Ita/1150/2017 Of Principal Commissioner Of Income Tax - 7 v. Padmini Vna Mechantronics Pvt. Ltd

$~42 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 1150/2017PRINCIPAL COMMISSIONER OF INCOME TAX – 7 .... AppellantThroughMr. Sanjay Kumar with Mr. RahulChaudhary, Advocates.versus PADMINI VNA MECHANTRONICS PVT. LTD. ..... RespondentThroughNone. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE A.K. CHAWLAO R D E R%18.12.2017 1.The Revenue’s appeal under Section 260A of the Income TaxAct, 1961 (hereafter referred to as ‘the Act’) in this case for theAssessment Year 2009-10 urges two grounds.Firstly, that the ITATfell into error in holding that the disallowance made under Section14A of the Act was erroneous.Secondly, it is urged that the NILtreatment given to the raw material in the Closing Stock Statementproduced with the returns, that was disallowed by the AO, was donecorrectly and the Tribunal fell into error in confirming the CIT (A)’sfinding. 2.To consider the second aspect first, the assessee, which isengaged in the manufacture of automobile spares, had an inventory ofraw material/stock valued at Rs.1,46,65,041/-. The same amount wasreflected as closing stock and treating this to be a part of the closingstock is incorrect. The assessee valued it at NIL. The AO consideredthis to be a devise and held against the assessee, principally on the basis that in the subsequent year, the same stock was utilized forservicing export orders.Both the CIT(A) and the ITAT, afterelaboratelyexaminingthefactsheldthattheassesseespentconsiderable amounts, i.e. over Rs.20,00,000/- in (AY 2010-11, thelater assessment year) while servicing the export orders. 3.Having regard to these facts, it was held by both the AppellateAuthorities that the AO’s treatment of this part of the closing stockwas not in consonance with law. 4.The CIT (A)’s findings are as follows:- “5.2. I have carefully examined this issue. There were sevenitems of raw material which were purchased by the assesseepartly in earlier years and partly in A.Y. 2009 - 2010 for Rs.1,46,65,041/-. The assessee valued the same at NIL in theclosing stock inventory in 31.03.2009. Two main reasons havebeen assigned for valuing the same at NIL. The first onebeing that these items got rusted and were therefore, notconsidered to be useable. It was so since, these were the rawmaterialsformanufacturingautomobileparts.Thisautomobile part was exclusively for export to Spain to M/S.Valeo Termico Motor, where it was used as an input formanufacturing automobile vehicles. Any material which is notabsolutely upto the mark could not have been used formanufacturing the items for export since, it might haveresulted in to rejection of goods or rejection of vehicle by thecustomers bringing a big financial loss and reputation lossas well as fear of losing the customers. The other reasonbeing that there was a big recession in the automobilemarkets. There were no export orders from the said SpainCompany after September 2008. There was also noexpectation of getting orders in the near future. The saidraw material was not useable for any other manufacturing.Hence, it was considered that these items, now being not of requiredqualityandsince,maynotberequiredformanufacturing on account of no orders; therefore, itsvaluation was considered at NIL as on 31.03.2009. Theappellant again got order from the said Spain company in themonth of June 2009. At that time, those items were re –examined and after getting the job - work polishing etc. donethereon for a cost of Rs. 20,11,200/- ion A.Y. 2010 - 2011, thesame were found useable for manufacturing the automobilepart. These items were again used for manufacturing theautomobile parts which were sold in due course. At the timeof taking back these items for manufacturing, the input costfor these items has been taken at NIL i.e. no cost has beenbooked for the use of these items for "manufacturing therelevant automobile part. The appellant has also supportedhis contentions by furnishing various documents like evidenceshowing the receipt of export order in the month of June 2009after a long gap, the evidence of job - work expenses of Rs.20,11,200/- in A.Y. 2010 - 2011 on those items, the detailsshowing the issuance of said raw material for manufacturingin A.Y. 2010 - 2011, 2011 - 2012 & 2012 - 2013, stock ledgeralc. of these individual items for A.Y. 2009 -20 10, 2010 -2011, 2011 - 2012 & 2012 - 2013 showing i use of these itemsfor manufacturing in these years, evidence of reversal ofCENVAT credit, the evidence showing the benefit of CENVATcredit being taken subsequently in the years of re-use ofmanufacturing, audit report by excise Deptt., the letter sent bythe Excise Deptt. to AO dtd. 22.12.2011 confirming thereversal of CENVAT credit. The AO has doubted thegenuinenety of the claim for the reason that these items havebeen used in subsequent years. This factor has beenconsidered adversely by him in the sense that if the itemscould had been used in subsequent period, there was noreason for valuing the same at NIL. However, under the facts,I am of the considered opinion that the findings of the AO inthis regard cannot be sustained.” 5.After considering the grounds urged in support of the appeal,this Court is of the opinion that the Revenue’s case on this aspect is not substantial. The AO clearly took note of the subsequent facts todetermine whether in truth a NIL treatment was correct and that theassessee chose to retain the goods (which perhaps it felt presented thepossibility of use later) cannot ipso facto be prejudicial circumstance.The assessee’s judgment, as a prudent commercial venture, cannot beordinarily questioned in these circumstances. No substantial questionof law arises.This question is therefore answered against theRevenue. 6.As far as disallowance under Section 14A goes, both theAppellate Authorities have ruled concurrently that the satisfaction toreject the assessee’s determination, was in accordance with law. TheRevenue has urged to the contrary stressing that the AO had clearlygiven convincing reasons.Since these are essentially findings offacts, which the Court, in the third appeal, cannot go into. 7.No substantial question of law arises. 8.The appeal is, therefore, dismissed. S. RAVINDRA BHAT, J DECEMBER 18, 2017 st A.K. CHAWLA, J