DCIT, Hyderabad V. M/s VBC Ferro Alloys Ltd., Hyderabad

ITA 1326/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66461 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.1326/HYD/2010 : ASSESSMENT Y EAR 2007-08 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD V/S. M/S. VBC FERRO ALLOYS LTD., HYDERABAD ( PAN - AAACV 7258 A) (APPELLANT) (RESPONDENT) ITA NO.1378/HYD/2010 : ASSESS MENT YEAR 2007-08 M/S. VBC FERRO ALLOYS LTD., HYDERABAD ( PAN - AAACV 7258 A) V/S. DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(3), HYDERABAD (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI V.SRINIVAS ASSESSEE BY : SHRI V.SIVAKUMAR DATE OF HEARING 8.8.2012 DATE OF PRONOUNCEMENT 6.11.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE ARE CROSS-APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE- FOR THE ASSESSMENT YEAR 2007-08, WHICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) IV, HYDERABAD, BOTH DATED 6 .8.2010. SINCE A ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 2 COMMON ISSUE IS INVOLVED, THESE APPEALS ARE BEING D ISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE, 2. THE COMMON ISSUE INVOLVED IN THESE CROSS APPEAL S, WHICH IS THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE, RELATES T O DISALLOWANCE OF RS.4,38,54,338 MADE BY THE ASSESSING OFFICER, OUT O F ASSESSEES CLAIM FOR PAYMENT OF INTEREST, WHICH WAS RESTRICTED BY THE CI T(A) TO RS.1,39,20,000. 3. BRIEFLY THE FACTS ARE THE ASSESSEE, A COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF FERRO ALLOYS. F OR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE FILED ITS RETURN OF INCO ME DECLARING NIL INCOME UNDER NORMAL PROVISIONS AND INCOME OF RS.2,04,35,12 6 UNDER MAT PROVISIONS. THOUGH THE SAID RETURN WAS INITIALLY PROCESSED UNDE R S.143(1) OF THE ACT, THE CASE WAS SELECTED FOR SCRUTINY AND THE SCRUTINY ASS ESSMENT WAS COMPLETED UNDER THE NORMAL PROVISIONS, AFTER MAKING VARIOUS A DDITIONS AND DISALLOWANCES, INCLUDING DISALLOWANCE OF INTEREST O F RS.4,38,54,338, ON A TOTAL INCOME OF RS.3,46,62,411, VIDE ORDER OF ASSES SMENT DATED 29.12.2009 PASSED UNDER S.143(3) OF THE ACT. IN THE COURSE O F THE SAID SCRUTINY ASSESSMENT PROCEEDINGS, WHILE EXAMINING THE FINAL A CCOUNTS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED SUBST ANTIAL DEDUCTION ON ACCOUNT OF INTEREST AND FINANCE CHARGES TO BANK AND OTHERS. AS PER THE BALANCE SHEET AS ON 31.3.2007, THE ASSESSEE HAD LO ANS AGGREGATING TO RS.25,46,66,720 AS AGAINST RS.19,07,28,175 AS ON 31 .3.2006. IT IS FURTHER NOTICED THAT AS PER THE SAID BALANCE SHEET, THE ASS ESSEE HAS TOTAL INVESTMENTS OF RS.143,39,23,564 AS ON 31.3.2007 . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD MADE SUBSTANTIAL IN VESTMENTS IN KONASEEMA GAS POWER LIMITED (KGPL), A SISTER CONCERN OF THE A SSESSEE WHICH WAS EARLIER KNOWN AS KONASEEMA OAKWELL POWER LIMITED, WHICH, TH E ASSESSING OFFICER HAS NOTED, HAS NOT STARTED ITS COMMERCIAL PRODUCTIO N. THE ASSESSING OFFICER FORMED AN OPINION THAT HAD THE ASSESSEE NOT INVESTE D ITS FUNDS IN KGPL, IT ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 3 WOULD HAVE UTILISED ITS FUNDS FOR ITS OWN BUSINESS WITHOUT HAVING THE NECESSITY TO BORROW MONEY FROM BANKS AND OTHERS INC URRING