Radiant Parenterals Limited, Baroda V. The Income tax Officer, Ward-4(2), Baroda

ITA 1111/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0236 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-10-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Proportionate interest; Retrospective amendment; Question of law; Notional interest; Set aside
• Section: 43B; 14A; 260A; 251; 192; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 14.10.2009 DRAFTED ON:15.10.0 9 ITA NO.1111/AHD/2006 ASSESSMENT YEAR : 2002-2003 RADIANT PARENTERALS LIMITED 3 RD FLOOR, PARADISE COMPLEX, SAYAJIGUNJ, BARODA. VS. THE ITO WARD 4(2) RACE COURSE AYAKAR BHAVAN, BARODA. PAN/GIR NO. : AAACR 9394 R (APPELLANT) .. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY: SHRI JAYANT JHAVERI SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF THE LD.CIT(APPEALS)-III, BARODA, DATED 15.02.2006. 2. GROUND NO.1 OF THE APPEAL TAKEN BY THE ASSESSEE IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 3. GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTORI NG THE ISSUE OF EXCISE DUTY ADDITION OF RS.1,06,266/- TO THE STOCK OF FINISHED GOODS BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER. THE A SSESSEE CONTENDS THAT THE SAME SHOULD HAVE BEEN DELETED BY THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS). ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 2 - 4. THE BRIEF FACTS LEADING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSEE DID NOT INCLUDE EXCISE DUTY IN THE VALUE O F CLOSING STOCK OF FINISHED GOODS. BEFORE THE LEARNED ASSESSING OFFICE R THE ASSESSEE SUBMITTED THAT EXCISE DUTY WAS PAYABLE BY THE ASSES SEE ONLY ON REMOVAL OF GOODS FROM THE FACTORY PREMISES AND IS NOT PAYAB LE ON FINISH GOODS LYING IN THE FACTORY PREMISES. THE ASSESSEE ALSO SU BMITTED THAT THE OPENING STOCK OF FINISHED GOODS IS RS.8,88,080/- AN D THE CLOSING STOCK OF FINISHED GOODS IS RS.6,64,166/-. THEREFORE, AFTER CONSIDERING THE EFFECT OF EXCISE DUTY IN OPENING STOCK NO ADDITION IS WARRANT ED. IT WAS FURTHER SUBMITTED THAT EXCISE DUTY ON FINISHED GOODS WAS PA ID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AND HENCE DEDUCT ABLE UNDER SECTION 43B OF THE ACT. THE LEARNED ASSESSING OFFICER DID NOT A CCEPT THE ABOVE SUBMISSIONS OF THE ASSESSEE FOR THE REASON THAT EXC ISE DUTY WAS LEVIABLE ON FINISHED GOODS ON MANUFACTURE AND THEREFORE INCL UDABLE IN THE COST OF FINISHED GOODS. HE THEREFORE HELD THAT THE ASSESSEE IS LIABLE FOR EXCISE DUTY @ 16% ON COST OF FINISHED GOODS LYING IN STOCK AND MADE ADDITION OF RS.1,06,266/- TO THE INCOME OF THE ASSESSEE. 5. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) RELIED ON THE VARIOUS DECISIONS CITED IN HIS ORDER WHERE IT WAS HELD THAT EXCISE DUTY WAS INCURRED IN THE MANUFACTURE OR PROD UCTION OF GOODS. HE FURTHER OBSERVED THAT IN VIEW OF SPECIFIC PROVISION OF SECTION 145A, THE LEARNED ASSESSING OFFICER WAS JUSTIFIED IN INCLUDIN G THE EXCISE DUTY PAYABLE IN FINISHED GOODS IN THE VALUE OF STOCK AND MAKING ADDITION TO THE INCOME OF ASSESSEE. FURTHER, THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) OBSERVED THAT SINCE THE VALUE OF CLOSI NG STOCK OF PRECEDING YEAR WAS NOT CHANGED, NO CHANGE IN THE VALUE OF OPE NING STOCK CAN BE ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 3 - ALLOWED SINCE IT HAS BEEN HELD HON'BLE BOMBAY HIGH COURT IN THE CASE OF MELMOULD CORPORATION V. CIT 202 ITR 789 THAT THE CL OSING STOCK OF PRECEDING BECOMES THE OPENING STOCK OF NEXT YEAR A ND BY THE HON'BLE SUPREME COURT IN THE CASE OF MAHINDRA MILLS LTD. V. AAC 99 ITR 135 THAT IT CANNOT BE DISPUTED THAT CLOSING STOCK OF ONE ACCOUN TING YEAR FURNISHES THE FIGURE OF THE OPENING STOCK OF THE YEAR FOLLOWI NG. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOUND M ERIT IN THE CONTENTION OF THE ASSESSEE THAT HE IS ENTITLED FOR DEDUCTION UNDER SECTION 43B OF THE ACT FOR THE EXCISE DUTY PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. HE THEREFORE, DIRECTED THE LEARNE D ASSESSING OFFICER TO VERIFY PAYMENT OF EXCISE DUTY AND ALLOW THE DEDUCTI ON IF THE SAME WAS PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INC OME. 6. NOTICE OF HEARING WAS SENT TO THE APPELLATE BY R EGISTERED POST WITH ACKNOWLEDGEMENT DUE ON 11.09.2009, WHICH WAS SERVED ON THE ASSESSEE ON 17.09.2009 AS EVIDENCED BY THE ACKNOWLEDGEMENT C ARD OF THE POST OFFICE PLACED ON RECORD. NONE APPEARED FOR THE APPE LLANT WHEN THE CASE WAS CALLED FOR HEARING AND NEITHER ANY ADJOURNMENT APPLICATION WAS FILED. THE BENCH WAS OF THE VIEW THAT THE APPEAL CAN BE DE CIDED IN THE ABSENCE OF THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE AND THEREFORE, THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS HEARD A ND THE APPEAL WAS BEING DISPOSED OFF ON THE BASIS OF THE MATERIALS AV AILABLE ON RECORD. 7. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT INCLUDED THE AMOUNT OF EXCISE DUTY IN THE VALUE OF CLOSING STOCK OF FINISHED GOODS FOR THE REASON THAT THE GOODS WERE LYING IN ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 4 - THE FACTORY AND EXCISE DUTY WAS PAYABLE ON THE REMO VAL OF GOODS FROM THE FACTORY. THE ASSESSEE ALSO CONTENDED BEFORE THE LEA RNED ASSESSING OFFICER THAT IN CASE EXCISE DUTY IS ADDED TO THE VA LUE OF CLOSING STOCK THEN THE VALUE OF OPENING STOCK SHOULD ALSO BE INCREASED BY THE AMOUNT OF EXCISE DUTY AND IN THAT CASE AS THE VALUE OF OPENIN G STOCK WAS MORE THAN THE VALUE OF THE CLOSING STOCK THEREFORE NO ADDITIO N TO THE VALUE OF THE CLOSING STOCK ON ACCOUNT OF EXCISE DUTY IS WARRANTE D. FURTHER, IT WAS ALSO CONTENDED THAT IN CASE ADDITION WAS MADE TO THE VAL UE OF CLOSING STOCK OF FINISHED GOODS FOR EXCISE DUTY THEN THE ASSESSEE SH OULD BE ALLOWED DEDUCTION FOR EXCISE DUTY PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. THE LEARNED ASSESSING OFFICER DID NOT ACCEP T THE ABOVE CONTENTIONS OF THE ASSESSEE. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE FOR INCLUS ION OF EXCISE DUTY IN THE VALUE OF OPENING STOCK OF THE YEAR FOR THE REASON T HAT THE VALUE OF CLOSING STOCK OF EARLIER YEAR BECOMES THE VALUE OF CLOSING STOCK OF THE SUBSEQUENT YEAR BUT ACCEPTED THE CONTENTION OF THE ASSESSEE TH AT EXCISE DUTY PAID BEFORE THE DUE DATE OF FILING OF RETURN SHOULD BE A LLOWED DEDUCTION TO THE ASSESSEE AND DIRECTED THE LEARNED ASSESSING OFFICER TO VERIFY THE SAME AND THEN ALLOW DEDUCTION AS PER LAW. WE FIND THAT T HE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MAHAVIR ALUMINIUM LTD. (2008) 297 ITR 77 (DEL), HAS HELD AS UNDER: ORDER BY THE COURT : IN THIS APPEAL UNDER S. 260A OF THE IT ACT, 1961 ( THE ACT ), THE REVENUE IS AGGRIEVED BY AN ORDER DT. 9TH JUNE, 2006 PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH E ( TRIB UNAL ) IN ITA NO. 413/DEL/2003 RELEVANT FOR THE ASST. YR. 1999-2000. ADMIT. 2. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, THE FOLLOWING QUESTION OF LAW IS FRAMED FOR CONSIDERATION : ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 5 - 'WHETHER THE TRIBUNAL WAS CORRECT IN LAW IN ALLOWIN G THE ADJUSTMENT OF RS. 54,83,272 TO THE ASSESSEE IN THE OPENING STOCK FOR THE PREVIOUS ASST. YR. 1998-99 (BEING A TRANSITIONAL YEAR) UNDER S. 14 5A OF THE IT ACT, 1961 ?' 3. FILING OF PAPER BOOK IS DISPENSED WITH. 4. IN ITS CLOSING STOCK FOR THE PREVIOUS YEAR ENDIN G ON 31ST MARCH, 1999, THE ASSESSEE HAD CHARGED MODVAT CREDIT ON CERTAIN I NPUTS. WHILE DOING SO, THE ASSESSEE MADE AN ADJUSTMENT IN THE OPENING STOCK AS ON 1ST APRIL, 1998. THE ADJUSTMENT WAS TO THE EXTENT OF RS. 54,84 ,272. ACCORDING TO THE AO, S. 145A OF THE ACT (WHICH CAME INTO FORCE O N 1ST APRIL, 1999) DID NOT PERMIT THE ASSESSEE TO MAKE A CHANGE IN THE VAL UATION OF THE OPENING STOCK AS ON 1ST APRIL, 1998 ALTHOUGH IT PERMITTED A CHANGE IN THE CLOSING STOCK AS ON 31ST MARCH, 1999.SEC. 145A OF THE ACT R EADS AS FOLLOWS : 'SEC. 145A. METHOD OF ACCOUNTING IN CERTAIN CASES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN S. 145, THE V ALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION SHALL BE (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY T AX, 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 CO NDITION AS ON THE DATE OF VALUATION. EXPLANATIONFOR THE PURPOSES OF THIS SECTION, ANY T AX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIM E BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.' 5. FEELING AGGRIEVED BY THE DECISION OF THE AO, TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEA LS) [ CIT(A) ] WHO PARTLY ALLOWED THE APPEAL BUT DID NOT ADMIT THE CLA IM OF THE ASSESSEE TO THE EXTENT OF THE AMOUNT MENTIONED ABOVE. 6. FEELING AGGRIEVED BY THE SAID ORDER, THE ASSESSE E PREFERRED A FURTHER APPEAL BEFORE THE TRIBUNAL AND BY ITS ORDER DT. 9TH JUNE, 2006, THE TRIBUNAL ALLOWED THE APPEAL. WHILE DOING SO, THE TR IBUNAL RELIED UPON A DECISION RENDERED BY THE KOLKATA BENCH OF THE TRIBU NAL IN THE CASE OF ITO VS. MEHRA ELECTRIC CO. (2005) 148 TAXMAN 37 (KOL)(M AG). THE TRIBUNAL ALSO RELIED UPON CIRCULAR NO. 772 DT. 27TH DEC., 19 98 PASSED BY THE CBDT AS WELL AS THE GUIDANCE NOTE ISSUED BY THE ICAI. THEREAFTER, THE TRIBUNAL HELD THAT THE ADJUSTMENT O N ACCOUNT OF MODVAT CREDIT AND EXCISE DUTY CAN BE MADE IN THE OPENING S TOCK ALSO AND THAT THE ASSESSEE DID NOT COMMIT ANY ERROR IN DOING SO. THER EFORE, THE TRIBUNAL SET ASIDE THE ORDER OF THE AO. 7. THE REVENUE HAS NOW PREFERRED AN APPEAL BEFORE US UNDER S. 260A OF THE ACT. ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 6 - 8. LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR A TTENTION TO NOTES ON CLAUSES IN THE FINANCE BILL WHEN S. 145A OF THE ACT WAS BEING INSERTED W.E.F. 1ST APRIL, 1999. IT HAS BEEN STATED IN THE N OTES OF CLAUSES AS FOLLOWS : 'IT IS PROPOSED THAT WHILE COMPUTING THE VALUE OF THE INVENTORY AS ON THE 1ST AND THE LAST DAY OF THE PREVIOUS YEAR, THE COMP UTATION ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE SHALL BE ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CE SS OR FEES PAID OR LIABILITY INCURRED FOR THE SAME UNDER ANY LAW IN FO RCE. THIS AMENDMENT IS PROPOSED AS VALUATION OF INVENTORY AFTER THE ADJUST MENT WILL PRESENT THE CORRECT VALUE.' 9. OUR ATTENTION HAS ALSO BEEN DRAWN TO THE DECISIO N OF THE PRIVY COUNCIL IN THE CASE OF CIT VS. AHMEDABAD NEW COTTON MILLS C O. LTD. AIR 1930 PC 56 WHERE THE EFFECT OF ALTERING THE METHOD OF VALUA TION WAS CONSIDERED. WHILE DISCUSSING THIS ISSUE, THE PRIVY COUNCIL OPIN ED AS UNDER : 'IF THE METHOD OF ALTERING BOTH VALUATIONS IS NOT ADOPTED IT IS PERFECTLY PLAIN THAT THE PROFIT WHICH IS BROUGHT FORWARD IS N OT THE REAL ONE. IT MAY BE MORE OR IT MAY BE LESS, BUT IT HAS NO RELATION T O THE TRUE PROFIT IF THE STOCK IS VALUED ON ONE BASIS WHEN IT GOES OUT WITHO UT CONSIDERING THE VALUE OF THE STOCK WHEN IT COMES IN. WHEN, THEREFOR E, THERE IS UNDER VALUATION AT ONE END, THE EFFECT IS TO CAUSE BOTH A SMALLER DEBIT IN RESPECT OF THE STOCK INTRODUCED INTO THE NET ACCOUNT AND A LARGER SUM FOR PROFITS REALIZED BY THE SALE, CHANGE IN MARKET VALUES BEING IMMEDIATELY REFLECTED IN THE PRICE OBTAINED FOR THE GOODS THAT ARE SOLD, IN THESE CIRCUMSTANCES TO CONTEND THAT THERE SHOULD BE UNDER VALUATION AT ONE END AND NOT AT THE OTHER IS TO RAISE AN ARGUMENT WHICH THEIR LORDS HIPS CANNOT ACCEPT.' 10. THE OPINION OF THE PRIVY COUNCIL WAS THAT WHENE VER THERE IS A CHANGE IN THE VALUATION AT ONE END (THAT IS ON 31ST MARCH, 1999 AS IN THE PRESENT CASE) THEN THERE MUST NECESSARILY BE ACORRESPONDING CHANGE AT THE OTHER END (THAT IS ON 1ST APRIL, 1998 AS IN THE PRESENT C ASE) OTHERWISE, THE TRUE PROFIT WOULD NOT BE REFLECTED. 11. CIRCULAR NO. 772 DT. 23RD DEC., 1998 ISSUED BY THE CBDT REFERS TO THE METHOD OF ACCOUNTING AND IN PARA 52.1 THEREOF, IT I S MENTIONED THAT WHETHER THE VALUE OF THE CLOSING STOCK OF THE INPUT S MUST NECESSARILY INCLUDE THE ELEMENT FOR WHICH MODVAT CREDIT IS AVAI LABLE, HAS BEEN A MATTER OF CONSIDERABLE LITIGATION OVER THE YEARS. I N PARA 52.2, THE CBDT HAS CLARIFIED THAT WITH A VIEW TO PUT AN END TO THI S POINT OF LITIGATION, BOTH THE OPENING AND CLOSING STOCK SHOULD REFLECT THE CO RRECT VALUE AND THAT IS WHY S. 145A WAS INSERTED TO THE STATUTE BOOK. IT IS FURTHER STATED THAT THE VALUATION SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED), ACTUAL LY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. PARA 52.2 OF THE CIRCULAR READS AS FOLLOWS : ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 7 - '52.2. CONSISTENT WITH THE OTHER PROVISIONS OF THE ACT, WITH A VIEW TO PUT END TO THIS POINT OF LITIGATION AND IN ORDER TO ENS URE THAT THE VALUE OF OPENING AND CLOSING STOCK REFLECT THE CORRECT VALUE , A NEW S. 145A IS INSERTED. THIS SECTION PROVIDES THAT THE VALUATION OF PURCHASE, SALE AND INVENTORY SHALL BE MADE IN ACCORDANCE WITH THE METH OD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND SUCH VALUATI ON SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CE SS OR FEE (BY WHATEVER NAME CALLED), ACTUALLY PAID OR INCURRED BY THE ASSE SSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON TH E DATE OF VALUATION.' 12. LEARNED COUNSEL FOR THE REVENUE REFERRED TO TH E GUIDANCE NOTE ON TAX AUDIT UNDER S. 44AB OF THE ACT ISSUED BY THE IC AI, NEW DELHI. SHE REFERRED TO PARAS 23.8, 23.13 AND 23.14 THEREOF. TH E CONTENTION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT BY CHANGIN G THE METHOD OF VALUATION, THE ASSESSEE HAS IN FACT GOT A DOUBLE BE NEFIT WHICH IS NOT PERMISSIBLE. THE PARAS CITED BY LEARNED COUNSEL FOR THE REVENUE READ AS FOLLOWS : '23.8 SEC. 145A HAS BEEN ENACTED BY THE FINANCE (NO . 