The DCIT, Circle-1(1)(1), Ahmedabad V. Arcoy Inustries(India) Pvt. Ltd., Ahmedabad

ITA 1770/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6085 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TALWANI
• Assessee Lawyers: P M MEHTA; GM THAKOR
• Keywords: Depreciation; Earning of tax free income
• Section: 43B; 143(3); 142(1); 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.1770/AHD/2016 (ASSESSMENT YEAR : 2012-13) DCIT, CIR 1(1)(1), AHMEDABAD. VS. ARCOY INDUSTRIES (INDIA) PVT. LTD., 606, ABHIJEET BUILDING NR. MITHAKALI SIX ROADS, ELLIS BRIDGE , AHMEDABAD . [PAN NO. AABCA 2785 J] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI VINOD TALWANI, SR.D.R. RESPONDENT BY : SHRI P.M. MEHTA AND G. M. THAKOR, A.R. DATE OF HEARING 26/10/2018 DATE OF PRONOUNCEMENT 24/01/2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER DATED 26.04.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- 1, AHMEDABAD ARISING OUT OF THE ASSESSMENT ORDER DATED 10.03.2015 FOR THE ASSESSMEN T YEAR 2012-13 PASSED BY THE DCIT, CIR-1(1)(1), AHMEDABAD UNDER SECTION 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WITH THE FOL LOWING GROUNDS: (1) THAT THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.22,62,174/- MADE U/S 14A OF THE ACT. (2) THAT THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.18,34,715/- MADE ON ACCOUNT OF DISALLOWANCE OF D EPRECIATION ON CAR. (3) THAT THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.50,13,577/- MADE U/S 145A OF THE ACT ON ACCOUNT OF UNUTILIZED CENVAT CREDIT. - 2 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 2. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 30.09.2012 DECLARING TOTAL INCOME OF RS.77,10,590/- WHICH WAS PROCESSED U/S 14 3(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY; N OTICE U/S 143(2) OF THE ACT WAS ISSUED ON 08.08.2013 FOLLOWED BY ANOTHER NOTICE U/S 143(2) R.W.S. 129 DUE TO CHANGE OF INCUMBENT AND NOTICE U/S 142(1) OF THE ACT ALONG WI TH QUESTIONNAIRE ON 01.08.2014. THE SAME PROCEDURE WAS REPEATED BY ISSUANCE OF NOTICE U /S 143(2) R.W.S. 129 & 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE DATED 17.11.2014. 3. IT APPEARS FROM THE RECORDS THAT ASSESSEE HAS EA RNED DIVIDEND INCOME TO THE TUNE OF RS.3,34,502/- AND ALSO MADE INVESTMENT IN MUTUAL FU NDS AND SHARES OF VARIOUS COMPANIES. INVESTMENT TO THE TUNE OF RS. 6,77,22,65 5/- ON 31.03.2012 WAS MADE BY THE ASSESSEE UPON WHICH A NOTICE U/S 142(1) OF THE ACT DATED 17.11.2014 WAS ISSUED DIRECTING HIM TO FURNISH THE LIST OF INVESTMENTS THAT YIELD T AX FREE INCOME. IN REPLY TO THAT NOTICE, THE ASSESSEE SUBMITTED THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR THE PURPOSE OF INVESTMENT THAT YIELDED TAX FREE INCOME. HOWEVER, T HE ASSESSEE SUOMOTO MADE DISALLOWANCE OF RS. 29,20,159/- U/S 14A R.W.R. 8D O F THE I.T. RULES. SINCE THE EXPLANATION GIVEN BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY T HE LEARNED ASSESSING OFFICER SHOW- CAUSE NOTICE DATED 27.02.2015 WAS ISSUED UPON THE A SSESSEE AS TO WHY DISALLOWANCE U/S 14A R.W.R. 8D OF THE