Sachdeva Steel Product, Bhavnagar V. The ACIT.,Circle-2, Bhavnagar

ITA 1360/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60241 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 28-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Keywords: Business income; Depreciation; Condonation of delay; Set aside
• Section: 43B; 143(3)

Judgement Text

ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A, AHNMEDABAD. (BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI ANIL CHATURVEDI, A.M.) I.T.A. NO. 1360/AHD/2009 (ASSESSMENT YEAR: 2004-05) SACHDEVA STEEL PRODUCT, (ROLLING MILL), PLOT NO. 506, G.I.D.C PHASE-II, SIHOR, BHAVNAGAR. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-2, BHAVNAGAR. (RESPONDENT) PAN: AAHFS 5224M APPELLANT BY : SHRI TUSHAR HEMANI RESPONDENT BY : SHRI RAHUL KUMAR, SR.D.R. ( )/ ORDER DATE OF HEARING : 15-3-2012 DATE OF PRONOUNCEMENT : 13-4-2012 PER: SHRI ANIL CHATURVEDI,A.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT (A)-XX, AHMEDABAD DATED 23-10-2007 FOR THE ASSESSME NT YEAR 2004- 05. THE REGISTRY HAS TAKEN AN OBJECTION THAT THE AP PEAL HAS BEEN FILED WITH A DELAY OF 455 DAYS. ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 2 2. THE FACTS ARE THAT THE CIT (A) DISPOSED OF THE A PPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 VIDE ORDER DAT ED 23.10.2007. AS PER S. 253(3), AN APPEAL, IN ORDER TO BE WITHIN LIMITATION, CAN BE FILED BEFORE THE TRIBUNAL WITHIN 69 DAYS OF THE DAT E ON WHICH THE ORDER OF THE CIT (A) WAS COMMUNICATED TO THE ASSESSEE. AS PER FORM NO 36, THE DATE OF COMMUNICATION OF ORDER OF THE CIT (A) T O THE ASSESSEE IS 30.11.2007. THEREFORE, THE APPEAL COULD HAVE BEEN F ILED WITHIN LIMITATION ON OR BEFORE 28.01.2008. HOWEVER, THE AP PEAL HAS BEEN FILED ONLY ON 28.4.2009. IN THE APPLICATION FOR CONDONATI ON OF DELAY, IT HAS BEEN STATED AS FOLLOWS:- 3. THE REASONS GIVEN BY THE ASSESSEE FOR LATE FILING OF APPEAL ARE SUMMARIZED SHORTLY AS UNDER:- (I) ASSESSEE SENT THE ORDER OF CIT (A) FOR PREPARIN G APPEAL PAPERS TO THEIR ADVOCATE SHRI VIPUL SHAH ON OR AROU ND 20- 12-2007. (II) ON RECEIVING THE ABOVE PAPERS AT THE OFFICE OF THE ADVOCATE SHRI VIPUL SHAH, HIS CLERK SHRI PARAG M. PAREKH, WH O WAS IN CHARGE OF INWARD DEPARTMENT BUT INADVERTENTLY PUT THE SAID DOCUMENTS IN HIS DRAWER AND DID NOT PASS ON THE SAM E TO THE CONCERNED ADVOCATE FOR DOING NEEDFUL. (III) ASSESSEE WAS UNDER THE IMPRESSION THAT THE AP PEAL MUST HAVE BEEN FILED BY THE ADVOCATE. ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 3 (IV) ON DEMANDING THE PAYMENT BY THE INCOME TAX DEP ARTMENT, ASSESSEE REALIZED THAT APPEAL HAS NOT BEEN FILED WI TH THE OFFICE OF THE TRIBUNAL. (V) AFTER MAKING SUBSTANTIAL EFFORTS FOR TRACING TH E SAID PAPERS WITH THE OFFICE OF THE ADVOCATE, THE SAME WERE TRAC ED ON 10-4-2009 AND THE APPEAL WAS FILED ON 28-4-2009. 4. THE ASSESSEE HAS ALSO FILED A NOTARIZED AFFIDAVI T OF MR. PARAG PAREKH, THE EMPLOYEE OF THE CONSULTANT AND THE SAME IS PLACED ON RECORD. 