DCIT, V. M/s JCT Electronics Ltd., Mohali

ITA 1013/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81000 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: MAHESH SAHAI; S K SOOD
• Keywords: Earning of tax free income
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 659/CHD/2011 ASSESSMENT YEARS : 2007-08 ITAS NO. 1013 & 1014/CHD/2012 ASSESSMENT YEARS : 2008-09 & 2009-10 D.C.I.T. CIRCLE 6(1) V JCT ELECTRONICS LTD MOHALI A-32, I.A. PHASE VIII MOHALI AAACJ 5084A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI J.S. NAGAR RESPONDENT BY: S/SHRI MAHESH SAHAI & S. K. SOOD DATE OF HEARING 29.10.2014 DATE OF PRONOUNCEMENT 7.11 .2014 O R D E R PER T.R. SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDER OF LD CIT(A), CHANDIGARH DATED 31.3.2011 & 27.7.2012. ITA NO. 659/CHD/2011 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 72,253/- BY INVOKING THE PROVISIONS OF SECTION 14A OF EH ACT AS THE ASSESSEE HAD NOT REDUCED THE EXPENDITURE RELATI NG TO EXEMPT INCOME EARNED IN THE FORM OF DIVIDEND FROM SHARE. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TE ADDITI ON OF RS. 7,62,80,020/- BY INVOKING THE PROVISIONS OF SECTION 145A AS THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTI NG FOR VALUATION OF INVENTORY. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 56,45,610/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF UNACCOUNTED CLOSING STOCK OF SCRAP. 2 3 GROUND NO. 1 IS OF GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INVESTED A SUM OF RS. 1,57,29 ,431/- IN THE SHARES AND HAS EARNED DIVIDEND INCOME WHICH WAS EXEMPT. THEREFORE THE ASSESSING OFFICER INVOKED THE PROVISI ONS OF SECTION 14A R.W.R. 8D OF IT RULES AND DISALLOWED A SUM OF RS. 72,523/-. 5 THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT MADE ANY BORROWINGS AND THERE CAN BE NO EXPENDITURE FOR EARN ING DIVIDEND INCOME. THEREFORE THE ADDITION WAS DELETED. 6 BEFORE US. LD. D.R FOR THE REVENUE STRONGLY SUPPO RTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THERE WAS NO BORROWINGS FOR MAKING THE INVESTMENT, THEREF ORE NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF INTEREST. T HIS IS PARTICULARLY SO BECAUSE HON'BLE BOMAY HIGH COURT IN CASE OF GODREJ & BOYCE MFG V DCIT, 328 ITR 81 (BOM) HAS CLE ARLY HELD THAT RULE 8D IS NOT APPLICABLE RETROSPECTIVELY THAT MEANS RULE 8D IS NOT APPLICABLE IN THIS CASE. HOWEVER, CHANDI GARH BENCHES OF THE TRIBUNAL HAS CONSISTENTLY HELD THAT IN THE YEAR IN WHICH RULE 8D WAS NOT APPLICABLE A REASONABLE DI SALLOWANCE HAS TO BE MADE CONSIDERING THE FACTS THAT INVESTMEN T HAS BEEN MADE ONLY IN ONE COMPANY WITHOUT INTEREST COST. WE ARE OF THE OPINION THAT DISALLOWANCE OF 10,000/- IS REASON ABLE. ACCORDINGLY WE SET ASIDE THE ORDER OF LD. CIT(A) AN D DIRECT THE ASSESSING OFFICER TO MAKE DISALLOWANCE OF RS. 10,00 0/-. 3 8 GROUND NO. 2 AFTER HEARING THE RIVAL SUBMISSION S WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTI CED THAT THE ASSESSEE HAS NOT INCLUDED EXCISE DUTY AND OTHER TAX ES IN THE CLOSING STOCK AND HAS FOLLOWED THE EXCLUSIVE METHOD FOR VALUATION OF STOCK. THE ASSESSING OFFICER OBSERVED THAT THIS WAS AGAINST THE PROVISIONS OF SECTION 145A WHICH CL EARLY PROVIDES THAT CLOSING STOCK SHOULD INCLUDE ELEMENT OF VARIOUS TAXES. ACCORDINGLY HE MADE AN ADDITION OF RS. 7,62 ,80,020/-. 9 BEFORE THE LD. CIT(A) DETAILED SUBMISSIONS WERE M ADE. RELIANCE WAS PLACED ON VARIOUS DECISIONS INCLUDING THE DECISION OF NAHAR SPINNING MILLS LTD. ITA NO., 503 OF 2007. 10 THE LD. CIT(A) CONSIDERED THE SUBMISSIONS IN DET AIL AND ULTIMATELY DECIDED THE ISSUE VIDE PARA 24 & 25 WHIC H ARE AS UNDER: 24 THE ASSESSEE WAS OBLIGED TO FOLLOW THE PROVISIO NS OF SECTION 145A. THE ASSESSING OFFICER HAS ADDED THE FIGURE O F MODVAT IN THE PURCHASES AS WELL AS IN THE CLOSING STOCK. THE ASSESSEE HAS BEEN ADOPTING THE EXCLUSIVE METHOD OF ACCOUNTING AL THOUGH THERE IS A SPECIFIC PROVISIONS U/S 145A TO INCLUDE ALL TA XES AS PART OF THE COST OF PURCHASE AND ALSO AS APART OF CLOSING STOCK . IN THE RELEVANT ASSESSMENT YEAR , THE ASSESSING OFFICER HA S SIMPLY COMPLIED WITH HE PROVISIONS OF SECTION 145A. HOWE VER, NO CHANGE HAS BEEN EFFECTED IN THE FIGURES OF OPENING STOCK I N RESPECT OF SUCH MODVAT SO AS TO ADHERE TO THE PRINCIPLE OF CLO SING STOCK OF EARLIER ASSESSMENT YEARS BECOMES THE OPENING STOCK OF SUCCEEDING ASSESSMENT YEARS. AS PER THE GENERAL PR INCIPLE, THESE FIGURES CANNOT CHANGE. 