of finished goods (Rs) Quantity (Kg) Value (Rs) MPB-finished goods 288 6,300 17,74,372/- MPB-Work in process* -- -- 58,07,035/- Total 75,81,407/- * As on 31 March 2011, the product MJPB was under production and certain raw materials were charged in the process. Some process has been carried out on these materials. Since the finished products is not manufactured therefore no quantityis reflected in the WIP, but only value of the material and processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reflected in the WIP, but only value of the material and processing cost to the extent of process completed, in process has to be reflected and it has valued at Rs. 11,65,953/-..." 5. The assessee prayed to ignore their earlier submissions and to consider the aforesaid revised statement. The Assessing Officer on perusal of submission of assessee noted that quantity as well as value of closing stock consist of finished stock also work in on normal methodology adopted for working the value of closing stock, is the first identify the stock in respect of each item and at what stage i.e., stock in the form of raw material, stock which is lying as finished products, and the stock which would be in the process of production, once the same is done the next stage follows the valuing the same. Firstly, a particular item needs to quantify in respect of work-in-progress & finished stock. In case of MPB, as per chart at page 195, clearly indicate that closing stock of MPB differentiated by showing 1775 kgs as finished stock and 4525 kgs. as work-in-progress. The assessee contended that there was a mistake cropped up as regards quantity of finished goods and work-in-progress of MPB. It was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement we have worked out the valuation of WIP considering the quantum of Raw Material charged, Utilities consumed and the other Overhead expenses alongwith the supporting for stage-wise as under: Particulars Units/Kg/Ltr. Qty. Value (Rs) Ref.page Raw materials Kg/Ltr 93226 5110313 698 Utilities Fuel Scm 4866 82241 699 Electricity Kwh 62872 387163 699 Water KL 2008 43281 699 Labour cost 163255 700 Stores 11842 701 Transportation RM 8940 702 Total cost of Work-inprocess as on 31-03-2001 587035 697 Similarly for Work In Process as on 31-03-2010 for Quinalphos and MPB is as under: Work-in-process of MPB as on 31-03-2010 Particulars Units/Kg/Ltr. Qty. Value (Rs) Ref.page Raw materials Kg/Ltr 107206 5177616 706 Utilities Fuel Scm 4015 53410 708 Electricity Kwh 52392 324269 708 Water KL 1961 37858 708 Labour cost 70629 709 Stores 9781 710 Transportation RM 12902 711 Total cost of Work-inprocess as on 31-03-2001 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee with detailed queries as recorded in para-5.3 at pages 20 to 23 of the assessment order. The assessee filed its reply dated 29.01.2014 and explained as follows:- "3. As regard Query No.14 to 29, we state as under:- Kindly refer item 1EUR above, regarding the valuation of finished goods and Traded goods - AS per the Accounting policy, these items are valued at lower of cost or net realisable value. The stocks are valued at lower of cost / net realisable value where the items are not in saleable condition, i.e., they are in damaged condition of near expiry. The items which are damaged or near expiry shall not realise the same value in the market and they are valued at 5% of the cost. It may kindly be noted that the above policy has been regularly followed by the company since inception and the same has been duly accepted by the Department while finalizing the assessment every years. We are attaching herewith the statement giving explanation with regard to itemNo.14 to 29. Refer page No. 681 to 690 From the attached statement, you will observe that the total quantity of:- PARAMVEER is 7,162 Ltrs. of which, 831 ltrs are damaged of near expiry and therefore 2,831 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per ltr. The value of saleable quantity 9 is valued at Rs. 245/- per ltrs. YODHA is 30,009 Ltrs of which 4,014 ltrs are damaged of near expiry and therefore 4,014 ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 279/- per ltrs. the value of saleable quantity is valued at Rs. 320/- per Ltr. GILRON is 7,508 of which 3,638 Ltrs are damaged of near expiry and therefore 3,638 Ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 133/- per Ltr. The value of saleable quantity is valued at Rs. 248/- per Ltr. NIHAL is 27,238 Ltrs, of which 10,963 Ltrs are damaged of near expiry and therefore 10,963 Ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 138/- per Ltr. The value of saleable quantity is valued at Rs. 225/- per Ltr. GILTOP is 66,169 Ltrs. of which 16,975 Ltrs are damaged of near expiry and therefore 16,975 Ltrs are valued at 5% of the cost and therefore, the average cost is Rs. 29/- per Ltr. The value of saleable quantity is valued at Rs. 39/- per Ltr. PRATIGHAT is 7,964 Ltrs of wich 1,844 Ltrs are damaged of near expiry and therefore 1,844 Ltrs are valued at 5% of the cost and therefore, the average cost is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical aid. The Assessing Officer made a details of quantity of its opening stock, quantity of damaged goods in opening stock, percentage of damaged goods, quantity of closing stock, quantity of damaged goods in opening stock, percentage of damaged good to finished goods in opening, quantity in closing stock, quantity of damaged goods in opening stock and percentage of damaged goods in closing stock in respect of 17 items, was prepared as mentioned in para-5.36 of assessment order and concluded that there has not been a single instance, whereas the percentage of damaged goods in closing stock has been decrees as compared to percentage of damaged goods in opening stock. In fact, there is a total rivalry percentage of damaged goods from 7.5% to 28.61% which is almost rise by four folds. This is only because of the assessee has presented fabricated figures only to make believe its contention. The Assessing Officer worked out the total disallowance of Rs. 2.227 crores (para 5.38). The assessing officer also made ad-hock disallowance @ 5% of various expenses in para 5.42 (which are not subject matter of any appeal). Thus, the assessing officer made addition/ disallowance of interest of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds to the holding Co. and allowed undue credit to it. The issue is covered in favour of assessee in assessees own case for AY 2009-10 in ITA No.556 & 675/AHD/2013 dated 19.07.2013. 11. On the disallowance of valuation of opening stock and closing stock of finished goods, the assessee made similar submission as made before the Assessing Officer. Similarly, for addition on account of valuation of closing stock, the assessee reiterated similar submission as submitted before Assessing Officer. 12. The Ld. CIT(A) after considering the submission of assessee on addition of valuation of closing stock of MPB and Quinalphos held that the reasons for addition by making on account of incorrect valuation of opening stock and closing stock of such finished goods. The assessee has reiterated the same submissions as furnished before Assessing Officer and reproduced it earlier submission. The facts are that during assessment, on perusal of details in respect of opening stock and closing stock of work-in-progress and finished products, observed that the finished stock was valued by assessee less than that of work-in-progress in respect of both produces (MBP & Quinalphos). The ld CIT(A) held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submission of assessee held that each item of closing stock as mentioned in the chart has been valued by Assessing Officer at the rate on which the opening stock has been valued and the addition against each of the items as mentioned in the show cause notice has been made by Assessing Officer. The Assessing Officer worked out the addition in respect of each of the items of closing stock and worked out as figure of disallowance of Rs. 2.22 crores, which has been correctly made by Assessing Officer and accordingly confirmed the addition made by Assessing Officer. 15. Aggrieved by the confirming addition disallowance on account of under-valuation of closing stock and addition on account of valuation of closing stock of MPB and Quinalphos, the assessee filed appeal before Tribunal. Similarly, against deleting of interest disallowance, the Revenue has filed its appeal before Tribunal. 16. We have heard the submissions of Ld. Authorized Representative (AR) for the assessee and Ld. Commissioner of Income-tax-Departmental Representative (CIT-DR) and Ld. Senior Departmental Representative (Sr. DR) for the Revenue. At the outset of hearing the ld.AR of the assessee submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds available both interest free and over draft and or loans taken than a presumption would arise that investment would be out of interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investment. 11. In the case of CIT vs. Raghuvir Synthetics (supra), The Hon. Gujarat High Court has held as under: Head note: INTEREST ON BORROWED CAPITAL - INTEREST-FREE LOANS TO SISTER CONCERNS- HUGE FUNDS AVAILABLE WITH ASSESSEE WITHOUT ANY INTEREST LIABILITY- NO EVIDENCE THAT BORROWED MONEY UTILISED FOR PURPOSE OF ADVANCE TO SISTER CONCERNS- INTEREST ALLOWABLE. 12. In view of the aforesaid facts and placing reliance on the aforesaid decisions of Hon. High Courts, we are of the view that no disallowance on account of interest can be made in the hands of the Assessee in the present case. Thus this ground of Assessee is allowed." 19. Considering the decision of Tribunal on similar set of fact on similar ground of appeal in AY 2009-10, therefore respectfully following the binding precedent, we affirm the order of Ld. CIT(A). 20. In the result, Revenue's appeal in ITA No.3273/AHD/2016 (AY 2011-12) is dismissed. 21. Now adverting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent the process is completed has been reflected and valued at Rs 42,37,20s/- as stated above. The rate per kg is around Rs 342/- per kg (4237208/12375). Therefore, the value per kg of closing stock being Rs 342/- per kg is the same as 342/- per kg of opening stock as mentioned by the Assessing officer. The details of above-mentioned Work-in-Progress with respect to MPB and Quinalphos was also given, wherein the cost of raw material, fuel, electricity, water, labour cost, store consumed and transportation value were allocated to both the items. Ld. AR further submits that it is further submitted that the method for valuation of stock is followed consistently year on year by the Appellant and there has been no change in respect of the same in the current year also. It is also that the Department has accepted