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TMI Blog2023 (11) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year and the tax effect is in crores of rupees and therefore, the Assessing Officer was justified in initiating proceedings and in rejecting the objections raised by the petitioner. Therefore, the objection of the assessee against validity of reopening on the ground that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment has been considered by the Hon ble jurisdictional High Court and decided against the assessee. Hence, we are of the considered opinion that this issue is covered by the judgment of Hon ble High Court in assessee s own case whereby the objection raised by the assessee against reopening of the assessment has been rejected. Decided against assessee. Addition on account of slow and non-moving inventory - assessee has changed the method during the year which has resulted in reduction of profit before tax - inventory written off by the assessee on the basis of net realization value worked out by following consumption pattern of the stock from 0 to 50 weeks, 51 to 100 weeks, 101 to above weeks taking percentage of provisions up to 50 weeks 0%, 51 to 100, 50% and 101 to above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Ashish Porwal, Sr. DR ORDER Per Vijay Pal Rao, JM: This appeal by the assessee is directed against the order dated 27.12.2022 of Commissioner of Income Tax (Appeal), National Appeal Centre, Delhi for Assessment Year 2009-10. The assessee has raised following grounds of appeal: 1:0 Re: Validity of impugned re-assessment Order and/or the additions made in terms thereof: 1:1 The Commissioner of Income-tax (Appeals) has erred in passing the impugned Order upholding the addition made by the Assessing Officer. 1:2 The Order passed by the Commissioner of Income-tax (Appeals) and / or the Assessing Officer is bad in law and hence the same should be struck down as such. 2:0 Re: Validity of re-assessment proceedings: 2:1 The Commissioner of Income-tax (Appeals) has erred in upholding the re-opening of the Appellant's assessment u/s. 148 of the Income- tax Act, 1961. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the re-opening of assessment u/s. 148 was in excess of jurisdiction and the Commissioner of Income-tax (Appeals) ought to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot valid when there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 3. He has contended that the assessing officer himself stated that the provision made by the assessee for the year under consideration for slow/non-moving inventory was available on the assessment record at the time of passing the assessment order u/s 143(3) and therefore, the case does not fall in the category of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In support of his contention he has relied upon the judgment of Hon ble Delhi High Court in case of Pr. CIT vs. Topperware India ltd. 236 Taxman 494 and submitted that the Hon ble High Court has considered the fact in the said case that the AO only refers to the report of the statutory auditor section 44AB of the Act which report was already enclosed with the return filed by the assessee. Therefore, it was observed that factually, there was no new material that the AO came across so as to have reasons to believe that the income had escaped assessment . Thus, the Ld. AR has submitted that when the original assessment was framed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to be lakh rupees or more for that year; (c) If four years, but nor more than sixteen year, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation In determining income chargeable to tax which has escaped assessment for the purpose of this sub section, the provisions of Explanation-2 of Section 147 shall apply as they apply for the purposes of that section. The Explanation-2 of Section 147 reads as under. (Income escaping assessment) For the purpose of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely (a). (b)... (ba)... (c) Where an assessment has been made, but- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case whereby the objection raised by the assessee against reopening of the assessment has been rejected. The decisions relied by the Ld. AR of the assessee would not help the case of the assessee as jurisdictional High Court has decided this issue against the assessee. Accordingly ground no.1 2 are dismissed. 7. Ground no. 3 is regarding the addition made by the AO on account of slow and non-moving inventory. The assessee has also filed an additional ground vide application dated 28 th June 2023 which reads as under: 1. Without prejudice to the Ground of Appeal No. 3 as originally raised, the Appellant submits that while adding back the provision on account of slow and non-moving Inventory of Rs. 2,94,03,474/- to the closing inventory for the year, the Commissioner of Income-tax (Appeals) ought to have directed the Assessing Officer to consider the consequential impact of the increase in the valuation of inventory while determining the value of opening inventory for Assessment Year 2010-11. 8. Ld. AR of the assessee has submitted this additional ground raised by the assessee is only an alternative plea in respect of ground no.3 of the original gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5A except for the service tax, sales tax and excise tax effect is given. The Ld. AR has submitted that earlier the assessee company was making the provision of slow/non-moving obsolete inventory based on the age of inventory whereas for the year under consideration the company has moved to a more stringent method of making a provision based on the consumption pattern. The assessee company is using window of 26 weeks past history and 8 weeks future to work out the slow/non-moving inventory. He has referred to the table for writing of the slow/nonmoving inventory based on the parameters of number of weeks and submitted that up to 50 weeks there is no provisions, from 51 to 100 weeks 50% is taken as the value and 101 and above weeks 100% provisions. Therefore, there is a change in its estimation of provision for slow/non-moving inventory from age of the inventory to consumption pattern as a basis. He has relied upon the judgment of Hon ble Supreme Court in case of CIT vs. Alfa Laval India Ltd. 295 ITR 45 Mumbai Benches of the tribunal in case of DCIT vs. B. Arunkumar Tarding Ltd. 96 ITD 194 as well as decision of Delhi Benches of Tribunal in case of Pr. CIT vs. Tupperware India Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration is bona fide or is guided by the business expediency. 13. We have considered the rival submissions as well as relevant material on record. The assessing officer has made the addition of Rs. 2,94,03,474/- on account of slow/non-moving inventory written off by the assessee on the basis of net realization value worked out by following consumption pattern of the stock from 0 to 50 weeks, 51 to 100 weeks, 101 to above weeks taking percentage of provisions up to 50 weeks 0%, 51 to 100, 50% and 101 to above, 100% provision. This valuation of non- moving stock taking net realization value on consumption basis has resulted reduction of the value to the tune of Rs. 2,94,03,474/- which was not accepted by the AO and added to the income of the assessee. Before the AO the assessee has explained the reasons for change of the basis of the value of net realization value of the non-moving stock which is reproduced by the AO at page no.2 to 4 as under: A. Slow/obsolete inventory Rs. 2,94,03,474/ The assessee Company is engaged in the manufacturing of turbochargers and during the financial year 2008-09, the company changed its estimate of providing for slow/non-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal form. Further, section 145(A) provides notwithstanding anything to the contrary contained in section 145 that the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head 'Profits and gains of business or profession' shall be (a) in accordance with the method of accounting regularly employed by the assessee. [Para 9] Therefore, what is to be seen is how the assessee is maintaining the accounts regularly in the course of his business and the accounting treatment and presentation of financial statement of transactions should be covered by the substance and not merely by the legal form. It is the principle which is to be kept in mind by both the appellate authorities. The aforesaid material clearly demonstrates that instead of showing cost price as nil in the profit and loss account, cost price of the items is given in profit and loss account and a provision is made for obsolescence in inventory showing that the market value is nil and that is the mode which the assessee was following even for the previous years. Under these circumstances, there is no justification to interfere with the well-conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of valuation of the closing stock at cost or net realization value whichever is less in accordance with accounting standard accepted u/s 145A. The only change for the year under consideration is shifting the basis of net realization value from the age of the stock to consumption pattern. In any cases the reduction in the value of the closing shall have consequential effect of reduction in the opening stock of the subsequent year and therefore, this exercise is revenue neutral when the assessee has been paying the tax at the maximum marginal rate. The assessee has filed a copy of the assessment order passed for the A.Y.2010-11 wherein the assessee has declared total income of Rs. 70,39,93,760/- as in comparison to the total income declared by the assessee for the year under consideration of Rs. 21,97,89,880/-. Therefore, there is increase of more than three times in the total income reported by the assessee in the subsequent assessment year and the AO has passed scrutiny assessment u/s 143(3) on 28.02.2014 whereby the total income of the assessee was assessed at Rs. 70,77,31,246/-. There is no adjustment made on account of this enhanced value of closing stock for the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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