Crystal Quinone Pvt. Ltd., Ahmedabad V. The Dy. CIT, Circle-1(1)(2), Ahmedabad

ITA 1420/AHD/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9933 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KARNANI
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure; TDS; Rule 8D
• Section: 143(3); 14A; 194C

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER & M/S. MADHUMITA ROY , JUDICIAL MEM B ER ./ I.T.A. NO. 1420 /AHD/201 6 ( / ASSESSMENT YEAR : 2011 - 1 2 ) CRYSTAL QUINONE PVT. LTD. OPP. OLD EXCISE CHAWKY, S.M. ROAD, AHMEDABAD / VS. DCIT, CIR - 1(1)(2), AHMEDABAD ./ ./ PAN/GIR NO. : AAB CC1 413 H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : BANDISH SOPARKAR, AR / RESPONDENT BY : SANTOSH KARNANI, SR. DR / DATE OF HEARING 13/02/2019 / DATE OF P RONOUNCEMENT 29 / 03 /201 9 / O R D E R PER WASEEM AHMED - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, AHMEDABAD[LD.CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A) - 3/CIR.1(1)/312/15 - 16, DATED 21/03/2016 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S.143 OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 21/02/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011 - 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.1 T HAT THE LEARNED CIT(APPEAL) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 14,59, 857/ - OUT OF TOTAL DISALLOWANCE OF RS. 49, 38, 340/ - U/S 40(A) ( IA ) OF THE ACT. 1.2 THE APPELLANT RESPECTFULLY SUBMITS THAT ON THE FACT OF THE CASE , THE PROVISION OF TDS ARE NOT APPLICABLE IN RESPECT OF PAYMENT OF RS. 14, 59, 857 / - AND THEREFORE THE SAME SHOULD NOT BE DISALLOWED U/S 40(A)( IA ) OF THE ACT. 1.3 THE APPELLANT THEREFORE SUBMITS THAT THE DISALLOWANCE OF RS. 14, 59, 857 / - MADE U/S 40(A)( IA ) O F, THE ACT MADE BY ASSESSING OFFICER BE DELETED . 2.1 THAT THE LEARNED CIT( APPEAL) HAS ERRED IN CONFIRMING ADDITION OF RS. 1,56,498 / - U/S 14A OF THE ACT. 2.2 THE APPELLANT RESPECTFULLY SUBMITS THAT ON THE FACT OF THE CASE AND EVIDENCE ON THE RECORD , ADDITION OF RS. 1,56,498/ - U/S 14A OF THE ACT BE DELETED. 3.1 THAT THE LEARNED CIT(APPEAL) HAS ERRED IN CONFIRMING DISALLOWANCE OF BUILDING REPAIRING EXPENDITURE OF RS.13,65,683 / - AS CAPITAL EXPENDITURE. 3.2 THE APPELLANT RESPECTFULLY SUBMITS THA T BUILDING REPAIRING EXPENDITURE IS IN THE NATURE OF CURRENT REPAIRS ONLY. NO NEW ASSETS IS CREATED AND THEREFORE THE DISALLOWANCE OF RS.13,56,683 / - BE DELETED. 4.1 THAT THE LEARNED CIT(APPEAL) HAS ERRED IN CONFIRMING ADDITION OF RS. 18,91,764 / - U/S 14 5A OF THE ACT. 4.2 THE APPELLANT RESPECTFULLY SUBMITS THAT THE CLOSING STOCK IS VALUED WITHOUT EXCISE DUTY AND VAT. THEREFORE EVERY YEAR EXCISE DUTY AND VAT ON CLOSING STOCK IS ADDED AND SAME ON OPENING STOCK IS DEDUCTED AS PROVIDED U/S 145A OF THE ACT. AS PER THE WORKING DULY CERTIFIED BY TAX AUDITOR, RS. 17,09,894 / - WAS REQUIRED TO BE DEDUCTED FROM PROFIT. THE APPELLANT THEREFORE SUBMITS THAT RS. 17,09,894 / - BE DEDUCTED U/S 145A OF THE ACT. 4.3 THE LD. CIT(A) HAS FURTHE R ERRED IN CONFIRMING ADDITION OF RS. 1,81,870/ - MADE BY ASSESSING OFFICER BEING DIFFERENCE IN CENVAT RECEIVABLE. THE APPELLANT RESPECTFULLY SUBMITS THAT THE CENVAT RECEIVABLE IS AN ITEM OF ASSET AND DIFFERENCE THERE IN CANNOT BE ADDED IN INCOME. 