RAYCHEM RPG P.LTD, MUMBAI V. ASST CIT CIR 7(2), MUMBAI

ITA 1376/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101235 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 27-02-2014
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NIKANE
• Assessee Lawyers: YOGESH A THAR
• Keywords: Revision of order; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER ITA NO. 1376/M/2014 (AY 2005 - 2006 ) RAYCHEM RPG PRIVATE LIMITED, RPG HOUSE, 463, DR. ANNIE BESANT ROAD, MUMBAI 400 025. / VS. ACIT, CIRCLE 7(2), R.NO.624, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI 400 020. ./ PAN : AAACR8032L ( / APPELLANT) .. ( / RESPONDENT ) ITA NO. 1507/M/2014 (AY 2005 - 2006 ) ACIT, CIRCLE 7(2), R.NO.624, AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI 400 020. / VS. RAYCHEM RPG PRIVATE LIMITED, RPG HOUSE, 463, DR. ANNIE BESANT ROAD, MUMBAI 400 025. ./ PAN : AAACR8032L ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI YOGESH A. THAR / REVENUE BY : SHRI PRAMOD NIKANE, DR / DATE OF HEARING : 24.08.2015 / DATE OF PRONOUNCEMENT : 05.10 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS INVOLVING THE AY 2 005 - 06. CONSIDERING THE CONNECTIVITY OF BOTH THESE APPEALS, THEY ARE CLUBBED, HEA R D TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. ITA NO.1376/M/2014 (BY ASSESSEE) 2. THIS APPEAL FILED BY THE ASSESSEE ON 27.2.2014 IS AGAINST THE ORDER OF THE CIT (A) - 13, MUMBAI DATED FOR THE AY 2005 - 2006. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 2 I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED I CONFIRMING THE ACTION OF AO IN MAKING AN ADDITION U/S 145A ON THE ALLEGED GROUND THAT NOT FOLLOWING OF INCLUSIVE METHOD OF ACCOUNTING HAS RESULTED IN SHORT ASSESSMENT OF PROFITS TO THE TUNE OF RS. 33,24,676/ - . WITHOUT PREJUDICE TO GROUND NO. I II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IF THE AFORESAID ACTION OF THE CIT (A) IS UPHELD, AO BE DIRECTED TO REDUCE THE EXCISE DUTY / VAT ON THE OPENING STOCK IN COMPUTING THE ADDITION U/S 145A OF THE ACT. 3. THIS APPEAL ARISES FROM THE FRESH ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) R.W.S 263 OF THE ACT. THE REVISION ORDER PASSED BY THE CIT IS AFFIRMED BY THE TRIBUNAL. THE ITAT CONFIRMED THE ASSESSEES FAILURE TO FOLLOW THE INCLUSIVE METHOD OF ACCOUNTING SO FAR AS THE EXCISE DUTY / VAT IS CONCERNED. THUS, THE A SSESSEE IS UNDER OBLIGATION TO FOLLOW THIS METHOD U/S 145A OF THE ACT STATUTORILY . IN THE ASSESSMENT AN ADDITION OF RS. 33,24,676/ - WAS MADE AND THE SAME WAS CONFIRMED BY THE CIT (A) AND THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE SAID PROVISIONS OF SECTION 145 A MANDATES FOR THE ADJUSTMENTS TO THE INVENTORIES IE SALES ACCOUNT, PURCHASE ACCOUNT, OPENING STOCK ACCOUNT, FINISHED GOODS ACCOUNT ETC. HOWEVER, THE AO DID NOT ADJUST ALL THE SAID ACCOUNTS AND THE SAME IS EVIDENT FROM THE ASSESSMENT ORDER. HE FURTHER MENTIONED THAT IT IS THE REQUIREMENT OF THE LAW/ JUDGMENTAL LAW, VIDE THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. MAHAVIR ALUMINIMUM LTD (297 ITR 77) (DEL.) AND OTHER, THAT ALL THE ACCOUNTS CONNECTED WITH THE SALES, PURCHASES, INVENTORIES , THE CLOSING ACCOUNT OF THE FINISHED GOODS ARE REQUIRED TO BE ADJUSTED. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF HAWKINS COOKERS LTD VS. ITO [2008] 14 DTR (MUMBAI) (TRIB.) 206 AND OTHERS CITED ABOVE. 