5. LEARNED D.R. OF THE REVENUE OBJECTED TO THE COND ONATION OF DELAY BUT CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE, AS NARRATED IN THE CONDONATION APPLICATION OF THE ASSE SSEE, WE ARE OF THE CONSIDERED OPINION THAT THE DELAY WAS NOT MALAFIDE AND IT WAS FOR VALID REASON BEING LAPSE ON THE PART OF THE CONSULT ANT AND HENCE WE CONDONE THIS DELAY AND ADMIT THE APPEAL 6. SINCE THE GROUND NO 1 TO 4 ARE INTERLINKED THE S AME ARE TAKEN TOGETHER. THESE GROUNDS RAISED BY THE ASSESSEE READ S AS UNDER: 1. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF A.O. IN ADDING RS.3,57,590/- ON ACCOUNT O F SALES TAX TO THE FIGURE OF CLOSING STOCK BY INVOKING PROVISIO NS OF S. 145A OF THE ACT. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, IF SALES TA X AND EXCISE DUTY ARE INCLUDED IN THE CLOSING STOCK, CORRESPONDI NGLY DEDUCTION U/S. 43B OF THE ACT MAY KINDLY BE ALLOWED AS THESE ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 4 DUTIES HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, IF CLOSING STOCK IS INCREASED, CORRESPONDINGLY OPENING STOCK MAY ALSO K INDLY BE REVALUED AND ADJUSTED FOR THE YEAR UNDER CONSIDERAT ION. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, IF CLOSING STOCK IS INCREASED FOR THE YEAR UNDER CONSIDERATION, CORRESP ONDINGLY OPENING STOCK FOR THE SUCCEEDING ASSESSMENT YEAR I. E. A.Y. 05-06 MAY ALSO KINDLY BE DIRECTED TO BE INCREASED A ND ADJUSTED. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A FIRM ENGAGED IN THE BUSINESS OF RE-ROLLING OF SCRAP AND MANUFACTURING MS ROUND BAR, TMT BARS, ANGLES, FLATS, SQUARE AND WIND OW SECTIONS FROM RE-ROLLING ACTIVITY. THE RAW MATERIAL USED IN THIS BUSINESS IS RE- ROLLABLE SCRAP AND INGOTS AND THE BY-PRODUCT IS MEL TING SCRAP. THE BUSINESS IS BEING CARRIED ON FROM THE ITS FACTORY L OCATED AT SIHOR, DISTRICT BHAVNAGAR. ASSESSEE FILED RETURN OF INCOME ON 30-10-2004, DECLARING TOTAL INCOME OF RS.29,53,390/- THE CASE W AS SUBSEQUENTLY SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S 143(3) VIDE ORDER DATED 15.12.2006 AND THE TOTAL INCOME WA S DETERMINED AT RS. 46,25,500. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O COMPARED THE ANNEXURE B1 AND B2 TO THE TAX AUDIT RE PORT AND THE BALANCE SHEET OF THE ASSESSEE. IT WAS OBSERVED BY T HE A.O. THAT THE ASSESSEE HAS SHOWN INCREASE IN PROFIT OF RS 2,69,49 9/- IF SALES TAX IS ADJUSTED TO INCLUDE IN THE VALUE OF STOCK OF RAW MA TERIALS AS PPER SECTION 145A (I.E. IF INCLUSIVE METHOD IS FOLLOWED. IT WAS ALSO OBSERVED ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 5 BY THE A.O. THAT IN THE BALANCE SHEET, THE SALES TA X SET OFF RECEIVABLE WAS SHOWN AT RS 6,27,089/-. IN RESPONSE TO THE QUER Y OF THE A.O. TO EXPLAIN THE DIFFERENCE IN FIGURES, THE ASSESSEE SUB MITTED THAT IT FOLLOWS EXCLUSIVE METHOD OF RECORDING ITS TRANSACTI ONS INCLUDING CLOSING STOCK. IT WAS FURTHER STATED THAT EVEN IF T HE ASSESSEE FOLLOWED INCLUSIVE METHOD, THERE WOULD NOT BE ANY