4.4 THE APPELLANT THEREFORE SUBMITS THAT TOTAL DISALLOWANCE OF RS. 18,91,764/ - (RS. 17,09,894/ - AND RS. 1,81,870/ - ) BE DELETED. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR TO AMENDED ANY OF THE GROUNDS OF THE AP PEAL BEFORE HEARING OF APPEAL . 3 . THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1 4 , 59 , 857 / - ON ACCOUNT OF NON - DE DUCTION OF TDS UNDER SECTION 19 4C READ WITH SECTION 40 (A)( IA ) OF THE ACT. 4 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LTD COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS. THE ASSESSEE DURING THE YEAR HAS CLAIMED FREIGHT EXPENSES AMOUNTING TO RS. 1 4 , 59 , 857 / - WHICH WERE PAID TO VARIOUS PARTIES WITHOUT DEDUCTING TDS UNDER T HE PROVISIONS OF SECTION 19 4C OF THE ACT. THEREFORE THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A) . THE ASSESSEE BEFORE T HE LD. CIT (A) SUBMITTED THAT THE TRANSPORTERS HA D FURNISHED THE I R PAN NOS. THEREFORE THE TDS WAS NO T DEDUCTED DUE TO THE FACT THAT THE PROVISIONS OF TDS WERE NOT APPLICABLE IN RESPECT OF THE PAYMENTS MADE TO THE TRANSPORTERS WHO HAVE FURNISHED PAN. 6 . THE ASSESSEE ALSO CLAIMED THAT THE PAYMENT TO TH E TRANSPORTERS DOES NOT EXCEED THE LIMIT OF RS. 75 , 000 / - IN THE YEAR UNDER CONSIDERATION. THEREFORE , THE ASSESSEE WAS OUTSIDE THE PURVIEW OF THE TDS PROVISIONS. 7 . HOWEVER, THE LD . CIT (A) DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT IT HAS NOT FILED ANY EVIDENCE TO PROVE THAT THE PAYMENT WAS MADE TO THE TRANSPORT CONTRACTORS. 8 . THE ASSESSEE HAS ALSO CLAIMED FREIGHT EXPENSES EXCEEDING RS. 7 5 , 000 / - IN THE YEAR. THEREFORE IT CANNOT BE CONCLUD ED THAT THE PROVISIONS OF TDS DO NOT APPLY TO THE ASSESSEE. 9 . BEING AGGRIEVED BY THE ORDER OF LD. CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE US. 10 . THE LD. AR BEFORE US SUBMITTED THAT THE ASSESSEE HA D FURNISHED THE PAN OF ALL THE TRANSPORT CONTRACTORS DURING THE ASSESSMENT PROCEEDIN GS AS REQUIRED UNDER SECTION 194 C(6) OF THE ACT. 11 . THE LD. AR FURTHER SUBMITTED THAT THE DISALLOWANCES C AN NOT BE MADE ON ACCOUNT OF NON - DEDUCTION OF TDS UNDER SECTION 194C OF THE ACT WHERE THE PAYMENT DOES NOT EXCEED RS. 75,000 / - IN A YEAR. IN VIEW OF THE ABOVE, THE LD. AR SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF NON - DEDUCTION OF TDS IN THE GIVEN FACTS AND CIRCUMSTA NCES IS WARRANTED. 12. ON THE OTHER HAND THE LD. DR SUBMITTED THAT THERE IS NO EVIDENCE FILED BY THE ASSESSEE SUGGESTING THAT IT HAS FILED THE PAN TO THE AO DURING THE ASSESSMENT PROCEEDINGS. THUS THE ASSESSEE HAS DEFAULTED FOR NON - DED UCTION OF TDS UNDER SECTION 19 4C OF THE ACT. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 13. THE LD. AR IN HIS REJOINDER SUBMITTED THAT THE ARGUMENT OF THE LD. D R CANNOT BE ENTERTAINED AS THE R EVENUE IS NOT IN APPEAL BEFORE THE ITAT ON THE ISSUE OF NON - FURNISHING OF PAN . 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE NON - DEDUCTION OF TDS UNDER SECTION 194(C ) OF THE ACT WITH RESPE CT TO THE PAYMENT MADE TO THE TRANSPORT CONTRACTORS. THEREFORE THE DISALLOWANCE WAS MADE BY THE AO WHICH WAS SUBSEQUENTLY CONFIRMED BY THE LD. CIT (A) . 14 . 1 FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE HAS FURNISHED THE PAN OF ALL THE TRANSPOR T CONTRACTORS BEFORE THE LD. CIT - A . THIS FACT CAN BE VERIFIED FROM THE SUBMISSION OF THE ASSESSEE BEFORE THE LD. CIT (A) WHICH IS RECORDED ON PAGES 6 AND 7 OF THE ORDER. THUS WE ARE OF THE VIEW THAT THERE IS SUFFICIENT COMPLIANCE OF SUB - SECTION 6 OF THE SECTION 194C OF THE ACT. 14 . 