2) ACT, 1998 AND HAS COME INTO FORCE FROM THE ACCOUNTING YEAR 1ST AP RIL, 1998 TO 31ST MARCH, 1999 (ASST. YR. 1999-2000). THIS SECTION PRO VIDES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTO RY FOR THE PURPOSE OF COMPUTATION OF INCOME FROM BUSINESS OR PROFESSION S HALL BE MADE ON THE BASIS OF THE METHOD OF ACCOUNTING REGULARLY EMPLOYE D BY THE ASSESSEE BUT THIS SHALL BE SUBJECT TO CERTAIN ADJUSTMENTS. T HEREFORE, IT IS NOT NECESSARY TO CHANGE THE METHOD OF VALUATION OF PURC HASE, SALE AND INVENTORY REGULARLY IN THE BOOKS OF ACCOUNT. THE AD JUSTMENTS PROVIDED IN THIS SECTION CAN BE MADE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF PREPARING THE RETURN OF INCOME. THESE ADJUSTMENTS A RE AS FOLLOWS : (A) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR IN CURRED ON INPUTS SHOULD BE ADDED TO THE COST OF INPUTS (RAW MATERIALS, STOR ES ETC.) IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNTS. (B) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INC URRED ON SALE OF GOODS SHOULD BE ADDED TO THE SALES, IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (C) ANY TAX, DUTY, CESS OR FEE ACTUALLY PA ID OR INCURRED ON THE INVENTORY (FINISHED GOODS, WORK-IN- PROGRESS, RAW M ATERIALS ETC.) SHOULD BE ADDED TO THE INVENTORIES, IF NOT ALREADY ADDED W HILE VALUING THE INVENTORY IN THE ACCOUNTS. 23.13 IT MAY BE NOTED THAT WHEN THE ADJUSTMENTS AR E MADE IN THE VALUATION OF INVENTORIES, THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. WHATEVER ADJUSTMENT IS MADE IN THE V ALUATION OF CLOSING STOCK, THE SAME WILL BE REFLECTED IN THE OPENING ST OCK ALSO. QUESTION FOR CONSIDERATION IS WHETHER THE OPENING STOCK AS ON 1S T APRIL, 1998 SHOULD BE ADJUSTED AS REQUIRED UNDER S. 145A. IT IS NOW WE LL SETTLED THAT IF ANY ADJUSTMENT IS REQUIRED TO BE MADE BY A STATUTE, EFF ECT TO THE SAME SHOULD BE GIVEN IRRESPECTIVE OF ANY CONSEQUENCE ON THE COM PUTATION OF INCOME FOR TAX PURPOSES. SEC. 145A STARTS WITH THE NON OBS TANTE CLAUSE ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 8 - NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN S. 145 . THEREFORE, TO GIVE EFFECT TO S. 145A, THE OPENING S TOCK AS ON 1ST APRIL, 1998 WILL HAVE TO BE INCREASED BY ANY TAX, DUTY, CE SS OR FEE ACTUALLY PAID OR INCURRED WITH REFERENCE TO SUCH STOCK IF THE SAM E HAS NOT BEEN ADDED FOR THE PURPOSE OF VALUATION IN THE ACCOUNTS. 23.14 IT MAY BE NOTED THAT WHILE MAKING THE ADJUSTM ENTS STATED IN PARAS 23.8 AND 23.13 ABOVE, THE TAX AUDITOR SHOULD ENSURE THAT IF ANY DEDUCTION IS CLAIMED FOR ANY TAX, DUTY, CESS OR FEE ON THE ITEMS COVERED BY THESE TWO PARAS BY WAY OF DEBIT IN THE P&L A/C, EITHER IN THE EARLIER YEAR OR IN THE YEAR UNDER REPORT, ADJUSTMENT FOR TH E SAME SHOULD BE MADE IN SUCH A MANNER THAT NO DOUBLE DEDUCTION IS C LAIMED FOR THE SAME EXPENDITURE. SIMILARLY ADJUSTMENT SHOULD BE MADE FO R ANY ITEM OF INCOME TO ENSURE THAT THE SAME ITEM IS NOT TREATED AS INCO ME TWICE.' 13. WE ARE OF THE OPINION THAT IN THE PRESENT CASE, THERE IS NO QUESTION OF ANY DOUBLE BENEFIT BEING GIVEN TO THE ASSESSEE. PAR A 23.13 OF THE GUIDANCE NOTE ITSELF MAKES IT CLEAR THAT WHENEVER A NY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, THIS WILL AFFEC T BOTH THE OPENING AS WELL AS THE CLOSING STOCK. IT IS ALSO TO BE NOTED T HAT IF ANY ADJUSTMENT IS REQUIRED TO BE MADE BY A STATUTE, (AS FOR EXAMPLE S . 145A OF THE ACT), EFFECT TO THE SAME SHOULD BE GIVEN IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SEC. 14 5A OF THE ACT BEGINS WITH A NON OBSTANTE CLAUSE, AND THEREFORE, TO GIVE EFFECT TO S. 145A OF THE ACT, IF THERE IS A CHANGE IN THE CLOSING STOCK AS O N 31ST MARCH, 1999, THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMEN T MADE IN THE OPENING STOCK AS ON 1ST APRIL, 1998. PARA 23.14 OF THE GUIDANCE NOTE POSTULATES THAT ADJUSTMENT SHOULD BE MADE IN SUCH A MANNER THAT NO DOUBLE DEDUCTION IS CLAIMED FOR THE SAME EXPENDITUR E. IN THE PRESENT CASE, THE QUESTION OF DOUBLE DEDUCTION DOES NOT ARI SE, SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE P&L A/C FOR THE YEAR ENDING 31ST MARCH, 1998. UNDER THE CIRCUMSTANCES, WE ANSWER THE QUESTION IN THE AFFIRMATIVE, THAT IS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENU E. ACCORDINGLY, THIS APPEAL IS DISPOSED OF. IN VIEW OF THE ABOVE DECISION OF THE HON'BLE DELHI HIGH COURT, WE SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN LIGHT OF THE ABOVE CITED DECISION AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 9 - 8. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ING THE DISALLOWANCE OF NOTIONAL INTEREST MADE BY THE LEARN ED ASSESSING OFFICER ON ADVANCES. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS MADE INTEREST FREE ADVANCE OF RS.38,07,523/- TO THE FOLLOWING PER SONS. AMOUNT(RS.) NAME OF PERSON/PARTY PURPOSE OF ADVANCE /LOAN 18,83,634 SHRI JAY PRAKASH SHAH PRINCIPAL AMOUNT RS .7,00,000 15,87,859 SHRI RAJESHBHAI J. SHAH PRINCIPAL AMOUNT RS.8,70,000 5,000 AQUATECH INDUSTRIES FOR MACHINERY PURCHASE 3,000 JALARAM ELECTRONIX BUSINESS ADVANCE 76,534 PROTECH ENGINEERS(INDIA) ADVANCE FOR MACHINE RY 1,75,871 THE UNITED ENGINEERING CO. ADVANCE FOR MA CHINERY 10,000 ECGC OF INDIA LTD. ADVANCE FOR ECGC GUARANT EE THE LEARNED ASSESSING OFFICER HELD THAT ASSESSEE HA D TAKEN LOAN FROM BANK ON WHICH IT WAS PAYING INTEREST AND ALSO ACCEP TED DEPOSITS FROM SISTER CONCERNS AND OTHERS TO WHOM INTEREST WAS BEI NG PAID. THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE F AILED TO PROVE ANY NEXUS BETWEEN ITS OWN/INTEREST-FREE FUNDS AND THE A DVANCES GIVEN AND ALSO FAILED TO PROVE THAT THE BORROWED FUNDS WERE N OT USED FOR MAKING INTEREST FREE ADVANCES. REFERENCE WAS ALSO MADE BY THE LEARNED ASSESSING OFFICER TO THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 1995-96 WHEREI N SIMILAR DISALLOWANCE WAS CONFIRMED BY THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LEARNED ASSESSING OFFICER COMPUTE D THE INTEREST AT 15% ON ADVANCE OF RS.30 LAKHS AND DISALLOWED AN AMOUNT OF RS.6,08,000/-. ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 10 - 10. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS), THE ASSESSEE SUBMITTED THAT :- (I) IN THE ASSESSMENT YEAR 1994-95 DISALLOWANCE WAS MADE BY THE LEARNED ASSESSING OFFICER FOR INVESTMENT MADE IN SH ARES AND NOT FOR INTEREST FREE ADVANCES AND, THEREFORE, THE FINDING GIVEN IN THE ASSESSMENT YEAR 1994-95 IS NOT APPLICABLE. (II) ADVANCES TO SHRI JAYPRAKASH P. SHAH AND SHRI R AJESHBHAI J. SHAH OF RS.7.00 LACS AND RS. 8.70 LACS AGGREGATING TO RS.15 .70 LAKHS WERE GIVEN IN FINANCIAL YEAR 1993-94. INTEREST ON THESE ADVANCES SHALL BE RS.2,35,500/- @ 15% APPLIED BY THE LEARNED ASSESSING OFFICER EVEN IF THE SAME TREATED AS ADVANCES OUT OF BORROWED FUNDS. (III) THE FOLLOWING ADVANCES AGGREGATING RS.2,17,40 5/- WERE FOR BUSINESS PURPOSES AND WERE WRONGLY TREATED BY THE L EARNED ASSESSING OFFICER AS INTEREST FREE ADVANCES FOR NON-BUSINESS PURPOSES: 5,000 ACUQTECH INDUSTRIES FOR MACHINERY PURCHASE 3,000 JALARAM ELECTRONIX BUSINESS ADVANCE 76,534 PROTECH ENGINEERS (INDIA) FOR MACHINERY PURCHASE 1,75,871 THE UNITED ENGINEERING CO. FOR MACHINERY PURCHASE 10,000 ECGC OF INDIA LTD. FOR ECGC GUARANTEE (IV) THE LEARNED ASSESSING OFFICER HAS NOT PROVED A NY NEXUS BETWEEN ADVANCES TO ASSOCIATE CONCERNS AND THE BORROWINGS. (V) THERE IS A DECREASE IN THE BORROWINGS BY AN AMO UNT OF RS.20.79 LAKHS AS COMPARED TO THE PRECEDING YEAR. (VI) ASSESSEES INTEREST FREE FUNDS ARE SUFFICIENT TO MAKE INTEREST FREE ADVANCES. (VII) IN ANY CASE, THE ASSESSING OFFICER HAS COMPUT ED THE INTEREST INCORRECTLY. THE CORRECT AMOUNT OF INTEREST AT 15% ON RS.37,41,898/- COMES TO RS.5,61,285/- ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 11 - RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS : 1. GNFC V. DCIT 73 TTJ 878 (ITAT AHD) 2. CIT V. INDIA CARBONS LTD. 247 ITR 510 (GAU) 3. CIT V. SHRIDEV ENTERPRISES 192 ITR 165 (KER) 4. RD JOSHI & CO. V. CIT 251 ITR 332 (MP) 5. TORRENT FINANCIERS V. ACIT 73 TTJ 624 (ITAT AHD) 6. SAHIBAUG ENTERPRENUERS V. ITO 50 ITD 113 (ITAT AHD) 7. CIT V. ORISSA CEMENT LTD. 252 ITR 878 (DELHI) 11. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD AS UNDER: 5.2.1 AS REGARD LOAN TO SHRI JAYPRAKASH SHAH & SH RI RAJESHBHAI SHAH, IT IS SEEN THAT THESE LOAN WERE GIVEN IN THE YEAR 1993-94. THE ASSESSEE WAS CHARGING INTEREST FROM THESE PERSONS U PTO THE YEAR 1998-99. HOWEVER, AFTER THAT IT HAS STOPPED CHARGIN G INTEREST FROM THESE PERSONS. THESE PERSONS ARE COVERED BY THE DEF INITION OF SPECIFIED PERSONS AS PER SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE HAS NOT GIVEN ANY REASONS AS TO WHY IT HAS STOPPED CHARGING OF INTEREST FROM THESE PERSONS. AS POINTED OUT BY THE ASSESSING OFFICER, THE ASSESSEE HAS BEEN PAYING SUBSTANTIAL I NTEREST ON MONEY BORROWED BUT HAS NOT CHARGED ANY INTEREST FROM THES E PERSONS. THE ASSESSING OFFICER WAS, THEREFORE, JUSTIFIED IN DISA LLOWING THE PROPORTIONATE INTEREST @ 15% IN RESPECT OF ADVANCES TO THESE PERSONS. THE ASSESSING OFFICER IS, HOWEVER, DIRECTE D TO RE-COMPUTE THE INTEREST ON THE PRINCIPAL AMOUNT AS THERE IS NO THING TO SHOW THAT THE ASSESSEE WAS EARLIER CHARGING INTEREST ON INTEREST. 