Pr. Commissioner Of Income Tax vs M/S Goodwill Fabrics Pvt. Ltd. ...
2023 Latest Caselaw 4719 Raj/2

[2023:RJ-JP:32747-DB]

           HIGH COURT OF JUDICATURE FOR RAJASTHAN
                       BENCH AT JAIPUR

                    D.B. Income Tax Appeal No. 137/2019

Pr. Commissioner Of Income Tax, Ajmer

                                                                      ----Appellant

                                        Versus

M/s. Goodwill Fabrics Pvt. Ltd., B-204, R.K. Colony, Bhilwara, 311001

                                                                    ----Respondent

For Appellant(s) : Mr. Shantanu Sharma, Advocate For Respondent(s) : Mr. Devang Gargieya, Advocate for Mr. Mahendra Gargieya, Advocate

HON'BLE MR. JUSTICE MANINDRA MOHAN SHRIVASTAVA HON'BLE MR. JUSTICE PRAVEER BHATNAGAR

Judgment / Order

12/09/2023

Heard on admission.

Learned counsel for the revenue has proposed following substantial

questions of law:-

"1. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in reversing the decision of the Ld. CIT(A) and deleting the addition of Rs.2,13,67,830/- made on account of under valuation of closing stock by way of showing rejection, without appreciating the fact that the assessee company did not have right to keep or sell rejected goods as per the copy of agreement placed on records and also shown the finished goods as rejected under the head "Finished Stock"?

2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in reversing the decision of the Ld. CIT(A) and deleting the addition of Rs.2,03,36,304/- made on account of under valuation of closing stock by way

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of showing stock with job units, without appreciating the fact that the assessee company valued the goods in pieces and shown the same under the head "Finished Stock" instead of "Work in Progress"?"

Learned counsel for the revenue would argue that though the

Assessing Officer as well as The Commissioner of Income-Tax (Appeals),

Ajmer (For short 'CIT(A)') both recorded concurrent finding insofar as

addition on account of under valuation of closing stock by way of

showing rejection as well as addition on account of under valuation of

closing stock by way of showing stock with job units is concerned, the

Appellate Tribunal interfered with the concurrent finding of facts on both

the counts and deleted additions. Insofar as order deleting the addition

made on account of under valuation of closing stock by way of showing

rejection is concerned, it has been argued that learned Tribunal did not

appreciate the fact that the Assessee Company did not have right to

keep or sell rejected goods as per the agreement placed on records and

also shown the finished goods as rejected under the head "Finished

Stock". Further submission is that the order of the Appellate Tribunal

deleting the addition made on account of under valuation of closing stock

by way of showing stock with job units is concerned, that was also done

without appreciating the fact that the Assessee Company valued the

goods in pieces and shown the same under the head "Finished Stock"

instead of "Work in Progress".

We have gone through the order passed by the learned Tribunal.

Learned Tribunal has examined the material on record and reappreciated

while deleting addition made on account of under valuation of closing

stock by way of showing rejection, in paragraphs 32 to 38 of the

impugned order. In its detailed consideration and upon perusal of record,

it was found that Assessing Officer was having no basis or reliable

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material so as to draw an inference that the stock shown by the assessee

under the head rejected goods was, in fact, finished goods and was not

rejected goods. Appellate authority also took into consideration that the

Assessee is an exporter and the entire sale proceeds from export of

garment only (except a minor amount from the local sale) and further

that to remain competitive in the international market with goodwill,

there cannot be any compromise with the quality, rejection of goods

sought to be exported is a matter of serious concern for exporters. It has

also taken into consideration the goodwill of the Assessee as exporter,

exporting clothes to various countries, Assessee would not be ignoring

slightest defect in the garments, the possibility of there being rejection

of goods on account of defect or lacking in the quality is not unusual

and, therefore, doubt in this regard by the Assessing Officer was

unwarranted. It was also discerned from the record that Assessing

Officer accepted the fact that the stated goods were rejected goods and

the Assessee shall not have any right to sell any of these pieces as per

the agreement with overseas clients. The sample and copies of

agreement with overseas clients submitted before the Assessing Officer

were scrutinized and particular note was taken on the clause that such

rejected products shall not be sold yet the Assessing Officer did not

accept the stipulation on the ground that if there is any rejection, it had

to be destroyed immediately and the assessee failed to produce any

documentary evidence for such disposal. It also took note of the fact that

in some cases there was condition of destruction but that was not shown

in all the agreements. In the absence of there being any proof that the

Assessee was selling rejected goods in the Grey market, only on the

ground of non destruction, it could not be presumed and assumed that

rejected goods are being sold.

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Detailed consideration in this regard has been made by

reappreciating the material on record to arrive at the conclusion that

addition of the value of rejected goods was not proper.

Similarly, in paragraphs 39 to 43, the Tribunal has considered in

great detail that addition made on account of under valuation of closing

stock by way of showing stock job units was not warranted. Learned

Tribunal has taken into consideration material on record that the

manufacturing unit was situated at Bangalore and as per prevailing trade

practice in readymade garment business, some designs/works are to be

outsourced inasmuch as Assessee itself is not having all the facilities,

which is got done from different manufacturers known as job units. In

this process, the principle manufacturer (Assessee) sends fabrics to the

job units and order is placed in terms of the number of pieces to be

manufactured by that job unit. It keeps records of fabric sent in terms of

the pieces and the same is thereafter compared and reconciled while

receiving back the stitched/worked pieces from the job unit. Such fabric

is reduced from the raw material and then taken to the account of

garment pieces lying with the job units in the stock books. The pieces

which got completed during the year, were transferred to finished goods

and the pieces on which no cost was incurred even till 30.03.2014, were

shown as stock with job units but at the cost of fabric only because no

cost was incurred on such pieces either by the Assessee or reported by

the job units. Tribunal also scrutinized the records and found that the

Assessee has produced complete quantitative details before the

Assessing Officer which was wrongly rejected by the A.O. without any

basis. The Tribunal noticed a detailed chart showing the name of the job

worker, style name, date of issue, buyer, P.O. No., colour, quantity,

quality of the finished goods/garments, quantity of material supplied and

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lying with the job workers together with the rate applied and finally the

amount arrived at towards number of pieces along with the copies of

exemplary invoices submitted before the Assessing Officer Upon such

consideration of the material, the Tribunal found that extensive details

were filed before the lower authorities and there is no doubt about the

units lying with the job units. Therefore, the finding of the Assessing

Officer that these units were not disclosed separately in financial

accounts and not separately disclosed in notes of accounts is improper

and addition cannot be made merely because a separate disclosure has

not been made in the notes of accounts as the financial accounts are

prepared according to established accounting conventions.

We are, therefore, of the view that the questions of law as

proposed by the revenue that various aspects were not taken into

consideration and appreciated before deleting the additions, is factually

not correct. The conclusion drawn by the Appellate Tribunal turns on

minute scrutiny of material on record. The Tribunal has recorded its own

finding of fact and assigned reasons and traversed factual finding

recorded by Assessing Officer and CIT(A). Therefore, in the absence of

there being any perversity, violation of law or non consideration of

material aspects as stated in the question of law, no substantial question

of law arises for consideration.

Appeal of the revenue, therefore, being without merit, is

dismissed.

(PRAVEER BHATNAGAR),J (MANINDRA MOHAN SHRIVASTAVA),J

Mohita /50

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