REVENUE IM PACT ON THE PROFIT SHOWN BY IT. IT RELIED ON THE ANNEXURE B1 AND B2 TO THE TAX AUDIT REPORT. ASSESSEE ALSO RELIED ON THE CERTIFICATE OF THE CHARTERED ACCOUNTANT TO THE EFFECT THAT UNDER BOTH THE EXCLUS IVE AS WELL AS INCLUSIVE METHODS, THE PROFIT OF THE ASSESSEE WOULD REMAIN THE SAME. THE CONTENTIONS OF THE ASSESSEE WERE NOT ACCEPTED B Y THE ASSESSING OFFICER. HE WORKED OUT THE DIFFERENCE OF RS 3,57,59 0 (RS 6,27,089 - RS 2,69,499) U/S 145A AND ADDED THE SAME BY INFLATING THE VALUE OF THE CLOSING STOCK. 9. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). CIT (A) DISALL OWED THE ASSESSEES CLAIM BY HOLDING AS UNDER:- 3.1. BEFORE ME THE APPELLANT MADE THE FOLLOWING SUB MISSIONS: THE APPELLANT MOST RESPECTFULLY SUBMITS THA T THE WHOLE APPROACH OF LD. A.O. IS NEITHER SUSTAINABLE O N FACTS NOR IN LAW. THE LD. A.O. HAS COMPARED APPLES WITH ORANGES. LD. A.O. HAS COMPARED SOMETHING WHICH IS N OT AT ALL COMPARABLE. LD, A.O. TRIED TO RECONCILE THE FIG URE OF SALES TAX IN THE CLOSING STOCK, IF THE APPELLANT WE RE TO FOLLOW INCLUSIVE METHOD, WITH THE FIGURE OF SALES T AX SET OFF RECEIVABLE APPEARING IN THE BALANCE SHEET. THE FORM ER RELATES TO AND INDICATES THE AMOUNT OF SALES-TAX, W HICH WOULD HAVE BEEN INCLUDED IN THE CLOSING STOCK HAD T HE ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 6 INCLUSIVE METHOD BEEN FOLLOWED WHEREAS THE LETTER S HOWS THE TOTAL AMOUNT OF SALES-TAX SET OFF CLAIMED AND R ECEIVABLE BY THE APPELLANT FOR THE ENTIRE SALES TAX SET OFF S CHEME. THE FIGURE APPEARING IN THE BALANCE SHEET IS THE TOTAL SALES TAX SET OFF FOR THE ENTIRE PERIOD OF THE SALES TAX SET OFF SCHEME TILL 31-3-2004 AND NOT AT ALL CONNECTED WITH THE FI GURE OF CLOSING STOCK OF THE GOODS AVAILABLE WITH THE APPEL LANT AT THE YEAR END. THE FIGURE IN THE BALANCE SHEET REPRE SENTS THE TOTAL ELIGIBILITY OF THE APPELLANT IN CLAIMING THE SET OFF FOR THE ENTIRE PERIOD. THE APPELLANT SUBMITS THAT T HERE IS BOUND TO BE SOME DIFFERENCE BETWEEN THESE TWO FIGUR ES, INASMUCH AS THE FIGURE IN THE ANNEXURE B1 IS ONLY I N RESPECT OF THE CLOSING STOCK, WHEREAS THE FIGURE IN THE BALANCE SHEET IS THE OVERALL FIGURE OF THE SALES TA X SET OFF. THE APPELLANT THEREFORE, MOST RESPECTFULLY SUBMITS THAT THE ENTIRE ADDITION MAY KINDLY BE DELETED AS THE SAME H AS BEEN MADE WITHOUT ANY APPLICATION OF MIND. ALTERNATIVELY AND WITHOUT PREJUDICE, THE APPELLANT SUBMITS THAT IF THE CLOSING STOCK FOR THE YEAR UNDER CONSID ERATION IS TO BE INCREASED, THE OPENING STOCK FOR THE YEAR UND ER CONSIDERATION, MAY ALSO KINDLY BE REVALUED AND ADJU STED ACCORDINGLY. ALTERNATIVELY AND WITHOUT PREJUDICE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT IN CASE, IF YOUIR HONOURS CONFIRMS THE ADDITION IN THE HANDS OF THE APPELLANT, APPROPR IATE DIRECTION MAY BE GIVEN SO AS TO INCREASE THE OPENIN G STOCK IN THE SUCCEEDING ASSESSMENT YEAR I.E. A.Y. 2005-06 . 