Income Tax Appellate Tribunal - Ahmedabad
Vikram Seeds Limited,, Ahmedabad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri D.K.Tyagi, Hon'ble Judicial Member, and
Shri D. C. Agrawal, Hon'ble Accountant Member
ITA No.3623/ Ahd/2008
Assessment Year:2005-06
Date of hearing:30.3.11 Drafted:6.4.11
Asstt. Commissioner of V/s. Vikram Seeds Ltd., 209,
Income-tax, Circle-8, Ashwam egh Avenue,
Ahmedabad Mayaur Colony,
Mithakhali Six Roads,
Navrangpura,
Ahm edabad
P AN NO.AAACV6462A
(Appellant) .. (Respondent)
Appellant by :- Shri R.K.Topiwala, DR
Respondent by:- Shri S.N.Soparkar, SR-AR
ORDER
PER D.K.Tyagi, Judicial Member:-
This is Revenue's appeal against the order of Commissioner of Income- tax(Appeals)-XIV, Ahmedabad in appeal No. CIT(A) XIV/C.8/273/2007-08 dated 21-08-2008 for the assessment year 2005-06.
2. The Revenue has taken following three effective grounds:-
"1. The ld. Commissioner of Income-tax(A), Ahmedabad has erred in law and on facts in deleting the addition of Rs.51,74,400/- being disposal of old seed stock VICH-9 market rate without considering the evidences.
2. The ld. Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.77,16,342/- being ITA No.3623/Ahd/2008 A.Y. 2005-06 ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 2 disposal of old seed stock VICH-9 at market rate without considering the evidences.
3. The ld. Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.59,56,086/- being disposal of old seed stock VICH-5 at market rate without considering the evidences."
3. The brief facts of the case in respect of these grounds are that during the assessment proceedings Assessing Officer found that assessee has disposed of 44,000 packets of VICH-9 variety of cotton seeds by selling the same for Rs.80,600/- instead of book value of Rs.52.58 lakh i.e. by selling at a lower rate @ Rs.1.90 per packet thereby incurring a loss of Rs.51,74,400/-. In addition to that the assessee has revalued its closing stock of VICH-9 variety of cotton seeds of 65,671 packets by valuing at Rs.2/- per packet on the basis of sales made in the subsequent year, thereby the closing stock value was reduced by Rs.59,56,086/-. Similarly, 58,393 packets of VICH-5 variety of cotton seeds were valued by assessee at Rs.2/- per pack thereby the closing stock value was reduced by Rs.59,56,086/-. The assessee was asked by Assessing Officer to provide the supporting laboratory tests along with the batch-wise report indicating direct nexus of the stock sold and the tests done in the laboratory. After perusal of tests report the AO made the disallowance on the ground that exact co-relation of stock disposed of with laboratory test report was not shown by assessee. Although the assessee had produced laboratory test report on sample basis, the same was considered not sufficient by AO and in the absence of exact co-relation of the stock disposed of with laboratory test done the AO rejected assessee's claim of write off of loss of stock to the tune of Rs.51,74,400/-. Similarly the Assessing Officer observed that revaluation of closing stock has no co-relation with the laboratory test report and so the AO did not accept the claim of deduction in the valuation of closing stock of VICH-9 type of seeds and VICH-5 type of seeds to the tune of Rs.77,16,342/- and Rs.59,56,086/- respectively and made corresponding additions to the income of assessee.
ITA No.3623/Ahd/2008 A.Y. 2005-06ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 3
4. Before Ld. CIT(A) it was submitted on behalf of assessee that details of stock disposed of or the revaluation of stock together with age of stock year- wise as per Annexure-A to the written submission dated 12-08-2008, which showed the old age of stock and tallied the same with year-wise stock statement. The assessee relying on the decision of Hon'ble apex court in the case of Shakti Trading Co. v. CIT 250 ITR 871 (SC) and the decision of Hon'ble Madras High Court in the case of CIT v. Karur Vyasya Bank Ltd. 273 ITR 510 (Mad), further submitted that when there was no cessation of business, the closing stock had to be valued at cost or market price, whichever was lower and a taxpayer is free to employ for the purpose to value stock-in-trade either at cost or market price. It was also held by the decision of Hon'ble Madras High Court in the case of CIT v. Vijay Shanthi Finance Ltd. 296 ITR 302 (Mad) that the Tribunal was justified in holding that the closing stock can be valued either at market price or cost price whichever is lower. There was no need of laboratory test report as there was no need to get laboratory test report to dispose of or revalue the stock and it was necessary as per Seeds Act, 1966 (Central) only for selling the pure/germinated seeds to farmers. The relevant provisions of Seeds Act, 1966 (Central) were explained in his submission. It was further stated that the minimum limit of germination for hybrid cotton seeds has been amended by Govt. of India, vide Office Memorandum No.18-6/2004 SDIV dated 28th September, 2004 from 65 to 75% with effect from 1st January, 2005. The Authorized Representative further submitted that assessee has obtained laboratory test report on sample basis only for selling of seeds but there was no need to disposal of seeds or for revaluation purpose. However, the assessee has obtained the same as per Annexure-B to written submission filed before Ld. CIT(A) to prove the lower germination and purity of seeds which was not at all saleable under the Seeds Act, 1966. It was also argued before Ld. CIT(A) that Assessing Officer has not made any inquiry on technical aspect of seed business and that the assessee has incurred heavy loss and there was no question of tax evasion.
