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TMI Blog2017 (1) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 & 615/Vizag/13, dated 23/05/15. 3. The ld. DR, on other hand, strongly objected for condonation of delay. He submitted that assessee has not proved the bonafides and there cannot be a case for ignorance of law. According to him, Assessee has come before the ITAT on a second thought after receiving the consequential order u/s 263, therefore, there is no case for condonation of delay. 4. In the case of M/s Virupa Township, the coordinate bench of ITAT, Vizag condoned the delay of 603 days relying on the decision of Hon'ble Bombay High Court in the case of Remex Constructions/Remex Electricals Vs. First Income-tax Officer and others, 166 ITR 18, wherein the Bombay High Court has held as under: The grievance of Shri Pandit that the Tribunal was, very technical in not condoning the delay of about three years in filing the appeals against the orders passed under s. 263 of the Act is not without merit. The Tribunal held that the petitioner ought to have filed an application for condonation of delay duly supported by an affidavit at the time of presentation of appeal, but instead of that, merely appeals were lodged and an affidavit of a partner of the firm was tendered only when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income for the assessment year 2007-08 on 19.11.2007 admitting total income of Rs. 2,81,595/-. The Income Tax Officer, Ward -16(2) had completed the assessment on 30.06.2009 u/s.143(3) determining the total income at a sum of Rs. 4,17,600/- 6. On examination of the assessment record relating to the assessee company for the asst.year 2007-08, the CIT noticed that in the balance sheet under the head" Current Assets, Loans & Advances" (Schedule 'D') for the year ending on 31.03.2007, a sum of Rs. 2,39,87,333/- was reflected as closing stock of material. It is stated in the schedule to the Balance Sheet that the value of closing stock was verified and certified by the Management. In the P&L account for the year ending on 31.03.2007, the cost of goods was reflected at a sum of Rs. 3,89,42,519/-. During the course of scrutiny assessment, the assessee furnished the cost of goods sold as under: Opening stock Add: Purchases:- Rs. 1,40,22,952/- (a) dealers Rs. 4,32,90,855/- (b) farmers Rs. 56,16,545/- Total Rs. 6,29,30,352/- Less: Closing stock Rs.2,39,87,833/- Cost of goods sold Rs. 3,89,42,519/- 6.1 CIT observed that during the course of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer resulted in an erroneous order and understatement of total income. You are, therefore, requested to show cause why the profit should not be recomputed taking the correct value of closing stock at Rs, 49.26 per Kg." 6.3 Against the said notice, submissions made by the AR of the assessee were as under: (i) Tobacco leaf being an agricultural crop is very sensitive to climatic conditions, moisture content, sunshine etc., and the final quality of tobacco depends on many factors. In processing and cleaning of tobacco 3% to 5% is lost as wastage. He submitted that closing stock comprises of stems, bits, scrap and elimination. The company has been consistently following the principle of 'cost or market price" whichever is less and there has been no deviation in the same. The concept of average cost of goods sold does not have any relationship or bearing on the average cost of closing stock. The value of closing stock is based on the actual qualities and quantities of tobacco leaf, bits, stems, elimination etc. and there was very little market price. The assessee has dealt with various grades of tobacco such as VFC, VAC, NAATU, BURLY, HDBR, LSB etc. The market pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not contain any details of loss on processing of tobacco. The details of purchases of tobacco were furnished during the course of assessment proceedings. In the details furnished before the Assessing Officer, the assessee did not inform that there were by-products such as scrap, elimination, SLS, LS2 etc. 6. The details available on the assessment record indicate that the assessee had purchased tobacco of the following varieties only: (a) VFC/Leaf, (b) VFC / STRIPES (c) VAC/STRIPES (d) VFC/RTL (e) BITS' The quantity of tobacco and varieties of tobacco purchased by the assessee are on assessment record and the same are reflected in the following table for convenience: Sl.No Month Variety of tobacco Quantity Price 1 April,2006 VFC/Leaf 798 30,087 2 May,2006 VFC/Leaf,VAC/Stripes, VFC/Stripes 147581 11,84,384 3 June, 2006 VFC/Leaf, VFC/Stem, Bits 34,836 8,38,380 4 July, 2006 VFC/Leaf Bits 63,087 20,69,065 5 Aug,2006 VAC/RTL 2,277 1,59,390 6 Sep,2006 VFC/Leaf 4,251 2,04,273 7 Oct,2006 VFC/Leaf, VFC/Stripes 36,875 25,64,468 8 Nov,2006 VFC/Leaf 46,489 22,75,627 9 Dec,2006 VFC/Leaf-VFC/Stem 2,28,687 94,73,494 10 Jan,20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, adopted by the Assessing Officer in arriving at the closing stock is in any way erroneous. 5. The learned Commissioner of Income-Tax erred in setting aside the assessment order passed by the Assessing Officer u/s 143(3) and also erred in directing the Assessing officer to value the closing stock once again. 6. The learned Commissioner of Income-Tax ought to have seen that the loss of tobacco to the tune of 62,117 kg. was allowed after due consideration of the facts by the Assessing Officer and hence the learned Commissioner of Income-Tax should not have set aside the order to the file of the Assessing Officer." 8. The AR of the assessee submitted that assessee is involved in buying and processing and selling of tobacco leaves. Initially assessment was completed u/s 143(3) and AO has verified the purchase cost, closing stock, etc. during the regular assessment itself. Assessee while processing the tobacco leaves, determine the market value of the tobacco leaves based on the processing results. During the process, assessee will have to loose some leaves, which will be adjusted in the stock valuation. He brought to our knowledge the closing stock valuation at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the Assessing Officer u/s 143(3) of the Act, erroneous and prejudicial to the interests of revenue by invoking the provisions of section 263 of the Act. The mute question before us is whether the closing stock valued are proper and if so, how it is prejudicial to the interests of revenue. Looking at the business model of the assessee, he procures the leaves and process the leaves. Based on the result of processing, it sells the same to the vendors. The valuation of stock depends on the results of the processing. The assessee will adjust the standard loss on the marketable products and the balance of the cost will be appropriated to the balance of the inferior quality of the leaves, which are also marketable, but, not at the same at par with the superior quality. This is nothing but the actual result of the processing. What is left after selling to vendors are valued at market price or cost, whichever is less. The closing stock submitted before the AO on the same principle. The stock left over cannot be equated with the purchase price. 15. We observe that the AO has recorded the business of the assessee as "engaged in business of procurement, processing and selling of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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