2 HOWEVER , IN OUR CONSIDERED VIEW, THE ASSESSEE DOES NOT GET ABSOLVED FROM ITS RESPONSIBILITY F R OM THE DEDUCTION OF TDS MERELY ON THE COLLECTION OF PAN FROM THE TRANSPORT CONTRACTORS. AS SUCH THE ASSESSEE AFTER THE CO LLECTION OF PAN FROM THE TRANSPORT CONTRACTORS WAS TO FURNISH THE NECESSARY DETAILS OF SUCH TRANSPORT CONTRACTORS TO THE PRESCRIBED I NCOME - T AX - A UTHO RITY WITHIN THE PRESCRIBED TIME AS PER THE PROVISION OF SUB SECTION 7 OF THE SECTION 194C OF THE ACT. 14 . 3 HOWEVER, WE NOTE THAT THE ITAT AHMEDABAD HAS HELD THAT THE NON - FURNISHING OF THE PAN TO THE PRESCRIBED INCOME TAX AUTHORITY WITHIN THE PRESCRIBED TIME AS PER THE PROVISION OF SUB SECTION 7 OF THE SECTION 194C OF THE ACT DOES NOT REQUIRE TO MAKE THE DISALLOWANCE OF THE EXPENSES IN THE CASE OF ITO V/S ANDHRA ROADWAYS REPORTED IN 61 TAXMANN.COM 20 3 WHEREIN IT WAS HELD AS UNDER: FROM THIS, IT FOLLOWS THAT THIRD PROVISO TO SECTION 194C(3)(I) WHICH REQUIRES ASSESSEE TO SUBMI T FORM NO. 15 - J IS ONLY PROCEDURAL FORMALITY AND WHAT HAS BEEN DONE BY SECOND PROVISO. NON - SUBMISSION OF FORM NO. 15 - J TO THE COMMISSIONER WITHIN THE TIME PRESCRIBED IN RULE 29D CANNOT HAVE ANY EFFECT ON DECIDING AS TO WHETHER TAX WAS DEDUCTIBLE OR NOT DED UCTIBLE FROM THE PAYMENTS MADE BY ASSESSEE TO THE SUB - CONTRACTORS. FOR INVOKING PROVISIONS OF SECTION 40(A)( IA) IT IS TO BE DECIDED WHETHER TAX WAS DEDUCTIBLE OR NOT, IF ANY, WHETHER DEDUCTED/PAID OR NOT. WHEN ONE LOOKS INTO SECTION 194C(3)(I) FOR THE PURP OSES OF INVOKING SECTION 40(A)( IA ), IT IS FOUND THAT ONLY SECOND PROVISO TO IT IS SUFFICIENT TO DECIDE WHETHER TAX WAS DEDUCTIBLE OR NOT. TIME FACTORS INVOLVED FOR COMPLIANCE OF THE CONDITIONS MENTIONED IN TWO PROVISIONS ARE DIFFERENT. SECOND PROVISO IS TO BE COMPLIED WITH AT THE TIME OF MAKING PAYMENT TO THE SUB - CONTRACTOR, WHEREAS COMPLIANCE OF THIRD PROVISO CAN BE DEFERRED TILL 30TH JUNE OF NEXT FINANCIAL YEAR. IN OTHER WORDS, THE CONTRACTOR CAN WAIT TO COMPLY WITH THIRD PROVISO TILL 30TH JUNE OF NEXT FI NANCIAL YEAR AFTER COMPLYING WITH SECOND PROVISO. HOWEVER, THE DECISION ON DEDUCTIBILITY OF TAX FROM THE PAYMENT MADE TO THE SUB - CONTRACTOR CANNOT BE DEFERRED TILL 30TH JUNE OF NEXT FINANCIAL YEAR. HE HAS TO TAKE THIS DECISION (ABOUT DEDUCTIBILITY OF TAX F ROM PAYMENTS BEING MADE BY IT TO THE SUB - CONTRACTORS) JUST AT THE TIME WHEN HE IS RELEASING THE PAYMENTS TO THE SUB - CONTRACTORS. IT IS AT THIS POINT OF TIME THAT SECOND PROVISO WOULD COME INTO PLAY AND WHEN FORM NO. 15 - I ARE SUBMITTED BY THE SUB - CONTRACTOR S TO THE CONTRACTOR, THEN CONTRACTOR WAS NOT REQUIRED TO DEDUCT TAX FROM SUCH PAYMENTS. ONCE DEDUCTIBILITY OF TAX DEPENDS UPON SUBMISSION OR NON - SUBMISSION OF FORM NO. 15 - I FROM THE SUB - CONTRACTOR TO THE ASSESSEE, THEN NON - COMPLIANCE OF THIRD PROVISO BECOMES MERELY TECHNICAL WITHOUT AFFECTING IN SUBSTANCE THE DEDUCTIBILITY OR NON - DEDUCTIBILITY OF TAX ON PAYMENTS MADE BY THE ASSESSEE TO THE SUB - CONTRACTORS. IN VIEW OF ABOVE , NON - COMPLIANCE OF THIRD PROVISO BECOMES MERELY A TECHNICAL DEFAULT WHI CH WOULD NOT AFFECT THE PROVISION OF SECTION 40(A)( IA ). IN VIEW OF ABOVE , THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE. 14 . 4 THUS AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE ASSESSEE COMPL IED WITH THE PROVISIONS OF THE SECTIONS 194(C) OF THE ACT. 15 . R EGARDING THE ALLEGATION OF THE LEARNED CIT (A) THAT THE ASSESSEE HAS NOT FURNISHED THE NECESSARY DETAILS SUGGESTING THAT THE IMPUGNED FREIGHT EXPENSES WERE IN THE NATURE OF PAYMENT TO THE TRANSPORTERS, WE NOTE THAT THE ASSESSEE HAS DISCHARGED HIS ONUS BY FURNISHING THE PAN OF ALL THE PARTIES. IN THE CASE OF ANY DOUBT , THE L D. CIT (A) SHOULD HAVE VERIFIED THE FACT S WHETHER THE PAYEES ARE THE TRANSPORT CONTRACTORS. BUT WE FIND THAT THE LEARNED CIT (A) HAS NOT DONE SO. THEREFORE WE ARE OF THE VIEW THAT THE OBSERVATION OF THE LD. CIT (A) IN THE GIVEN FACTS AND CIRCUMSTANCES IS NOT TENABLE. 16 . REGARDING THE ARGUMENT OF THE LEARNED DR THAT THE ASSESSEE HAS NOT FURNISHED THE COPIES OF THE PAN OF THE TRANSPORT CONTRACTORS TO THE AO DURING THE ASSESSMENT PROCEEDINGS, WE NOTE THAT THE R EVENUE HAS NOT CHALLENGE D THIS FACT/ISSUE BY FILING AN APPEAL TO THE TRIBUNAL. THUS IT APPEARS THAT THE R EVENUE IS NOT AGGRIEVED ON ACCOUNT OF NON - FURNISHING OF PAN TO THE AO DURIN G THE ASSESSMENT PROCEEDINGS. THEREFORE, WE ARE NOT INCLINED TO ENTERTAIN THE ARGUMENT OF THE LD. DR AS DISCUSSED ABOVE. IN VIEW OF THE ABOVE, WE ARE NOT IMPRESSED WITH THE FINDING OF THE LD. CIT - A. ACCORDINGLY , WE REVERSE THE SAME AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 17 . THE 2 ND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING T HE ADDITION MADE BY THE AO FOR RS. 1, 56 ,498 / - UNDER SECTION 14A OF THE ACT. 18 . THE ASSESSEE DURING THE YEAR EARNED DIVIDEND INCOME OF RS. 8 4 , 256 / - ONLY WHICH WAS CLAIMED EXEMPTED UNDER SECTION 10 ( 34 ) OF THE ACT. THE ASSESS EE AGAINST SUCH INCOME HAS NOT M ADE ANY DISALLOWANCE UND ER THE PROVISIONS O F SECTION 14A OF THE ACT. THEREFORE THE AO INVOKE D THE PROVISION S OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RUL E AND MADE THE DISALLOWANCE OF RS. 1, 56 , 498 / - . THUS THE AMOUNT DISALLOWED WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. C IT ( A ) . THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT THERE C OULD NOT BE ANY DISALLOWANCE ON ACCOU NT OF INTEREST AS ITS FUND E X C E EDS THE AMOUNT OF INVESTMENT IN THE SHARES. 20 . THE ASSESSEE ALSO SUBMITTED THAT THE DISALLOWANCE HA D BEEN MADE UNDER SECTION 14A READ WITH RULE 8D WITHOUT RECORDING THE SATISFACTION AS REQUIRED UNDER THE PROVISIONS OF LAW. 21 . HOWEVER THE LD. CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT IT WAS T HE DUTY OF THE ASSESSEE TO DEMONSTRATE THAT BORROWED FUND HAS NOT BEEN INVESTED IN SUCH SHARES. 22 . BEING AGGRIEVED BY THE ORDER OF LD . CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR BEFORE US REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT (A) . 23 . ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 24 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE OWN FUND OF THE ASSESSEE EXCEE DS THE AMOUNT OF INVESTMENT. THEREFORE IN OUR CONSIDERED VIEW PRESUMPTION CAN BE DRAWN THAT THERE WAS NO INVESTMENT IN THE SHARES OUT OF THE BORROWED FUND. THEREFORE THERE CANNOT BE ANY QUESTION FOR ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVA ILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 24.1 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: - WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED TH AT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. 