5.2.2 AS REGARDS ADVANCES OF RS.2,17,405/- FOR PURC HASE OF MACHINERY, BUSINESS ADVANCE, ECGC GUARANTEE ETC., T HESE ARE BUSINESS ADVANCES AND NOT INTEREST FREE ADVANCES TO RELATED PERSONS. IN ALL BUSINESS, SUCH INTEREST-FREE ADVANC ES ARE MADE AND THERE IS NOTING UNUSUAL ABOUT IT. THEREFORE, THERE IS NO JUSTIFICATION FOR DISALLOWING PROPORTIONATE INTEREST ON THESE ADV ANCES. ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 12 - 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER. 13 WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST AMOUNTING TO RS.6,08,000/- @ 15% ON ADVANC E OF RS.30 LACS GIVEN BY THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HA S TAKEN LOAN FROM BANK ON WHICH IT WAS PAYING INTEREST AND ALSO ACCEPTED D EPOSITS FROM SISTER CONCERNS AND OTHERS TO WHOM INTEREST WAS BEING PAID AND THE ASSESSEE HAS GIVEN ADVANCED FREE OF INTEREST AND THE ASSESSE E FAILED TO PROVE ANY NEXUS BETWEEN HIS OWN/INTEREST FREE FUNDS AND THE A DVANCES GIVEN AND ALSO FAILED TO PROVE THAT THE BORROWED FUNDS WERE N OT USED FOR GIVING INTEREST FREE ADVANCES. IN APPEAL, THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE OF INTEREST O N ADVANCES OF RS.2,17,405/- GIVEN BY THE ASSESSEE FOR PURCHASE OF MACHINERY, BUSINESS ADVANCE, ECGC GUARANTEE ETC. FOR THE REASON THAT TH ESE ARE BUSINESS ADVANCES AND NOT INTEREST FREE ADVANCES TO RELATED PERSONS AND CONFIRMED THE DISALLOWANCE OF INTEREST ON THE BALAN CE AMOUNT OF ADVANCES GIVEN BY THE ASSESSEE. WE FIND THAT THE L EARNED ASSESSING OFFICER DISALLOWED INTEREST ON ADVANCE OF RS.18.83 LACS GIVEN TO SHRI JAYPRAKASH P. AND RS.15.87 LACS GIVEN TO SHRI RAJES HBHAI J. SHAH WHO WERE NEAREST RELATIVES OF THE DIRECTORS OF THE COMPANY, THUS, THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE W AS NOT HAVING SUFFICIENT INTEREST FREE FUNDS TO ADVANCE THE AMOUN T TO THE AFORESAID PERSONS AS ASSESSEE HAS TAKEN SECURED LOAN FROM BAN K AND SISTER CONCERN AND DEBITED INTEREST OF RS.18.66 LACS IN THE PROFIT AND LOSS ACCOUNT. HE ALSO NOTED THAT THE BORROWED FUND EXISTED IN THE PR EVIOUS YEAR FROM ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 13 - WHERE THESE ADVANCES HAVE BEEN BROUGHT FORWARD AND THAT ADDITIONS WERE MADE ON ACCOUNT OF INTEREST ON ADVANCES IN ASS ESSMENT YEAR 1994- 95 AND THE SAME WAS CONFIRMED BY THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS). THUS, IT IS OBSERVED THAT THE REVENU E HAS BROUGHT MATERIAL ON RECORD TO SHOW THAT INTEREST FREE ADVANCE GIVEN TO THE PARTIES WERE OUT OF BORROWED FUNDS BY SHOWING THAT INTEREST EXPE NDITURE PROPORTIONATE TO THESE ADVANCES WERE DISALLOWED IN THE ASSESSMENT OF ASSESSMENT YEAR 1994-95. NO MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSEE TO CONTROVERT THE ABOVE FINDING OF THE LEA RNED ASSESSING OFFICER AND TO SHOW THAT THE ADVANCES HAVE BEEN GIVEN OUT O F INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN ABSENCE OF ANY SUCH EVIDENCE, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE W ITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND THE SAME IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 14. GROUND NO.4 OF THE APPEAL IS DIRECTED AGAINST C ONFIRMATION OF THE FOLLOWING DISALLOWANCE MADE BY THE LEARNED ASSESSIN G OFFICER. (A) RS. 10,747 OUT OF TRANSPORTATION CHARGES (B) RS. 27,715 BEING TESTING CHARGES (C) RS.1,05,716 BEING GOODS LOST IN TRANSIT (D) RS. 3,877 BEING KASAR/DISCOUNT 15. THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED TRANSPORTATION CHARGES OF RS.10,747/- ON THE GROUND THAT THE BILL WAS IN THE NAME OF ASSESSEES SISTER CONCERNS NAMELY REKVI NA LAB LTD. THE ASSESSEE SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE BILL WAS INADVERTENTLY RAISED BY THE TRANSPORTER IN THE NAME OF REKVINA LAB LTD. BUT THE PAYMENT WAS MA DE BY THE ASSESSEE ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 14 - VIDE CHEQUE NO.60535 DATED 4.07.2001 FOR RS.6930/- AND CHEQUE NO.60645 DATED 16.08.2001 FOR RS.3,544/-. THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEA RNED ASSESSING OFFICER ON THE GROUND THAT THE BILL WAS IN THE NAME OF M/S. REKVINA LAB LTD. AND NO CONTRARY EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSEE AND THAT MERELY MAKING OF PAYMENT BY ASSESSEE WOULD NOT ENTITLE THE ASSESSEE FOR DEDUCTION OF EXPENDITURE. 16. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE A SSESSEE FAILED TO SHOW THAT THE EXPENDITURE WAS INCURRED FOR THE BUSINESS OF THE ASSESSEE BY BRINGING ANY POSITIVE MATERIAL ON RECORD. IT IS UND ISPUTED FACT THAT THE BILL WAS NOT IN THE NAME OF THE ASSESSEE AND THEREFORE, MERELY MAKING OF PAYMENT OF THE BILL WOULD NOT ENTITLE THE ASSESSEE FOR DEDUCTION OF EXPENDITURE UNLESS IT IS SHOWN BY THE ASSESSEE THAT THOUGH THE BILLS WERE RAISED IN THE NAME OF SISTER CONCERNS BUT IT ACTUAL LY RELATED TO THE ASSESSEES BUSINESS. WE THEREFORE, NO GOOD REASON T O INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) AND THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HEREBY CONFIRMED AND THE GROUND OF THE APPEAL OF THE ASSESSEE IS DIS MISSED. 17. FURTHER, THE LEARNED ASSESSING OFFICER DISALLOW ED TESTING CHARGES OF RS.27,715/- ON THE GROUND THAT THE ASSESSEE COUL D NOT PRODUCE THE BILL FOR THE EXPENDITURE. BEFORE THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT IT HAD DI SPATCHED GOODS TO TAMILNADU MEDICAL SERVICES CORPORATION LTD., WHICH WERE REJECTED BY THE PARTY. THE PARTY MADE PAYMENT BY REDUCING THE AMOUN T FROM THE BILL OF THE ASSESSEE. NO DEBIT NOTE/BILL WAS RAISED ON THE PARTY AS IT HAS DEDUCTED ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 15 - THE AMOUNT FROM THE BILL FOR WHICH JOURNAL ENTRY WA S PASSED. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT T HE ASSESSEE FILED COPY OF LETTER DATED 16.05.2001 FROM TAMILNADU MEDI CAL SERVICES CORPORATION LTD. WHEREIN IT WAS STATED THAT GOODS W ORTH RS.27,645/- FAILED THE TEST. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT IT IS NOT POSSIBLE TO SAY WITH CERTAI NITY THAT IT IS THIS AMOUNT WHICH HAS BEEN DEBITED IN THE TESTING CHARGES ACCOU NT. SINCE, ASSESSEE HAD NOT PRODUCED ANY CONCLUSIVE EVIDENCE, HE CONFIR MED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER. 18. FURTHER, THE ASSESSEE CLAIMED DEDUCTION OF RS.1 ,05,716/- ON ACCOUNT OF GOODS LOST IN TRANSIT, WHICH WAS DISALLO WED BY THE LEARNED ASSESSING OFFICER AS THE ASSESSEE COULD NOT PRODUCE D ANY EVIDENCE FOR GOODS LOST IN TRANSIT. BEFORE THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT M/S. TAMI LNADU MEDICAL SERVICES CORPORATION LTD. TO WHOM SUBSTANTIAL SALES WERE MADE REJECTED THE GOODS AND HENCE DEDUCTION OF RS.1,05,716/- WAS CLAIMED. ASSESSEE FILED COPY OF LETTER DATED 31.3.2001 FROM M/S. TAMI LANADU MEDICAL SERVICES CORPORATION LTD. IN SUPPORT OF THE CLAIM A ND SUBMITTED THAT AS THE PARTY WAS OLD AND REGULAR CUSTOMER, NO F.I.R. W AS FILED AND THE REJECTION WAS TREATED AS GOODS LOST IN TRANSIT. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT I T IS NOT KNOW AS TO WHAT HAPPEN TO THE REJECTED GOODS WITH THE OTHER PA RTY AND THAT WHETHER THEY WERE INCLUDED IN THE CLOSING STOCK OR WERE SIM PLY THROWN BY THE ASSESSEE OR M/S. TAMILNADU MEDICAL SERVICES CORPORA TION LTD. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FROM PE RUSAL OF LETTER DATED 31.03.2001, IT IS SEEN THAT IT REFERS TO VARI OUS INVOICES DATED 17.07.2000 TO 26.08.2000. THE MATERIAL WAS RECEIVED BY THE PARTY ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 16 - BETWEEN 28.08.2000 TO 30.09.2000, WHEREAS THE LETTE R FOR PRODUCT FAIL HAS BEEN ISSUED ON 31.03.2001. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED THAT THE PARTY DID NOT M AKE CLAIM IMMEDIATELY ON RECEIPT OF GOODS AND THE ASSESSEE AL SO DID NOT OBJECT TO THE CLAIM OF REJECTION OF GOODS AS SUCH A LATER DAT E. HE THEREFORE CONFIRMED THE DISALLOWANCE MADE BY THE LEARNED ASSE SSING OFFICER. 19. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSING THE MATERIAL ON RECORD, IT IS OBSERVED THA T DISALLOWANCE OF RS.20,715/- AND RS.1,05,716/- WAS MADE BY THE LEARN ED ASSESSING OFFICER FOR LACK OF EVIDENCES. THE ASSESSEE FILED EVIDENCES IN THE FORM OF LETTER FROM THE PARTY FOR THE FIRST TIME BEFORE THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS). THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) REJECTED THE EVIDENCES ON THE BASIS OF SUSPICION AL ONE WITHOUT ANY VERIFICATION. IN THE CIRCUMSTANCES, IN OUR CONSIDER ED OPINION, IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THE ISSUES B ACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH A FTER VERIFICATION OF THE EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE. WE ORD ER ACCORDINGLY AND DIRECT THE LEARNED ASSESSING OFFICER TO READJUDICAT E THE ISSUES AS PER LAW AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THESE TWO GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL P URPOSES. 20. FURTHER, THE ASSESSEE CLAIMED DEDUCTION OF RS. 3,877/- ON ACCOUNT OF KASAR EXPENSES WHICH WAS DISALLOWED BY THE LEARN ED ASSESSING OFFICER AS THE ASSESSEE FAILED TO FILE KASAR ACCOUNT OR ANY OTHER EVIDENCE IN SUPPORT OF THE CLAIM. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT TH E EXPENSE WAS IN THE NATURE OF DISCOUNT AND SHORT REALIZATION OF AMOUNT FROM VARIOUS PARTIES ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 17 - AGAINST SALES MADE AND THAT CONSIDERING THE TURNOVE R OF RS.154 LACS, THE EXPENSE WAS VERY SMALL. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AS THE ASSESSEE FAILED TO FURNISH DETAILS O F THE KASAR EXPENSES. 21. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE A SSESSEE HAS CLAIMED KASAR EXPENSES OF RS.3,877/- WHICH WAS DISALLOWED. WE FIND THAT THE EXPENSES CLAIMED ARE IN THE NATURE OF DISCOUNT AND SHORT REALIZATION OF AMOUNTS FROM VARIOUS PARTIES AGAINST SALES MADE. CO NSIDERING THE NATURE OF EXPENSES AND SMALLNESS OF AMOUNT, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING SUCH PETTY EXPENSES WHICH ARE INCURRED IN THE USUAL COURSE OF BUSINESS. WE T HEREFORE, DELETE THE DISALLOWANCE OF RS.3,877/- AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE ASSESS EE IS ALLOWED. 22. GROUND NO.5 OF THE APPEAL IS DIRECTED AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ING DISALLOWANCE OF RS. 97,572/- MADE BY THE LEARNED ASSESSING OFFIC ER OUT OF INTEREST CONSIDERING THE SAME RELATING TO INVESTMENT IN SHAR ES. 23. THE BRIEF FACTS ARE THAT THE ASSESSEE INVESTED RS.31,60,121/- IN THE SHARES OF SISTER CONCERNS M/S. REKVINA LAB. LTD. TH E LEARNED ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST OF RS.97, 572/- ATTRIBUTABLE TO THE INVESTMENT. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ASSESSEE SUBMITTED THAT SHARES OF RS.4 0.87 LACS WERE PURCHASED IN THE FINANCIAL YEAR 1993-94 AND THE ASS ESSEE HAD SUFFICIENT INTEREST REFUNDS AS ON 31.03.2002. THE LEARNED ASSE SSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE BORROWED FUNDS WERE I NVESTED IN THE ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 18 - INVESTMENT IN SHARES WHEN THE SHARE CAPITAL HAS INC REASED TO RS.185.11 LACS AS ON 31.3.2002. THERE IS NO DIRECT NEXUS BETW EEN BORROWED FUNDS AND INVESTMENT IN SHARES. FURTHER, IT WAS SUBMITTED THAT SECTION 14A DEALS WITH THE EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME AND AS THE ASSESSEE HAD NO DIVIDEND INCOME, NO DISALLOWANCE WAS CALLED FOR. THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) OBSERVED THAT SECTION 14A WAS INTRODUCED BY THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.04.1962. THE SECTION PR OVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF AN EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH IS EXEMPT FROM TAX. IN THE CASE OF THE ASSESSEE, INVESTMENT HAS BEEN MADE IN SHARES WHICH WILL YIELD TAX FREE INCOME IN THE FORM OF DIVIDEND. HE OBSERVED TH AT HON'BLE SUPREME COURT IN CIT V. RAJENDRAPRASAD MODI 115 ITR 519 HAS HELD THAT EVEN IF NO INCOME FROM DIVIDEND ON SHARES WAS RECEIVED DURING THE YEAR INTEREST ON MONEY BORROWED FOR INVESTMENT IN SHARES IS AN ADMIS SIBLE DEDUCTION UNDER SECTION 57(III) OF THE ACT. HE THEREFORE, CON FIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER. 24. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE L EARNED ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST OF RS.97, 572/- ON INVESTMENT OF RS.31,60,121/- IN SHARES OF SISTER CONCERNS M/S. RE KVINA LAB. LTD MADE BY THE ASSESSEE. THE ASSESSEE CLAIMED THAT INVESTMENT IN SHARES WERE MADE OUT OF OWN FUNDS AND NOT BORROWED CAPITAL AND IN SU PPORT OF THE SAME, IT POINTED OUT THAT THE SHARE CAPITAL HAD INCREASED TO RS.185.11 LACS AS ON 31.03.2002 WHICH WAS SUFFICIENT TO MAKE THE INVESTM ENT IN SHARES. THE ASSESSEE ALSO SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS NOT SHOWN ANY NEXUS BETWEEN THE FUNDS INVESTED IN THE PURCHAS E OF SHARES AND THE ITA NO.1111 /AHD/2006 M/S.RADIANT PARENTERALS LTD. ASST.YEAR -2002-2003 - 19 - AMOUNT BORROWED. THEREFORE, THE DISALLOWANCE OF INT EREST CANNOT BE MADE. WE FIND THAT THE ABOVE EXPLANATION OF THE ASS ESSEE WAS NOT FOUND TO BE FALSE BY THE LOWER AUTHORITIES. THE LOWER AUT HORITIES HAVE FAILED TO BRING ANY MATERIAL ON RECORD TO SHOW THAT THE INVES TMENT IN SHARES WAS MADE BY THE ASSESSEE FROM OUT OF THE BORROWED FUNDS AND NOT OUT OF THE OWN FUNDS OF THE ASSESSEE. IN ABSENCE OF ANY SUCH E VIDENCE BEING BROUGHT ON RECORD, IN OUR CONSIDERED OPINION, THE LOWER AUT HORITIES WERE NOT JUSTIFIED IN DISALLOWING PROPORTIONATE INTEREST EXP ENDITURE OF RS.97,572/-. HENCE, WE DELETE THE DISALLOWANCE OF INTEREST EXPEN DITURE OF RS.97,572/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN THE MANNER INDICATED ABOVE. 26. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 23/10/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23/10/2009 PARAS# COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD