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Issues involved: Determination of suppressed value of work-in-progress for assessment year 2006-2007.
The appeal was filed by the assessee against the order confirming the addition of Rs. 4,11,335 on account of suppressed value of work-in-progress for the assessment year 2006-2007. The Assessing Officer proposed the addition based on various reasons including the failure to show closing stock of work-in-progress and the necessity to correctly disclose closing stock as per accounting principles. The AO computed the value of work-in-progress considering the average production and processing costs. The assessee contended that the addition should not be made as the company is in the service industry with nominal input costs, and this would become opening stock in the subsequent year. However, the AO did not accept this explanation and made the addition. On appeal, the ld. CIT(A) upheld the AO's action citing the decision of the Hon'ble Supreme Court in the case of British Paints India Ltd. The assessee then appealed before the Tribunal. During the hearing, it was argued that the controversy was in favor of the assessee based on previous decisions of the Tribunal in similar cases. The Revenue, represented by Shri S.P. Talati, supported the order of the ld. CIT(A). After considering the arguments from both sides and reviewing the orders of the authorities below, the Tribunal observed that in cases where the fabric does not belong to the assessee and raw materials are consumed in the process, the method of valuing stock consistently followed by the assessee was legal. The Tribunal referred to a previous case where a similar addition was deleted, emphasizing that consumables lose their identity once applied to the fabric under process. Consequently, the Tribunal deleted the addition of Rs. 4,11,335, allowing the appeal of the assessee. In conclusion, the Tribunal allowed the appeal of the assessee, pronouncing the order on 13.05.2011.
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