this fact and there has been no addition made with respect to the said ground in any preceding or subsequent years. The ld AR for the assessee submits that all the details are available as per details on page No. 137 to 144 of paper book. Therefore, there is no undervaluation of stock in case of MPB and Quinalphos and the addition of Rs 16,40,9887- and Rs 15,31, 168/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Ld. AR of the assessee submits that during the course of assessment, the details with respect of opening and closing stock of WIP and finished product were called for and submitted by the assessee. The Assessing Officer has observed with respect to 17 items that the closing stock of damaged goods has been undervalued and has made an addition of Rs. 2,22,74,370/-. The Assessing Officer has estimated the percentage of damaged stock in the opening and closing stock of each of these items and has gone to observe that there has been an increase in the percentage of damaged goods. The ld. AR of the assessee submits that the assessee has submitted detailed reasons, wherein assessee have stated that they are governed by the Insecticides Act, 1968 along with Insecticides Rules, 1971, and reproduced as below: Rule 10-A: Segregation and disposal of date expired pesticides: "b. All such stocks then shall be disposed of in such a manner as may be specified from time to time by the Central Government in consultation with the Central Insecticide Board. " 44 Disposal of used packages surplus materials & washings of insecticides: (1) It shall be the duty of the manufacturers formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asan Exports (P) Ltd (106 taxmann.com 21) (Del-Trib). 30. The ld. AR of the assessee prayed to delete the addition of Rs. 2,22,74,370/-. 31. On the other hand, Ld. CIT-DR for the Revenue supported the order of Ld. CIT(A). The ld Sr DR for the revenue submits that before assessing officer the assessee has not furnished stock statement at various location. The assessee has proved the quantity of the goods which were not saleable. The assessee was claiming a substantial part as not saleable without bringing any evidence on record. Moreover, there is substantial increase in the percentage of damaged product/ goods in the closing stock compare with earlier year. The ld Sr DR for the revenue further submits that the assessee again the assessee has taken a new stand that expired pesticides cannot be sold and needs to be disposed of, which was not raised before lower authorities. Even, the assessee has not shown such evidence of stock of expired goods. The ld DR for the revenue submits that order of lower authorities are very details in explain the huge variance of damaged goods. 32. We have considered the rival submission of both the parties and have gone through the orders of the lowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same method of valuation of stock was consistently followed by assessee, resulting in no distortion of profit, any alleged difference or discrepancy such as diminution in valuation pf closing stock could be allowed. We find that the assessee in the present case has not proved such fact as no evidence is placed on record to prove such practice regularly. Moreover, the assessing officer has clearly held that there is huge variation in the percentage of damaged goods shown by the assessee. Similarly, in other case laws, the ratio of decisions is that when similar method of valuation of damaged goods was accepted by the revenue, there is no justification for making disallowance. As noted above the assessing officer from the figures of the assessee has clearly spelt out the huge difference of damage in 17 products of the assessee. 35. Again adverting to the issues under discussion. We find that main dispute between the assessee and revenue is about the substantial increase of quantum of damaged goods. No doubt that certain percentage of product/ goods produce by the assessee is bound to damage or expired by efflux of time or by other factor effecting the chemical composition of such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company. 39. We find that the ground No. 1& 2 raised by the revenue is similar to the grounds of appeal raised by revenue in appeal for 2011-12, which we have already dismissed by following the order of Tribunal in earlier years. Therefore, following the principal of consistency, the grounds of appeal No. 1& 2 are dismissed with similar observation. 40. Ground No. 3 relates to delating the repairs and maintenance charges. 41. Brief facts of the case leading to the addition are that during the assessment, the assessing officer during the assessment noted that the assessee has claimed expenses of Rs. 7.843 Crore on account of repair and maintenance of Plant and Machinery. The assessing officer on examination of certain item found that those are capital in nature. On show cause notice, the assessee replied vide its reply dated 12.01.2015 as recorded in para 5.3.2 of the assessment order that those maintenance and repair are necessary due to continue usage of equipment for many years on account of highly corrosive plant. The reply of the assessee was not accepted by the assessing officer by taking view that replacement of parts will result in enduring benefit and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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