K.V. AROCHEM P. LTD, MUMBAI V. DCIT 4(2)(4), MUMBAI

ITA 129/MUM/2010

• Counselvise Citation: 12919914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Section: 43B; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 129/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. K.V. AROCHEM P. LTD. DCIT 4(2)(4) DEVKARAN MANSION, 36, MANGALDAS AAYAKAR BHAVAN, M.K . ROAD ROAD, MUMBAI 400002 VS. MUMBAI 400020 PAN - AAACK 2243 A APPELLANT RESPONDENT APPELLANT BY: SHRI NISHANT THAKKAR RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- VIII, MUMBAI DATED 06.10.2009 FOR A.Y. 2006-07. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN ADDING EXCISE DUTY AMOUNTING TO RS.3439994/- NOT DUE AND N OT PROVIDED IN THE ACCOUNTS AND NOT CLAIMED AS EXPENDI TURE BY ADDING THE SAME TO THE CLOSING STOCK U/S 145A OF TH E I T ACT 1961 THERE BY INCREASING THE PROFITS FOR THE YEAR. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT CONSIDERING IN PROPER PERSPECTIVE SUBMISSION OF APPELLANT WHICH ARE AS UNDER: A) THAT THE APPELLANT HAD NOT DEBITED THE SAID EXC ISE DUTY OF RS.3439994/- TO THE PROFIT AND LOSS ACCOUNT AND HAD NEITHER CLAIMED THE SAME AS EXPENDITURE. B) THAT IF THE EXCISE DUTY HAD TO BE ADDED BACK TH EN THE SAME AMOUNT HAD TO BE ALLOWED AS EXPENDITURE WHICH WOULD HAVE NULLIFIED THE EFFECT OF THE SAME ON THE PROFITS FOR THE YEAR. C) THAT THE PROVISIONS OF THE SECTION 145A REQUIRE THAT ONLY ACTUAL PAYMENT OR INCURRING OF EXCISE DUTY AND OTHER TAXES THAT CAN BE ADDED TO THE CLOSING STOCK. ITA NO. 129/MUM/2010 M/S. K.V. AROCHEM P. LTD. 2 D) THAT THE APPELLANT HAD PAID A SUM OF RS.7350000 /- AS EXCISE DUTY IN NOV 2006 WHICH WAS A PAYMENT AGAINST THE EX CISE LIABILITY INCLUDING EXCISE DUTY ON THE CLOSING STOC K AS ON 31-3- 2006 WHICH SHOULD HAVE BEEN ALLOWED AGAINST THE ADJ USTMENT OF EXCISE DUTY MADE BY THE ASSESSING OFFICER IN THE VA LUATION OF THE CLOSING STOCK UNDER SEC 43B OF THE I.T. ACT 1961 AS THE SAME WAS PAID BEFORE THE DUE DATE FOR FILING OF THE RETU RN AS REQUIRED BY SEC 43B. 3. THE ISSUE IN THIS APPEAL IS THAT THE A.O., ON THE B ASIS OF THE ANNUAL REPORT, NOTICED THAT THE NOTES FORMING PART OF THE ACCOUNTS MENTION THAT EXCISE DUTY OF ` 34,39,994/- PAYABLE ON FINISHED GOODS MANUFACTURED BUT NOT CLEARED IS ACCOUNTED AT THE TIME OF CLEARANCE O F SUCH GOODS AND CONSEQUENTLY NOT INCLUDED IN THE VALUATION OF INVEN TORY. EVENTHOUGH THE SAID NOTE SPECIFIES THAT THERE IS NO EFFECT ON PROF IT OF SUCH NON-PROVISION, THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT F OLLOWED PROVISIONS OF SECTION 145A AND ACCORDINGLY HE PROPOSED TO ADD THE SAID AMOUNT TO THE VALUATION OF CLOSING STOCK. ASSESSEE SUBMITTED THAT IT WAS THE ACCOUNTING PRACTICE OF TAKING LIABILITY OF FINISHED GOODS AT T HE TIME OF CLEARANCE OF GOODS AND ASSESSEE WAS AVAILING MODVAT CREDIT AS WELL AS PAYING TAXES OF EXCISE DUTY ACCORDINGLY. IT ALSO SUBMITTED LETTER DATED 12 .12.2008 CONTESTING THE ISSUE ON LEGAL GROUNDS AND FURTHER SUBMITTING THAT ASSESSEE COMPANY HAS PAID A SUM OF ` 3,29,01,890/- UPTO 30.11.2006 WHICH INCLUDES A CENV AT CREDIT OF ` 2,53,71,809/- AND PAYMENT OF ` 73.5 LAKHS BY WAY OF CHEQUE UNDER PLA ACCOUNT ON 28.11.2006 PERTAINING TO THE FINISHE D STOCK AS ON 31.03.2006. IN SPITE OF SPECIFICALLY MAKING IT CLEA R THAT ASSESSEE HAS PAID MORE THAN ` 73,50,000/- A.O. IGNORED THE SAME AND AFTER DISCUSS ION MADE ADDITION OF ` 34,39,994/- UNDER SECTION 145A. ASSESSEE CONTESTED THE ABOVE BEFORE THE CIT(A) BOTH ON ACCOUNTING PRINCIPLES, LA W ON THE ISSUE AND ALSO ON THE FACT THAT ASSESSEE HAS PAID EXCISE DUTY BEFO RE FILING OF THE RETURN AND SO THE AMOUNT NEED NOT BE ADDED AS PER PROVISIONS O F SECTION 43B. THE CIT(A) IN HIS ORDER HAS CONSIDERED ONLY PORTION IN THE CENVAT CREDIT, GAVE RELIEF OUT OF THE ADDITION OF ` 34,39,994/- TO THE EXTENT OF ` 26,30,059/- STATED TO BE PAYMENT OF EXCISE DUTY ON 10.04.2006 AND CONF IRMED AN AMOUNT OF ` 8,09,935/-. ASSESSEE, EVENTHOUGH AGGRIEVED ON THE A MOUNT OF ` 8,09,935/- ITA NO. 129/MUM/2010 M/S. K.V. AROCHEM P. LTD. 3 RAISED GROUND NO. 1 ON THE ISSUE OF MAKING ADDITION BY THE A.O. UNDER SECTION 145A OF ` 34,39,994/-. 4. DURING THE COURSE OF HEARING THE LEARNED COUNSEL HO WEVER, DID NOT PRESS GROUND NO. 1 ON THE LEGAL ISSUE AND RESTRICTE D THE ARGUMENTS TO THE ADDITION SUSTAINED BY THE CIT(A) IGNORING THE EVIDE NCE ON RECORD. IT WAS SUBMITTED THAT THE ASSESSEE PAID A SUM OF ` 73,50,000/- AS EXCISE DUTY IN NOVEMBER 2006 AGAINST EXCISE DUTY LIABILITY INCLUDI NG EXCISE DUTY ON FINISHED GOODS AS ON 31.03.2006 WHICH SHOULD HAVE B EEN ALLOWED AGAINST THE ADJUSTMENT OF EXCISE DUTY MADE BY THE AO. IT WA S FURTHER SUBMITTED THAT THE ADDITION MADE BY THE A.O. IN THE VALUATION OF C LOSING STOCK UNDER SECTION 145A OF THE ACT DOES NOT ARISE AS THE SAME WAS PAI D BEFORE THE DUE DATE FOR FILING THE RETURN AND HAS TO BE ALLOWED UNDER SEC.4 3B. HE THEN REFERRED TO THE SUBMISSION MADE BEFORE THE A.O. WHICH WERE PART LY EXTRACTED IN THE ASSESSMENT ORDER IGNORING THE FACT OF PAYMENT OF ` 3,29,01,890/- AND ALSO THE SUBMISSION BEFORE THE CIT(A). HE SUBMITTED THAT THE CIT(A) RELIED ON FORM ER-1 SUBMITTED TO THE CIT(A) AS PART OF EVIDEN CING THE PAYMENT OF EXCISE DUTY. THE LD COUNSEL STATED THAT TAKING THE FIGURE ON THE BASIS OF THE STATEMENT MADE ON 10.04.2006, THE CIT(A) IGNORED TH E BALANCE OF STATEMENTS WHEREIN THE CHALLAN AND DETAILS OF CENVA T CREDIT AVAILED AND UTILISED WERE FILED BEFORE HIM IN PAGES 46, 47 & 48 OF THE PAPER BOOK WHICH WERE COMPLETELY IGNORED. IT WAS HIS SUBMISSION THAT ASSESSEE HAS DISCHARGED THE ENTIRE EXCISE DUTY LIABILITY AND SAME AMOUNT WA S ALLOWABLE UNDER THE PROVISIONS OF SECTION 43B EVEN IF ANY AMOUNT IS TO BE ADDED TO THE CLOSING STOCK U/S 145A. THERE IS NO EFFECT ON P& L ACCOUNT OR ON TOTAL INCOME. 5. THE LEARNED D.R., HOWEVER, SUBMITTED THAT THE ISSUE CAN BE RESTORED TO THE A.O. FOR PROPER EXAMINATION. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECOR D. THE ASSESSEE IN THE ANNUAL REPORT ITSELF STATED THAT THEY ARE FO LLOWING CONSISTENT METHOD OF ACCOUNTING OF ACCEPTING THE LIABILITY AT THE TIM E OF CLEARANCE OF GOODS. ACCORDINGLY A NOTE WAS LEFT CLEARLY INDICATING THAT THERE IS NO EFFECT ON THE PROFIT. WHETHER THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING OR INCLUSIVE METHOD OF ACCOUNTING, NECESSARY ADJUSTMEN TS ARE TO BE MADE ITA NO. 129/MUM/2010 M/S. K.V. AROCHEM P. LTD. 4 UNDER SECTION 145A. THE A.O. IGNORING THE SUBMISSIO NS MADE BY THE ASSESSEE MADE THE ADDITION JUST BECAUSE THERE WAS A NOTE TO THE ACCOUNTS. BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED ALL TH E EVIDENCES WHICH WERE PLACED BEFORE THE A.O. INCLUDING FURTHER EVIDENCES AS SOUGHT BY THE CIT(A) TO JUSTIFY THAT NO ADDITION CAN BE MADE ON THIS ISSUE. THE CIT(A) IN HIS BRIEF ORDER HAS GIVEN PARTIAL CREDIT OF AN AMOUNT OF ` 26,30,059/- STATED TO BE ADJUSTMENT MADE IN FORM ER-I DATED 10.04.2006 FILED IN THE PAPER BOOK AT PAGE NO. 52 AND HAD GIVEN CREDIT TO THE CENVAT CRED IT AVAILED UPTO 10.04.2006. HE, HOWEVER, NOT CONSIDERED THE CENVAT CREDIT AVAILED SUBSEQUENTLY BEFORE FILING THE RETURN AND AS CAN BE SEEN FROM THE RECORD THE ASSESSEE HAS PAID MORE THAN ` 3.30 CRORES UPTO 30.11.2006 WHICH INCLUDES CENVAT CREDIT AS WELL AS PAYMENT UNDER PLA ACCOUNT OF ` 73,50,000/-. COMING TO THE MERITS OF THE ADDITION, ON THE FACT T HAT ASSESSEE HAS DISCHARGED THE LIABILITY UNDER SECTION 43B, THE ASS ESSEE IS ENTITLED FOR DEDUCTION OF THE SAME AMOUNT WHICH WAS ADDED BY THE A.O. UNDER THE PROVISIONS OF SECTION 145A. AS PER THE FIRST PROVIS O TO SEC.43B, IF ANY SUM IS DISCHARGED ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTI ON 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SU M WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNI SHED BY THE ASSESSEE ALONG WITH SUCH RETURN, THE AMOUNT HAS TO BE ALLOWE D. SINCE ASSESSEE FULFILLED ALL THE CONDITIONS, EVEN IF AN AMOUNT IS TO BE CONSIDERED AS ADDITION TO THE CLOSING STOCK, THE SAME IS ALLOWABLE AS DEDU CTION UNDER SECTION 43B. THE CIT(A) ALLOWED ONLY PARTIAL CENVAT CREDIT WHERE AS THE ASSESSEE HAS DISCHARGED THE FULL AMOUNT BOTH BY CENVAT AS WELL A S BY WAY OF PLA ACCOUNT. WE ARE NOT SURE WHY THE CIT(A) GAVE PARTIA L CREDIT AS THE ORDER IS NOT A SPEAKING ORDER. SINCE THE A.O. AND THE CIT(A) HAD IGNORED THE SUBMISSIONS PLACED ON RECORD ABOUT THE DISCHARGE OF TAX LIABILITY AND THE ALLOWANCE THEREON UNDER THE PROVISIONS OF SECTION 4 3B, WE ARE OF THE VIEW THAT THERE IS NO NEED TO RESTORE THE MATTER TO THE FILE OF THE A.O. AS SUGGESTED BY THE LEARNED D.R. THEREFORE, ON THE BASIS OF THE EVIDENCE PLACED ON RECORD, WE HAVE EXAMINED THE ISSUE AND FOUND THAT ASSESSEE SATISFIES THE ITA NO. 129/MUM/2010 M/S. K.V. AROCHEM P. LTD. 5 CONDITIONS. ACCORDINGLY THE A.O. IS DIRECTED TO ALL OW THE BALANCE AMOUNT OF ` 8,09.935/- SUSTAINED BY THE CIT(A). 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.