3.2. I HAVE CAREFULLY CONSIDERED THE CASE OF THE A. O. AND SUBMISSIONS OF THE APPELLANT. I FIND THAT THE APPEL LANT HAS NOT CLARIFIED THE ELEMENT OF SALES TAX IN THE CLOSING S TOCK AND IT HAS BEEN ACCEPTED THAT VALUATION OF CLOSING STOCK IS WI THOUT SALES TAX WHICH AS PER SEC.145A OF THE ACT IS NOT JUSTIFI ED. SINCE SPECIFIC PROVISION IS THERE IN THE I.T. ACT, THE CL OSING STOCK IS TO BE VALUED INCLUDING SALES TAX WHICH THE APPELLANT F AILED. SINCE THE APPELLANT HAS NOT GIVEN THE BREAK UP OF SALES T AX FIGURES TO A.O. AND ALSO NOT FILED CLARIFICATION TO THIS EFFEC T BEFORE ME, I FIND ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 7 THAT A.O. HAS NO ALTERNATIVE BUT TO ADD THE SAME TO THE CLOSING STOCK. SUBJECT TO RECTIFICATION OF FIGURES, THE ACT ION OF THE A.O. IS CONFIRMED. 10. AGGRIEVED BY THE ABOVE ORDER OF CIT (A), NOW TH E ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. A.R. STATED THAT THE A.O. HAD WRONGLY C OMPARED THE TAX AUDIT REPORT AND THE BALANCE SHEET OF THE ASSESSEE. HE POINTED OUT THAT IN ANNEXURE B1 OF THE TAX AUDIT SHOWS THE WORK ING OF DEVIATION FROM THE METHOD OF VALUATION AS PRESCRIBED U/S 145A AND EFFECT THERETO TO THE PROFIT & LOSS ACCOUNT. IT FURTHER SH OWS THAT BY FOLLOWING EITHER THE INCLUSIVE METHOD OR INCLUSIVE METHOD OF CONSIDERING THE SALES TAX AND EXCISE, THERE IS NO EFFECT TO THE PRO FIT AND LOSS ACCOUNT AND IT IS TAX NEUTRAL. THE DETAIL WORKING OF THE AN NEXURE SHOWS THAT IF SALES TAX IS INCLUDED FOR VALUATION OF CLOSING STOC K, THE VALUE OF STOCK WILL HAVE TO BE INCREASED BY RS. 2,69,499. HOWEVER, THERE WILL ALSO BE CHANGE IN OTHER FIGURES OF THE COST WHICH ULTIMATEL Y RESULT INTO BEING TAX NEUTRAL, PROFIT WILL INCREASE BY RS 2,69,499/-. IN THE BALANCE SHEET THE FIGURE OF RS 6,27,089/- REPRESENTS THE SALES TA X SET OFF RECEIVABLE. IT IS THE TOTAL SALES TAX SET OFF CLAIMED AND RECEIVAB LE FOR THE ENTIRE SALES TAX SET OFF SCHEME TILL 31.3.2004 AND IS NOT AT ALL CONNECTED WITH THE FIGURE OF CLOSING STOCK OF THE GOODS AVAILABLE WITH THE APPELLANT AT THE YEAR END. THE FIGURE IN THE BALANCE SHEET REPRESENT S THE TOTAL ELIGIBILITY OF THE ASSESSEE IN CLAIMING THE SET OFF FOR THE ENTIRE PERIOD. HE FURTHER STATED THAT THERE IS BOUND TO BE DIFFERE NCE IN THE FIGURES BECAUSE WHAT HAS BEEN SHOWN IN ANNEXURE B1 IS ONLY IN RESPECT OF ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 8 CLOSING STOCK AS AT THE END OF THE YEAR WHEREAS THE FIGURE IN THE BALANCE SHEET IS THE OVERALL FIGURE OF THE SALES TA X SET OFF. THE LD. A.R. STRONGLY URGED THAT THE ADDITION MADE BY THE A.O. I S WRONG AND THEREFORE THE SAME NEEDS TO BE DELETED. HE ALSO PLA CED BEFORE US THE ORDER DATED 11.09.2009 OF THE CO-ORDINATE BENCH IN THE CASE OF ALPANIL INDUSTRIES VS ACIT (ITA NO 169/AHD/2005, 170/AHD/20 05. WHEREIN ON IDENTICAL FACTS, THE HBLE TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE LD.D.R. ON THE OTHER HAND STRONGLY RE LIED ON THE DECISION OF THE LOWER AUTHORITIES. 12. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTI ES, PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE THE DISPUTE IS REGARDING VALUATION OF CLOSING STOCK IN VIEW OF THE PROVISION S OF SECTION 145A OF THE INCOME TAX ACT, 1961. IN THE CASE OF ALPANIL IN DUSTRIES (SUPRA) ON IDENTICAL FACTS, THE CO-ORDINATE BENCH HAS HELD AS UNDER: 17. THE LD. A.O. OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED THE ELEMENT OF EXCISE DUTY WHICH WAS PAID BY THE ASSESSEE ON HIS PURCHASES OF RAW MATERIAL. IN VIEW OF NON INCLUSION OF THIS EXCISE DUTY IN RESPECT OF WHICH M ODVAT CREDIT WAS AVAILABLE TO THE ASSESSEE. ACCORDING TO THE LD. CIT(A), INCOME OF RS.26,95,884/- WAS UNDERSTATED BY THE ASS ESSEE. ON THE OTHER HAND THE CLAIM OF THE ASSESSEE IS THAT BY INCLUSION OF THIS EXCISE DUTY IN THE CLOSING STOCK THERE WILL NO EFFECT IN THE PROFIT AS THE CORRESPONDING AMOUNT WILL ALSO BE TH EN INCLUDED IN THE PURCHASES. THE ASSESSEE IN SUPPORT OF THE ABOVE ARGUMENT RELIED UPON THE VIEW EXPRESSED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN ITS GUIDELINES, WHEREIN IT WAS EXPLAINED THAT FOLLOWING OF EITHER INCLUSIVE METHOD OF ACCOUN TING OR EXCLUSIVE METHOD OF ACCOUNTING WILL NOT HAVE ANY EF FECT ON THE PROFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT. TH E ONLY EFFECT OF FOLLOWING INCLUSIVE METHOD WILL BE THAT THE EXCISE DUTY LIABILITY ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 9 WILL APPEAR IN THE BALANCE SHEET WHICH WILL BE ADDE D BACK TO THE INCOME OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 43B TO THE EXTENT NOT PAID BY THE ASSESSEE BEFORE THE D UE DATE OF FURNISHING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. THE ABOVE VIEW WAS ALSO EXPRESSED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE DY. COMMISSIONER OF INC OME-TAX, CIRCLE-1, BARODA VS. GUJARAT FLUORO-CHEMICALS LTD. IN ITA NO.3742/AHD/2002 ASSESSMENT YEAR 1999-00 ORDER DATE D 28-9- 2006. IN OUR CONSIDERED OPINION, THE LOWER AUTHORIT IES HAVE NOT PROPERLY APPRECIATED THE EFFECT OF SECTION 145A OF THE ACT. THE LD. C.I.T.(A) BY WAY OF AN ILLUSTRATION CONCLUDED T HAT THERE WILL BE A DIFFERENCE IN THE PROFIT ON FOLLOWING INCLUSIVE A ND EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. IN THE ILLUST RATION CITED IN THE ORDER, THE LD. CIT(A) FOUND THE DIFFERENCE AT R S.80/-. ACCORDING TO THE LD. CIT(A) IN THE INCLUSIVE METHOD IN THE ILLUSTRATION, THE ASSESSEES PROFIT WORKED OUT TO R S.380/- WHEREAS IN THE EXCLUSIVE METHOD, THE ASSESSEES PROFIT COME S TO RS.300/-. THUS, THERE WAS A DIFFERENCE OF RS.80/- IN THE PROF IT. WE ON A CLOSER LOOK AT THE ILLUSTRATION FIND THAT THE DIFFE RENCE HAS OCCURRED DUE TO AN ERROR BY THE LD. CIT(A) IN NOT C ONSIDERING THE EXCISE DUTY EXPENDITURE OF THE ASSESSEE. IT WAS OBS ERVED FROM THE ILLUSTRATION THAT ASSESSEE HAS COLLECTED EXCISE DUTY OF RS.180/- BY UTILIZING THE RAW MATERIAL ON WHICH EXC ISE DUTY OF RS.100/- WAS PAID TO THE GOVERNMENT. THUS, THE ASSE SSEE WAS LIABLE TO PAY A FURTHER EXCISE DUTY OF RS.80/- TO T HE GOVERNMENT. WHEN THE EXPENDITURE OF RS.80/- IS TAKEN INTO ACCOU NT IN THE ILLUSTRATION, GIVEN FOR INCLUSIVE METHOD THEN THE P ROFIT AS PER INCLUSIVE METHOD ALSO WORKS OUT TO RS.300/- WHICH I S EXACTLY THE SAME AS PER EXCLUSIVE METHOD. FURTHER, THE LD. CIT (A) IN THE ILLUSTRATION CITED IN HIS ORDER HAS NOT ACCOUNTED F OR THE AMOUNT OF MODVAT UTILIZED BY THE ASSESSEE IN PAYMENT OF EX CISE DUTY IN RESPECT OF RAW MATERIAL NOT UTILIZED FOR MANUFACTUR ING. IN THE ILLUSTRATION, THE LD. CIT (A) HAS SHOWN THAT ASSESS EE HAS UTILIZED AMOUNT OF RS.180/- OUT OF AMOUNT OF RS.200/- OF EXC ISE DUTY PAID ON PURCHASE AGAINST THE EXCISE DUTY LIABILITY OF RS .180/- ON SALES. HOWEVER, THIS UTILIZATION OF RS.180/- WAS ALLOWED T O THE ASSESSEE IN RESPECT OF STOCK WHICH WAS NOT USED FOR MANUFACT URING ALSO TO THE EXTENT OF RS.80/-. THE LD. CIT(A) IGNORED T HE FACT THAT IF IN FUTURE THE CLOSING STOCK IS NOT UTILIZED FOR MANUFA CTURING, THEN ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 10 THE MODVAT CREDIT UTILIZED WOULD BE REVERSED AND TH E ASSESSEE WOULD BE FURTHER LIABLE TO PAY RS.80/- TO THE GOVER NMENT. IN A NUTSHELL THE LD. CIT(A) ARRIVED AT WRONG CONCLUSION BECAUSE OF NOT CONSIDERING THE ASSESSEES LIABILITY FOR UTILIZ ATION OF MODVAT CREDIT IN RESPECT OF UNCONSUMED RAW MATERIAL. THE I SSUE CAN BE LOOKED INTO FROM YET ANOTHER ANGLE. SECTION 145A RE QUIRES REVALUATION OF NOT INVENTORY ALONE BUT ALSO REQUIRE S REVALUATION OF PURCHASE AND SALES. ON REVALUATION OF PURCHASE B Y INCLUDING THE AMOUNT OF EXCISE DUTY IN RESPECT OF WHICH MODVA T CREDIT IS AVAILABLE TO THE ASSESSEE, THE PURCHASE OF THE ASSE SSEE WILL INCREASE RESULTING IN CORRESPONDING DECREASE IN THE PROFIT OF THE ASSESSEE. THE ASSESSEES CONTENTION THAT VALUE OF C LOSING STOCK IS CREDITED IN THE PROFIT AND LOSS ACCOUNT TO SET O FF THE VALUE OF UNCONSUMED ITEMS OF PURCHASE AND THEREFORE, BOTH SH OULD HAVE SAME BASIS CANNOT BE CONTROVERTED. THE ONLY EXCEPTI ON TO THIS THEORY IS THAT WHEN THE MODVAT VALUE IS LESS THAN T HE COST THEN EFFECTIVELY UNREALIZED LOSS IS ALLOWED AS A DEDUCTI ON TO THE ASSESSEE ON THE WELL SETTLED PRINCIPLES. IN THE INS TANT CASE, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REVALUING O NLY CLOSING STOCK AS TO INCLUDE THE AMOUNT OF EXCISE DUTY PAID ON PURCHASE WITHOUT REVALUING THE CORRESPONDING PURCHASES. WE H AVE GONE THROUGH THE GUIDELINES EXPLAINED BY THE ICAI AND FI ND OURSELVES IN AGREEMENT THEREWITH THAT THERE WILL NOT BE ANY E FFECT ON THE PROFIT OR LOSS ARRIVED AT EITHER BY FOLLOWING INCLU SIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNTING FOR EX CISE DUTY. THE ONLY EFFECT WILL BE THAT THE EXCISE DUTY PAYABL E ON CLOSING STOCK OF FINISHED GOODS WILL BE TO THE EXTENT NOT D EPOSITED WITH THE GOVERNMENT BEFORE THE DUE DATE OF FURNISHING OF RETURN WILL BE ADDED TO THE INCOME OF THE ASSESSEE IN VIEW OF P ROVISION OF SECTION 43B OF THE ACT. IN VIEW OF THE DISCUSSION M ADE HEREINABOVE, IN OUR CONSIDERED OPINION, THERE WILL BE NO EFFECT IN THE TAXABLE PROFIT OF THE ASSESSEE BY INCLUDING THE AMOUNT OF EXCISE DUTY PAID ON PURCHASES IN THE VALUE OF CLOSI NG STOCK OF RAW MATERIAL, WHETHER AS RAW MATERIAL OR AS FORMING PART OF WORK- IN-PROGRESS OR FINISHED GOODS. WE THEREFORE, SET AS IDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE IN BOTH THE YEAR UNDER APPEAL AND ALLOW THE GROUNDS OF APPEAL OF THE ASSES SEE. ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 11 13. IN VIEW OF THE ABOVE FACTS WE ARE OF THE VIEW T HAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF APAPNIL INDUSTRIES LTD (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF CO- ORDINATE BENCH IN THE CASE OF M/S. ALAPNIL INDUSTRI ES LTD., WE SET ASIDE THE ORDER OF LOWER AUTHORITIES AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. THEREFORE THIS GROUND OF APPEAL OF THE AS SESSEE IS ALLOWED. 14. GROUND NO 5 AND 6 OF THE ASSESSEES APPEAL ARE CONSIDERED TOGETHER SINCE THE SAME HAVE BEEN DISPOSED TOGETHER BY CIT (A). THE GROUNDS READS AS UNDER: 5- THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISAL LOWING RS 10000/- OUT OF TELEPHONE AND MOBILE EXPENSES. 6- THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING RS 1 0,000/- OUT OF VEHICLE EXPENSES AND RS 15,000/- OUT OF VEHICLE DEP RECIATION. 15. FACTS ARE THAT SCRUTINY OF PROFIT AND LOSS ACCO UNT BY THE A.O. REVEALED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED TELEPHONE AND MOBILE EXPENSES OF RS.1,12,20 8/-. THE AUDITOR IN HIS AUDIT REPORT IN COLUMN NO.17(B) HAS NOT MENT IONED ANY EXPENDITURE OF PERSONAL NATURE DEBITED TO THE PROFI T AND LOSS ACCOUNT. THE A.O. WAS OF THE VIEW THAT AS THE DETAILS OF CAL LS MADE FROM THESE PHONES HAVE NOT BEEN FURNISHED, IT CANNOT BE SAID T HAT ALL THE CALLS MADE FROM SUCH TELEPHONES RELATED TO THE ASSESSEES BUSINESS ONLY. MOREOVER, PERSONAL USE OF TELEPHONE BY THE PARTNERS AND THEIR FAMILY MEMBERS CANNOT BE OVERRULED. THE A.O. ACCORDINGLY D ISALLOWED A ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 12 LUMP SUM AMOUNT OF RS.12,000/- OUT OF TELEPHONE AND MOBILE EXPENSES AND ADDED TO THE TOTAL INCOME. 16. THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED VEHICLE EXPENSES OF RS.1,55,636/-, CAR DEPRECIATION FOR TWO CARS OF RS.1,50,391/-. THE A.O. WAS OF THE VIEW THAT PERSON AL USE OF CARS BY THE PARTNERS AND THEIR FAMILY MEMBERS CANNOT BE OVE RRULED. MOREOVER, ASSESSEE HAS NOT MAINTAINED ANY LOG BOOK FOR THE US E OF THESE CARS. ASSESSEE HAS NOT PRODUCED ANY EVIDENCES THAT CARS W ERE USED EXCLUSIVELY FOR BUSINESS PURPOSES ONLY. CONSIDERING THESE FACTS THE A.O. MADE A DISALLOWANCE OF A LUMP SUM AMOUNT OF RS .31,000/- OUT OF VEHICLE EXPENSES AND RS.30,000/- OUT OF CAR DEPRECI ATION EXPENSES. 17. BEING AGGRIEVED BY THE ORDER OF A.O. THE AS SESSEE PREFERRED APPEAL BEFORE CIT(A). CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 6. GROUND NOS.7 AND 8 ARE RELATING TO DISALLOWANCE OF TELEPHONE AND MOTOR CAR EXPENDITURE ON THE GROUND O F PERSONAL USAGE. THE APPELLANT SUBMITTED THAT THIS DISALLOWAN CE IS VERY MUCH ON THE HIGHER SIDE AND THE SAME MAY KINDLY BE RESTRICTED TO SOME TOKEN REASONABLE AMOUNT. 6.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I AM OF THE VIEW THAT THE ASSESSING OFFI CER HAS MADE THE ADDITIONS WITHOUT BRINGING ANY MATERIAL ON RECO RD TO JUSTIFY THE PERSONAL ELEMENT OF USAGE. HOWEVER, PERSONAL EL EMENT CANNOT BE RULED OUT ALTOGETHER. I, THEREFORE, HOLD THAT DISALLOWANCE OF A SUM OF RS.10,000/- OUT OF TELEPHO NE EXPENSES, A SUM OF RS.10,000/- OUT OF MOTOR CAR EXPENSES AND A SUM OF RS.15,000/- FOR DEPRECIATION SHALL MEET THE END OF JUSTICE AND ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED . ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 13 18. AGGRIEVED BY THE ABOVE ORDER OF CIT (A), NOW TH E ASSESSEE IS IN APPEAL BEFORE US. THE LD. A.R. STATED THAT THE DISALLOWANCE HAS BEEN MADE BY THE A.O. WITHOUT PIN POINTING ANY SPECIFIC ITEM BUT ONL Y THE BASIS OF ASSUMPTION. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE A.O. TO JUSTIFY THE DISALLOWANCE. EVEN THE CIT(A) WHILE GIVING PARTIAL RELIEF HAS GIVEN A FINDING THAT THE ADDITION HAS BE EN MADE WITHOUT BRINGING ANY MATERIAL ON RECORD. IN THESE C IRCUMSTANCES THE LD. A.R. PLEADED THAT THE DISALLOWANCE BE DELET ED. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF THE A .O. 19. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTI ES, PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT T HE DISALLOWANCE HAS BEEN MADE ON ADDITION HOC BASIS WITHOUT THERE BEING ANY MATERIAL ON RECORD. THE DISALLOWANCE HAS BEEN MADE MERELY ON AS SUMPTION AND PRESUMPTIONS, IN VIEW OF THE AFORESAID FACTS, WE AR E OF THE VIEW THAT THE DISALLOWANCE MADE BY THE A.O. AND PARTLY CONFIR MED BY CIT(A) ARE WITHOUT ANY BASIS. WE THEREFORE DELETE THE SAME. TH IS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 20. THE NEXT GROUND IS CHARGING OF INTEREST U/S 234 A,B, AND C OF THE ACT, SINCE CHARGING OF INTEREST IS CONSEQUENTIAL TO THE TOTAL INCOME TO BE DETERMINED, THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE INTEREST WHILE GIVING EFFECT TO THIS ORDER. ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 14 21. THE NEXT GROUND IS AGAINST THE INITIATION OF PE NALTY PROCEEDINGS. THE SAID GROUND IS PREMATURE AND IS NOT REQUIRED TO BE ADJUDICATED UPON AT THIS DATE, THEREFORE, DISMISSED. 22. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13- 4 - 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) XX, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.1 360/AHD/2009 ASSESSME NT YEAR 2004- 05 . 15 1.DATE OF DICTATION 15 - 3 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 11 / 4 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 11 - 4 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 13 - 4 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 13 - 4 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13 - 4 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..