DCIT, CHENNAI V. Indian Potash Limited, CHENNAI

ITA 1004/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7949 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA; SUPRIYO PAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' # . $ , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICI AL MEMBER ./ I.T.A.NOS.1003 TO 1005/MDS/2016 ( / ASSESSMENT YEARS: 2002-03, 2008-09 & 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(2), 512,WANAPARTHY BLOCK, CHENNAI-600 034. VS M/S. INDIAN POTASH LTD., SEETHAKATHI BUSINESS CENTRE, 1 ST FLOOR, 684-690,ANNA SALAI, CHENNAI-600 006. PAN:AACCI0888H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.PATHLAVATH PEERYA, CIT & MR. SUPRIYO PAL, JCIT /RESPONDENT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 14 TH SEPTEMBER, 2016 /DATE OF PRONOUNCEMENT : 30 TH NOVEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE THREE APPEALS ARE FILED BY THE REVENUE AGGRIEVED BY THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI ALL DATED 05.02.2016 IN ITA NOS.142, 24 & 23/CIT(A)-6/2008-09 /2014- 15 PASSED UNDER SECTION 143(3) R.W.S. 147 & 250(6) OF THE ACT. 2 ITA NO.1003 TO 1005/MDS/2016 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEALS, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- ITA NO.1003/MDS/2016: (A.Y.2002-03): THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 3,32,25,000/- MADE BY THE LEARNED ASSESSING OFFICER IN REGARD TO EXCHANGE DIFFERENCE FOR VALUATION OF CLOSING STOCK. ITA NO.1004 & 1005/MDS/2016: (A.Y.2008-09 & 2009-10 ): THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SETTING ASIDE THE ISSUE OF DISALLOWANCE UNDER RULE 14A TO THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH WHICH IS IN CONTRARY TO THE PROVISION UNDER SECTION 251(1)(A) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING OF POTAS SIC AND NON-POTASSIC FERTILIZERS, FILED ITS RETURNS OF INCO ME FOR THE RELEVANT ASSESSMENT YEARS. THE LEARNED ASSESSING OF FICER HAS COMPLETED THE ASSESSMENTS UNDER SECTION 143(3) R.W.S 147 OF THE ACT WHEREIN HE MADE ADDITION IN REGARD T O VALUATION OF CLOSING STOCK FOR THE ASSESSMENT YEAR 2002-03 AND ALSO DISALLOWED THE EXPENDITURE RELATED TO EXEM PT 3 ITA NO.1003 TO 1005/MDS/2016 INCOME UNDER SECTION 14A OF THE ACT FOR THE ASSESSM ENT YEARS 2008-09 & 2009-10. ITA NO.1003/MDS/2016: (A.Y.2002-03): GROUND : DISALLOWANCE OF ` `` ` 3,32,25,000/- TOWARDS EXCHANGE RATE DIFFERENCE FOR VALUATION OF CLOSING STOCK:- 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT THE A SSESSEE HAD NOT TAKEN INTO ACCOUNT THE EXCHANGE RATE DIFFER ENCE OF RS.3.32 CRORES WHILE VALUING ITS CLOSING STOCK, WHI CH IS THE REGULAR METHOD ADOPTED BY THE ASSESSEE. SINCE IT WA S IN CONTRAVENTION TO THE PROVISIONS OF SECTION 145A OF THE ACT THE LEARNED ASSESSING OFFICER ADDED THE SAME TO THE VAL UE OF CLOSING STOCK AND ACCORDINGLY ADDED TO THE PROFIT O F THE ASSESSEE. 4.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) FOLLOWING THE DECISION OF THE HONBLE JUR ISDICTIONAL MADRAS HIGH COURT DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER BY OBSERVING AS UNDER:- 4 ITA NO.1003 TO 1005/MDS/2016 5.3 THE MATTER IS CONSIDERED. THE APPELLANT COMPAN Y IN ITS NOTES TO ACCOUNTS HAS STATED AS UNDER:- 'EXCHANGE FLUCTUATION AND VALUATION OF CLOSING STOCK: ACCOUNTING STANDARD - 11 PRESCRIBES THAT THE ELEMENT OF EXCHANGE GAIN/(LOSS) ARISING ON EXCHANGE RATE VARIA TION DURING THE PERIOD SHOULD BE EXCLUDED WHILE VALUING CLOSING STOCK. THIS DIFFERENTIAL AMOUNT IS TO BE CHARGED/CR EDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR OF THE SETTLEMENT OF THE LIABILITY. AS PER THE PROVISION OF SUB-SECTI ON3[C] OF SECTION 211 OF THE COMPANIES ACT, 1956 PROFIT AND LOSS ACCOUNT AND BALANCE SHEET SHOULD COMPLY WITH THE ACCOUNTING STANDARDS. OUR STATUTORY AUDITORS INSIST ED ON THE COMPLIANCE OF ACCOUNTING STANDARD -11 FOR THE VALUATION OF CLOSING STOCK.' 5.4 THE MOOT ISSUE HERE IS THAT THE APPELLANT HAS C HALLENGED THE METHOD OF VALUATION OF STOCK ON THE INSTANCE OF THE STATUTORY AUDITORS TO BRING IT IN LINE WITH ACCORDANCE STANDARD 11 WHETHER THE CHANGED TREATMENT, CAN BE EXTENDED TO THE VALUATION OF CLOSING STOCK ALONE. IN THIS REGARD, I T IS RELEVANT TO NOTE THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS CARBORANDUM UNIVERSAL LIMITED REPORTED ON 149 ITR 759(MAD). IN THIS JUDGMENT, THE HON'BLE MADRAS HIGH COURT HAS HELD AS UNDER: 'IF THE ASSESSEE IS CALLED UPON TO APPLY THE NEW METHOD OF VALUATION TO THE OPENING STOCK OF THE ACCOUNTING YEAR AS WELL, THEN IN CONSEQUENCE THE VALUE OF THE CLOSING STOCK OF THE PREVIOUS ACCOUNTI NG YEAR WILL ALSO GET ALTERED AND THAT WILL RESULT IN THE MODIFICATION OF THE ASSESSMENT FOR THE PREVIOUS YEAR. IT IS FOR THIS REASON, THE TRIBUNAL HAS STATE D THAT THOUGH BY ADOPTION OF THE NEW METHOD OF VALUATION OF THE CLOSING STOCK ALONE THE ASSESSEE MAY APPEAR TO GET SOME UNINTENDED BENEFIT, IN COURSE OF TIME, IT WILL GET ADJUSTED AND THE REVENU E WILL NOT BE A LOSER. EVEN APART FROM THIS REASON, I F THE REVENUE'S CONTENTION THAT THE NEW METHOD SHOULD BE ADOPTED BOTH TO OPENING STOCK AND 5 ITA NO.1003 TO 1005/MDS/2016 CLOSING STOCK EVEN IN THE FIRST YEAR OF THE INTRODUCTION OF THE NEW METHOD, IS ACCEPTED, THEN, IT WILL LEAD TO THE POSITION THAT THE ASSESSEE CANNOT AT ALL CHANGE THE METHOD OR THE ASSESSEE HAS TO REVALUE THE CLOSING STOCK OF THE PREVIOUS YEAR WHICH WILL BE TH E OPENING STOCK OF THIS YEAR, AND SUCH A REVALUATION ON THE NEW BASIS AS PER THE ASSESSEE IS NOT ORDINARILY POSSIBLE. WHEN A NEW METHOD OF VALUATION OF STOCK IS ADOPTED IN ANY PARTICULAR YEAR, THE ASSESSEE CAN GO ALONG ON THAT BASIS LEAVING INTACT THE VALUATION OF THE OPENING STOCK BY THE OLD METHOD. ' 5.5 THE RATIO OF THE DECISION OF HON'BLE MADRAS HIGH COURT IN CARBORANDUM UNIVERSAL LIMITED (SUPRA) IS DIRECTLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES IN THE CASE OF THE APPELLANT. RESPECTFULLY FOLLOWING THE RATIO, IT IS HELD THAT T HE ASSESSING OFFICER ERRONEOUSLY INCLUDED THE EXCHANGE DIFFERENCE TO THE EXTENT OF RS.3,32,25,000/- WHILE VALUING THE CLOSING STOCK AS ON 31.03.2002. THE HON'BLE COURT HAS CLEARLY HELD THAT ON ADOPTION OF NEW METHOD OF VALUATION, THE ASSESSEE MAY APPEAR TO GET SOME UNINTENDED BENEFIT BUT IN THE COURSE OF TIME IT WILL GET ADJUS TED AND THE REVENUE WILL NOT BE A LOSER. HENCE THE ADDITION MADE ON THE VALUATION OF CLOSING STOCK STANDS DELETED. 4.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMEN TLY ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED ASSES SING OFFICER WHILE AS THE LEARNED AUTHORIZED REPRESENTAT IVE RELIED IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 6 ITA NO.1003 TO 1005/MDS/2016 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. IT IS APPARENT FR OM THE FACTS OF THE CASE THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD THE ISSUE IN FAVOUR OF THE ASSES SEE BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT CITED SUPRA. FURTHER ACCOUNTING STANDARD II ALSO P ROVIDES THAT INVENTORIES SHOULD BE VALUED AT LOWER OF COST AND NET REALIZABLE VALUE. IN THIS SITUATION, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS). ITA NO.1004 & 1005/MDS/2016: (A.Y.2008-09 & 2009-10 ): GROUND : DISALLOWANCE UNDER RULE 14A: 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS REVEALED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT O F RS.21,52,41,216/- AND RS.51,78,40,900/- AS EXEMPT I NCOME UNDER SECTION 10(34) OF THE ACT FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY AS DETAILED HEREIN B ELOW:- ASSESSMENT YEAR : 2008-09: MAGNUM INSTITUTIONAL CASH FUND 7 ITA NO.1003 TO 1005/MDS/2016 EACH MONTH TOTAL / 30 TOTAL OF MONTHLY =AVERAGE AVERAGE / MONTH MONTH TOTAL BALANCE 12=YEARLYAVERAGE APR ' 07 33562137996 1118737933 MAY ' 07 8450061078 281668702 . 6 JUN ' 07 603836357 20127878 . 57 JUL ' 07 0 AUG ' 07 2589221570 86307385.67 SEP ' 07 2342928000 78097600 OCT'07 610000000 20333333.33 NOV ' 07 43400000 1446666 . 667 DEC'07 0 JAN ' 08 496574704 16552490 . 13 FEB ' 08 0 MAR ' 08 840070960 28002365 . 33 1651274356 137606196.3 THE YEAR L Y AVERAGE OF VARIOUS INVESTMENTS CALCULATED IN THE SIMILAR WAY , AS I N THE CASE OF MAGNUM INSTITUTIONAL CASH FUND, IS TABULATED BEL OW: TOTAL OF MONTHLY AVERAGE NAME OF THE INVESTMENT AVERAGE / 12 MAGNUM INSTITUTIONAL CASH FUND 137606196 SBI PREMIER LIQUID PLAN 51485083 SBI SHORT HORIZON FUND LIQUID PLUS 2372131951 CANARA ROBECO FLOATING RATE ST . MF 737862700 CAN LIQUID PLUS INSTITUTIONAL DAILY DIV . FUND 562126381 HDFC CASH MGMT FUND DAILY DIVIDEND 9125977 HDFC CASH MGMT FUND SAVING PLAN 358724165 HDFC CASH MANAGEMENT FUND SAVING PLUS 767895885 HDFC FLOATING RATE INCOME FUND ST PLAN- RETAI L OPTION DIVIDEND 6948614 HDFC F LOATING RATE INCOME FUND - ST PLAN- WHOLESALE PLAN- DAILY DIVIDEND 254719569 FRANKLIN TEMPLETON MUTUAL FUND I 30133863 HDFC SHORT TERM PLAN DIVIDEND 8244126 SBI PREMIUM LIQUID FUND SUPER INSTITUTIONAL 201388 TOTAL OF AVERAGES 5297205898 8 ITA NO.1003 TO 1005/MDS/2016 ASSESSMENT YEAR : 2009-10: TOTAL OF NAME OF THE INVESTMENT MONTHLY AVERAGE /12 CANRA ROBECO LIQUID FUND DAILY DIVIDEND 119773413 CANRA ROBECO FLOATER 33662785 CANRA ROBECO LIQUID PLUS SUPER INTERNATIONAL 844208846 HDFC LIQUID FUND PREMIUM PLAN 525160919 CANRA ROBECO LIQUID FUND 560798486 CANRA ROBECO TREASURY ADV FUND 923571513 HDFC CASH MANAGEMENT FUND SAVING PLAN 346811825 HDFC CASH MGMT FUND CALL PLAN DAILY DIV. REINV. 115292865 HDFC CASH MGM FUND TREASURY ADV PLAN 1436581081 HDFC FLOATING FUND SHORT TERM WHOLESALE OPTION 749657390 SBI PREMIER LIQUID FUNDS SUPER INSTL . DAILY DIV . 2611338 5BI MAGNUM INSTA CASH FUND DAILY DIV OPTION 74919230 MAGNUM INSTITUITIONAL CASH FUND DIV . OPTION WEEK 111482 SBIMF MICF DIV MAGNUM INSL . CASH FUND 413198811 SBI PREMIER LIQUID FUND INSTL . PLAN 40391646 SBI PREMIER LIQUID FUNDS SUPER INSTL PLAN 53943965 MAGNUM INSTA CASH FUND LIQUID FLOATER PLAN 4584243 5BI SHORT HORIZON FUND LIQUID PLUS INST PLAN DAILY DIV I DEND 999610615 IC ICI PRUD . L I QUID PLAN SUPER INST . DAILY DIVIDEND 280237864 ICI C I PRUD FLEXIBLE INCOME PLAN (PREMIUM) 262929805 IC IC I PRUD E NTIAL FLOATING RATE PLAN DAILY DIVIDEND 606457610 UTI MONEY MARKET FUND DAILY DIV. OPTION REINVESTED 125937084 UTI TREASURY ADVANTAGE FUND 142489999 TOTAL OF AVERAGES 8662942815 5.2 IT WAS STATED BY THE ASSESSEE THAT THERE WERE N O SEPARATE STAFF EMPLOYED FOR PORTFOLIO MANAGEMENT AN D HENCE THERE WAS NO EXPENSE INCURRED BY THE ASSESSEE WHICH IS ATTRIBUTABLE FOR EARNING EXEMPT INCOME. IT WAS FURT HER STATED 9 ITA NO.1003 TO 1005/MDS/2016 THAT THE ENTIRE INVESTMENT WAS MADE FROM THE ASSESS EES OWN FUNDS; HENCE THERE IS NO INTEREST EXPENSE THAT CAN ALSO BE ATTRIBUTED FOR SUCH INVESTMENTS. HOWEVER, THE LE ARNED ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTIO N 14A R.W.R 8D OF THE ACT WORKED OUT THE DISALLOWANCE AT RS.4,38,71,320/- AND RS.14,36,87,222/- FOR THE ASSE SSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY. 5.3 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) REMITTED BACK THE MATTER TO THE FILE OF T HE LEARNED ASSESSING OFFICER FOLLOWING THE DIRECTION OF THE CH ENNAI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2010-11 & 2011-12 IN ITA NO.1566 & 1567/MDS/2015 DATED 30.12.2015, WHEREIN IT WAS HELD AS FOLLOWS:- HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITI ES AND THE DECISIONS RELIED ON THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS BY INVOKING PROVISIONS OF SECTION 1 4A READ WITH RULE 8D DISALLOWED RS.61.71 CRORES AND RS.24.92 CRORES FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY. IT IS THE SUBMISSION OF THE ASSESSEE THAT IT HAS NOT INCURRED MUCH EXPENSES FOR EARNING DIVIDEND INC OME AND IN FACT SURPLUS FUNDS WERE MADE IN 'MUTUAL FUNDS AN D NO INTEREST BEARING FUNDS WERE UTILIZED IN INVESTMENTS . IN SUCH CIRCUMSTANCES, DISALLOWANCE MADE UNDER SECTION 8D(I I) IS NOT PROPER. IT IS THE SUBMISSION OF THE COUNSEL FOR THE ASSESSEE THAT MATTER HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER AS THIS ASPECT OF THE MATTER HAS NOT BEEN CONSIDERED A T ALL. ON 10 ITA NO.1003 TO 1005/MDS/2016 GOING THROUGH THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THE ISSUE IN APPEAL HAS TO BE RE-EXAMINED BY THE AS SESSING OFFICER AFRESH WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND IN THE LIGHT OF THE CASE LAWS RELIED O N. THUS, WE RESTORE THE APPEALS OF THE ASSESSEE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THE ASSESSEE IS AT LIBERTY TO FILE NEC ESSARY INFORMATION IN SUPPORT OF HIS SUBMISSIONS BEFORE TH E ASSESSING OFFICER. ' 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. SINCE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ONLY DIREC TED THE LEARNED ASSESSING OFFICER TO DECIDE THE MATTER AFRE SH IN THE LIGHT OF THE DECISION OF THE CHENNAI BENCH OF THE T RIBUNAL IN ASSESSEES OWN CASE CITED SUPRA, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER FOR BOTH THE ASSESSMENT YEARS. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH NOVEMBER , 2016 SD/- SD/- ( ' # . $ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 30 TH NOVEMBER, 2016 SOMU 11 ITA NO.1003 TO 1005/MDS/2016 *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF