Case Law Details

Case Name : Income-tax Officer Vs Shakti Insulated Wires (P.) Ltd. (ITAT Mumbai)
Appeal Number : IT Appeal No. 7080 (MUM.) OF 2010
Date of Judgement/Order : 11/07/2012
Related Assessment Year : 2006-07
Courts : All ITAT (7314) ITAT Mumbai (2108)


Income-tax Officer – 9(3)(1)


Shakti Insulated Wires (P.) Ltd.

IT APPEAL NO. 7080 (MUM.) OF 2010


JULY 11, 2012


B. Ramakotaiah, Accountant Member

This is a revenue appeal against the order of CIT (A)-20, Mumbai dated 5.8.2010 in which revenue raised the following ground.

“Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has not erred in deleting the disallowance of Rs. 35,36,234/- representing the value of unproved purchases of Insulated Kraft Paper, ignoring the finding of the Assessing Officer that the so-called purchases were reflected neither in the sales nor in the closing stock, of which no proper inventory was furnished.

The appellant prays that the order of the CIT (A) on the grounds be set aside and that of the Assessing Officer be restored.”

2. The solitary issue arises with reference to the disallowance of purchases of Rs. 35,36,234/-. The purchased items were insulated Kraft Paper imported from two suppliers of Sweden. Since the goods were available in the bonded warehouse, the assessee recorded the purchase of goods and showed it in the closing stock. The Assessing Officer was of the opinion that since assessee has not taken physical delivery of purchased goods till the year end, debit to the purchase account was not correct. He further observed that no details were furnished to support the aforesaid purchases were included in the closing stock as at end of the year or in the sales. Therefore, he disallowed the deduction claimed on Rs. 35,36,234/- against the purchases. The Ld CIT (A) examined the issue and vide brief order in paragraph no.4 deleted the same stating as under:

“I have considered the issue. There is no dispute that the impugned purchases were charged to the P&L A/c. The appellant claimed that they were goods in transit and were included in the closing stock at the end of the year. The AO’s stand is that no proof was furnished to show that they were included in the stock. If the position of the AO is accepted then once the purchase were taken into account and charged to the P&L Account the natural corollary would be that they would have either shown as sold or lying in stock. There cannot be a third possibility like theft, destruction, etc in the facts of the case. The AO has ignored to appreciate these facts. He cannot disallow the purchases without reducing either the sales or the stock by a matching sum. In either case there will not be impact on profit. I, therefore, delete the addition made of Rs. 35,36,000/-.”

3. The Ld DR relied on the orders of the AO whereas the Ld Counsel referred to the facts as taken before the Ld CIT (A) and also the paper book filed running to pages 1 to 60.

4. We have examined the issue. There is no dispute with reference to purchases of the above amount on import of Insulated Kraft Paper which was charged to the P & L Account. There is no dispute with reference to the fact that these goods were available in the bonded warehouse. The Assessing Officer’s objection that these are not taken physical delivery is imaginary as the goods were in bonded warehouse which technically is in the custody of the assessee. Therefore, this objection of the Assessing Officer is not correct. With reference to the issue that the same was not shown in the closing stock was also not correct. As seen from the closing stock details filed with the Assessing Officer, the closing stock is shown under the head ‘inventory ‘ under the Schedule-H of the balance sheet. The raw materials were shown at the value of Rs. 88,37,636/- whereas work-in-progress was Rs. 69,13,407/- and the total stock under head ‘inventory’ was shown at Rs. 1,59,22,271/-. The details of raw material show that an amount of Rs. 84,15,144/- pertains to insulating paper, which included the imported stock (72,056 KGs valued Rs. 81,79,352). We are unable to understand on what basis the Assessing officer came to the conclusion that the stock was not shown in closing stock. Further it is also stated that in paragraph 3 of the assessment order that the order is booked in FY 2004-2005 relating to AY 2005-2006, which is not pertaining to this assessment year. There is no basis with this reason at all. Even if one were to consider that assessee had placed order for purchase of goods in FY 2004-2005, the evidence indicate that the quantity of goods were imported vide Invoice No. 7502187 dated 16.1.2006 for a value of Rs. 11,87,000/-, Invoice No.0036326 dated 23.01.2006 for value of Rs.11,72,000/- and Invoice No.0076965 dated 3.3.2006 valuing Rs. 11,77,000/-. There is evidence that payments against these CIF value were made by the bankers M/s. UCO Bank. Vide the letter dated 12.12.2008, the assessee informed the Income Tax Officer that the stock was accounted for in the closing stock. This letter was acknowledged by the ITO-9(3)(1), Mumbai dated 12.12.2008 itself. We are of the opinion that the Assessing Officer has wrongly considered the facts available on record and without understanding the details of purchases and its availability in closing stock, made the disallowance on flimsy grounds. Therefore, we uphold the order of the Ld CIT (A).

5. It is very unfortunate that revenue has preferred this appeal which was decided on facts. The CIT should have examined the record before approving the appeal. Had he examined the record, he would not have preferred any appeal on this issue. This shows the sorry state of affairs. It is unnecessary to drag the assessee in appellate proceedings for no fault of it. The CIT should have exercised his discretion and examined the record before preferring the second appeal on an unnecessary issue. This calls for levy of cost. Since, assessee has not asked the same, we refrain from levying any cost. We only wish that revenue authorities apply their mind/wisdom before preferring second appeal and CIT(A) orders which are purely factual in nature, are accepted. With these remarks, revenue appeal is dismissed.

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