Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Arpit Marble Pvt. Ltd, Natwara House, Amer Road, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 606 / 2009 Commissioner of Income Tax, JAIPUR-II, JAIPUR ----Appellant Versus Arpit Marble PVt. Ltd, Natwara House, Amer Road, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 607 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus Arpit Marble Pvt Ltd. Natwara House, Amer Road, Jaipur ----Respondent D.B. Income Tax Appeal No. 609 / 2009 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus ARPIT MARBLE PVT. LTD., NATWARA HOUSE. AMER ROAD, JAIPUR ----Respondent D.B. Income Tax Appeal No. 610 / 2009 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus ARPIT MARBLE PVT. LTD., NATWARA HOUSE. AMER ROAD, JAIPUR ----Respondent D.B. Income Tax Appeal No. 612 / 2009 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus ARPIT MARBLE PVT. LTD., NATWARA HOUSE. AMER ROAD, JAIPUR ----Respondent D.B. Income Tax Appeal No. 616 / 2009 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus ARPIT MARBLE PVT. LTD., NATWARA HOUSE. AMER ROAD, JAIPUR ----Respondent_____________________________________________________For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. Naresh Gupta _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 02/08/2017 In all these appeals similar question of law and facts areinvolved, therefore, they are decided by this common judgment. 1.By way of these appeals, the department has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals of the department and partly allowed theappeal of the assessee. 2.This Court while admitting the matter framed the followingquestions of law:- DBITA No. 606/2009 “Whether in the facts in the circumstances of the case, the Tribunal was justified in deleting theaddition made by the Assessing Officer onaccount of suppressed production contrary tothe provisions of section 145 of the Act withoutappreciating the facts that the assesse has notgiven any cogent explanation to substantiate lowyield?” DBITA No. 607/2009 “i) Whether in the facts in the circumstances ofthe case, the Tribunal was justified in deleting theaddition made by the Assessing Officer onaccount of suppressed production contrary to theprovisions of section 145 of the Act withoutappreciating the facts that the assesse has notgiven any cogent explanation to substantiate lowyield?” ii) Whether in the facts and circumstances of thecase, the Tribunal was justified in law in holdingthat the excise duty is not leviable as the goodsare not transferred and as such the same cannotbe added in closing stock contrary to provisionsof section 145A of the Act?case, the Tribunal was justified in law in holdingthat the excise duty is not leviable as the goodsare not transferred and as such the same cannotbe added in closing stock contrary to provisionsof section 145A of the Act? iii) Whether in the facts and circumstances of thecase, the Tribunal was justified in directing todelete additions made by way of disallowance outof depreciation on account of personal use ofvehicle despite the clear provisions of section38(2) which directly gives mandate to disallowproportionate expenses including depreciationwhich has not been used wholly for thebusiness.?” DBITA No. 609/2009 iii) Whether in the facts and circumstances of thecase, the Tribunal was justified in directing todelete additions made by way of disallowance outof depreciation on account of personal use ofvehicle despite the clear provisions of section38(2) which directly gives mandate to disallowproportionate expenses including depreciationwhich has not been used wholly for thebusiness.?” DBITA No. 609/2009 “i) Whether in the facts in the circumstances ofthe case, the Tribunal was justified in deleting theaddition made by the Assessing Officer on accountof suppressed production contrary to theprovisions of section 145 of the Act withoutappreciating the facts that the assesse has notgiven any cogent explanation to substantiate lowyield?” ii) Whether in the facts and circumstances of thecase, the Tribunal was justified in law in holdingthat the excise duty is not leviable as the goodsare not transferred and as such the same cannotbe added in closing stock contrary to provisionsof section 145A of the Act? iii) Whether in the facts and circumstances of thecase, the Tribunal was justified in directing to delete additions made by way of disallowance outof depreciation on account of personal use ofvehicle despite the clear provisions of section38(2) which directly gives mandate to disallowproportionate expenses including depreciationwhich has not been used wholly for thebusiness.?” DBITA No. 610/2009 “Whether in the facts and circumstances of thecase the ITAT