Shri Bansilal Lakhimal Kanjani, Ahmedabad V. The Dy.CIT.,Circle-3, Ahmedabad

ITA 1007/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8721 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P MEENA SR DR
• Assessee Lawyers: A C SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER , .., ./ ITA NO. 1007/AHD/2015 / ASSESSMENT YEAR: 2010-11 BANSILAL LAKHIMAL KANJANI, PROP. OF M/S. GERMAN CHEMICALS, PLOT NO.139, PHASE-II, GIDC, NARODA, AHMEDABAD-380025 PAN : ACYPK 5537 C VS. THE DCIT, CIRCLE-3, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : SHRI A.C. SHAH, AR REVENUE BY : SHRI O.P. MEENA, SR DR $ & / DATE OF HEARING : 11/08/2017 $ & / DATE OF PRONOUNCEMENT: 17/08/2017 / O R D E R PER N.K. BILLAIYA, ACCOUNTANT MEMBER: WITH THIS APPEAL THE ASSESSEE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE CIT(A)-7, AHMEDABAD DATED 02.03.2015 P ERTAINING TO ASSESSMENT YEAR 2010-11. 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO T HE ADDITION OF RS.6,13,560/- TO THE VALUE OF CLOSING STOCK UNDER S ECTION 145A OF THE ACT. THE SECOND GRIEVANCE RELATES TO THE DISALLOWANCE OF RS.42,868/- UNDER SECTION 14A OF THE ACT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DYES AND CHEMICALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE BALANCE-SHEET, THE ASSESSING OFFICER FOUND THAT THE RE IS RECEIVABLE AMOUNT IN RESPECT OF MODVAT CREDIT OF RS.6,13,560/-. THE ASS ESSING OFFICER FOUND ITA NO. 1007/AHD/2015 BANSILAL LAKHIMAL KANJANI VS. DCIT AY : 2010-11 2 THAT THE SAME IS NOT INCLUDED IN THE VALUE OF CLOSI NG STOCK. INVOKING THE PROVISIONS OF SECTION 145A OF THE ACT, THE ASSESSIN G OFFICER ISSUED A SHOW- CAUSE ASKING THE ASSESSEE TO EXPLAIN WHY THE VALUE OF CLOSING STOCK SHOULD NOT BE INCREASED BY RS.6,13,560/-. 4. IN ITS REPLY DATED 19.02.2013, THE ASSESSEE GAVE DETAILED WORKING OF STOCK AS PER SECTION 145A OF THE ACT AND EXPLAINED TO THE ASSESSING OFFICER THAT HE IS FOLLOWING EXCLUSIVE METHOD, MEANING BY W HENEVER THE VAT IS PAID ON PURCHASES, IT IS DEBITED TO VAT ACCOUNT AND WHENEVER THE SALES IS MADE, THE VAT ACCOUNT IS CREDITED AND THE EXCESS CR EDIT, IF ANY, IS REFLECTED AS RECEIVABLE IN THE BALANCE-SHEET. IT WAS STRONGL Y CONTENDED THAT THE APPLICATION OF THE PROVISIONS OF SECTION 145A ON TH E FACTS OF THE CASE WOULD BE TAX NEUTRAL. THE ASSESSING OFFICER WAS NOT CONV INCED WITH THE REPLY OF THE ASSESSEE AND WAS OF THE OPINION THAT AFTER THE AMENDMENT OF SECTION 145A OF THE ACT, THE CLOSING STOCK HAS TO BE VALUED INCLUDING ALL THE TAXES/DUTIES PAID AND MADE THE ADDITION OF RS.6,13, 560/-. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ), BUT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE. THE UNDISPUTED FA CT IS THAT THE ASSESSEE IS MAINTAINING ITS ACCOUNTS ON EXCLUSIVE METHOD BASIS, WHICH MEANS THAT THE PURCHASES DEBITED TO P&L ACCOUNT ARE EXCLUSIVE OF V AT; WHICH ALSO MEANS ITA NO. 1007/AHD/2015 BANSILAL LAKHIMAL KANJANI VS. DCIT AY : 2010-11 3 THAT THE SALES CREDITED TO THE P&L ACCOUNT ARE ALSO EXCLUSIVE OF VAT. SINCE ON BOTH THE ACCOUNTS THE ASSESSEE HAS NEITHER DEBIT ED NOR CREDITED VAT IN ITS PURCHASES/SALES, THERE IS NO QUESTION OF INCLUD ING THE SAME IN THE CLOSING STOCK ACCOUNT SINCE THE ASSESSEE HAS NOT INCURRED A NY EXPENDITURE BY DEBITING TO P&L ACCOUNT. OUR VIEW IS ALSO FORTIFIE D BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NARMADA C HEMATUR PETROCHEMICALS, REPORTED IN 327 ITR 369 (GUJ.), FOL LOWED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. UNIQUE INDUSTRIES, REPORTED IN 307 ITR 350 (GUJ.). RESPECTFULLY FOLLO WING THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), W E SET ASIDE THE FINDINGS OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO D ELETE THE ADDITION OF RS.6,13,560/-. 9. THE ASSESSING OFFICER FURTHER NOTICED THAT THE A SSESSEE HAS CLAIMED DIVIDEND AS EXEMPT; THEREFORE, WAS OF THE OPINION T HAT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D HAS TO BE MADE, AND ACCORDINGLY COMPUTED THE DISALLOWANCE AT RS.42,868/-, WHICH WAS CONFIRMED BY THE CIT(A). 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME; T HEREFORE, THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A OF THE A CT. IT IS THE SAY OF THE COUNSEL THAT THE ASSESSEE HAS NOT PAID ANY INTEREST ON BORROWED FUNDS; THEREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. THE COUNSEL FURTHER STATED THAT THE ASSE SSING OFFICER HAS NOT GIVEN ANY FINDING IN SO FAR AS THE EXPENDITURE INCU RRED ON ACCOUNT OF EXEMPT INCOME IS CONCERNED. 11. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. ITA NO. 1007/AHD/2015 BANSILAL LAKHIMAL KANJANI VS. DCIT AY : 2010-11 4 12. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. A PERUSAL OF THE COMPUTATION OF THE DISALLOWANCE AT P AGE NO.10 OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER H AS COMPUTED THE DISALLOWANCE ONLY FOR ADMINISTRATIVE EXPENSES. A P ERUSAL OF THE COMPUTATION OF INCOME SHOWS THAT THE ASSESSEE HAS C LAIMED EXEMPTION IN RESPECT OF LONG TERM CAPITAL GAINS OF RS.5,01,070/- AND DIVIDEND INCOME OF RS.35,819/-. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE IN EARNING THE AFOREMENTIONED INCOME. IN FACT, IN THE PROFIT & LOSS ACCOUNT EXHIBITED AT PAGE NO.3, THE ASSESSEE H AS CHARGED THE PROFIT & LOSS ACCOUNT BY RS.1,888.16 BEING DEMAT TRANSACTION CHARGES. THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AT 0.5% OF AVERAGE VALUE OF INVESTMENT CANNOT BE FAULTED WITH. THEREF ORE, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) IN TH IS REGARD. GROUND NO.2 IS THUS DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 17 TH AUGUST, 2017 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (N.K. BILLAIYA) ACCOUNTANT MEMBER AHMEDABAD; DATED 17/08/2017 BIJU T., SR, PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT 2. -., / THE RESPONDENT. 3. 0 2 / CONCERNED CIT 4. 2 ( ) / THE CIT(A) , AHMEDABAD 5. 5 -0 , & 0 , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD