2009 (7) TMI 1214 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of Books of Accounts.
2. Addition for closing stock of work-in-progress.
3. Valuation of work-in-progress on an estimated basis.
4. Consideration of opening stock of work-in-progress.

Summary:

1. Rejection of Books of Accounts:
The CIT(A) upheld the rejection of the Books of Accounts, despite the appellant company consistently following the same method of accounting and stock valuation in past assessments u/s 143(3).

2. Addition for Closing Stock of Work-in-Progress:
The CIT(A) upheld the addition of Rs. 5,38,976/- for Assessment Year 2004-05 and Rs. 6,29,355/- for Assessment Year 2005-06 made by the Assessing Officer for the closing stock of work-in-progress. The Assessing Officer found that the assessee did not show any work-in-progress in the closing stock, which led to incorrect profit as per accounting principles and the decision of the Hon'ble Supreme Court in British Paints India Ltd. (188-ITR-44).

3. Valuation of Work-in-Progress on an Estimated Basis:
The Assessing Officer estimated the work-in-progress based on a five-day cycle of dyeing and printing work, taking 312 working days in a year and computing the average processing of cloth per day. The cost of work-in-progress was calculated at 50% of the average processing charges per meter. This resulted in additions of Rs. 5,38,976/- for Assessment Year 2004-05 and Rs. 6,29,355/- for Assessment Year 2005-06.

4. Consideration of Opening Stock of Work-in-Progress:
The assessee argued that if work-in-progress is added to the closing stock, it should also be considered in the opening stock. The CIT(A) confirmed the addition but allowed the benefit of this addition in the next year as opening stock.

Tribunal's Decision:
The Tribunal found that the assessee consistently followed a method of not including the value of chemicals and colors consumed in the work-in-progress, which was accepted by the Department in the past. The Tribunal referred to the decision of the Hon'ble Allahabad High Court in CIT vs. EMA India Ltd. (2008) 296 ITR 510 (All.), which supported the assessee's method of valuation. The Tribunal concluded that the consistent method adopted by the assessee should not be disturbed without good reasons. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the additions of Rs. 5,38,976/- for Assessment Year 2004-05 and Rs. 90,379/- for Assessment Year 2005-06. The appeals of the assessee were allowed.

Order signed, dated, and pronounced in the Court on 24/07/2009.