2012 (9) TMI 11 - HC - Income Tax

Valuation of Electron Guns and Electron Gun Heaters and calculation of Miscellaneous income - Revenue contested against the Tribunal s valuation - Held that - The order of the Tribunal is not very satisfactory particularly on the questions as to whether the method of valuation of stocks and as contended by the assessee can be the proper way as the assessee has adopted the method of valuing some part of its stock on market value and some part of its stock on cost of a production which is not a choice given to the assessee but the choice being to value the stock as a whole either on market value basis or at the cost of production. Quantification of the profits eligible for benefit under section 80HHC - Held that - On looking calculation sheet of tax effect on disputed amount to maintain judicial decorum and judicial propriety and more so because the revenue is already in appeal before the Supreme Court for the resolution of this very question we do not propose to decide these appeals on merits but dismiss them only due to the insignificant tax effect involved in these appeals but subject to the result of the appeals before the Supreme Court preferred by the revenue on the question of maintainability of such appeals.

Summary

Issues Involved:
1. Valuation of Electron Guns and Electron Gun Heaters.
2. Treatment of returned goods in accounts.
3. Reduction of miscellaneous income for computation of deduction under section 80HHC.
4. Consideration of precedents and legal positions in judgments.

Detailed Analysis:

1. Valuation of Electron Guns and Electron Gun Heaters:
The primary issue concerns whether the Tribunal was correct in reversing the finding of the Assessing Officer, which was confirmed by the CIT(Appeal), regarding the valuation of Electron Guns and Electron Gun Heaters at Rs.36 and Rs.2.75 respectively. The revenue contended that the Tribunal misunderstood the ratio of the Supreme Court's judgment in 'Commissioner of Income Tax v. British Paints India Ltd.,' reported in 188 ITR 44[SC], which mandates that stock should be valued at cost as per section 145 of the Act. The Tribunal's decision to set aside the Assessing Officer's valuation was considered erroneous by the revenue.

2. Treatment of Returned Goods in Accounts:
The second issue involves whether the Tribunal erred by not considering that the assessee treated returned goods on par with other salable goods in its accounts and exercise register. The revenue argued that the assessee's method of accounting had not been found faulty in earlier assessment years, and the Tribunal's contrary finding was perverse and inconsistent with the facts and legal position.

3. Reduction of Miscellaneous Income for Computation of Deduction under Section 80HHC:
The third issue revolves around whether the Tribunal committed an error by holding that miscellaneous income derived from the sale of scrap, waste acid, used chemicals, and interest income from delayed payments by customers and on deposits made by the appellant cannot be reduced by 90% as per clause (baa) of section 80HHC for the purpose of computing the deduction. The revenue argued that the Tribunal's decision was inconsistent with the judgment of the Bombay High Court reported in 245 ITR 806 and relied on an earlier judgment of the Delhi Tribunal, which pertained to an assessment year before the insertion of clause (baa) to section 80HHC by the Finance Act, 1991, effective from 1.4.1992.

4. Consideration of Precedents and Legal Positions in Judgments:
The revenue also raised concerns about the Tribunal's failure to consider relevant precedents and legal positions, particularly the Supreme Court's judgment in 'Commissioner of Income Tax v. K Ravindranathan Nair [(2007) 295 ITR 228],' which was explained and applied by the division bench of the Karnataka High Court in ITA Nos.793 to 796 of 2006 as per the judgment dated 6.6.2012.

Preliminary Objection on Maintainability:
The respondent-assessee raised a preliminary objection regarding the maintainability of the appeals, citing the introduction of section 268-A of the Act and the board circular following it, which raised the value for the subject matter of appeal to be filed by the revenue before the High Court under section 260-A of the Act from Rs.4 lakhs to Rs.10 lakhs. The division bench of the Karnataka High Court in 'Commissioner of Income Tax and Another v. Ranka & Ranka' reported in 2012 [72] DTR [KAR] 270 dismissed appeals with valuation less than Rs.10 lakhs as not maintainable.

Revenue's Counter-Arguments:
The revenue countered that the correctness of the judgment in 'Ranka & Ranka' is under appeal before the Supreme Court. They argued that the appeals were maintainable when filed, and circular No.3/2011 left scope for certain types of appeals involving specific questions to be pursued by the revenue even if the value was less than Rs.10 lakhs.

Court's Decision:
The court found the Tribunal's order unsatisfactory, particularly regarding the method of valuation of stocks and the quantification of profits eligible for benefits under section 80HHC. However, considering the tax effect for each year was below Rs.4 lakhs, the court decided to dismiss the appeals due to the insignificant tax effect involved. The dismissal was subject to the result of the appeals before the Supreme Court regarding the maintainability of such appeals. The court left the questions of law open to be decided in future cases if the same issues arise for subsequent assessment years or other assessees.

Conclusion:
The appeals were dismissed due to the insignificant tax effect, without delving into the merits of the questions of law raised, and left open for future resolution based on the outcome of the Supreme Court's decision on the maintainability of such appeals.