24.2 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A . IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF INVESTMENTS AS DISCUSSED ABOVE. HENCE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. 25 . REGARDING THE ADMINISTRATIVE EXP ENSES, WE NOTE THAT THE AO HAS DE RIVED HIS SATISFACTION FOR MAKING THE DISALLOWANCE UND ER THE PROVISIONS OF SECTION 14A READ WITH RULE 8 D BY RECORDING THE FOLLOWING: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED WORKING OF DISALLOWANCE U/S. 14A OF THE ACT BY WHICH DISALLOWANCE U/S. 14A OF THE ACT W ORKS OUT TO RS. 1,56,498/ - . 25 . 1 MOREOVER , WE ALSO NOTE THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS SUGGESTING THAT IT HAS NOT INCURRED ANY EXPENSE IN RELATION TO SUCH INCOME. THUS IN THE ABSENCE OF ANY WORKING FROM THE SIDE OF THE ASSESSEE, THE AO HAD NO ALTERNATIVE EXCEPT TO RESORT TO THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES . THUS WE CONFIRM THE DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES MADE BY THE AUTHORITIES BELOW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 26 . THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANC E MADE BY THE AO FOR RS. 14,37,772/ - BY TREATING THE REPAIRING EXPENSES AS CAPITAL IN NATURE. 27 . THE ASSESSEE DURING THE YEAR HAS CLAIMED REPAIR EXPENSES ON THE FACTORY BUI LDING AMOUNTING TO RS. 14,37,772/ - ONLY. THESE REPAIRING EXPENSES WERE INCURRED FOR THE PURCHASE OF BRICKS, KAPACHI , STEEL, STONE , CEMENT , ETC . 28 . THE AO TREATED THE EXPENSES ABOVE AS CAPITAL IN NATURE . A CCORDINGLY , THE AO DISALLOWED THE SAME AFTER ALLOWING THE DEPRECIATION ON SUCH EXPENSES. 29 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT (A) . THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT THERE HA D NOT COME ANY FIX ED ASSETS OUT OF SUCH REPAIRING EXPENSES. AS SUCH THE FACTORY BUILDING IS QUITE OLD, THEREFORE THESE EXPENSES WERE INCURRED FOR ITS REPAIR AND MAINTENANCE. 30 . HOWEVER THE LD. CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVIN G THAT TRUCKS AND TRACTORS HAVE BEEN USED TO BRING ABOVE SAID ITEMS . SIMILARY THE NAMES OF THE SUPPLIERS ALSO INDICATE THAT MAJOR REPAIRS HAVE BEEN UNDERTAKEN AND THIS EXPENDITURE WOULD BE YIELDING LONG TERM BENEFITS TO THE APPELLANT . 3 1 . BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR BEFORE US SUBMITTED THAT THERE HAVE NOT COME ANY NEW ASSETS OUT OF SUCH EXPENSES. THE FACTORY BUILD ING IS VERY OLD AND THEREFORE IT REQUIRES LOT OF REPAIRING AND MAINTENANCE. 3 2 . ON THE OTHER HAND THE LD. DR SUBMITTED THAT THESE REPAIRING AND MAINTENANC E EXPENSES HA VE BEEN INCURRED IN EVERY YEAR . THUS THE SAME CANNOT BE TREATED AS ROUTINE EXPENSES. MOREOVER , THE ASSESSEE HAS NOT FURNISHED ANY PHOTOGRAPH OF THE FACTORY BUILDING SUGG ESTING THAT THERE WAS NO EXTENSION OF TH E EXISTING BUILDING. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 33 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION , THE GENUINENESS OF THE EXPENSES HAS NOT BEEN DOUBTED BY ANY OF THE AUTHORITIES BELOW. THE ONLY DISPUTE RELATES WHETHER REPAIR EXPENSES REVENUE IN NATURE OR CAPITAL IN NATURE. THE AUTHORITIES BELOW HA VE NOT BROUGHT ANYTHING ON RECORD SUGGESTING THAT THERE W ERE SOME NEW ASSETS FORMED OUT OF SUCH EXPENSES OR THE ASSESSEE D E RIVE D SOME BENEFIT OF ENDURING NATURE. 33.1 THUS, WE ARE OF THE VIEW THAT SUCH EXPENDITURE CANNOT BE TERMED AS CAPITAL IN NATURE MERELY ON THE GROUND THAT IT WILL GENERATE ENDURING BENEFIT TO THE ASSESSEE. REGARDING THIS WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE CALCUTTA HIGH COURT I N THE CASE OF CIT VS. COMINCO BINANI ZINC LIMITED REPORTED IN 204 ITR 56 WHEREIN IT WAS HELD AS UNDER: IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERT AIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 33.2 REGARDING THIS WE ALSO FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHARAT SURYODAYA MILLS CO. LTD. REPORTED IN 202 ITR 942 WHEREIN IT WAS HELD AS UNDER: AN OLD WALL WAS REQUIRED TO BE REBUILT BECAUSE O F DEMOLITION. THUS, THE EXPENDITURE WHICH WAS INCURRED WAS MORE IN THE NATURE OF REPAIRS RATHER THAN CREATION OF A NEW CAPITAL ASSET. A WALL WAS REQUIRED TO BE BUILT BY THE ASSESSEE AS A NECESSITY FOR RUNNING HIS BUSINESS. THE TRIBUNAL WAS, THEREFORE, RIGH T IN HOLDING THAT THE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE, WE DISAGREE WITH THE FINDING OF THE LEARNED CIT - A. ACCORDINGLY WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM BY TREATING THE REPAIRING EXPENSES AS CAPITAL IN NATURE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 34 . THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 18 , 91 , 764/ - U/S 145A OF THE ACT BY INCREASING THE CLOSING STOCK AND ADDITION OF CENVAT RECEIVABLE. 35 . T HE ASSESSEE IS FOLLOW ING AN EXCLUSIVE SYSTEM OF ACCOUNTING WHILE VALUING THE CLOSING & OPENING STOCK AND RECORDING THE PURCHASES & SALES. HOWEVER THE ASSESSEE IS MAKING AN ADJUSTMENT OF THE TAX IN THE VALUE OF THE CLOSING AND OPENING STOCK TO COMPLY WITH THE PROVISION S OF SECTION 145A OF THE ACT. ACCORDING , THE ASSESSEE, MAKES THE ADJUSTMENT IN THE STATEMENT OF INCOME AS DETAILED UNDER: PARTICULARS AMOUNT PROFIT AS PER PROFIT & LOSS ACCOUNT 1,37,61,825/ - ADD: EXCISE DUTY ON CLOSING STOCK OF FINISHED GOODS 1,03,065/ - ADD: EXCISE DUTY ON CLOSING STOCK OF RAW MATERIAL 16,46,238/ - ADD: VAT ON CLOSING STOCK OF FINISHED GOODS 55,185/ - ADD: VAT ON CLOSING STOCK OF RAW MATERIAL 8,81,457/ - TOTAL 1,64,47,770/ - LESS: EXCISE DUTY ON OPENING STOCK OF FINISHED GOODS 75,832/ - LESS: EXCISE DUTY ON OPENING STOCK OF RAW MATERIAL 20,70,684/ - LESS: VAT ON OPENING STOCK OF FINISHED GOODS 40,603/ - LESS: VAT ON OPENING STOCK OF RAW MATERIAL 22,08,720/ - REVISED PROFIT U/S. 145A 1,20,51,931/ - 36 . HOWEVER, THE AO WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE. THEREFORE THE AO MADE THE ADDITION OF 17 , 09 , 894 BEING THE DIFFERENCE REPRESENTING THE ADJUSTMENT IN THE OPENING AND CLOSING STOCK ON ACCOUNT OF CENVAT/VAT. 37 . SIMILARLY THE ASSESSEE HAS SHOWN AN AMOUNT OF CENVAT CREDIT AVAILABLE IN ITS BALANCE SHEET AS ON 31 MARCH 2011 FOR 1 1 , 62 , 666.00 ONLY. THE ASSESSEE HAS ALSO SHOWN THE AMOUNT OF CENVAT CREDIT BROUGHT FORWARD FROM THE PRE CEDING A Y AS ON 1 ST APRIL 2010 AT 9 , 80 , 796,00 ONLY. AS PER THE AO THE AMOUNT OF CENVAT CREDIT SHOWN IN THE BALANCE SHEET AS ON 31 ST MARCH 2011 , SHOULD HAVE BEEN ADDED IN THE CLOSING STOCK. THEREFORE THE AO THE AMOUNT OF 1 , 81 , 870 .00 BEING THE DIFFERENCE OF OPENING AND CLOSING AMOUNT OF CEN VAT CREDIT ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 38 . THUS THE AO DISALLOWED THE A MOUNT MENTIONED ABOVE AND ADDED THE AGGREGATE SUM OF 18 , 91 , 764 .00 TO THE TOTAL INCOME OF THE ASSESSEE. 39 . AG GRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. C IT - A. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT IT HAS BEEN FOLLOWING EXCLUSIVE SYSTEM OF ACCOUNTING FOR THE LAST SEVERAL YEARS WHICH WAS ACCEPTED BY THE R EVENUE. THE ASSESSEE IN SUPPORT OF HIS CLAIM SUBMITTED THE FOLLOWING DETAILS. ASSESSMENT YEAR AMT. OF ADDITION/DEDUCTION REMARK 2011 - 12 - 17,09,894/ - 2010 - 11 +21,59,393/ - 2009 - 10 +21,30,195 2008 - 09 - 28,64,214 ACCEPTED IN SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT. 2007 - 08 +25,96,019/ - 40 . T HE ASSESSEE REGARDING THE ADDITION OF CENVAT CREDIT OF 1 , 81 , 870 .00 SUBMITTED THAT THE REVENUE DID NOT MAKE SUCH KIND OF ADDITION IN THE EARLIER YEARS INCLUDING THE YEAR WHERE ASSESSMENT WAS FRAMED UNDER SECTION 143 ( 3 ) OF THE ACT. 41 . HOWEVER THE LD. CIT (A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF T HE AO BY OBSERVING AS UNDER: 7.2 DECISION: I HAVE GONE THROUGH THE FACTS MENTIONED IN THE ASSESSMENT ORDER OF THE AO AND THE SUBMISSION FILED BY THE APPELLANT. THE APPELLANT ITSELF IS SUBMITTING INFORMATION IN SUCH A WAY SO AS TO CONFUSE THE MATTER. ON THE OTHER HAND, AO 'S S TAND IS CONSISTENT AND TRIES TO BRING TRUE TAXABLE INCOME IN THE TAX NET. ALSO IT IS NOTED THAT THE BOOK RESULTS RELEVANT TO A.Y.2011 - 12 CAN ONLY BE CONSIDERED IN THE PRESENT APPEAL. AO HAS RIGHTLY HIGHLIGHTED THE POSTPONEMENT OF LIABILITY BY UNDERVALUATION OF CLOSING STOCK. FOR INSTANCE, THE CENVAT RECEIVABLES HAS TO BE ADDED TO THE CLOSING STOCK AS THE APPELLANT COMPANY HAS TO A DOPT THE MERCANTILE SYSTEM OF ACCOUNTING. IN VIEW OF THESE COMMENTS, THE ADDITION MADE BY AO OF RS.1,81,8707 - [INSTEAD OF CLAIM ( - ) RS.17,09,894/ - ] IS HEREBY CONFIRMED. THE GROUND NO.4.1 TO 4.4 ARE HEREBY DISMISSED. 42. B EING AGGRIEVED BY THE ORDER OF LD. C IT - A, THE ASSESSEE IS IN APPEAL BEFORE US. 43 . THE LEARNED AR BEFORE US REITERATED THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. ON THE CONTRARY THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 44 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ALLEGATION OF THE ASSESSING OFFICER IN THE INSTANT CASE IS THAT THE ASSESSEE WHILE VALUING THE CLOSING ST OCK OF ITS GOODS AS ON 31/03/2011 HAS NOT COMPL IED WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THE ASSESSEE AS SUCH MADE CERTAIN ADDITION AND SUBTRACTION OF THE AMOUNT TO COMPLY THE PROVISION OF SECTION 145A OF THE ACT WITHOUT ADDUCING ANY REASON / FURNISHING ANY DOCUME N T . THE AO ALSO NOTED THAT THERE WAS NO ADJUSTMENT SHOWN ON ACCOUNT OF MODVAT CREDIT RECEIVED BY THE ASSESSEE IN THE STATEMENT OF INCOME. SIMILARLY THERE WAS ALSO NOT ADDED THE AMOUNT OF CENVAT CREDIT SHOWN AS OPENING AND CLOSING BALANCE IN THE FINANCIAL STATEMENT. THE VIEW TAKEN BY THE AO W AS SUBSEQUENTLY CONFIRMED BY THE LD. CIT - A. 44.1 FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE HAS BEEN RECORDING ITS TRANSACTIONS OF PURCHASE, SALES, AND VALUATION OF INVENTORIES, NET OF CENVAT/VAT CONSISTENTLY. THUS, IF THE INVENTORY OF CLOSING STOCK IS ENHANCED BY THE AMOUNT OF CENVAT CREDIT ATTRIBUTABLE TO IT, THEN THE AMOUNT OF CORRESPONDING PURCHASES SHOULD ALSO BE INCREASED BY THE SAID AMOUNT WHICH WILL RESULT IN TAX NEUTRAL EXERCISE. THEREFORE THE CENVAT CREDIT AVAILED BY THE ASSESSEE AMOUNTING TO RS. 2,24,06,293.00 AGAINST THE PURCHASES HAS NO TAX IMPACT ON THE PROFITABILITY IN THE INSTANT CASE. 44.2 REGARDING THE ADJUSTMENT OF THE CENVAT CREDIT ATTRIBUTABLE TO OPENING AND CLOSING STOCK, WE NOTE THAT THE ASSESSEE HAS MADE THE ADJUSTMENT IN ITS STOCK AS SUBMITTED BEFORE THE CIT - A. THE MANNER OF THE ADJUSTMENT OF THE CENVAT CREDIT & THE VAT AS DISCUSSED ABOVE HAS BEEN DULY ACCEPTED BY THE REVENUE I N THE EARLIER YEARS. THEREFORE WE HOLD THAT THE ASSESSEE HAS DULY COMPLIED WITH THE PROVISION OF SECTION 145A OF THE ACT. 44.3 REGARDING THE AMOUNT OF OPENING AND CLOSING BALANCE OF CENVAT CREDIT SHOWN IN THE BALANCE SHEET, WE NOTE THAT SUCH AMOUNT HAS ALREADY CONSIDERED WHILE VALUING THE CLOSING STOCK OF THE ASSESSEE AS ON 31 - 3 - 2010 AND 31 - 3 - 2011 . THEREFORE , THERE IS NO NEED TO MAKE ANY FURTHER ADJUSTMENT IN THE STATEMENT OF INCOME. 44.5 IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. GUJARAT GAS COMPANY LTD. I N TAX APPEAL NO.90 OF 2017 VIDE ORDER DATED 07/02/2017, WHEREIN IT WAS HELD AS UNDER: - 3.03. NOW, SO FAR AS QUESTION NO. [B] I.E. WITH RESPECT TO ADDITION MADE BY THE A.O. ON ACCOUNT OF UNUTILIZED MODVAT / CENVAT CREDIT OF RS. 56,08,089/ - IS CONNECTED, IT IS REQUIRED TO BE NOTED THAT THE LEARNED TRIBUNAL HAS TAKEN NOTE THAT WITH RESPECT TO MODVAT RECEIVABLE ACCOUNT, THERE IS CORRESPONDING LESS DEBIT TO THE PU RCHASE ACCOUNT AND HENCE TO THAT EXTENT THERE IS ALREADY INCOME OFFERED FOR TAX. IF THAT BE SO, THERE WAS NO QUESTION OF FURTHER ADDING MODVAT / CENVAT CREDIT TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. UNDER THE CIRCUMSTANCES, WE SEE NO REASON TO INTERFERE WITH THE IMPUGNED JUDGEMENT AND ORDER PASSED BY THE LEARNED TRIBUNAL SO FAR AS CONFIRMING THE ORDER PASSED BY THE LEARNED CIT(A) DELETING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNUTILISED MODVAT / CENVAT CREDIT OF RS. 56,08,089/ - . WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE LEARNED TRIBUNAL. 44.6 THERE IS NO AMBIGUITY THAT THE ASSESSEE HAS BEEN FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING. HOWEVER, THE ASSESSEE TO COMPLY THE PROVISIONS OF SECTION 145A OF THE ACT HAS GIVEN THE EFFECT OF CENVAT/VAT IN THE OPENING STOCK, AND CLOSING STOCK IN THE STATEMENT OF INCOME. THUS, WE CAN SAFELY CONCLUDE THAT THOUGH THE ASSESSEE IS FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING WHICH IS CONTRARY TO THE PROVISIONS OF SECTION 145A OF THE ACT, BUT THE EFFECT OF THE SAME HAS BEEN DULY CONSIDERED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. IN VIEW OF THE ABOVE, WE DO NOT CONCUR WITH THE VIEW OF THE LD. CIT(A) AND ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 45. IN THE RESULT, THE ASSESSEE S APPEAL STANDS ALLO WED. ORDER PRONOUNCED IN THE COURT ON 29 /03/ 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 2 9 /03/2019 M ANISH / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE .