DCIT, Cir-5, Kolkata, Kolkata V. M/s Kesoram Industries Ltd, Kolkata

ITA 1293/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1524 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOULEN HANGSHING
• Keywords: Rule of consistency; Additional evidence; Tax effect; Reassessment proceedings
• Section: 43B; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI A.T.VARKEY, JM & SHRI M.BALA GANESH, AM ] I.T.A NO. 1293/KOL/20 14 ASSESSMENT YEAR : 2007-0 8 DCIT, CIR-5, -VS.- M/S KESORAM INDUSTRIE S LTD. KOLKATA [PAN : AABCK 2326 B] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : GOULEN HANGSHING, CIT, DR FOR THE RESPONDENT : SHRI AKKAL DUDHWEWALA, AR DATE OF HEARING : 24.05.2017. DATE OF PRONOUNCEMENT : 24.07.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -VI , KOLKATA [ IN SHORT THE L D CITA] IN APPEAL NOS. 119/13- 14/CIT(A)-VI/RANGE-5/KOL DATED 17.03.2014 AGAINST T HE ORDERS PASSED BY THE DCIT, CIRCLE-5, KOLKATA [ IN SHORT THE LD AO] UNDER SECTI ON 147/143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 22.03.2013 FOR THE ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL OF THE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE IN THE SUM OF RS 2,60,00,852/- TOWARDS EXCESS EXPENDITURE INCURRED ON COST OF RAISING LIME STONE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A WIDELY HELD DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF INTER ALIA, MANUFACTURE AND SALE OF PORTLAND CEMENT, ARTIFICIAL VISCOSE RAYON YARN, AUTOMOBILE TYRES, TU BES AND FLAPS ETC. THE LD AO OBSERVED THAT DURING THE FINANCIAL YEAR, THE RAW MA TERIALS CONSUMPTION AMOUNTING TO RS 920,98,35,678/- WAS DEBITED TO PROFIT AND LOSS ACCO UNT WHICH INCLUDED RAISING COST OF LIMESTONE AMOUNTING TO RS 51,69,44,787/- , BUT FROM THE DETAILS OF RAISING COST OF 2 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 2 LIMESTONE IN SCHEDULE 14 OF THE ANNUAL REPORT, IT A PPEARS THAT RAISING COST WAS AGGREGATED TO RS 49,09,43,935/- INSTEAD OF RS 51,69 ,44,787/-. HENCE THE EXCESS EXPENDITURE OF RS 2,60,00,852/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 2.2. BEFORE THE LD CITA, THE ASSESSEE REITERATED TH E SUBMISSIONS AND FURNISHED AGAIN THE ENTIRE DETAILS OF COST OF RAISING LIME STONE AND LI NKED THE SAME WITH WHAT IS ALREADY MENTIONED IN THE ANNUAL REPORT OF THE ASSESSEE COMP ANY. THE LD CITA ON APPRECIATING THE DETAILS ALREADY AVAILABLE ON RECORD DELETED THE ADDITION MADE IN THE SUM OF RS 2,60,00,852/- TOWARDS EXCESS EXPENDITURE BY OBSERVI NG AS UNDER:- 4.2. ON PERUSAL OF THE MATERIAL ON RECORD, THE CON TENTION OF THE APPELLANT APPEARS TO BE CORRECT. THE LIST OF LIMESTONE RAISING COST RE FERRED TO BY THE ASSESSING OFFICER WITH TOTAL OF RS. 49,09,43,935/- WAS NOT AN EXHAUSTIVE L IST BUT AN INCLUSIVE ONE. THIS LIST WAS PREPARED TO MEET THE REQUIREMENTS OF CLAUSE-3(X) OF PART-II OF SCHEDULE-VI OF COMPANY ACT AND HAD MENTIONED THAT LIMESTONE RAISING COST INCLUDED(EMPHASIS ADDED). THIS WAS NOT AND NOT EVEN SUPPOSED TO BE AN EXHAUSTIVE L IST OF ALL ITEMS CONSTITUTING LIMESTONE RAISING COST. THE APPELLANT HAS CLARIFIED , THAT, APART FROM THE ITEMS LISTED IN THE SAID DISCLOSURE, THERE WERE CERTAIN OTHER CONST ITUENTS OF LIMESTONE RAISING COST VIZ. CONTRACTORS, TRANSPORT AND OTHERS, LIMESTONE PURCHA SE AND OTHER STORES. THE TOTAL OF THESE ITEMS COME TO RS. 2,60,00,852/- WHICH WAS ALS O TO BE CONSIDERED AS PART OF RAISING COST OF LIMESTONE. IF THESE COSTS ARE ADD ED TO THE ITEMS MENTIONED IN THE DISCLOSURE CLAUSE, THE AGGREGATE WILL COME TO RS. 5 1,69,44,787/- WHICH TALLIES WITH THE AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT. THUS , THERE WAS NO EXCESS EXPENDITURE WHICH WAS REQUIRED TO BE DISALLOWED. THIS CONTENTIO N WAS DULY MADE BEFORE THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDINGS B UT HE HAD SUMMARILY REJECTED THE SAME WITHOUT POINTING OUT ANY DEFECT OR SHORTCOMIN GS. CONSIDERING THIS, THE DISALLOWANCE OF RS. 2,60,00,852/- IS NOT SUSTAINABL E AND THE SAME IS DELETED. 2.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED ON FACTS AS WELL AS IN LAW IN HOLDING THAT EXCESS EXPENDITURE O F RS. 2,60,00,852/- WAS NOT WARRANTED AS IT WAS ATTRIBUTABLE TO CONTRACTORS, TR ANSPORTERS AND OTHERS FOR RAISING COST OF LIMESTONE, IGNORING THE FACTS THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN SUPPORT OF EXPENDITURE OF RS. 2,60, 00,852/- BEFORE THE A.O. AND AS SUCH, THE CIT(A) VIOLATED THE PROVISIONS OF RULE 46A BY ACCEPTING ADDITIONAL EVIDENCES. 3 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 3 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE. WE FIND THAT THE ASSESSEE HAD STATED IN HIS ANNUAL REPORT IN PAGE 55 OF THE PAPER BOOK IN SCHEDULE 14 TO THE FINANCIAL STATEMENTS AS UNDER:- SCHEDULE 14 RAW MATERIALS AND FINISHED GOODS RAW MATERIALS CONSUMED OPENING STOCK 1,18,73,08,168 ADD: PURCHASES (A) 9,66,97,35,105 ---------------------- 10,85,70,43,273 LESS: CLOSING STOCK 2,01,34,10,362 ---------------------- 8,84,36,32,911 RAISING COST OF LIMESTONE (B) 51,69,44,787 (INCREASE) / DECREASE IN WORK IN PROCESS, FINISHED GOODS OPENING STOCK WORK IN PROCESS 22,14,93,533 FINISHED GOODS 51,77,55,286 --------------------- 73,92,48,819 PURCHASES (C ) 12,93,49,077 --------------------- 86,85,97,896 ADD: PROCESSED (11,475 MT) / SEMI- PROCESSED ITEMS AT THE END OF TRIAL RUN (NOTE 17 ON SCHEDULE 17) 11,62,01,403 -------------------- 98,47,99,299 LESS: CLOSING STOCK WORK IN PROCESS 25,48,31,133 FINISHED GOODS 85,67,32,564 --------------------- 4 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 4 (12,67,64,398) LESS: TRANSFERRED TO CAPITAL JOBS 2,39,77,622 --------------------- (15,07,42,020) ----------------------- 9,20,98,35,678 ---------------------- (A) PURCHASE OF RAW MATERIALS IS NET OF SALE VALUE 6,52,934 (B) LIMESTONE RAISING COST INCLUDE: SALARIES, WAGES , BONUS ETC 3,73,25,677 CONTRIBUTION TO PROVIDENT AND OTHER FUNDS 28,27,645 WORKMEN AND STAFF WELFARE 19,06,325 DEAD RENT, ROYALTY ETC. 18,68,59,775 POWER AND FUEL 19,27,326 STORES CONSUMED 19,57,28,780 MACHINERY REPAIRS 6,08,33,178 OTHER REPAIRS 31,15,162 RATES AND TAXES 27,989 INSURANCE 3,92,078 ------------------- 49,09,43,435 ------------------- (C ) PURCHASE OF FINISHED GOODS INCLUDE : TYRES NOS. 7,082 TUBES NOS. 7,082 FLAPS NOS. 3,26,838 MARKET FITTINGS NOS. 14,125 2.4.1. WE ALSO FIND FROM PAGE 148 OF THE PAPER BOOK OF THE ASSESSEE THAT THE BREAK OF RAISING COST OF LIMESTONE IS AS UNDER:- SALARIES, WAGES , BONUS ETC 3,73,25,676.89 CONTRIBUTION TO PROVIDENT AND OTHER FUNDS 28,27,645.00 WORKMEN AND STAFF WELFARE 19,06,324.99 DEAD RENT, ROYALTY ETC. 18,68,59,775.00 POWER AND FUEL 19,27,326.00 STORES CONSUMED 19,57,28,780.00 5 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 5 MACHINERY REPAIRS 6,08,33,177.92 OTHER REPAIRS 31,15,161.95 CONTRACTORS, TRANSPORTS & OTHERS 1,93,05,61 8.53 LIME STONE PURCHASE 13,98,728.00 MISC. OTHER THAN STORES 52,96,505.71 RATES AND TAXES 27,989.00 INSURANCE 3,92,078.00 ---------------------- 51,69,44,786.99 ---------------------- 2.4.2. WE FIND THAT THE AFORESAID DETAILS WERE MUCH AVAILABLE BEFORE THE LD AO AND HAD BEEN DULY FILED BEFORE THE LD AO ITSELF WHICH WAS N OT APPRECIATED BY THE LD AO. INFACT THE LD AO WITHOUT GIVING ANY FINDING OR REASONING S OUGHT TO MAKE THIS DISALLOWANCE WHICH IS NOT AT ALL WARRANTED IN THE FACTS AND CIRC UMSTANCES OF THE CASE. WE FIND THAT THE LD CITA HAD CATEGORICALLY OBSERVED IN PARA 4.2. OF HIS ORDER AS REITERATED SUPRA THAT NO FRESH DETAILS WERE FILED BEFORE HIM AND ALL THE DET AILS WERE ALREADY AVAILABLE ON RECORD BEFORE THE LD AO. THIS FINDING HAS NOT BEEN CONTRO VERTED BY THE REVENUE BEFORE US. HENCE WE ARE NOT INCLINED TO ACCEPT THE GROUND RAIS ED BY THE ASSESSEE FOR VIOLATION OF RULE 46A OF THE RULES AS ADMITTEDLY NO FRESH MATERI ALS WERE FILED BY THE ASSESSEE BEFORE THE LD CITA. THE ENTIRE ADDITION HAS BEEN MADE WI THOUT ANY BASIS OR REASONING AND WITHOUT APPRECIATING THE FACTS AND REQUIREMENTS OF LAW. WE FIND THAT THE LD CITA HAD DULY APPRECIATED THE SAME AND HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 3. THE SECOND ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE TOWARDS EXC ISE DUTY ON CLOSING STOCK OF FINISHED GOODS AMOUNTING TO RS 5,40,34,736/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT DURING T HE FINANCIAL YEAR, MISCELLANEOUS EXPENSES OF RS. 56,19,67,441/- WAS DEBITED TO THE PROFIT AND LOSS ACCOUNTS [SCHEDULE-17(14)] UNDER THE HEAD MANUFACTURING, SELLING AND ADMINIST RATIVE EXPENSES INCLUDED EXCISE DUTY OF RS. 4,87,67,368/- RELATED TO THE DIFFERENCE BETWEEN THE CLOSING STOCK AND 6 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 6 OPENING STOCK. ACCORDING TO THE ACCOUNTS OF THE ASS ESSEE COMPANY INSERTED IN CLAUSE 12(B) OF FORM 3CD (APPENDIX-II) AND SCHEDULE 18(2) OF NOTES ON ACCOUNT IT IS APPARENT THAT OPENING AND CLOSING STOCK OF FINISHED FOODS IN CLUDED EXCISE DUTY. FROM THE APPENDIX-XI OF CLAUSE 21(B) OF FORM 3CD IT IS EVIDE NT THAT EXCISE DUTY WAS ROUTED THROUGH PROFIT AND LOSS ACCOUNT WHICH SUPPORTS THE ABOVE STATEMENT ALSO. IN THE ASSESSEES COMPUTATION OF INCOME AN AMOUNT OF RS. 2 ,15,24,269/- WAS ADDED BEING EXCISE DUTY ON OPENING STOCK OF FINISHED GOODS OF T HIS YEAR AS ALREADY CLAIMED IN THE COMPUTATION OF INCOME VIDE CLOSING STOCK IN ASSESSM ENT YEAR 06-07 AND AN AMOUNT OF RS. 5,40,34,736/- WAS DEDUCTED FROM TOTAL INCOME BE ING EXCISE DUTY ON CLOSING STOCK OF FINISHED GOODS AS BEING UNCLAIMED FOR THE YEAR. THI S RESULTED IN CLAIMING OF DEDUCTION ON ACCOUNT OF EXCISE DUTY DOUBLY ON ARRIVING AT THE CLOSING OF FINISHED GOODS WHICH WAS IRREGULAR. THEREFORE, SUCH DEDUCTION ON ACCOUNT OF EXCISE DUTY IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.2. IT WAS SUBMITTED THAT THE ASSESSEE HAD SINCE THE INSERTION OF SECTION 145A OF THE ACT HAD ACCOUNTED FOR EXCISE DUTY ELEMENT IN THE VA LUATION OF CLOSING STOCK OF FINISHED GOODS. THE PRINCIPLE OF THE LIABILITY IS DETERMINE D BY THE HONBLE SUPREME COURT IN THE CASE OF UJAGAR PRINTS VS UNION OF INDIA REPORTED IN 38 ELT 535 (SC) THAT SUCH LIABILITY TO PAY EXCISE DUTY ARISES UPON MANUFACTURE OF GOODS ALTHOUGH THE OBLIGATION TO DISCHARGE SUCH LIABILITY ARISES ONLY UPON CLEARANCE OF GOODS FROM THE FACTORY GATE. DUE TO THE ACCRUAL SYSTEM OF ACCOUNTING AND AMENDMENT I N SECTION 145A OF THE ACT, THE ASSESSEE IS BOUND TO ACCOUNT FOR THE LIABILITY OF F INISHED GOODS IN STOCK PENDING DISPATCH BY DEBITING THE AMOUNT OF DUTY IN THE PROFIT AND LO SS ACCOUNT. WHILE ASCERTAINING THE VALUE OF CLOSING STOCK OF FINISHED GOODS, PENDING D ISPATCH, THE SAME AMOUNT OF EXCISE DUTY IS ALSO INCLUDED IN THE VALUE OF CLOSING STOCK I.E IN OTHER WORDS CREDITED TO THE PROFIT AND LOSS ACCOUNT. THUS THIS WILL AGAIN NEUTRALIZE ITS IMPACT IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE TRIED TO EXPLAIN THE SAME BY WAY OF ACCOUNTING ENTRIES AS UNDER:- EXCISE DUTY A/C (PROFIT AND LOSS ACCOUNT) DR X XXXX 7 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 7 TO EXCISE DUTY PAYABLE A/C (LIABILITY) CR XXXXX (BEING THE AMOUNT OF EXCISE DUTY PAYABLE ON THE FIN ISHED GOODS LYING AT CLOSING STOCK PENDING DISPATCH) INVENTORY FINISHED GOODS DR XXXXX TO EXCISE DUTY A/C (PROFIT AND LOSS ACCOUNT) CR XXXXX (BEING EXCISE DUTY ELEMENT OF FINISHED GOODS LYING IN STOCK PENDING DISPATCH NOW INCLUDED IN THE VALUE OF CLOSING STOCK) . IT WAS EXPLAINED THAT THE AFORESAID ENTRIES NEUTRAL IZES THE IMPACT OF EXCISE DUTY IN THE PROFIT AND LOSS ACCOUNT. 3.2.1. IT WAS ALSO SUBMITTED THAT THIS LIABILITY OF EXCISE DUTY WAS ALSO HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT AND WAS SUBSEQ UENTLY PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AND HENCE IN ANY CASE, THE SAME IS ALLOWABLE AS DEDUCTION IN THE YEAR UNDER APPEAL. SINCE THE LIABILITY OF EXC ISE DUTY ARISES ON MANUFACTURE, THE ASSESSEE HAD PROVIDED FOR SUCH LIABILITY UNDER THE MERCANTILE SYSTEM AND THEREAFTER PAID SUCH DUTY BEFORE FILING THE RETURN IN ORDER TO CLAI M DEDUCTION. IT WAS SUBMITTED THAT FROM PERUSAL OF THE TAX AUDIT REPORT, IT WOULD BE E VIDENT THAT THE SAID EXCISE DUTY AGGREGATING TO RS 5,36,14,329/- WAS DULY PAID WITHI N THE DATE PRESCRIBED U/S 139(1) OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE ASSESSE E COMPANY CLAIMED THE AMOUNT OF RS 5,40,34,736/- AND DULY OFFERED THE UNPAID AMOUNT OF RS 4,20,407 ( 5,40,34,736 5,36,14,329) IN THE COMPUTATION OF TOTAL INCOME FOR ASST YEAR 2007-08 (I.E THE YEAR UNDER APPEAL). IT WAS FURTHER PLEADED THAT THE IS SUE UNDER DISPUTE IS FURTHER SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LIMITED VS CIT REPORTED IN 266 ITR 99 (SC) . SIMILAR VIEW WAS ALSO ENDORSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PA HARPUR COOLING TOWERS LIMITED VS CIT REPORTED IN 2011-TIOL -440-HC-KOL-IT . IT WAS STATED THAT ON A CONSISTENT BASIS, THE ASSESSEE WAS CLAIMI NG EXCISE DUTY ON CLOSING STOCK 8 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 8 SEPARATELY AND DISALLOWING THE EXCISE DUTY CLAIMED IN THE PREVIOUS YEAR. THIS NEUTRALIZES THE TAX EFFECT. IT WAS SUBMITTED THAT THE INSTANT TAX TREATMENT HAS BEEN DONE ON THE BASIS OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT AS WELL AS HONBLE JURISDICTIONAL HIGH COURT. ACCORDINGLY, IT WAS PLEA DED THAT THE SAID SUM OF RS 5,40,34,736/- IS ALLOWABLE AS DEDUCTION WHILE COMPU TING THE BUSINESS PROFITS OF THE ASST YEAR 2007-08 (I.E THE YEAR UNDER APPEAL) SINCE RS 4 ,20,407/- BEING UNPAID DUTY HAD ALREADY BEEN DISALLOWED IN THE SAME COMPUTATION WIT H A CORRESPONDING DISALLOWANCE BEING MADE WHILE COMPUTING THE BUSINESS PROFITS OF THE SUBSEQUENT ASSESSMENT YEAR I.E ASST YEAR 2008-09. 3.2.2. THE LD CITA DELETED THE ADDITION BY OBSERVIN G AS UNDER:- I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS. IT IS SEEN THAT THE APPELLANT IS CONSISTENTLY FOLLOWING THE AFORESAID METHOD OF ACCO UNTING FOR EXCISE DUTY ON STOCK AND CLAIM OF DEDUCTION THEREOF OVER THE YEARS. IT CREDI TS SALES NET OF EXCISE DUTY TO ITS TRADING ACCOUNT AND INCLUDES EXCISE DUTY IN VALUATION OF ST OCK (OPENING AND CLOSING) IN ACCORDANCE WITH SECTION 154A OF THE I.T. ACT, 1961. SINCE, THE CLOSING STOCK IS CLEARED IN THE SUBSEQUENT YEAR PRIOR TO DUE DATE OF FILING OF RETURN OF INCOME, IT CLAIMS DEDUCTION FOR EXCISE DUTY ON THE SAME AS PER PROVIS O OF SECTION 43B OF THE IT ACT, 1961. AS AND WHEN IT FILED RETURN OF INCOME FOR THE SUBSE QUENT YEAR, IT ADDS BACK EXCISE DUTY ON (THE THEN) CLOSING STOCK. I DO NOT SEE AS TO HOW THE SAME CAN BE CALLED CLAIMING DEDUCTION DOUBLY. IN FACT THE ENTIRE EXERCISE IS RE VENUE NEUTRAL OVER THE PERIOD OF A FEW YEARS. EVEN FOR A SINGLE YEAR, THE METHOD APPEARS T O BE IN CONFORMITY WITH WELL ACCEPTED PRINCIPLE OF ACCOUNTING AS WELL AS THE PRO VISION OF SECTION 145A AND SECTION 43B OF THE INCOME TAX ACT, 1961. THE ISSUE CAME UP FOR CONSIDERATION BEFORE TRIBUNAL IN THE CASE OF DCIT, CIRCLE-1, KOLKATA VS. EXIDE IN DUSTRIES LTD. I.T.A. NO. 1491/KOL/2007, WHERE THE ASSESSEE WAS FOLLOWING A S IMILAR SYSTEM OF ACCOUNTING. IN ITS DECISION IN THE SAID APPEAL, IT HAS BEEN HELD BY HO NBLE TRIBUNAL THAT THE ACCOUNTING SYSTEM BEING FOLLOWED BY THE ASSESSEE DID NOT ACCO UNT TO CLAIMING DOUBLE DEDUCTION. WHILE DELIVERING THIS DECISION, HONBLE TRIBUNAL AL SO REFERRED TO THE DECISION OF SUPREME COURT IN THE CASE OF BERGER PAINTS (I) LTD. 266 ITR 99. THE RATIO SQUARELY APPLIES ON THE APPELLANTS CASE. MOREOVER, THOUGH T HE APPELLANT HAS BEEN FOLLOWING THE SAME SYSTEM CONSISTENTLY, NO SUCH ADDITION HAS BEEN MADE IN THE EARLIER YEARS AND THE DEPARTMENT HAS ALSO ACCEPTED THE SAME. FURTHER, IN THE SCRUTINY ASSESSMENT OF THE SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2010-11 WHICH WAS ALSO COMPLETED AROUND SAME TIME AS THE IMPUGNED ORDER, NO ADDITION ON THE ISSU E OF EXCISE DUTY ON CLOSING STOCK IS STATED TO BE MADE. THUS, THE ASSESSING OFFICER HAS IN THE PRECEDING AS WELL AS SUBSEQUENT YEAR ACCEPTED THE SYSTEM FOLLOWED BY THE APPELLANT. THEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY AND TAKING INTO CONSIDERAT ION THE DECISION OF APEX COURT IN THE CASE OF CIT VS. RADHASOAMI SATSANG [193 ITR 321 (SC ), I AM OF THE VIEW THAT THERE WAS 9 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 9 HARDLY ANY JUSTIFICATION FOR DISTURBING THE CONSIST ENT AND WELL-FOUNDED SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT. EVEN OTHERWIS E, IN VIEW OF THE RATIO GIVE BY JURISDICTIONAL BENCH OF HONBLE TRIBUNAL IN THE CAS E OF EXIDE INDUSTRIES LTD. (SUPRA), IT IS TO BE HELD THAT THERE IS NO INFIRMITY IN THE APP ELLANTS TREATMENT OF EXCISE DUTY AND THE SAME DOES NOT RESULT IN DOUBLE DEDUCTION. THE ADDIT ION OF RS. 5,40,34,736/- IS, THEREFORE, DELETED. PART-(B) OF THE GROUND RAISED B Y THE APPELLANT IS WITHOUT PREJUDICE OF PART-(A) WHICH HAS BEEN ALLOWED. THEREFORE, PART-(B OF THE GROUND BECOMES INFRUCTUOUS. 3.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT ADDITION OF RS. 5,40,34,736/- ON ACCOUNT OF EX CISE DUTY INCLUDED IN CLOSING STOCK WAS NOT CORRECT, IGNORING THE FACT THAT THE A PPELLANT HAD NOT CONSIDERED EXCISED DUTY IN ITS CLOSING STOCK AS PER PROVISIONS OF SECTION 145 AND ACCOUNTING STANDARD PRESCRIBED. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE. WE FIND THAT THIS ADDITION HAD BEEN MADE WITHOUT APPRECIATING THE ACCOUNTING TREAT MENT AND THE TAX TREATMENT GIVEN BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME . W E FIND THAT THE ADDITION MADE IS WITHOUT ANY BASIS AND WITHOUT APPRECIATING THE FACT S AND REQUIREMENTS OF LAW. WE FIND THAT THE LD CITA HAD DULY APPRECIATED THE SAME AND HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA IN THIS REGARD. ACCORD INGLY THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 4. THE LAST ISSUE TO BE INCLUDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE TOWARDS CLOSING STOCK ON ACCOUNT OF PROCESSED AND SEMI- PROCESSED GOODS PRODUCED IN TRIAL RUN AMOUNTING TO RS 11,62,01,403/- , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O OBSERVED THAT IN THE COMPUTATION OF INCOME, CEMENT SALES (39685 MT) AMOUNTING TO RS. 12 ,49,95,728/- (NET OF EXCISE DUTY OF RS. 1,61,91,031/-) OUT OF THE CEMENT PRODUCED D URING TRIAL RUN OF NEW CEMENT UNIT-III UNDER VASAVADATTA CEMENT UNIT AT SEDAM WAS ADDED TO THE TOTAL INCOME AS NOT CREDITED TO PROFIT AND LOSS ACCOUNT FOR THE YEAR AND EXPENSE S INCURRED DURING TRIAL RUN AMOUNTING 10 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 10 TO RS. 8,44,35,826/- WAS DEDUCTED FROM TOTAL INCOM E AS NOT CHARGED TO PROFIT AND LOSS ACCOUNTS. FROM THE ACCOUNTS, IT IS FOUND THAT DURIN G TRIAL RUN 51160MT CEMENTS WERE PRODUCED (AS PER TAR) OUT OF WHICH 39685MT CEMENTS WERE SOLD FOR RS. 12,42,95,728/- (NOT DEBITED TO PROFIT AND LOSS ACCO UNTS BUT ADDED TO TOTAL INCOME IN THE COMPUTATION OF INCOME) AND 11475MT CEMENTS IN THE FORM OF PROCESSED/SEMI- PROCESSED GOODS VALUED RS. 116201403/- WERE ADDED T O OPENING STOCK OF FINISHED GOODS (AS PER SCHEDULE-14) TO ARRIVE AT AN INCREASE IN ST OCK OF RS. 15,07,42,020/-. AS NEITHER SALES NOR CLOSING STOCK INCLUDED ANY ITEMS PRODUCED DURING TRIAL RUN, THE PROCESSED/SEMI-PROCESSED GOODS (11475MT) VALUED AT RS. 11,62,01,403/- WAS NOT ADDED TO THE CLOSING STOCK, SUCH AMOUNT WAS ADDED T O THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INCREASE IN CLOSING STOCK. 4.2. IT WAS SUBMITTED THAT DURING THE CONCERNED AS SESSMENT YEAR, THE ASSESSEE UNDERTOOK TRIAL RUN OF NEW CEMENT UNIT III UNDER VASAVADATT A CEMENT UNIT AT SEDAM. DURING TRIAL RUN, 51160 MT CEMENTS WERE PRODUCED OUT OF WH ICH 39685 MT CEMENTS SOLD FOR RS 12,42,95,728/- WHICH WAS NOT CREDITED TO PROFIT AND LOSS ACCOUNT AND HENCE ADDED TO TOTAL INCOME SEPARATELY IN THE COMPUTATION OF TOTAL INCOME. SIMILARLY THE ASSESSEE CLAIMED TOTAL EXPENDITURE INCURRED FOR TRIAL RUN SE PARATELY IN COMPUTATION OF TOTAL INCOME. THE ALLEGATION OF THE LD AO WAS THAT THE CLOSING STOCK OF 11475 MT CEMENTS IN FORM OF PROCESSED / SEMI-PROCESSED GOODS VALUED AT RS 11,62,01,403/- WERE ADDED TO OPENING STOCK OF FINISHED GOODS AS PER SCHEDULE 14 OF ANNUAL REPORT TO ARRIVE AT INCREASE IN STOCK OF RS 15,07,42,020/- BUT NEITHER SALES NOR CLOSING STOCK INCLUDED ANY ITEMS PRODUCED DURING TRIAL RUN, THE PROCESSED / SEMI-PRO CESSED GOODS OF 11475 MT WAS NOT INCLUDED IN CLOSING STOCK. THIS RESULTED IN UNDER VALUATION OF CLOSING STOCK TO THE TUNE OF RS 11,62,01,403/-. IT WAS STATED IN THIS CONNEC TION THAT THE ABOVE STOCK OF 11475 MT OF TRIAL RUN HAS BEEN ROUTED THROUGH THE INVENTORY ACCOUNTED VIDE SCHEDULE 14 OF ANNUAL REPORT I.E ADDED TO THE OPENING STOCK AND PURCHASES AND HENCE HAS BECOME PART OF THE REGULAR PRODUCTION PROCESS. SUBSEQUENTLY THIS 1147 5 MT CEMENT WAS SOLD AS A PART OF NORMAL INVENTORY AND INCLUDED IN SALE AMOUNT IN PRO FIT AND LOSS ACCOUNT. THE TOTAL SOLD 11 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 11 QUANTITY OF 2407787 MT OF SEDAM UNIT AS PER POINT 2 OF SCHEDULE 18 INCLUDES SALE OF 11475 MT ALSO. ACCORDINGLY , IT WAS NOT INCLUDED I N CLOSING STOCK. THE CLOSING STOCK OF 45763 MT IS MATCHING WITH EXCISE RECORDS WHEREIN PRODUCTION OF TRIAL RUN FOR 51160 MT AND SALE OF TRIAL RUN FOR 39685 MT WAS CONSIDERE D. MEANING THEREBY, CLOSING STOCK AS PER EXCISE RECORD IS AFTER CONSIDERING IMPACT OF TOTAL PRODUCTION AND SALE RELATING TO TRIAL RUN AND THERE IS NO OCCASION THAT IMPACT OF D IFFERENCE OF 11475 MT IS NOT CONSIDERED. FOLLOWING RECONCILIATION WILL FURTHER JUSTIFY THAT 11475 MT HAS BEEN INCLUDED IN NORMAL PRODUCTION OF 2432292 MT MENTION ED IN SCHEDULE 18 :- PRODUCTION AS PER EXCISE RECORDS 2473130 MT LESS: SHORTAGE & DAMAGE QUANTITY 1154 MT LESS: TRIAL PRODUCTION INCLUDED IN ABOVE 511 60 MT ---------------------- 2420816 MT ---------------------- PRODUCTION AS PER SCHEDULE 18 (2420817 + 11475) 243 2292 MT ALTERNATIVELY, THE ABOVE RECONCILIATION CAN BE EXPL AINED MORE SPECIFICALLY WITH THE HELP OF THE FOLLOWING TABLE : PARTICULARS MT MT OPENING STOCK 36,439.00 PRODUCTION 2,420,817.00 ADD: CLOSING STOCK OF TRIAL RUN TRANSFERRED TO NORMAL INVENTORY (CLOSING STOCK OF 11475 MT INCLUDED AS IT BECAME PART OF NORMAL INVENTORY) 11,475.00 2,432,292.00 LESS: SALE (2,407,787.00) (INCLUDES SALE OF 11475MT AS NORMAL FINISHED GOODS) LESS: INTERNAL CONSUMPTION (15,181.00) CLOSING STOCK (OPENING+PRODUCTION-SALE) 45,763.00 IT WAS STATED FROM THE ABOVE TABLE, IT COULD BE APP RECIATED THAT THE CLOSING STOCK WAS DERIVED ONLY AFTER CONSIDERING IMPACT OF 11475 MT. IT WAS FURTHER SUBMITTED THAT ANY 12 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 12 MATERIAL INCLUDED IN THE PRODUCTION PROCESS THROUGH INVENTORY IS USED IN THE REGULAR PRODUCTION TO BECOME EITHER WORK IN PROGRESS OR FIN ISHED GOODS, WHICH IS SOLD OR HELD IN STOCK. SINCE 11475 MT TRIAL STOCK WAS TRANSFERRED TO PRODUCTION, IT COULD BE APPRECIATED THAT THE SAME GOT AUTOMATICALLY ROUTED TO THE SALES OR CLOSING STOCK ,OTHERWISE THE DOUBLE ENTRY SYSTEM OF ACCOUNTING WILL NOT WORK. HENCE IT WAS PLEADED THAT THE ASSESSEE HAD CORRECTLY DONE THE ACCOUNTING TREATMENT AND THERE H AD BEEN NO UNDERSTATEMENT OF STOCK OR INCOME AND ACCORDINGLY PRAYED FOR DELETION OF TH E ADDITION THEREON IN THE SUM OF RS 11,62,01,403/-. 4.3. THE LD CITA SOUGHT FOR A REMAND REPORT FROM TH E LD AO WITH REGARD TO THE AFORESAID SUBMISSIONS WHEREIN THE LD AO ACCEPTED TH E TREATMENT GIVEN BY THE ASSESSEE WITH REGARD TO THE IMPUGNED ISSUE AFTER GOING THROU GH THE RECONCILIATION THEREON. THE LD CITA DELETED THE ADDITION BY OBSERVING AS UNDER: - 6.4. IT IS CLEAR THAT THE CONTENTION AND THE SUPPO RTING EVIDENCE PRODUCED BY THE APPELLANT HAS BEEN VERIFIED BY THE ASSESSING OFFICE R AND HE HAD NOT FOUND ANY DISCREPANCY PER SE. HE HAS ONLY POINTED OUT THAT PR ESENTATION OF THE APPELLANT IN THE BALANCE SHEET WAS NOT VERY CLEAR. BE AS IT MAY, IT IS NO LONGER DISPUTED THAT THE PRODUCTION OF PROCESSED/SEMI-PROCESSED MATERIAL FOR THE TRIAL RUN HAS BEEN DULY ACCOUNTED FOR IN THE SALE/STOCK OF THE APPELLA NT. THIS BEING THE POSITION, THE ADDITION OF RS. 11,62,01,403/- CANNOT BE SUSTAINED. THE SAME IS ACCORDINGLY DELETED. 4.4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) ERRED IN HOLDING THAT ADDITION OF RS. 11,62,01,403/- IN CLOSING ST OCK ON ACCOUNT OF PROCESSED AND SEMI- PROCESSED GOODS PRODUCED IN TRIAL RUN WAS NOT CORRE CT, IGNORING THE FACT THAT THE GOODS PRODUCED IN TRIAL RUN WAS NOT CONSIDERED IN THE CLO SING STOCK AS PER DETAILS OF ACCOUNT PRODUCED AT THE TIME OF ASSESSMENT PROCEEDINGS. 4.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE. WE FIND THAT THE LD CITA HAD OBSERVED THAT THE LD AO HAD NOT DRAWN ANY ADVERSE I NFERENCE ON THE RECONCILIATION FILED BY THE ASSESSEE IN HIS REMAND REPORT VIDE HIS LETTE R NO. DIT/CIR-5/KOL/REMAND REPORT /2013-14 DATED 7.10.2013. WE ARE CONVINCED WITH T HE EXPLANATION GIVEN BY THE 13 ITA NO.1293/KOL/2014 KESORAM INDUSTRIES LTD. A.YR.07-08 13 ASSESSEE BEFORE THE LD CITA WHICH HAS BEEN DULY CON SIDERED BY THE LD AO ALSO IN HIS REMAND REPORT. WE FIND THAT THE CATEGORICAL FINDING S GIVEN IN THIS REGARD BY THE LD CITA IN HIS ORDER HAD NOT BEEN CONTROVERTED BY THE LD DR BEFORE US AND HENCE WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 14.07.2017 SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24.07.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIR-5, KOLKATA 2. M/S KESORAM INDUSTRIES LIMITED. 3..C.I.T.(A)-VI, KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S