was justified in law in directing toadopt the value of closing stock of marble tiles atnet realizable value as against the value of suchmarbloe tiles at cost adopted by the AssessingOfficer in accordance with section 145 of theAct.?” DBITA No. 612/2009 “Whether closing stock can be valued on netrealisable value as against the value to beassessed on cost basis adopted by the assessingauthority.?realisable value as against the value to beassessed on cost basis adopted by the assessingauthority.? DBITA No. 616/2009 “Whether in the facts and circumstances of thecase the ITAT was justified in law in directing toadopt the value of closing stock of marble tiles atnet realizable value as against the value of suchmarble tiles at cost adopted by the AssessingOfficer in accordance with section 145 of theAct.?” 3.Counsel for the appellant Mr. Mathur has taken us to theorder of AO. Firstly, he contended with regard to the averments made in para 2 of the appeal memo which reads as under:- “Therefore, the Assessing Officer is directed toexamine the details regarding element ofinclusion of overhead expenses by providingreasonable opportunity to the assessee. Whiledoing so, the Assessing Officer would keep inmind the established rule of commercialpractice and accountancy that in profit and lossaccount of an assessee’s business the values ofthe stock in trade at the beginning and at theend of the period covered by the account shouldbe entered at cost or market price whichever isthe lower and adopting same yardsticks forstock in hand on opening and closing day of theyear.” 4.Taking into consideration he contended that the AO whileconsidering the matter has rightly invoked the provisions of 145 ofthe Income Tax Act and has added income taking intoconsideration the value of the product which was identical and thevalue which has been envisaged by the respondent was notproper. 5.He further contended that the Tribunal in para 13 haserroneously observed as under:- 4.Taking into consideration he contended that the AO whileconsidering the matter has rightly invoked the provisions of 145 ofthe Income Tax Act and has added income taking intoconsideration the value of the product which was identical and thevalue which has been envisaged by the respondent was notproper. 5.He further contended that the Tribunal in para 13 haserroneously observed as under:- “In the light of the above discussion and afterconsidering the material on record and thearguments put forth by the parties, we are of theconsidered opinion that in the case of assessee themarble tile is a by-product produced as secondaryproduct from the wastage generated in themanufacturing of marble slabs and therefore, thesame could not be valued at par with the value atwhich the Marble slab is valued and accordingly themethod of valuation adopted by the assessee invaluing the marble tiles at net realizable valueappears to be the most appropriate methodparticularly looking to the facts that the production oftiles is depended upon the quality of input in theshape of marble blocks and the uncertainty of thequantum of production of tiles and the neglibibleexpenditure incurred on the production of the tilesand looking to the over all circumstances we setaside the orders of the lower authorities and directthe AO to take the value of closing stock of marbletile as declared by the assessee. So far as thedirection of this bench with regard to the inclusion ofoverhead is concerned, from the perusal of the costsheet available on record it is seen that the cost ofproduction has been worked out after taking intoconsideration the entire expenditures relatable to themanufacturing activity and assessee has valued theclosing stock of marble slabs according to the cost soworked out which has been accepted by the lowerauthorities thus in the circumstances the directions ofthis bench also remains complied with. Thus groundNo. 1 to 1.2 of assessee’s appeal are allowed andsolitary ground of the revenue is dismissed.” 6.Counsel for the respondent has relied upon the followingdecision in case of Assistant Commissioner of Income Tax vs. D &H Secheron Electrodes (P) Ltd reported in (2008) 173 Taxman 188wherein it has been held as under:- “5. In the decision in British Paints (supra) theirLordships have observed that the principles whichgovern the market value of the stock requireinclusion of all overhead charges and, therefore,according to the learned Counsel, excise dutyirrespective of the fact that it was not paid as themanufactured goods had not left the premises of theassessee, was liable to be taken into account incomputation of the stock value. We have carefullygone through the above decision and we find that theinterpretation of the department labours under apatent misconception. The Apex Court, while layingdown that the value of the stock would be materialplus expenditure, has not stated that the liability forexcise duty on the uncleared goods shall also formpart of the price of the goods. At the stage, it wouldbe useful to refer the provisions contained in Section145A of the Income Tax Act which read as extractedbelow: Section 145. Notwithstanding anything to thecontrary contained in Section 145, the valuation ofpurchase and sale of goods and inventory of thepurposes of determining the income chargeableunder the head "Profit and gains of business orprofession" shall be (a) in accordance with the method of accountingregularly employed by the assessee; and (b) further adjusted to include the amount of anytax, duty, cess or fee (by whatever name called)actually paid or incurred by the assessee to bring thegoods to the place of its location and condition as onthe date of valuation. Section 145. Notwithstanding anything to thecontrary contained in Section 145, the valuation ofpurchase and sale of goods and inventory of thepurposes of determining the income chargeableunder the head "Profit and gains of business orprofession" shall be (a) in accordance with the method of accountingregularly employed by the assessee; and (b) further adjusted to include the amount of anytax, duty, cess or fee (by whatever name called)actually paid or incurred by the assessee to bring thegoods to the place of its location and condition as onthe date of valuation. 6. A bare look at the provision manifests that it isonly when the tax, duty, cess or fee is actually paidor incurred by the assessee to bring the goods to theplace of its location that the said amount forms partof the value. It is not disputed in the present casethat the excise duty has not been paid by the assessee on the goods in stock as the goods did notleave the premises. 7. Under these circumstances, there was nojustification on the part of the assessing officer inadding the excise duty to the price of the rawmaterial etc. in computing the value of the goods. Weare, therefore, of the considered view that thequestion formulated by the department does notarise out of the facts of the case. Accordingly, thisappeal is dismissed summarily.” 7.He has also relied upon the decision in the case ofCommissioner of Income Tax vs. Loknete Balasaheb Desai S.S.K.Ltd. reported in [2011] 339 ITR 288 wherein it has been held asunder:- “9. The expression 'incurred by the Assessee' inSection 145A(b) is followed by the words 'to bringthe goods to the place of its location and condition ason the date of valuation'. Thus, the expression'incurred by the Assessee' relates to the liabilitydetermined as tax, duty, cess or fee payable inbringing the goods to the place of its location andcondition of the goods. Explanation to Section145A(b) makes it further clear that the incomechargeable under the head profits and gains ofbusiness shall be adjusted by the amount paid as tax,duty, cess or fee. Therefore, the expression 'incurred'in Section 145A(b) must be construed to mean theliability actually incurred by the Assessee. 11. The Apex Court in the case of Commissioner ofCentral Excise v. Polyset Corporation and Anr.reported in 115 ELT 41 (S.C.) has held that thedutiability of excisable goods is determined withreference to the date of manufacture and the rate ofexcise duty payable has to be determined withreference to the date of clearance of the goods.Therefore, though the date of manufacture is therelevant date for dutiability, the relevant date for theduty liability is the date on which the goods arecleared. In other words, in respect of excisable goodsmanufactured and lying in stock, the excise dutyliability would get crystallised on the date ofclearance of goods and not on the date ofmanufacture. Therefore, till the date of clearance ofthe excisable goods the excise duty payable on thesaid goods does not get crystalised and consequentlythe Assessee cannot be said to have incurred the excise duty liability. In respect of the excisable goodslying in stock, no liability is determined as payableand consequently, there would be no question ofincurring excise duty liability. 13. In the result, the question raised in this appeal isanswered in the affirmative i.e. in favour of theAssessee and against the revenue.” 8.He has also relied upon the another decision in case of Commissioner of Income Tax vs. Nahar Spinning Mills Ltd.reported in [2008] 172 Taxman 1 wherein it has been held as under:- “8. We have heard learned Counsel for the revenueand perused the record.and perused the record. excise duty liability. In respect of the excisable goodslying in stock, no liability is determined as payableand consequently, there would be no question ofincurring excise duty liability. 13. In the result, the question raised in this appeal isanswered in the affirmative i.e. in favour of theAssessee and against the revenue.” 8.He has also relied upon the another decision in case of Commissioner of Income Tax vs. Nahar Spinning Mills Ltd.reported in [2008] 172 Taxman 1 wherein it has been held as under:- “8. We have heard learned Counsel for the revenueand perused the record.and perused the record. 9. At the outset, Mr. Sanjiv Bansal, advocateappearing for the revenue has very fairly concededthat the controversy in the matter stands settledby a judgment of the Apex Court in CIT v. IndoNipponChemicalsMANU/SC/0415/2003MANU/SC/0415/2003:[2003]261ITR275(SC) wherein it has been heldthat merely because the modvat credit was anirreversible credit available to the manufacturersupon purchase of duty-paid raw material, thatwould not amount to income which would be liableto be taxed under the Act. The said income was notgenerated to the extent of the modvat credit onunconsumed raw material. It has been further heldin this case that the assessing officer is bound toadopt the method of computation of incomeregularly employed by the assessee. However, if hecomes to the conclusion that the method ofaccounting employed by the assessee makes itimpossible to correctly compute the income, thenthe assessing officer is entitled to adopt any othersuitable accounting method. It has also held thatwhatever method the assessing officer adopts, themethod has to be consistent with the acceptedprinciples of accountancy. It is not open to theassessing officer to treat outgoings as incomeunder Section 145 of the Act. Thus, in view of thejudgment of the Apex Court reported as IndoNippon Chemicals Co. Ltd. (supra) and the fairsand taken by the counsel for the revenue, nosubstantial question of law arises in these appealsfor determination of this Court.” 9.He contended that the Supreme Court while considering theissue of excise component in Commissioner of Income Tax TamilNadu vs. M/s Dynavision Limited, Civil Appeal No. 197/2005decided on 30/8/2012 has not taken into consideration the aforesaid facts and observed as under:- 9.He contended that the Supreme Court while considering theissue of excise component in Commissioner of Income Tax TamilNadu vs. M/s Dynavision Limited, Civil Appeal No. 197/2005decided on 30/8/2012 has not taken into consideration the aforesaid facts and observed as under:- “At the outset, it may be stated, that, it is not indispute that the assessee has been followingconsistently the method of valuation of closingstock which is "cost or market price whichever islower." Moreover, the AO conceded before theCIT(A) that he revalued the closing stock withoutmaking any adjustment to the opening stock(see: page 50 of the Paper Book). Lastly, thoughunder section 3 of the Central Excise Act, 1944,the levy of excise duty is on the manufacture ofthe finished product the same is quantified andcollected on the value (i.e. selling price). Beforeconcluding, we may rely on judgment of thisCourt in the case of Chainrup Sampatram vs. CIT,reported in 24 ITR 481 in which it has been heldthat, "valuation of unsold stock at the close of theaccounting period was a necessary part of theprocess of determining the trading results of thatperiod. It cannot be regarded as source of profits.That, the true purpose of crediting the value ofunsold stock is to balance the cost of the goodsentered on the other side of the account at thetime of the purchase, so that on cancelling out ofthe entries relating to the same stock from bothsides of the account would leave only thetransactions in which actual sales in the course ofthe year has taken place and thereby showing theprofit or loss actually realized on the year’strading. The entry for stock which appears in thetrading account is intended to cancel the chargefor the goods bought which have remained unsoldwhich should represent the cost of the goods".(see also : para 8 of the judgment of this Court inthe case of CIT vs. Hindustan Zinc Ltd. reportedin 291 ITR 391). For the above reasons, we hold,that, the addition of Rs. 16,39,000/- to theincome of the assessee on the ground ofundervaluation of the closing stock was wrongand that the order of CIT(A) is accordinglyupheld. Consequently, this civil appeal filed by the department is dismissed with no order as tocosts.” “ 10.In our considered opinion, the contention raised by theassessee is regarding product therefore, price will defer and costprice will be different. 11.In view of the above, we answered the issues in favour of the assessee. 12.The appeals stand dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/135-140