5. AFTER HEARING BOTH THE PARTIES , WE HAVE PERUSED THE CONTENTS OF PARA 5.4 OF THE IMPUGNED ORDER AND IT IS AN OBVIOUS OMISSION THAT ALL THE INVENTORY ACCOUNTS CONCERNED ARE NOT ADJUSTED. THEREFORE, T HE DISTORTION EXISTS IN THESE ORDERS OF THE REVENUE. THEREFORE, IN OUR OPINION, MATTER SHOULD BE REMANDED TO THE FILE OF THE AO FOR REMOVAL OF THE ANOMALIES IN THE LIGHT OF THE ABOVE CITED BINDING JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF MAHAVIR A LUMINIMUM LTD (SUPRA) AS WELL AS THE CITED ORDERS OF THE TRIBUNAL (SUPRA). ACCORDINGLY WE ORDER AND IT IS NEEDLESS TO SAY THAT 3 THE AO SHALL PROVIDE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NOS. I AND II RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1507/M/2014 (BY REVENUE ) 7. THIS APPEAL FILED BY THE REVENUE ON 5.3.2014 IS AGAINST THE ORDER OF THE CIT (A) - 13, MUMBAI DATED 30.12. 2013 FOR THE ASSESSMENT YEAR 2005 - 06. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: I) THE LD CIT (A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE DISALLOWANCE U/S 14A OF THE ACT TO 2% OF THE DIVIDEND INCOME WITHOUT PROPERLY APPRECIATING THE FACT CIT (A) WAS NOT HAVING THE JURISDICTION TO DECIDE THE APPEAL ON THE ISSUE WHEREIN QUANTUM OF ADDITION WAS DECIDED BY CIT - 7, MUMBAI IN HIS ORDER U/S 263 OF THE IT ACT AND THE ADDITION MADE BY AO WAS IN ACCORDANCE WITH THE DIR ECTION OF CIT - 7, MUMBAI IN HIS ORDER U/S 263 OF THE ACT. II) THE LD CIT (A)S ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. 8. REFERRING TO THE ABOVE GROUNDS, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THESE GROUNDS RELATE TO THE Q UANTIFICATION OF EXPENDITURE TO BE DISALLOWED U/S 14A OF THE ACT. BRIEF FACTS IN THIS REGARD ARE THAT DURING THE YEAR, ASSESSEE EARNED DIVIDEND INCOME OF RS. 21,59,960/ - . IN THE REVISION PROCEEDINGS, CIT DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DIS ALLOWANCE 2 % TO 5% OF THE EXEMPT INCOME AND PROVIDED AN UPPER CAP OF 10% IN ANY CASE. IN THE FRESH ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S 263 OF THE ACT, AO RESTRICTED THE DISALLOWANCE 5% OF THE EXEMPT INCOME. THE SAME WAS REDUCED TO 2% OF THE EXEMPT IN COME BY THE CIT (A). AGGRIEVED WITH THE SAID RELIEF GRANTED BY THE CIT (A), REVENUE IS IN APPEAL BEFORE US. 9. DURING THE PROCEEDINGS BEFORE US, AT THE VERY OUTSET, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF 2% OF THE EXEMPT INCOME IS NOW SUPPORTED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO.934 OF 2011, DATED 8 TH JANUARY, 2013, COPY OF WHICH IS PLACED ON RECORD. BRINGING OUR ATTENTION TO THE SAID JUD GMENT OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), LD COUNSEL FOR THE ASSESSEE READ OUT THE RELEVANT PARA 4 OF THE SAID JUDGMENT. FURTHER, HE ALSO MENTIONED THAT THE TRIBUNAL HAS CONSISTENTLY FOLLOWED IN MANY CASES INCLUDING IN THE CASE OF MAHANAGAR GAS LTD VS. DCIT IN ITA NO.958 AND 402/M/2011, DATED 4 11.12.2013, WHEREIN AM IS A PARTY TO THE SAID TRIBUNALS ORDER. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PARAS 7 AND 8 OF THE SAID TRIBUNALS ORDER AND MENTIONED THAT RESTRICTING THE DISALLOW ANCE TO 2% OF THE EXEMPT INCOME IS NOW APPROVED IN THE SAID ORDER. 10. ON HEARING THE LD DR AND ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDER OF THE TRIBUNAL IN THE CASE OF MAHANAGAR GAS LTD (SUPRA), WHEREIN ONE OF (AM) I S A PARTY TO THE SAID ORDER DATED 11.12.2013, WE FIND THE CIT (A)S DECISION OF RESTRICTING THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME IS IN ORDER. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, WE REPRODUCE THE SAID RELEVANT PARAS 7 AND 8 OF THE CITED TRIB UNALS ORDER (SUPRA) AS FOLLOWS: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT (SUPRA) ON THE ISSUE UNDER CONSIDERATION. ON PERUSAL OF THE SAID JUDGMEN TS OF THE BOMBAY HIGH COURT, WE FIND THAT THE PROVISIONS OF RULE - 8D SHOULD NOT BE APPLIED INDIRECTLY AS WELL AND THE DISALLOWANCE, IF ANY, SHOULD BE MADE ONLY AFTER HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND AFTER CONSIDERING THE ISSUES REL ATING TO THE REASONABLENESS OF THE DISALLOWANCE. WHAT CANNOT BE DONE DIRECTLY, SHOULD NOT BE DONE INDIRECTLY ALSO, THEREFORE, WE DO NOT APPROVE METHOD AND MANNER OF THE CIT (A) IN CONFIRMING THE AOS DECISION OF INVOKING THE SAID PROVISIONS OF RULE - 8D. IN THIS REGARD, WE HAVE ALSO PERUSED THE SAID JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD (SUPRA), WHICH WE HAVE APPLIED IN OTHER CASES. FOR EXAMPLE, IN THE CASE OF SHAKUNTALADEVI TRADE & INVESTMENTS PVT LTD, VIDE ITA NO. 8006/M/2010 (AY: 2007 - 2008), DATED 6.12.2013 THE SIMILAR ISSUE WAS ADJUDICATED AND THE PARA 5 OF THE SAID ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER: 5. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.200 7 - 08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPEND ITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOW ANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HONBLE HIGH COURT. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPO SES. 8. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE AO SHOULD BE DIRECTED TO RESTRICT THE DISALLOWANCE TO 2% OF THE TOTAL EXEMPT INCOME IN THE LINES OF THE DISCUSSED BY THE HONBLE HIGH 5 COURT IN THE ABOVE REFERRED CASES. AO SHOULD GRANT A REASO NABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE QUANTIFYING THE DISALLOWANCE AND APPLYING THE SAID JUDGMENT IN THE CASE OF M/S. GODREJ AGROVET LTD (SUPRA). ACCORDINGLY , GROUND NO.2 OF THE REVENUE AND GROUND NO.1 OF THE ASSESSEE ARE ALLOWED FOR STAT ISTICAL PURPOSES. 11. CONSIDERING ABOVE SETTLED NATURE OF THE ISSUE BY THE BINDING JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. GODREJ AGROVET LTD (SUPRA) AS WELL AS THE CITED ORDER OF THE TRIBUNAL, WE FIND THE DECISION TAKEN BY THE CIT (A) RESTRICTING THE DISALLOWANCE 2% OF THE EXEMPT INCOME IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. 12. ON THE ISSUE OF THE CIT (A)S JURISDICTION TO DECIDE THE APPEAL ON THE ISSUE THAT WHEN THE QUANTUM OF ADDITION WAS DECIDED BY CIT U/S 263 OF THE ACT AND ADDITION WAS MADE BY THE AO IN ACCORDANCE WITH THE SAID DIRECTIONS OF THE CIT, WHICH IS ALSO QUESTIONED BY THE REVENUE IN ITS GROUNDS OF APPEAL, NO DECISIONS / MATERIAL WAS BROUGHT TO THE NOTICE OF THE BENCH IN SUPPORT OF THE THEIR CONTENTION THAT THE CIT (A) HAS NO JURISDICTION. CONSIDERING THE SAME, WE DISMISS THIS PART OF THE GROUND RAISED BY THE REVENUE. ACCORDINGLY, GROUND NOS. (I) AND (II) RAISED BY THE REVENUE ARE DISMISSED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON 0 5 T H O C T O B E R , 2015. S D / - S D / - ( LALIT KUMAR ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 0 5 . 1 0 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . 6 //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI