Andreza v. Joint Commissioner Of Income Tax, Range-1,Having Office At 'Aayakar Bhavan', Patto-Plaza,Panaji-Goa

Andreza IN THE HIGH COURT OF BOMBAY AT GOATAX APPEAL NO. 3 OF 2016 M/s. Goa Carbon Ltd, Dempo House, Campal, Panaji, Goa, Pin: 403001 PAN: …Appellant Versus 1. Joint Commissioner of Income Tax, Range-1,having office at 'Aayakar Bhavan', Patto-Plaza,Panaji-Goa. 2. Union of India, Through the Secretary (Revenue), Ministry of Finance, North Block, New Delhi. …Respondents Mr. Mihir Naniwadekar & Ms. Vinita Palyekar, Advocates forthe Appellant. Ms. Susan Linhares, Standing Counsel for the Respondent nos.1 and 2. CORAM:M. S. SONAK & M. S. JAWALKAR, JJDATED:19[th] July 2021 ORAL JUDGMENT(Per M. S. Sonak, J.) 1.Heard Mr. Mihir Naniwadekar, learned Counsel for theAppellant, and Ms. Susan Linhares learned Standing Counsel forthe Respondent nos. 1 and 2. 2.This appeal was admitted on 7[th] March 2016 on thefollowing substantial question of law : “Whether on the facts and in circumstances of thecase and in law, the ITAT was justified in sustaining addition of Rs.3,02,29,477/-, without appreciatingthat the valuation of closing stock has to be doneon the basis of cost or market price, whichever islower and for determining the market price for thispurpose, the relevant price is the price as on 31[st]March and not the average price for the entire year? 3.This appeal pertains to the assessment for the AssessmentYear 2009-2010. The Assessing Officer vide his order dated29.11.2011, disallowed the loss of 3,02,29,477/- claimed by the₹Appellant-Assessee in the stock valuation and added the same tothe total income of the Assessee. 4.The assessment order dated 29.11.2011 was upheld by theCommissioner of Income Tax (CIT)(Appeals) on 11.05.2015.The Assessee's appeal to the Income Tax Appellate Tribunal(ITAT) was dismissed on 14.09.2015. Hence, the present appealon the aforesaid substantial question of law. 5.Mr. Naniwadekar, the learned Counsel for the Appellant,submits that in the present case, the Assessing Officer took intoaccount the average market rate for the period from 01.04.2008to 31.03.2009 instead of taking into account the market rate forMarch 2009 which was only 18,107/-. He submits that the₹details furnished by the Appellant were based on the books ofaccount maintained by the Appellant and such accounts were notrejected but accepted by the Assessing Officer. He submits thatat no stage was the Assessee required to produce any evidence tosupport the entries/figures reflected in the book of accounts. Hesubmits that the Assessing Officer, CIT (Appeals), and ITAT havereferred to the average market price for the entire year instead of taking the market price only for March 2009 and this constitutesan error apparent on the face of the record. He submits that thefindings recorded by all the three authorities are such as ought notto be arrived at by any reasonable authority instructed in law andon facts. He, therefore, submits that the substantial question oflaw as framed is required to be answered in favor of theAppellant-Assessee. 6.Ms. Linhares, learned Standing Counsel, defends theimpugned orders based on the reasoning reflected therein. Shesubmits that pure findings of facts have been recorded by thethree authorities and this is not a case of perversity in the recordof such finding of facts. She submits that the Assessee wishes thisCourt to re-assess this material on record, which exercise thisCourt while exercising second appellate jurisdiction shouldnormally decline. She submits that no evidence was produced bythe Assessee to justify the significant variation in the cost priceand the alleged market price. For all these reasons, she submitsthat this appeal is liable to be dismissed. 7.The rival contentions now fall for our determination. 6.Ms. Linhares, learned Standing Counsel, defends theimpugned orders based on the reasoning reflected therein. Shesubmits that pure findings of facts have been recorded by thethree authorities and this is not a case of perversity in the recordof such finding of facts. She submits that the Assessee wishes thisCourt to re-assess this material on record, which exercise thisCourt while exercising second appellate jurisdiction shouldnormally decline. She submits that no evidence was produced bythe Assessee to justify the significant variation in the cost priceand the alleged market price. For all these reasons, she submitsthat this appeal is liable to be dismissed. 7.The rival contentions now fall for our determination. 8.At the outset, we must note that from the perusal of theorders made by the Assessing Officer, CIT (Appeals), and ITAT, itdoes appear that the question which is now sought to be raised bythe Appellant-Assessee was not clearly raised. At least, such aquestion in the form in which it is sought to be projected was notraised before the Assessing Officer or the CIT (Appeals). There isonly a sentence to be found in the order made by the ITAT abouta submission that the market price of the Assessee's products during the end of the relevant assessment year i.e. March 2009,was 18,107/- whereas the average market price for the whole₹year was 24,721/-. However, except for this submission, such₹an issue in the form in which it is projected in this appeal doesnot appear to have been raised before the Assessing Officer orCIT (Appeals). 9.If, the memo of appeal before ITAT is perused, then, it isevident that the Appellant-Assessee had merely contended thatthe Appellant has valued the closing stock “consistently in linewith the Generally Accepted Accounting Principles”. Based onthis single line, it was urged that the CIT (Appeals) erred inholding that the valuation of closing stock as computed by theAssessing Officer was more than 3,02,29,477/-.₹ 10.The aforesaid means that neither was the specific groundnow sought to be projected in this Appeal ever raised in thememo of appeal before the ITAT nor was such contentionseriously advanced and pressed before the ITAT. Based on thesingle statement in the ITAT order dated 14.09.2015, which isagain not backed by any ground in the memo of appeal, wecannot accept that the substantial question of law now raised, waseffectively raised and adjudicated before the earlier authorities. Insuch circumstances, the substantial question of law thoughframed, cannot be said as arising in this Second Appeal. 11.Be that as it may, the Assessing Officer, the CIT (Appeals),and ITAT have recorded pure findings of fact. Such findings offact cannot be interfered with in a Second Appeal unless a case ofperversity is made out. At this stage, it is not for this Court to re- assess or re-appreciate the material on record, only to findwhether some different view is possible. All the authorities, basedon the material before them, or the lack of proper evidence beforethem, have held that the disparity between the cost price and themarket price remains unexplained by the Appellant-Assessee. TheITAT has also noted that the Appellant-Assessee failed to explainthe basis for valuation of closing stock being lesser than even theaverage cost or the average market price. ITAT also noted thatthe Appellant-Assessee failed to produce any cogent evidence tosubstantiate its claim even before the ITAT itself despite the grantof opportunity. assess or re-appreciate the material on record, only to findwhether some different view is possible. All the authorities, basedon the material before them, or the lack of proper evidence beforethem, have held that the disparity between the cost price and themarket price remains unexplained by the Appellant-Assessee. TheITAT has also noted that the Appellant-Assessee failed to explainthe basis for valuation of closing stock being lesser than even theaverage cost or the average market price. ITAT also noted thatthe Appellant-Assessee failed to produce any cogent evidence tosubstantiate its claim even before the ITAT itself despite the grantof opportunity. 12.According to us, the findings recorded by the threeauthorities or the view taken by the three authorities cannot bestyled as some perverse view or a view which no reasonableperson, well instructed in the law, could have ever arrived at.Accordingly, there is no case made out to interfere with suchconcurrent findings recorded by all the authorities, in the exerciseof the limited jurisdiction vested in us in this Second Appeal.Apart from producing an unsigned chart and raising vague pleas,no material was placed on record by the assessee to explain thevariation in the cost price and the market price during therelevant assessment year. No case is therefore made out tointerfere with the findings concurrently recorded by the threeauthorities. 13.Ms. Linhares learned Standing Counsel, relied onCommissioner of Income-tax vs. British Paints India Ltd.[1 ]tosubmit that in the absence of any cogent evidence produced on 1 (1991) 54 Taxman 499 (SC) record by the Assessee, the Assessing Officer was justified indetermining the market price, having regard to the market rate inthe course of the assessment year. 14.In the present case, the Assessee, apart from submitting anunsigned chart, allegedly based on the books of accountmaintained by the Assessee, had failed to produce on record anymaterial in support of the substantial variation between the costprice and the market price. In such a situation, there was nothingwrong with the approach of the Assessing Officer and thedetermination ultimately made by the Assessing Officer. 15.In British Paints India (supra), the Hon'ble SupremeCourt has held that : “Section 145 of the IT Act confers sufficientpower upon the officer – nay, it imposes a dutyupon him – to make such computation in suchmanner as he determines for deducing the correctprofits and gains. This means that where accountsare prepared without disclosing the real cost of thestock-in-trade, albeit on sound expert advice in theinterest of efficient administration of the company,it is the duty of the ITO to determine the taxableincome by making such computation as he thinksfit. Any system of accounting which excludes, forthe valuation of the stock-in- trade, all costs otherthan the cost of raw material for the goods inprocess and finished products, is likely to result ina distorted picture of the true state of the business “Section 145 of the IT Act confers sufficientpower upon the officer – nay, it imposes a dutyupon him – to make such computation in suchmanner as he determines for deducing the correctprofits and gains. This means that where accountsare prepared without disclosing the real cost of thestock-in-trade, albeit on sound expert advice in theinterest of efficient administration of the company,it is the duty of the ITO to determine the taxableincome by making such computation as he thinksfit. Any system of accounting which excludes, forthe valuation of the stock-in- trade, all costs otherthan the cost of raw material for the goods inprocess and finished products, is likely to result ina distorted picture of the true state of the business for the purpose of computing the chargeableincome. Such a system may produce acomparatively lower valuation of the opening stockand the closing stock, thus, showing acomparatively low difference between the two. In aperiod of rising turnover and rising prices, thesystem adopted by the assessee, as found by theTribunal, is apt to diminish the assessment of thetaxable profit of a year. The profit of one year islikely to be shifted to another year which is anincorrect method of computing profits and gainsfor the purpose of assessment. Each year being aself-contained unit, and the taxes of a particularyear being payable with reference to the income ofthat year, as computed in terms of the Act, themethod adopted by the assessee has been found tobe such that income could not properly bededuced therefrom. It was, therefore, not only theright but the duty of the Assessing Officer to act inexercise of his statutory power, as he has done inthe instant case, for determining what, in hisopinion, was the correct taxable income. TheTribunal's order, affirming that of the AssessingOfficer, was based on findings of fact made oncogent evidence and in accordance with correctprinciples. The High Court was clearly wrong ininterfering with those findings. Accordingly, thejudgment of the High Court was to be set aside.” 16.According to us, the aforesaid observations in BritishPaints India (supra), assist the revenue in this matter. 17.For all the aforesaid reasons, we dismiss this Appeal byholding that substantial question of law as framed, does not arisein the matter or any case, based on the material on record, isrequired to be answered against the Appellant-Assessee. 18.The Appeal is accordingly dismissed. There shall be noorder as to costs. M. S. JAWALKAR, J.M. S. SONAK, J. ANDREZA PEREIRADigitally signed by ANDREZA PEREIRA Date: 2021.07.20 10:51:53 +05'30'