25 IN THE RESULT, HOWEVER, I AM BOUND BY THE DECISI ON OF HON'BLE HIGH COURT OF PUNJAB & HARYANA AND THUS RES PECTFULLY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. 11 BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE ALSO SUBMITTED THAT PR INCIPLE OF INCLUDING EXCISE DUTY IN THE OPENING AND CLOSING ST OCK HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN CASE OF 297 ITR 77. THIS ORDER HAS BEEN FOLLOWED BY THE CHANDIGARH BENCHES IN CASE OF DCIT V. M/S CHEEMA BOILERS LTD, ITA NO. 1016/CHD/2012. 4 12 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE STRONGLY SUPPORTED THE IMPUGNED ORDER AND SUBMITTED THAT OVERALL ELEMENT OF TAXES IS HELD TO BE INCLUDIBLE I N CLOSING STOCK THEN SUITABLE DIRECTIONS MAY BE GIVEN TO INCL UDE SAME TO THE OPENING STOCK OF NEXT YEAR. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. SECTION 145A OF THE ACT READS AS UNDER:- 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AN D INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON SHALL BE (I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VAL UATION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, AN Y TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATI ON OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED. 14 THE PLAIN READING OF THE ABOVE PROVISION WOULD S HOW THAT IT IS OF MANDATORY NATURE AND MANDATES THAT ANY TAX, DUTY ETC. HAD TO BE INCLUDED IN THE VALUE OF THE CLOSING STOCK. HOWEVE R, AT THE SAME TIME THE HON'BLE DELHI HIGH COURT IN THE CASE OF CI T V. MAHAVIR ALUMINUM LTD (SUPRA) HELD AS UNDER;- HELD, DISMISSING THE APPEAL, THAT PARAGRAPH 23.13 OF THE GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA MAD E IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, THIS WILL AFFECT BOTH THE O PENING AS WELL AS THE CLOSING STOCK. IF ANY ADJUSTMENT WAS RE QUIRED TO BE MADE BY A STATUTE, EFFECT SHOULD BE GIVEN TO IT 5 IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A BEGINS WITH A NON OBSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SEC TION 145A, IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MARCH 31, 1999, THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1, 1998. THUS, THE QUESTION OF DOUBLE DEDUCTION DID NOT ARIS E SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFI T AND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31, 1998. 15 THE ABOVE CLEARLY SHOWS THAT ADJUSTMENT TO BE MA DE U/S 145A IS TO BE MADE BOTH IN RESPECT OF OPENING STOCK AS W ELL AS CLOSING STOCK. THE SAME VIEW HAS BEEN TAKEN EVEN BY THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MAHALAXMI GLASS W ORKS P. LTD., 318 ITR 116. THE BENCH HAS FOLLOWED THESE ORDERS IN DCIT V. CHEEMA BOILERS LTD (SUPRA). FOLLOWING THESE DECISIO NS, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING O FFICER TO ADJUST THE VALUE OF OPENING AS WELL AS CLOSING STOCK AND O NLY THE NET DIFFERENCE SHOULD BE ADDED TO THE INCOME OF THE ASS ESSEE. 16 GROUND NO. 4 AFTER HEARING THE RIVAL SUBMISSIO NS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS NOT SHOWN ANY CLOSING STOCK OF SCRAP. HE FURTHER OBSERVED THAT INCOME TAX PROVISI ONS DOES NOT ENVISAGE ZERO VALUATION OF CLOSING STOCK, THEREFORE HE TOOK 20% OF SALE OF SCRAP AND MADE ADDITION OF RS. 56,45,610 /-. 17 ON APPEAL IT WAS MAINLY SUBMITTED THAT IT WAS NO T POSSIBLE TO FIND OUT REALIZABLE VALUE OF SCRAP UNLESS THE SA LE WAS EFFECTED AND THEREFORE SCRAP WAS VALUED AT ZERO. T HIS WAS AS PER ACCOUNTING PRACTICE OF THE COMPANY. RELIANCE W AS PLACED ON THE FOLLOWING DECISIONS: CIT V. JAGATJIT INDUSTRIES, 194 TAXMAN 158 GOODYEAR INDIA LTD V. ITO, 113 TAXMAN 89 (DELHI) CIT V. INDIA FRUITS PVT LTD, 105 TAXMAN 212 LD. CIT(A) AFTER EXAMINATION OF THE ISSUE, DELETED THE ADDITION. 6 18 BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR TH E ASSESSEE SUPPORTED THE IMPUGNED ORDER. 19 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) VIDE PARA 31 & 32 WHICH ARE AS UNDER: 31 I HAVE CONSIDERED RIVAL CONTENTIONS AND MATERIA L ON RECORD. THE SYSTEM OF VALUATION OF STOCK OF SCRAP HAS BEEN FOLLOWED BY THE APPELLANT FOR THE LAST MANY YEARS AND THE SAME HAS BEEN ACCEPTED. THE ASSESSING OFFICER WITHOUT PINPOINTING ANY DEFIC IENCY IN THE INCOME/EXPENDITURE DISALLOWED 20% OF THE SALE OF SC RAP WHICH IS PROPORTIONATE TO THE RATIO OF THE CLOSING STOCK T O THE SALES SHOWN BY THE APPELLANT. I ALSO FIND FORCE IN THE JUDICIA L DECISIONS RELIED UPON BY THE APPELLANT. 32 IN VIEW OF THE ABOVE, THE PLEA OF THE APPELLANT ON THIS GROUND IS ALLOWED. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY DECIDE D THE ISSUE BECAUSE ADDITION COULD NOT HAVE BEEN MADE ON NOTION AL VALUE OF SCRAP. THEREFORE WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. 20 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 659/CHD/2011 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES ONLY. ITA NO. 1013/CHD/2012 21 IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING EFFECTIVE GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LA W THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6, 69,70,436/- MADE BY INVOKING PROVISIONS OF SECTION 145A AS THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR VALUAT ION OF INVENTORY. 2 ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 58 ,69,965/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED CLOSING STOCK OF SCRAP. 22 FIRST ISSUE IS THIS APPEAL IS IDENTICALLY SAME A S IN ASSESSMENT YEAR 2007-08 IN ITA NO. 659/CHD/2011 TH ROUGH GROUND NO. 3 WHICH HAS BEEN DECIDED BY US VIDE PARA S 13-15. FOLLOWING THE SAME WE SET ASIDE THE ORDER OF LD. CI T(A) AND 7 REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFI CER WITH A DIRECTION TO ADJUST THE VALUE OF OPENING AS WELL AS CLOSING STOCK AND ONLY THE NET DIFFERENCE SHOULD BE ADDED TO THE INCO ME OF THE ASSESSEE. 23 GROUND NO. 2 THIS ISSUE HAS BEEN DECIDED BY US IN ASSESSMENT YEAR 2007-08 IN ITA NO. 659/CHD/2011 WH ICH HAS BEEN DECIDED BY US VIDE PARA 19. FOLLOWING THE SAM E WE CONFIRM THE ORDER OF THE LD. CIT(A). 24 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1013/CHD/2012 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES ONLY. 25 ITA NO. 1014/CHD/2012 26 IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING EFFECTIVE ISSUES: 1 ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LA W THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4, 64,77,352/- MADE BY INVOKING PROVISIONS OF SECTION 145A AS THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR VALUAT ION OF INVENTORY. 2 ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 63 ,77,505/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED CLOSING STOCK OF SCRAP. 27 FIRST ISSUE IS THIS APPEAL IS IDENTICALLY SAME A S IN ASSESSMENT YEAR 2007-08 IN ITA NO. 659/CHD/2011 TH ROUGH GROUND NO. 3 WHICH HAS BEEN DECIDED BY US VIDE PARA S 13-15. FOLLOWING THE SAME WE SET ASIDE THE ORDER OF LD. CI T(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFI CER WITH A DIRECTION TO ADJUST THE VALUE OF OPENING AS WELL A S CLOSING STOCK AND ONLY THE NET DIFFERENCE SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. 28 GROUND NO. 2 THIS ISSUE HAS BEEN DECIDED BY US IN ASSESSMENT YEAR 2007-08 IN ITA NO. 659/CHD/2011 WH ICH HAS 8 BEEN DECIDED BY US VIDE PARA 19. FOLLOWING THE SAM E WE CONFIRM THE ORDER OF THE LD. CIT(A). 29 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1014/CHD/2012 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES ONLY. 30 IN THE RESULT, ALL THE APPEALS OF THE REVENUE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 7.11.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7.11.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR