Pr. Commissioner Of Income Tax, Ajmer v. M/S. Goodwill Fabrics Pvt. Ltd., B

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 137/2019 Pr. Commissioner Of Income Tax, Ajmer ----Appellant Versus M/s. Goodwill Fabrics Pvt. Ltd., B-204, R.K. Colony, Bhilwara, 311001 ----Respondent For Appellant(s) : Mr. Shantanu Sharma, AdvocateFor Respondent(s): Mr. Devang Gargieya, Advocate for Mr. Mahendra Gargieya, Advocate HON'BLE MR. JUSTICE MANINDRA MOHAN SHRIVASTAVA HON'BLE MR. JUSTICE PRAVEER BHATNAGAR Judgment / Order 12/09/2023 Heard on admission. Learned counsel for the revenue has proposed following substantialquestions of law:- “1.Whether on the facts and circumstances ofthe case and in law, the Hon’ble ITAT was justifiedin reversing the decision of the Ld. CIT(A) anddeleting the addition of Rs.2,13,67,830/- made onaccount of under valuation of closing stock by wayof showing rejection, without appreciating the factthat the assessee company did not have right tokeep or sell rejected goods as per the copy ofagreement placed on records and also shown thefinished goods as rejected under the head “FinishedStock”? 2.Whether on the facts and circumstances ofthe case and in law, the Hon’ble ITAT was justifiedin reversing the decision of the Ld. CIT(A) anddeleting the addition of Rs.2,03,36,304/- made onaccount of under valuation of closing stock by way of showing stock with job units, withoutappreciating the fact that the assessee companyvalued the goods in pieces and shown the sameunder the head “Finished Stock” instead of “Work inProgress”?” Learned counsel for the revenue would argue that though theAssessing Officer as well as The Commissioner of Income-Tax (Appeals),Ajmer (For short ‘CIT(A)’) both recorded concurrent finding insofar asaddition on account of under valuation of closing stock by way ofshowing rejection as well as addition on account of under valuation ofclosing stock by way of showing stock with job units is concerned, theAppellate Tribunal interfered with the concurrent finding of facts on boththe counts and deleted additions. Insofar as order deleting the additionmade on account of under valuation of closing stock by way of showingrejection is concerned, it has been argued that learned Tribunal did notappreciate the fact that the Assessee Company did not have right tokeep or sell rejected goods as per the agreement placed on records andalso shown the finished goods as rejected under the head “FinishedStock”. Further submission is that the order of the Appellate Tribunaldeleting the addition made on account of under valuation of closing stockby way of showing stock with job units is concerned, that was also donewithout appreciating the fact that the Assessee Company valued thegoods in pieces and shown the same under the head “Finished Stock”instead of “Work in Progress”. We have gone through the order passed by the learned Tribunal.Learned Tribunal has examined the material on record and reappreciatedwhile deleting addition made on account of under valuation of closingstock by way of showing rejection, in paragraphs 32 to 38 of theimpugned order. In its detailed consideration and upon perusal of record,it was found that Assessing Officer was having no basis or reliable We have gone through the order passed by the learned Tribunal.Learned Tribunal has examined the material on record and reappreciatedwhile deleting addition made on account of under valuation of closingstock by way of showing rejection, in paragraphs 32 to 38 of theimpugned order. In its detailed consideration and upon perusal of record,it was found that Assessing Officer was having no basis or reliable material so as to draw an inference that the stock shown by the assesseeunder the head rejected goods was, in fact, finished goods and was notrejected goods. Appellate authority also took into consideration that theAssessee is an exporter and the entire sale proceeds from export ofgarment only (except a minor amount from the local sale) and furtherthat to remain competitive in the international market with goodwill,there cannot be any compromise with the quality, rejection of goodssought to be exported is a matter of serious concern for exporters. It hasalso taken into consideration the goodwill of the Assessee as exporter,exporting clothes to various countries, Assessee would not be ignoringslightest defect in the garments, the possibility of there being rejectionof goods on account of defect or lacking in the quality is not unusualand, therefore, doubt in this regard by the Assessing Officer wasunwarranted. It was also discerned from the record that AssessingOfficer accepted the fact that the stated goods were rejected goods andthe Assessee shall not have any right to sell any of these pieces as perthe agreement with overseas clients. The sample and copies ofagreement with overseas clients submitted before the Assessing Officerwere scrutinized and particular note was taken on the clause that suchrejected products shall not be sold yet the Assessing Officer did notaccept the stipulation on the ground that if there is any rejection, it hadto be destroyed immediately and the assessee failed to produce anydocumentary evidence for such disposal. It also took note of the fact thatin some cases there was condition of destruction but that was not shownin all the agreements. In the absence of there being any proof that theAssessee was selling rejected goods in the Grey market, only on theground of non destruction, it could not be presumed and assumed thatrejected goods are being sold. Detailed consideration in this regard has been made byreappreciating the material on record to arrive at the conclusion thataddition of the value of rejected goods was not proper. Detailed consideration in this regard has been made byreappreciating the material on record to arrive at the conclusion thataddition of the value of rejected goods was not proper. Similarly, in paragraphs 39 to 43, the Tribunal has considered ingreat detail that addition made on account of under valuation of closingstock by way of showing stock job units was not warranted. LearnedTribunal has taken into consideration material on record that themanufacturing unit was situated at Bangalore and as per prevailing tradepractice in readymade garment business, some designs/works are to beoutsourced inasmuch as Assessee itself is not having all the facilities,which is got done from different manufacturers known as job units. Inthis process, the principle manufacturer (Assessee) sends fabrics to thejob units and order is placed in terms of the number of pieces to bemanufactured by that job unit. It keeps records of fabric sent in terms ofthe pieces and the same is thereafter compared and reconciled whilereceiving back the stitched/worked pieces from the job unit. Such fabricis reduced from the raw material and then taken to the account ofgarment pieces lying with the job units in the stock books. The pieceswhich got completed during the year, were transferred to finished goodsand the pieces on which no cost was incurred even till 30.03.2014, wereshown as stock with job units but at the cost of fabric only because nocost was incurred on such pieces either by the Assessee or reported bythe job units. Tribunal also scrutinized the records and found that theAssessee has produced complete quantitative details before theAssessing Officer which was wrongly rejected by the A.O. without anybasis. The Tribunal noticed a detailed chart showing the name of the jobworker, style name, date of issue, buyer, P.O. No., colour, quantity,quality of the finished goods/garments, quantity of material supplied and lying with the job workers together with the rate applied and finally theamount arrived at towards number of pieces along with the copies ofexemplary invoices submitted before the Assessing Officer Upon suchconsideration of the material, the Tribunal found that extensive detailswere filed before the lower authorities and there is no doubt about theunits lying with the job units. Therefore, the finding of the AssessingOfficer that these units were not disclosed separately in financialaccounts and not separately disclosed in notes of accounts is improperand addition cannot be made merely because a separate disclosure hasnot been made in the notes of accounts as the financial accounts areprepared according to established accounting conventions. We are, therefore, of the view that the questions of law asproposed by the revenue that various aspects were not taken intoconsideration and appreciated before deleting the additions, is factuallynot correct. The conclusion drawn by the Appellate Tribunal turns onminute scrutiny of material on record. The Tribunal has recorded its ownfinding of fact and assigned reasons and traversed factual findingrecorded by Assessing Officer and CIT(A). Therefore, in the absence ofthere being any perversity, violation of law or non consideration ofmaterial aspects as stated in the question of law, no substantial questionof law arises for consideration. Appeal of the revenue, therefore, being without merit, isdismissed. (PRAVEER BHATNAGAR),J (MANINDRA MOHAN SHRIVASTAVA),J