ITA No.3623/Ahd/2008 A.Y. 2005-06ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 4
5. After taking into consideration the submission of assessee Ld. CIT(A) allowed the assessee's appeal by observing as under:-
"I have carefully considered the facts of the case and the submissions as advanced by the A.R of the appellant. It is noticed that 44000 packets of VICH-9 variety of cotton seeds were sold at a lower rate of Rs.1.90 per packet instead of valuation of the opening stock at Rs.119.50 per packet, thereby incurring loss of Rs.51,74,400/-. In the ground of appeal, it has been wrongly stated as VICH-4 instead of VICH-9 the A.R of the appellant has given a chart showing the purchases of seeds made from financial year 2000-01 in packets of VICH-9 variety and corresponding sales during the period from Fin. Year 2000-01 to F.Y 2005-06. Out of the purchases of VICH-9 seeds made in financial year 2000-01 of 547848 packets, the appellant made sales in different financial years as under:-
F.Yr. No. of packets sold
2000-01 295174
2001-02 205835
2002-03 35739
2003-04 11000
In earlier year, i.e. A.Y. 2004-05, the appellant had written off 11100 packets without realizing any price and had claimed deduction for the same which was disallowed by the A.O on the ground that details of closing stock in quantity and value of the said variety from F.Y 2000-01 to 2003-04 and copy of laboratory report were not furnished by the appellant and in appeal, the disallowance was confirmed by the CIT(Appeals) saying that no evidence was filed to show that sales made in F.Y. 02-03 & 03-04 did not contain the seeds purchased in F.Y 2001- 02 and there was no evidence for closing stock of 11100 packets as on 31-03-2004. During the course of appellate proceedings the A.R was asked to furnish details of purchases, sales and closing stock of seeds from F.Y. 2000-01 till F.Y. 2005-06. From the detailed chart furnished by the A.R, in Annexure A to written submission dt. 12-08-2008, it is seen that in F.Y. 2001-02, the appellant made purchase of 308758 packets of VICH-9 seeds which were disposed of in various F.Yrs as under:
F.Yr. No. of packets sold
2001-02 65898
2002-03 61838
2003-04 71648
2004-05 15104
44000
2005-06 50270
ITA No.3623/Ahd/2008 A.Y. 2005-06
ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 5
In the year in appeal, F.Y. 2004-05 the appellant had disposed of 15104 packets of VICH-9 type of seeds at regular selling rate. Subsequently, the appellant could not sell the balance 44000 packets at normal rate, but it could sell at the rate of Rs.1.90 per packet, because after 3 years of purchase, the seeds loose germination capacity and further the new variety of cotton seeds, i.e. B.Cotton came into the market, which was well accepted by the farmers. Therefore, the appellant's research varieties i.e. VCIH-9 & VICH-5 became out of date and after 3 years of purchase the appellant had to dispose of at a lower rate and the seeds were sold not for agricultural harvesting, but were sold for non- agricultural use like preparing animal feeds. The A.R has also given a copy of the Seeds Act, 1966 and referred to sections 6, 7, 19 of the said Act. The section 6 of the said Act specifies minimum limit of germination and purity for hybrid cotton seeds at 65%, which has been subsequently amended to 75% with effect from 1-1-2005. Section 7 of the Act prescribes that the container of such seeds should bear in the prescribed manner, the mark or label containing the correct particulars thereof, specified under clause (b) of section 6 and as per section 19, if any provision is contravened, the person would be liable to penalty & imprisonment. The A.R has also contended that it is necessary to obtain the Lab Test reports only for selling of seeds, but there was no need to obtain the same for disposing of seeds or for valuing thee closing stock. Further, the appellant has obtained Lab Test report as submitted as per Annexure B to the written submission dtd; 12-08-2008 and according to the test reports, it is found that the physical purity and germination capacity is less than 75% in the seeds which have been disposed of. As regards the contention of the A.O that there was no exact correlation between the seeds disposed of or revalued vis.a.vis. the Lab Test report, it has been stated by the A.R that it was not necessary to obtain Lab Test report for seeds disposed of at lower rate for non-agricultural use. Like in first ground of appeal or for revaluation of closing stock as in Grounds no. 2 & 3 and even for normal sale of seeds, the appellant has to test only on sample basis and it is not necessary to test the entire seeds sold physically. From the chart furnished by the A.R it is clearly seen that the seeds which have been disposed of in this year i.e. 44000 packets of VICH-9 type are out of the seeds purchased in financial year 2001-02 and similarly the seeds which have been revalued i.e. 65671 packets of type VICH 9 are out of the seeds purchased in financial year 2001-02. As regards VICH 5 variety of cotton seeds, the appellant had purchased 321865 packets in F.Y. 01-02 which were sold in different F.Ys as under:-
F.Yr. No. of packets sold
2001-02 151068
2002-03 76795
2003-04 44799
2004-05 8640 and revalued 58393 packets
ITA No.3623/Ahd/2008 A.Y. 2005-06
ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 6
Thus out of VICH 5 cotton sees, 58393 packets were revalued at Rs.2/- per packet on the basis of subsequent sales made. From the details of subsequent sales provided by the A.R it is seen that VICH 9 seeds have been sold at an average rate of Rs.2.75 per packet ranging from Rs.1.35 to Rs.4.24 per packet in F.Y 2005-06 and VICH5 seeds have been sold at average rate of Rs.2.60 per packet ranging from Rs.1.35 to Rs.4.19 per packet. Accordingly, the appellant has revalued 65671 packets of seeds of VICH-9 variety and 58393 packets of VICH-5 variety of seeds at Rs.2/- per packet. The seeds which have been revalued are more than 3 years old and they have been produced and procured in F.Yr 2000-01 and the processing and packing work was completed in F.Y 2001-02 i.e the seeds have been purchased in April & May,2001. The appellant has contended that valuation of stock has to be at cost or net realizable value, whichever is lower in assessee of a continued business. As the seeds have become old and not capable of germination and the varieties have become out of date, because of the arrival of new variety of hybrid cotton seed, i.e B.T. Cotton, the appellant was not able to realize their real sale value. Further as contended by the A.R the seeds are perishable goods and they loose genetic purity and quality within 3 years and the seeds business was controlled by Seeds Act, 1966 and Essential Commodities Act, 1955, so the appellant had no alternative but to sell the old stock at lower rate for other than human use and to write off the old stock. Therefore, net realizable value has come down to Rs.2 per packet from Rs.119.50 per packet for VIcH-9 variety and Rs.2/- per packet for VICH-5 variety of seeds from Rs. 104/- per packet as substantiated by sales made in the subsequent period and accordingly the appellant has rightly valued the closing stock at net realizable value. Further the A.O has made the addition by rejecting the reduction of closing stock on account of revaluation and the trading loss incurred on distress sale of 44000 packets without rejecting books of accounts maintained by the appellant, when in fact the appellant has maintained complete stock records. The additions made on account of trading loss and valuation of closing stock without rejecting books of accounts without finding any discrepancy in books can not be approved. Therefore, the trading loss of Rs.51,74,400//- incurred in disposing of 44000 packets at lower price and reduction of value of closing stock of VICH-9 seeds by Rs.77,16,342/- and VICH-5 seeds by Rs.59,56,086/- are held to be allowable in the facts of the case and relying on the case laws relied upon by the A.R and the A.O is directed to allow the same. Thus the grounds no.1, 2 and 3 are allowed."
Aggrieved by this order of Ld. CIT(A) now Revenue is in appeal before the Tribunal.
ITA No.3623/Ahd/2008 A.Y. 2005-06ACIT Cir-8, A'bd v Vikram Seeds Ltd. Page 7
6. At the time of hearing Ld. DR relied on the order of Assessing Officer while Ld. AR relied on the order of Ld. CIT(A) and the documents filed in the paper book in support of order of Ld. CIT(A).
7. After hearing both the parties and perusing the record we find that Ld. CIT(A) while giving relief to the assessee has placed reliance on the purity test report of laboratory in respect of non-germinated / sub-standard seeds. We further find that his order is in conformity with the Section 6 & 7 of the Seeds Act, 1966 (Central) and therefore we feel no need to interfere with the order passed by Ld. CIT(A) and same is thereby upheld.
8. In the result, Revenue's appeal is dismissed.
Order pronounced in Open Court on 21/04/2011
Sd/- Sd/-
(D.C.Agrawal) (D.K. Tyagi)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated : 21/04/2011
*Dkp
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-XIV, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad