Delhi High Court
Cit vs Indraprastha Gas Ltd on 22 August, 2012
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 22.08.2012
+ ITA 155/2012
CIT ... Appellant
versus
INDRAPRASTHA GAS LTD ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Sanjeev Sabharwal with Mr Puneet Gupta
and Ms Gayatri Verma
For the Respondent : Mr M. S. Sayali, Sr Advocate with Mr Saurabh
Agrawal, Mr Mayank Nagi, Mr Rahul Sateeja and
Mr Husnal Syali
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This appeal, which has been preferred by the revenue, is directed
against the order dated 23.08.2011 passed by the Income Tax Appellate
Tribunal in ITA3206/Del/2011 pertaining to the assessment year 2005-06.
The only issue that arises for consideration in this appeal is with regard to
the figure of 3.46% of the purchases which has been shown as a
reconciliation difference by the assessee. According to the assessee/
respondent, the said 3.46% of the purchases in respect of the assessment year
2005-06, is merely reflective of the normal wastage, which includes loss in
transit. According to the assessee/ respondent, this figure of 3.46% does not
include any gas in the pipeline.
2. The learned counsel for the revenue contended that a similar issue had
arisen in respect of the earlier years, namely, assessment years 2002-03 to
2004-05. In those years, the Tribunal, by virtue of the order in respect of the
assessment year 2002-03 in ITA 989/Del/2006 dated 25.07.2008 held that
the reconciliation difference as a percentage of purchases varies between
4.01% to 4.47% in the assessment years 2000-01 to 2004-05, which is based
on the balance sheets of the assessee. Consequently, the Tribunal held as
under:-
"Accordingly, the percentage of loss which works out to be 4%
of the purchases during the year under consideration appears to
be reasonable, subject to verification"
3. In view of the above observation, the Tribunal, in that case, set aside
the order of the lower authorities and restored the matter to the file of the
Assessing Officer for deciding the issue afresh in the light of the
observations contained in the said order.
4. We may point out that in the case of the present assessment year,
namely, 2005-06, in the first round, a similar order was passed by the
Tribunal by virtue of its order dated 22.04.2009 in ITA 471/Del/2009.
Thereafter, the Assessing Officer, according to the learned counsel for the
assessee, merely followed his earlier order and added back the entire
reconciliation difference of 3.46% without going into the plea of whether the
said figure of 3.46% of the purchases did or did not include gas in the
pipeline. That order of the Assessing Officer was overturned by the
Commissioner of Income Tax (Appeals) by virtue of its order dated
20.04.2011. Being aggrieved by that order, the revenue preferred the said
ITA 3206/Del/2011 before the Income Tax Appellate Tribunal, which has
been disposed of by the impugned order dated 23.08.2011.
5. The relevant portion of the impugned order reads as under:-
"2.1 In reply, the ld. counsel referred to the finding of the
Tribunal in its case for assessment year 2002-03. In this order,
it has been mentioned that the reconciliation difference as
percentage of purchases varies between 4.01% to 4.47% in
assessment years 2000-01 to 2004-05, which is an information
based on balance-sheet of the assessee. The percentage of loss
which works out to be 4% of the purchases during the year
under consideration appears to be reasonable, subject to
verification. The intent of these observations was to find out the
percentage of loss and evaluate it against acceptable loss of 4%.
This has not been done. In fact, in this year the loss is only
3.4%, which is lower than 4% and, therefore, the AO should
have accepted the loss. In these circumstances, the ld. CIT
(Appeals) rightly deleted the addition made by the AO
notwithstanding the fact that expert opinion was not obtained
from GAIL or ONGC etc.
3. We have considered the facts of the case and submissions
made before us. We are of the view that the AO was bound to
follow the directions of the Tribunal furnished for this year in
decision dated 22.4.2009, in which it is mentioned that the
matter has already been restored to the file of the AO for
assessment years 2002-03 to 2004-05. Accordingly, the matter
was also restored to the file of the AO for this year. However,
in the order for assessment year 2002-03 dated 25.07.2008, a
clear finding was given that loss of about 4% of purchases is
reasonable subject to verification. Instead of verifying the
percentage of loss, the AO reproduced his earlier order. The
loss of 3.4% is borne out by audited accounts, which is lower
than the average loss of about 4%. Therefore, there seems to be
no reasonable cause to make the disallowance of reconciliation
loss by stating that the details of stock lying in pipe lines were
not furnished in qualitative or quantitative terms. What had to
be verified was whether the loss was in the vicinity of 4%,
which has been held to be reasonable by the Tribunal. In these
circumstances, we do not find any error in the order of the ld.
CIT (Appeals) which requires correction from us.
4. In the result, the appeal is dismissed."
6. After having heard the learned counsel for the parties, we feel that the
entire controversy that has raged on for several years is with regard to the
issue of including gas in the pipeline in the closing stock. According to the
revenue, gas in the pipeline ought to have been included in the closing stock
and ought not to have been shown as a reconciliation difference or as part of
loss / wastage.
7. Mr Syali, the learned senior counsel appearing on behalf of the
assessee/ respondent points out that whatever may have been the position in
the earlier years, in the present year, which pertains to the assessment year
2005-06, gas in the pipeline has already been included in the closing stock
and, therefore, it does not form part of the reconciliation difference / loss/
wastage.
8. According to Mr Sabharwal, who appears on behalf of the revenue,
this fact needs to be verified and for this purpose, the matter should be
remitted to the Assessing Officer to ascertain as to whether the figure of
closing stock includes gas in the pipeline or not. Both the counsel are agreed
that if there is any gas in the pipeline, the same has to be included as part of
closing stock.
9. Therefore, we dispose of this appeal with the direction that the matter
be remitted to the Assessing Officer for the purposes of determining /
verifying as to whether gas in the pipeline in respect of the assessment year
2005-2006 has been included in the figure of closing stock or not. If the
Assessing Officer finds that there is gas in the pipeline, which has not been
included in the closing stock, to that extent, the same shall be added back to
the closing stock and insofar as the figure of 3.46% of the purchases is
concerned, the same shall be modified accordingly. Furthermore, the
modified figure of 3.46%, if any, shall be compared with past years' losses
after excluding gas in the pipeline for the earlier years to arrive at a decision
as to whether the loss / wastage was normal or not.
With this modification to the Tribunal's impugned order, this appeal
stands disposed of.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
AUGUST 22, 2012
SR