HUGE INTEREST BURDEN. THE ASSESSING OFFICER RELYING UPON THE DEC ISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF V. I. BABY AND CO. (254 I TR 248) AND HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISH EKH INDUSTRIES (286 ITR 1), HELD THAT SINCE THE ASSESSEE HAS INVESTED INTER EST BEARING FUNDS IN SHARE CAPITAL OF OTHER COMPANIES, WHEREFROM NO INTEREST W AS RECEIVED, PROPORTIONATE INTEREST OUT OF THE TOTAL INTEREST CL AIMED AS EXPENDITURE IS REQUIRED TO BE DISALLOWED UNDER S.36(1)(III) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE RETURN FILED BY THE ASSES SEE REVEALED THAT THE FINANCIAL CONDITION OF THE COMPANY IS NOT GOOD, AS IT HAS NOT PAID THE STATUTORY DUES LIKE PF, ESI, VAT, CST, ETC. IN TIME AND ADDED AN AMOUNT FO RS.1,04,01,153 TO THE RETURNED INCOME. THEREFORE, I T CANNOT EB SAID THAT THE INVESTMENTS WERE MADE OUT OF PROFIT. ON THE AFORESA ID CONSIDERATION, THE ASSESSING OFFICER PROCEEDED TO DISALLOW PROPORTIONA TE INTEREST CLAIMED BY THE ASSESSEE ON BORROWED FUNDS. WORKING OUT INTERST ON INVESTMENTS OF RS.17,20,70,827, APPLYING A RATE OF 12%, HE DISALLO WED AN AMOUNT OF RS.4,38,54,338. 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE CONT ENDED THAT INVESTMENT OF RS.126,79,05,000 IN KGPL AND RS.7,96, 73,564 IN OTHER COMPANIES WERE MADE IN THE EARLIER YEARS. DURING T HE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS MADE INVESTMENTS OF RS.10,60,00,000 IN KONASEEMA POWER CORPORATION LTD.; RS.75,00,000 IN ORISSA POWER CORPORATION LTD. AND RS.25,00,000 IN KARTHIK RUKMIN I ALLOYS LTD. EXPLAINING THE SOURCES FOR THE SAID INVESTMENTS MADE DURING TH E YEAR, THROUGH A CHART, IT WAS SUBMITTED THAT THE INVESTMENT OF RS.10,60,00 ,000 IN KONASEEMA POWER CORPORATION LTD. WAS PARTLY REPRESENTED BY A DVANCE OF RS.87649500 MADE IN FINANCIAL YEAR 2005-06 CONVERTED INTO SHARE S AND THE BALANCE ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 4 REPRESENTED BY SHARE APPLICATION MONEY OF RS.18305 000 AS ON 31.3.2006 CONVERTED INTO SHARES. AS FOR THE INVESTMENTS OF R S.75,00,000 IN ORISSA POWER CORPORATION LTD. AND RS.25,00,000 IN KARTHIK RUKMINI ALLOYS & ENERGY LTD., THE SOURCE WAS EXPLAINED TO BE THE SALE PROC EEDS OF 12500000 EQUITY SHARES OF KONASEEMA GAS POWER LTD. AT RS.15 PER SHA RE AMOUNTING TO RS.18750000. THE LEARNED AUTHORISED REPRESENTATIVE, THEREFORE, SUBMITTED BEFORE THE CIT(A) THAT NO PART OF THE BORROWED FUND S OF THE YEAR WAS UTILISED FOR MAKING THE SAID INVESTMENTS DURING THE YEAR. THE LEARNED AUTHORISED REPRESENTATIVE ALSO EXPLAINED THE UTILIZATION OF TH E INCREASE IN THE BORROWINGS DURING THE YEAR, STATING AS FOLLOWS- (I) INCREASE OF CASH CREDIT BY RS.3,19,05,787/- (F ROM RS.5993817 TO RS.91843966) WAS UTILISED FOR ACQUIRING INVENTORIES , WHICH INCREASED BY RS.6,72,20,860 (II) DEMAND LOAN INCREASED FROM RS.1,90,54,026/- TO RS.2,22,44,620/- ONLY ON ACCOUNT OF CREDITING OF INTEREST FOR THE YEAR. (III) ICDS INCREASED BY RS.4,39,47,703/- (FROM RS.4 ,34,00,000/- TO RS.8,73,43,703/-) AND WAS UTILIZED FOR THE PAYMENT OF ELECTRICITY BILLS AND OTHER DAY TO DAY OPERATIONAL EXPENSES. THE ASSESSEE CONTENDED THAT INVESTMENT MADE IN KGPL WAS FOR BUSINESS PURPOSES ONLY, AS ON ACCOUNT OF SUCH INVESTMENT, TH E ASSESSEE WOULD BE ABLE TO DRAW QUALITY POWER AT LOWER RATE FOR ITS FERRO A LLOYS PLANT. THE ASSESSEE SUBMITTED THAT THE INCOME-TAX APPELLATE TRIBUNAL, H YDERABAD IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, 2004-05 AND 2 003-04 IN ITA NOS.1763 AND 842/HYD/08 AND ITA NO.919/HYD/06 DATED 3.11.2009 DELETED THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER FOR THOSE YEARS. 5. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AND EXAMINING THE MATERIALS ON RECORD, ACCEPTED THE ASS ESSEES CONTENTION THAT IN VIEW OF INCOME-TAX APPELLATE TRIBUNALS DECISION IN ASSESSEES OWN CAFE NO DISALLOWANCE OF INTEREST CAN BE MADE IN RESPECT OF INVESTMENT MADE IN KGPL ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 5 AND OTHER COMPANIES IN THE EARLIER ASSESSMENT YEARS . HOWEVER, SO FAR AS ADDITIONAL INVESTMENT OF RS.11,60,00,000/- MADE DU RING THE YEAR IN KGPL, ORISSA POWER CORPORATION LIMITED AND KARTIK RUKMINI ALLOY AND ENERGY LIMITED IS CONCERNED, THE CIT (A) DID NOT ACCEPT T HE ASSESSEES CONTENTION THAT SINCE THE SAID INVESTMENTS WERE NOT MADE OUT OF ANY BORROWALS AND THE INVESTMENT WAS MADE ON ACCOUNT OF COMMERCIAL EXPEDI ENCY, NO DISALLOWANCE OF INTEREST COULD BE MADE ON THESE INVESTMENTS. TH E CIT (A) OBSERVED THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THERE I S ANY COMMERCIAL EXPEDIENCY IN MAKING THE INVESTMENT. THE CIT (A) R EJECTING THE CLAIM OF THE ASSESSEE THAT THE INVESTMENTS MADE WAS NOT OUT OF B ORROWED FUNDS BUT OUT OF INTERNAL ACCRUALS, HELD THAT HAD THE ASSESSEE NO T MADE THE INVESTMENTS, THERE WOULD NOT HAVE BEEN ANY REQUIREMENT FOR MAKIN G BORROWINGS FOR ACQUIRING INVENTORY BESIDES BEARING OTHER OPERATION AL EXPENSES, SUCH AS ELECTRICITY, INTEREST, ETC. THE CIT (A) FOLLOWING THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF V.I. BABY & CO. (SUPRA), AND HONBLE ALLAHABAD HIGH COURT IN THE CASE OF H.R. SUGAR FACTORY V/S. CIT (1 87 ITR 363), HELD THAT BORROWINGS TO THE EXTENT OF ADDITIONAL INVESTMENTS MADE DURING THE IMPUGNED ASSESSMENT YEAR HAS TO BE HELD TO BE MADE FOR SUPPLEMENTING THE CASH/FUND DIVERTED FOR NON-BUSINESS PURPOSES. THE CIT(A) WORKED OUT THE ADDITIONAL INVESTMENT DURING THE YEAR TO BE RS.11,6 0,00,000 AND CALCULATING INTEREST THEREON AT THE RATE OF 12% AT RS.1,39,20,0 00, DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE OF INTEREST TO THE AFORESAID AMOUNT OF RS.1,39,20,000 AS AGAINST DISALLOWANCE OF RS.4,38, 54,338 MADE BY THE ASSESSING OFFICER. 6. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), REVENUE HAS PREFERRED THE APPEAL, ITA NO.1326/HYD/2010 BEFORE U S, WHEREAS THE ASSESSEE THROUGH ITS APPEAL ITA NO.1378/HYD/2010, C ONTESTS THE DISALLOWANCE SUSTAINED BY THE CIT(A). ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 6 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTI NG THE REASONING OF THE ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE H AVING NOT BEEN ABLE TO PROVE THAT THE INVESTMENTS MADE WERE FOR BUSINESS E XPEDIENCY, THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFI CER WAS PERFECTLY IN ORDER. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE OF INTERE ST BY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL, SINCE EACH ASSESSMENT YEAR H AS TO BE VIEWED INDEPENDENTLY ON THE BASIS OF THE FACTS INVOLVED IN THAT ASSESSMENT YEAR ONLY. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT NO EVIDENCE HAS BEEN PRODUCED BY THE ASSESSEE TO PROVE THAT THE INV ESTMENTS WERE MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THE LEARNED DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT UNLESS THERE IS RECIPROCAL TRANSACTI ONS BETWEEN THE PARTIES, THERE CANNOT BE ANY COMMERCIAL EXPEDIENCY. HE SUBMI TTED THAT IN THE CONTEXT OF THE PRESENT APPEAL, THE ASSESSEE HAS FAILED TO P ROVE THAT THERE WERE ANY RECIPROCAL TRANSACTIONS BETWEEN THE ASSESSEE AND TH E COMPANIES, IN WHICH IT HAS MADE INVESTMENTS. THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT EVEN FOR THE INVESTMENTS MADE IN EARLIER ASSES SMENT YEARS PROPORTIONATE INTEREST CAN BE DISALLOWED SINCE ELEMENT OF CONTINU ING COST IS INVOLVED. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMIT TED THAT THE INVESTMENTS MADE BY THE ASSESSEE IN SHARE CAPITAL OF OTHER COMP ANIES IS FOR THE PURPOSE OF EARNING DIVIDEND INCOME WHICH IS EXEMPT PROPORTI ONATE INTEREST IS REQUIRED TO BE DISALLOWED U/S 14A OF THE ACT. FOR THIS PROPO SITION THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISION OF INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN THE CASE OF DCIT V/S. MAHESWARI PLAZA RESOURCES LIMITED IN ITA NO.778 AND OTHERS HYD/2009 DATED 31-10-2011. 8. THE LEARNED AR AT THE OUTSET SUBMITTED THAT SO FAR AS INVESTMENT IN SHARE CAPITAL OF KGPL AND OTHER COMPANIES MADE IN T HE EARLIER ASSESSMENT ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 7 YEARS ARE CONCERNED, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF INCOME- TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN THE ASSE SSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06, 2004-05 AND 2003-04 IN IT A NOS. 1763/HYD/08, 842/HYD/08 AND ITA NO.919/HYD/06, WHEREIN THE TRIB UNAL HELD THAT THE INVESTMENT IN SHARE APPLICATION MONEY WAS FOR THE P URPOSE OF BUSINESS AND THEREFORE NO DISALLOWANCE OF INTEREST CAN BE MADE O N THAT ACCOUNT. SO FAR AS ADDITIONAL INVESTMENTS MADE DURING THE CURRENT ASSE SSMENT YEAR IS CONCERNED, THE LEARNED AR SUBMITTED THAT THEY WERE NOT MADE FROM BORROWED FUNDS. THEREFORE, THERE BEING NO NEXUS BETWEEN THE INTEREST PAID ON BORROWED FUNDS AND INVESTMENT MADE BY THE ASSESSEE, NO DISALLOWANCE OF INTEREST COULD BE MADE. THE LEARNED AR COUNTERI NG THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE INVE STMENT MADE SINCE IS FOR EARNING EXEMPT INCOME, DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A OF THE ACT, SUBMITTED THAT SUCH ARGUMENT IS NOT TENABLE SI NCE THE ASSESSING OFFICER HAS NOT DISALLOWED THE INTEREST U/S 14A OF THE ACT. THE LEARNED AR FURTHER SUBMITTED THAT THE DECISION IN CASE OF MAHESWARI PL AZA (SUPRA) IS DISTINGUISHABLE ON FACTS FROM THE ASSESSEES CASE. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO PERUSED THE ORDER DATED 3-11-2009 PASS ED BY THE CO-ORDINATE BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN ASSES SEES OWN CASE (SUPRA). THE CIT (A) HAS RESTRICTED THE ADDITION TO RS.1,39, 20,000/- BY ACCEPTING THE ASSESSEES CONTENTION THAT THE ISSUE IS COVERED BY THE EARLIER DECISION OF THE TRIBUNAL. IN THIS CONTEXT, IT HAS TO BE BORNE IN MIND THAT IF THERE IS A MUTUAL TRANSACTION BETWEEN THE ASSESSEE AND ITS SISTER CON CERN WITH WHOM THE ASSESSEE MADE INTEREST FREE ADVANCES THEN IT HAS TO BE CONSIDERED AS ADVANCES MADE BY THE ASSESSEE ON ACCOUNT OF COMMERC IAL EXPEDIENCY. IT CANNOT BE SIMPLY ACCEPTED THAT THE ISSUE IS COVERED BY THE EARLIER ORDER OF THE TRIBUNAL UNLESS THE FACTS IN THE PRESENT APPEAL FITS IN TO THE FACTS OF THE ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 8 EARLIER YEAR CONSIDERED BY THE TRIBUNAL. IN THE PRE SENT CASE, WE FIND THAT NOTHING HAS BEEN MENTIONED EITHER IN THE ASSESSMENT ORDER OR IN THE ORDER OF THE FIRST APPELLATE AUTHORITY WHETHER THERE IS ANY MUTUAL TRANSACTION BETWEEN THE ASSESSEE AND ITS SISTER CONCERN. NOTHING HAS BE EN PLACED ON RECORD AS TO WHETHER THE ASSESSEE HAS AVAILED POWER FROM ITS SIS TER CONCERN AT A CHEAPER RATE TO SHOW THE EXISTENCE OF COMMERCIAL EXPEDIENCY IN MAKING THE INVESTMENT. NOTHING HAS BEEN MENTIONED AS TO WHAT A RE THE TERMS AND CONDITIONS BETWEEN THE ASSESSEE AND ITS SISTER CONC ERN FOR AVAILING THE POWER. IT IS ALSO NOT KNOWN WHETHER THE ASSESSEE HAS START ED AVAILING POWER FROM ITS SISTER CONCERN OR NOT. IN THE AFORESAID CIRCUMSTAN CES, THE ASSESSING OFFICER IS REQUIRED TO EXAMINE WHETHER MUTUAL TRANSACTION EXIS TS BETWEEN THE ASSESSEE AND THE OTHER COMPANIES IN WHICH THE ASSESSEE HAS M ADE THE INVESTMENT. ONLY IF IT IS FOUND AS A RESULT OF NECESSARY VERIFI CATION AND ENQUIRY THAT MUTUAL TRANSACTION BETWEEN THE ASSESSEE AND THE COMPANYS WHERE IT HAS MADE INVESTMENTS WITHOUT CHARGING INTEREST , THEN THE IN VESTMENTS ARE CONSIDERED TO HAVE BEEN MADE ON ACCOUNT OF COMMERCIAL EXPEDIEN CY. WE THEREFORE REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO CONSIDE R THE ISSUE AFRESH AND DECIDE ACCORDINGLY. 11. THIS LEAVES US WITH THE OTHER ISSUE RAISED BY T HE DEPARTMENT IN GROUND NO.(II) IN ITS APPEAL IN ITA NO. 1326/HYD/10 WHICH READS AS UNDER:- THE CIT (A) HAS ERRED IN DIRECTING TO DELETE THE ADDI TION ON ACCOUNT OF EXCISE DUTY AFTER VERIFICATION OF THE PAYMENTS M ADE BEFORE DUE DATE, BASED ON JUDICIAL PRONOUNCEMENTS. THE INSERTI ON OF SECTION 145A IS AIMED AT NEGATING SUCH JUDICIAL PRONOUNCEME NTS. THE FACTS OF THE ISSUE IN BRIEF ARE , IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE THE VALUE OF CLOSING STOCK INCLUDING THE EXCISE DUTY AND CESS IS RS.3,15,06,467/-, THE ASSES SEE HAS SHOWN AN AMOUNT ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 9 OF RS.2,70,63,235/- IN THE P & L A/C. THE ASSESSIN G OFFICER WAS OF THE VIEW THAT AS PER THE PROVISION U/S 145A OF THE ACT THE C LOSING STOCK HAS TO BE VALUED INCLUDING THE DUTY OR CESS PAYABLE ON THE CL OSING STOCK. THE ASSESSING OFFICER THEREFORE ADDED THE DIFFERENTIAL AMOUNT ON ACCOUNT OF DUTY AND CESS AMOUNTING TO RS.44,43,232/-. BEFORE THE FIRST APP ELLATE AUTHORITY, IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS MADE PROVISIO N FOR EXCISE DUTY PAYABLE ON STOCK AS ON 31-3-2007 AT RS.79,95,264/- WHICH WA S INCLUDED IN THE LIABILITIES FOR EXPENSES. INSTEAD OF DEBITING THE SAID AMOUNT TO THE PROFIT & LOSS A/C, THE ASSESSEE HAS REDUCED IT FROM CLOSING STOCK VALUATION. THE ASSESSEE REFERRING TO THE RE-CASTED PROFIT AND LO SS A/C SUBMITTED BEFORE THE ASSESSING OFFICER CONTENDED THAT THE EXCISE DUTY PA YABLE AT RS.79,95,294 IS TO BE ADDED BACK WHILE COMPUTING TAXABLE INCOME IF NOT PAID BEFORE FILING OF THE RETURN OF INCOME. HE SUBMITTED THAT IF THE EXC ISE DUTY IS PAID BEFORE FILING OF THE RETURN, NO SUCH ADDITION COULD BE MAD E. THE ASSESSEE FURTHER SUBMITTED THAT IN FACT THE EXCISE DUTY WAS PAID BEF ORE FILING OF THE RETURN. THE CIT (A) AFTER CONSIDERING THE CONTENTIONS RAISE D BY THE ASSESSEE FOUND THAT THE CONTENTION OF THE ASSESSEE THAT THE EXC ISE DUTY HAS BEEN PROVIDE ON THE STOCK AS ON 31-3-2007 AND WAS INCLUDED IN TH E LIABILITIES FOR EXPENSES. HOWEVER, INSTEAD OF DEBITING TO PROFIT AND LOSS A/C , THE SAME IS REDUCED FROM THE CLOSING STOCK VALUATION WHICH HAS THE SAME IMPA CT ON THE PROFIT AND LOSS A/C AS SHOWN THE IN RE-CASTED PROFIT AND LOSS A/C. THE CIT (A) FURTHER FOUND THAT EXCISE DUTY OF RS.79,95,264/- WAS PAID BEFORE FILING OF THE RETURN. THE CIT (A) THEREFORE FOLLOWING THE DECISION OF THE INC OME-TAX APPELLATE TRIBUNAL HYDERABAD BENCH IN THE CASE OF THE CIT V/S. REGENC Y CERAMICS LIMITED IN INCOME-TAX APPELLATE TRIBUNAL 1639/HYD/08 DATED 29- 6-2009 AND THE DECISION OF HONBLE M.P. HIGH COURT IN THE CASE OF ACIT V/S. D & H SECHERON ELECTRO PVT. LIMITED (2008) 173 TAXMAN 188 DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 10 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS IS EVIDENT FROM THE RECORD THE ASSESSING OFFICER HAS MADE THE ADDITION BY HOLDING THAT THE CLOSING STOCK HAS TO BE VALUED INC LUDING THE DUTY AND CESS PAYABLE ON THE CLOSING STOCK AS PER THE PROVISION C ONTAINED U/S 145 OF THE ACT. ON GOING THROUGH THE PROVISION CONTAINED U/S 145A, IT IS CLEAR THAT THE PROVISION PRESCRIBE TWO CONDITIONS (I) IT HAS TO BE IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AN D (II) IT SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY OR CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF THE VALUATION. IT IS EVIDENT FROM THE ORDER OF THE CIT (A) THAT THE ASSESSEE HAS VALUED THE STOCK AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT AND EXCISE DUT Y HAS BEEN PAID BY THE ASSESSEE BEFORE FILING OF THE RETURN. IT HAS ALSO BEEN DEMONSTRATED BY FURNISHING THE RE-CASTED PROFIT AND LOSS A/C THAT T HE METHOD ADOPTED BY THE ASSESSEE IN VALUATION OF CLOSING STOCK HAS ABSOLUTE LY NO IMPACT ON THE INCOME DECLARED BY THE ASSESSEE. IN AFORESAID VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THE ORDER PASSED BY THE CIT (A) NEEDS NO INTERFERENCE. HENCE GROUND RAISED BY THE REVENUE IS THEREFORE DISMISSED . 13. IN THE RESULT, WHILE THE REVENUES APPEAL IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES, THE ASSESSEES APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 6-11-2012. SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 6TH NOVEMBER,, 2012 ITA NOS. 1378 AND 1376 OF 2010 M/S. VBC FERRO ALLOYS LTD. HYD. 11 COPY FORWARDED TO: 1. M/S. VBC FERRO ALLOYS LIMITED, PROGRESSIVE TOWERS, III FLOOR, 6-2-913/914,KAIRATABAD, HYDERABAD500 004. 2. 3. 4 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3( 3 ), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-IV, HYDERABAD COMMISSIONER OF INCOME-TAX III, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S/JMR* .