I.T. RULES SHOULD NOT BE MADE APART FROM THE DISALLOWANCES ALREADY CONSIDERED IN THE STATEMENT OF COMPUTATION OF INCOM E. THE ASSESSEES CASE IS THIS THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING TH E YEAR UNDER CONSIDERATION THEREFORE THE ASSESSEE IS NOT HAVING INCOME EXEMPT FROM TAX A ND AS SUCH THERE IS NO QUESTION OF DISALLOWANCE U/S 14A OF THE ACT. IT IS AN ADMITTED POSITION THAT THE ASSESSEE DID NOT CLAIM ANY CLAIM FOR EXEMPTION. IN SUCH SITUATION, SECTIO N 14A COULD NOT HAVE ANY APPLICATION. THE ASSESSEE RELIED UPON THE JUDGMENT PASSED BY THE HONBLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDU STRIES LTD. ALONG WITH OTHER DECISIONS PASSED BY DIFFERENT BENCHES OF ITAT AS WE LL AS HONBLE HIGH COURT. HOWEVER, - 3 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 THE PLEA OF THE ASSESSEE WAS NOT ACCEPTED BY THE LE ARNED ASSESSING OFFICER. THE DISALLOWANCE U/S 14A PROVISION R.W. RULE 8D IS COMP UTED AT RS.51,82,333/-, SINCE THE ASSESSEE SUO MOTO DISALLOWED RS.29,20,159/- IN THE COMPUTATION OF IN COME, THE EXPENSES OF RS.22,62,174/- INCURRED FOR EARNING EXEMPT INCOM E HAS BEEN DISALLOWED BY THE LEARNED AO AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE AGAINST WHICH APPEAL WAS PREFERRED BEFORE THE LEARNED CIT(A) WHO IN TURN ALL OWED THE SAID APPEAL BY DELETING THE ADDITION MADE BY THE LEARNED AO. HENCE, THE INSTANT APPEAL BEFORE US BY REVENUE. 4. AT THE TIME OF HEARING OF THE MATTER, THE LEARNE D DR RELIED UPON THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER. HE FURTHER ARGUED THAT THE CONTENTION MADE BY THE ASSESSEE THAT THE INTEREST EXPENSES ARE NOT FULLY A TTRIBUTABLE TO THE INVESTMENT WAS RIGHTLY TAKEN INTO CONSIDERATION BY THE LEARNED AO AND ACCO RDINGLY THE INTEREST INCOME INCURRED BY THE ASSESSEE ON ACCOUNT OF CAR LOAN, TRACTOR LOA N AND STAMP CHARGES, BANK COMMISSION CHARGES HAS BEEN INCURRED IN AS INVESTMENT CHARGES. FURTHER THAT THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT UTILIZED ITS INTEREST BEAR ING FUNDS FOR MAKING INVESTMENT IS NOT TENABLE SINCE THE ASSESSEE COMPANY HAS NOT SHOWN IT BY ANY FLOW OF FUNDS. RELIANCE WAS PLACED BY THE LEARNED DR ON THE JUDGMENT PASSED BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF DHANUKA & SONS VS. CIT, 339 ITR 319 (2011) WHERE IT WAS HELD THAT IT WAS FOR THE ASSESSEE TO SHOW BY PRODUCTION OF MATER IALS ON RECORDS THAT, THE SHARES WERE ACQUIRED FROM FUNDS AVAILABLE IN ITS HAND AT RELEVA NT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOANS. IT IS A FACT THAT THE ASSESSEE AS SUO MOTO DISALLOWED RS.29,20,159/- IN THE COMPUTATION OF INCOME AND THEREFORE THE EXPENSES OF RS.22,62,174/- AS INCURRED FOR EXEMPT INCOME HAS BEEN RIGHTLY DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS SUBMITTED BY THE LEARNED DR BEFORE US. THE LEARN ED REPRESENTATIVE APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT WHILE MAKING ADDI TION THE LEARNED ASSESSING OFFICER HAS NOT RECORDED ANY SUCH SATISFACTION. HE FURTHER ADDED THAT THE PROCESS OF DISALLOWANCES U/S 14A BY APPLYING THE PROVISION OF RULE 8D IS FAC TUALLY INCORRECT AND CONSEQUENTIAL - 4 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 DISALLOWANCE MADE BY THE LD ASSESSING OFFICER IS TO BE DELETED. FURTHER THAT THE LEARNED AR SUBMITTED BEFORE US THAT THE ASSESSING OFFICER H AS MADE DISALLOWANCE U/S 14A SIMPLY APPLIED RULE 8D. HOWEVER, BY DOING SO, THE LEARNED AR FAILED TO ESTABLISH PRE REQUISITE NEXUS BETWEEN THE EXPENDITURE, DISALLOWANCE AND INV ESTMENT MADE FROM WHICH INCOME DERIVED IS EXEMPTED FROM TAX. HE FURTHER RELIED UPO N THE TAX AUDIT REPORT WHICH SPECIFICALLY CLARIFIED THAT DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE ONLY AT RS.29,20,159/- AS PER RULE 8D. ACCORDING TO HIM NO PROPORTIONATE DISALLOWANCE U/S 14A IS WARRANTED WHEN THE ASSESSEE HAS SUFFICIENT INTER EST FREE FUNDS AVAILABLE FOR MAKING INVESTMENTS RESULTING INTO TAX FREE INCOME. THE LEA RNED AR RELIED UPON THE JUDGMENT PASSED IN THE MATTER OF CIT VS. CORRTECH ENERGY LTD ., ITA NO.239 OF 2014 BY THE JURISDICTIONAL HIGH COURT IN SUPPORT OF HIS CASE. 5. WE HAVE HEARD THE RESPECTIVE PARTIES. WE HAVE PE RUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE ORDERS IMPUGN ED THAT THE LEARNED CIT(A) WHILE CONSIDERING THE ENTIRE ASPECT OF DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER U/S 14A OF THE ACT R.W.R. 8D OF THE I.T. RULE, DULY CON SIDERED THE ISSUE WHICH WAS ALREADY SETTLED BY HIM FOR A.Y. 2011-12 IN ASSESSEES OWN C ASE BY AND UNDER ITS OWN ORDER DATED 15.07.2015 IN APPEAL NO.CIT(A)-VI/DCIT.CIR.1/93/201 4-15 (NOW 466/CIT(A)-1). 6. THE LEARNED CIT(A) CAME TO A CONCLUSION THAT SIN CE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATI ON RELYING UPON THE ORDER PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CORRTECH ENERGY LTD. DELETED THE ADDITION TO THE TUNE OF RS.22,62,174/- AS MADE U/S 14A OF THE ACT WITH THE FOLLOWING OBSERVATIONS: 3.4. ON CAREFULLY CONSIDERATION OF OBSERVATION OF ASSESSING OFFICER AND CONTENTION OF APPELLANT, I OBSERVE THAT DURING THE YEAR UNDER CONSIDERATION, APPELLANT HAS NOT EARNED ANY EXEMPT INCOME FROM INV ESTMENTS MADE BY IT WHICH IS APPARENT FROM AUDITED ANNUAL ACCOUNTS AS WELL AS CO MPUTATION OF TOTAL INCOME AS - 5 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 SUBMITTED BEFORE ASSESSING OFFICER AS WELL AS IN AP PELLATE PROCEEDINGS. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S C ORRTECH ENERGY PVT LIMITED (SUPRA), ON IDENTICAL ISSUE OF DISALLOWANCE U/S 14A WHEN NO DIVIDEND INCOME IS EARNED BY ASSESSEE HAS HELD AS UNDER: ..4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE AS SESSING OFFICER AS WELL AS CIT(APPEALS) HAD APPLIED FORMULA OF RULE 8D OF T HE INCOME TAX RULES, SINCE THIS CASE AROSE AFTER THE ASSESSMENT YEAR 200 9-2010. SINCE IN THE PRESENT CASE, WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2009-2010, SUCH FORMULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HO WEVER, NOTICE THAT SUB-SECTION(L) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCT ION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IN THE PRESENT CASE, THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAY MENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWA NCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE. 7. ADMITTEDLY THE ASSESSEE HAS NOT CLAIMED ANY EXEM PT INCOME IN THE INSTANT CASE. THEREFORE THE RATIO LAID DOWN IN THE JUDGMENT RELIE D UPON BY THE LEARNED CIT(A) PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CORRTECH ENERGY LTD. WHERE THE ASSESSEE HAS NOT MADE ANY CLAIM FOR EXEMPTION OF AN Y INCOME PAYMENT OF TAX, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT HAS R IGHTLY BEEN APPLIED BY THE LEARNED CIT(A). IN THE ABSENCE OF ANY INFIRMITY IN THE ORDE R PASSED BY THE LEARNED CIT(A), THE SAME IS CONFIRMED BY US. IN THE RESULT, REVENUES G ROUND OF APPEAL IS DISMISSED. 8. THE REVENUE HAS CHALLENGED THE DELETION OF ADDIT ION OF RS.18,34,715/- MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION OF CAR. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED DEPRECIATION OF RS.18,34,715/- ON MOTOR CARS. THE ASSESSEE WAS ISSU ED A NOTICE DATED 27.02.2015 TO EXPLAIN AS TO WHY DEPRECIATION OF SUCH CLAIM SHOULD NOT BE DISALLOWED SINCE THE CAR WAS - 6 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 NOT REGISTERED IN THE NAME OF THE ASSESSEE COMPANY. THE ASSESSEES CASE IS THIS THAT THE CAR WAS REGISTERED IN THE NAME OF THE DIRECTORS OF THE COMPANY AND FUNDS FOR SUCH PURCHASE OF THE ASSETS WAS PROVIDED BY THE ASSESSEE COMPANY. FURTHER THAT THE VALUE OF THE SAID VEHICLE WAS SHOWN AS PART OF FIXED ASSETS IN THE ANNUAL ACCOUNTS OF THE ASSESSEE AND THE BENEFITS INCLUDING USERS OF THE CARS ARE AL SO ENJOYED BY THE ASSESSEE COMPANY. HOWEVER, SUCH CONTENTION MADE BY THE ASSESSEE WAS N OT ACCEPTED BY THE LEARNED AO. THE ENTIRE CLAIM OF DEPRECIATION WAS DISALLOWED ON THE PRETEXT THAT THE ASSESSEE IS NOT A REGISTERED OWNER OF THE CAR AND THE VEHICLE WAS NOT USED FOR BUSINESS PURPOSES. IN APPEAL, THE LEARNED CIT(A) DELETED SUCH ADDITION INTER ALIA RELYING UPON THE JUDGMENT PASSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT-VS- BASTI SUGAR MILLS CO. LTD. (257 ITR 88) HENCE, INSTANT APPEAL FILED BY THE REVENUE BEFO RE US. 10. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED REPRESENTATIVE OF THE DEPARTMENT RELIED UPON THE ORDER PASSED BY THE LEARNED AO PART ICULARLY ON THE FINDING THAT THE VEHICLE WAS NOT REGISTERED IN THE NAME OF THE COMPA NY WHEN THE COMPANY HAS PAID THE FUNDS AS WELL AS CLAIMING DEPRECIATION THEREON. IT WAS FURTHER ARGUED THAT HAD THE VEHICLE BEEN REGISTERED IN THE NAME OF THE COMPANY THE TRAN SPORT DEPARTMENT OF THE STATE GOVERNMENT COULD HAVE EARNED HIGHER TAX. THE COMPAN Y HAVING NOT DONE SO CAUSED LOSSES TO THE REVENUE OF THE STATE. ON THE OTHER HA ND, LEARNED REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE LEARNED AO IN THE ASSESSMENT ORDER ITSELF HAS ACCEPTED FUNDS FOR THE PURPOSE OF THE ASSETS BEEN P ROVIDED BY THE COMPANY AND THE VALUE OF THE VEHICLE WAS SHOWN AS PART OF THE FIXED ASSET S. MORE SO, THE SAME WAS UTILIZED BY THE COMPANY WHICH IS WHY DEPRECIATION WAS CLAIMED. HE RELIED UPON THE JUDGMENT PASSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT-VS-BASTI SUGAR MILLS CO. LTD. (257 ITR 88) AND DCIT VS. M/S. AXEL PLOYMERS LTD. ( ITA NO.3488/AHD/2010). HE ULTIMATELY RELIED UPON THE ORDER PASSED BY THE LEAR NED CIT(A) ON THE FINDING THAT THE - 7 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 SAID VEHICLE WAS USED FOR THE BUSINESS PURPOSE AND THE SAME WAS DULY REFLECTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY. 11. WE HAVE HEARD THE RESPECTIVE PARTIES, PERUSED T HE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE ORDER PASSED BY THE LEARNE D AO THAT THE FACT OF FUNDS PROVIDED BY THE APPELLANT COMPANY FOR PURCHASE OF THE ASSETS WAS ACCEPTED BY HIM AND THE SAME WAS SHOWN IN THE ANNUAL ACCOUNTS OF THE ASSESSEE CO MPANY WAS ALSO RECORDED IN HIS ORDER. SINCE, THE VEHICLE WAS NOT REGISTERED IN THE NAME OF THE ASSESSEE BUT IN THE NAME OF THE DIRECTORS ON THE SOLE MOTIVE OF EVADING TAX FOR SUCH REGISTRATION WITH THE STATE GOVERNMENT, THE DEPRECIATION HAS MAINLY BEEN DISALL OWED BY THE LEARNED ASSESSING OFFICER. THIS IS A SETTLED PRINCIPLE OF LAW THAT WH EN THE EVIDENCE HAVE ESTABLISHED THAT VEHICLES IN QUESTION WHERE IN USE FOR THE PURPOSE O F BUSINESS OF THE ASSESSEE COMPANY AND WHEN THE SAME DULY REFLECTED IN THE BOOKS OF AC COUNTS OF THE ASSESSEE COMPANY THE CLAIM OF DEPRECIATION CANNOT BE DISALLOWED. THIS VI EW HAS ALREADY BEEN CONFIRMED BY THE JUDGMENT PASSED IN THE MATTER OF DCIT VS. M/S. AXEL PLOYMERS LTD. (ITA NO.3488/AHD/2010). FURTHER THAT THE JUDGMENT PASSED BY THE APEX COURT IN THE MATTER OF MYSORE MINERALS-VS-CIT (239 ITR 775) ALSO CONFIRMS THAT MERELY BECAUSE THE VEHICLES ARE NOT REGISTERED IN THE NAME OF THE COMPANY BUT I N THE NAME OF THE DIRECTORS THE ASSESSEE CANNOT BE DENIED OF THE CLAIM OF DEPRECIAT ION. IT IS NOT NECESSARY THAT THE VEHICLE OUGHT TO HAVE BEEN REGISTERED IN THE NAME OF THE AS SESSEE CLAIMING DEPRECIATION. FURTHER THAT IT WAS ALSO POINTED OUT BY THE LEARNED CIT(A) THAT IN THE ASSESSEES OWN CASE FOR A.Y. 2010-11 BY AND UNDER ORDER DATED 05.08.2013 SU CH ADDITION MADE BY THE LEARNED ASSESSING OFFICER WAS DELETED. WE, THEREFORE, DO NO T FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A). THE SAME IS THUS CONF IRMED. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. - 8 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 12. REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.50,13,577/- MADE U/S 145A OF THE ACT ON ACCOUNT OF UNUTILIZED CENVAT CREDIT. 13. DURING THE ASSESSMENT PROCEEDINGS, UPON EXAMINA TION OF COLUMN NO.22(A) OF 3CD REPORT, FOLLOWING UNUTILIZED CENVAT CREDIT AT T HE END OF THE YEAR WAS FOUND: PARTICULARS INPUT AVAILABLE CENVAT CREDIT 10223806 UTILIZED CENVAT CREDIT 5210229 UNUTILIZED CENVAT CREDIT 5013577 THE ASSESSEE THEREAFTER WAS ISSUED A SHOW CAUSE NOT ICE ON 27.02.2015 TO EXPLAIN AS TO WHY UNUTILIZED CENVAT CREDIT OF RS.50,13,577/ - WILL NOT BE ADDED IN CLOSING STOCK ON THE PREMISE THAT THE ASSESSEE HAS FOLLOWED THE E XCLUSIVE METHOD OF ACCOUNTING AGAINST INCLUSIVE METHOD AS MANDATED UNDER SECTION 145A OF THE ACT. IN RESPONSE TO THE SHOW- CAUSE THE ASSESSEE BY AND UNDER THE REPLY DATED 09. 03.2015 SUBMITTED BEFORE THE LEARNED AO THERE IS NO EFFECT ON THE PROFIT OF THE ASSESSEE COMPANY AND IT HAS PREPARED ITS ACCOUNT AS PER AS II, NEITHER THERE IS ANY UNDERSTA TEMENT OF PROFIT AND THEREFORE THE ADDITION HAS PROPOSED TO BE MADE IN RESPECT OF UNUS ED CENVAT CREDIT IS NOT JUSTIFIABLE. IT IS FURTHER CONTENDED BY THE ASSESSEE COMPANY BEF ORE THE LEARNED AO THAT UNUTILIZED CENVAT CREDIT ADDED TO THE TOTAL INCOME IN CASE OF APPELLANT HAS ALREADY BEEN UTILIZED BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RE TURN OF INCOME AND HENCE EVEN IN TERMS OF THE PROVISION OF SECTION 43B OF THE ACT NO ADDIT ION IS CALLED FOR. HOWEVER, SUCH SUBMISSION MADE BY THE ASSESSEE WAS NOT FOUND TENAB LE BY THE LEARNED AO. HE THEN MADE ADDITION OF THE ENTIRE AMOUNT OF RS.50,13,577/ - BEING THE NET UNUTILIZED CENVAT CREDIT ON THE GROUND THAT HAD THE INCLUSIVE METHOD OF ACCOUNTING BEEN FOLLOWED THE ASSESSEE WOULD HAVE EARNED HIGHER PROFIT THEN PROFI T SHOWN AS PER EXCLUSIVE METHOD OF ACCOUNTING. IN APPEAL, THE LEARNED CIT(A) DELETED T HE SAID ADDITION. HENCE, THE APPEAL. - 9 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 14. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LEARNED REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE PURPOSE OF CE NVAT CREDIT IS TO AVOID CASCADING EFFECT OF INCIDENCE OF INDIRECT TAXES IN THE HANDS OF VARIOUS PERSONS ENGAGED IN THE CHAIN OF SUPPLY OF RAW MATERIAL FOR PROCESSING THE RAW MA TERIALS AND MANUFACTURING THE FINISHED GOODS IN ORDER TO DISTRIBUTE THE FINISHED GOODS TO THE ENDS USER. THE LEARNED ASSESSING OFFICER ERRED IN EXAMPLE REFERRED IN THE ORDER FOR ADJUSTING THE EXCISE DUTY TO GIVE EFFECT SECTION 145A, IF THE EXCISE DUTY PAID AT THE TIME O F PURCHASE OF RAW MATERIAL IS INCLUDED IN THE CLOSING STOCK, THE VALUE OF STOCK CAN NEVER EXCEED THE ACTUAL PURCHASE PRICE INCLUDING THE EXCISE DUTY. IN THE SAID EXAMPLE THE VALUE OF RAW MATERIAL AS PER THE EXCLUSIVE METHOD SHALL BE RS.1000/- AND AS PER INCL USIVE METHOD THE SAME WILL BE RS.1100/-. HE, FURTHER RELIED UPON THE JUDGMENT PAS SED BY THE CO-ORDINATE BENCH IN THE CASE OF ALPANIL INDUSTRIES-VS-ACIT (ITA NOS. 169/AH D/2005 AND 170/AHD/2005 FOR ASST. YEARS 1999-00, 2000-01) THE LEARNED AR FURTHER SUBM ITTED BEFORE US THAT IN ASSESSEES OWN CASE FOR A.Y. 2010-11, THE LEARNED CIT(A) DULY ACCEPTED THE AFORESAID CONTENTION MADE BY THE ASSESSEE THAT NO ADDITION CAN BE MADE O N ACCOUNT OF UNUTILIZED CENVAT CREDIT. THEREFORE, THE ADDITION ON ACCOUNT OF UTILI ZED CENVAT CREDIT IS LIABLE TO BE DELETED AS SUBMITTED BY THE LEARNED AR. HE, FURTHER RELIED UPON THE JUDGMENT OF CO- ORDINATE BENCH IN THE MATTER OF ITO-VS-GUJARAT PARA FFINS PVT. LTD. IN SUPPORT OF HIS ARGUMENT. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER. 15. WE HAVE HEARD THE RESPECTIVE PARTIES, PERUSED T HE RELEVANT RECORDS. IT APPEARS FROM THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER T HAT THE ADDITION MADE ON GROUND THAT IF INCLUSIVE METHOD OF ACCOUNTING WAS FOLLOWED THE ASSESSEE WOULD HAVE EARNED HIGHER PROFIT THEN PROFIT SHOWN AS PER EXCLUSIVE METHOD OF ACCOUNTING. THE ASSESSING OFFICER HAS ALSO GIVEN EXAMPLE SHOWING IMPLICATION OF PROFI T WHEN INCLUSIVE METHOD IS ADOPTED AS AGAINST THE EXCLUSIVE METHOD OF ACCOUNTING AS AD OPTED BY THE ASSESSEE COMPANY. HE - 10 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 FURTHER OBSERVED THAT UNUSED CENVAT CREDIT IS REQUI RED IN THE CLOSING STOCK OF RAW MATERIAL BUT THE CASE OF THE ASSESSEE IS THIS SINCE THE COMPANY IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING IT HAS RECOGNIZED EXPLANATION IN THE PROFIT AND LOSS ACCOUNT IN ALL CENVAT CREDIT RECEIVED BY IT HENCE TO THAT EXTENT E XPENDITURE IS ALREADY ADOPTED BY THE LOWER AMOUNT. THE LEARNED CIT(A) RELYING UPON THE J UDGMENT PASSED BY THE CO-ORDINATE BENCH DELETED SUCH ADDITION. RELEVANT PORTION OF TH E SAID JUDGMENT IS NARRATED HEREIN BELOW: THE APPELLANT ALSO POINTED OUT THAT HON'B LE ITAT, AHMEDABAD VIDE ITA NO.13587/AHD/SOOG HAS ALSO CONCURRED WITH A V IEW THAT EXCISE DUTY AND/OR CUSTOMS DUTY SHOULD NOT BE INCLUDED IN THE CLOSING STOCK. THE OPERATIVE PART INDICATING OBSERVATION OF THE HON'BLE ITAT IS REPRO DUCED HEREIN AS UNDER: ''AT THE TIME OF HEARING, BOTH THE PARTIES AGREED T HAT THE ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF ACIT VS. NARMADA CHEMATUR PETROCHEMICAL S LTD. 327ITR 369 (GUJ.), WHEREIN FOLLOWING WAS HELD: 'HELD, DISMISSING THE APPEAL, THAT TRIBUNAL WAS JUS TIFIED IN EXCLUDING THE EXCISE DUTY AT THE TIME OF VALUATION OF THE CLOSING STOCK OF FINISHED GOODS AT THE END OF THE ACCOUNTING PERIOD BECAUSE: (A) NO DEDUCT ION FOR THE LIABILITY HAD BEEN CLAIM ED BY THE ASSESSEE. THE EXCISE DUTY PAYABLE ON THE FINISHED GOODS LYING IN THE CLOSING STOCK AT THE END OF THE RELEVANT, ACCOUNTING PERIOD HAD BEEN PAI D IN THE SUBSEQUENT YEAR BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCO ME AND THAT WAS HOW THE AMOUNT WAS AVAILABLE CONSIDERING THE FACT THAT THE ASSESSMENT HAD BEEN FRAMED AND THE SHOW-CAUSE NOTICE WAS ISSUED MUCH AF TER THE CLOSE OF THE ACCOUNTING YEAR; A.Y. 2005-06 (B) THE ASSESSING OFFICE HAD NOT HAD RECOURSE TO S UB-SECTION (3) OF SECTION 145 OF THE ACT. THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING BUT IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSING OFFICER WAS NOT IN A POSITION TO DEDUCE T RUE PROFITS OF THE YEAR UNDER CONSIDERATION. SUCH DUTY OF CENTRAL EXCISE IF ADDED TO ENHANCE THE - 11 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 VALUE OF CLOSING STOCK WOULD RESULT IN ENHANCED OPE NING STOCK ON THE FIRST DAY OF THE NEXT ACCOUNTING PERIOD, NAMELY, APRIL 1, 1997. SO THE NEXT YEAR'S PROFITS WOULD GET DEPRESSED ACCORDINGLY, OVER A PER IOD OF LIME THE WHOLE EXERCISE WOULD EVEN OUT, IN OTHER WORDS, BE REVENUE NATURAL. AT THE SAME TIME WHILE DISTURBING THE VALUE OF THE CLOSING STOC K THE ASSESSING AUTHORITY COULD NOT CHANGE THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. (C) THE ASSESSMENT YEAR BEING 1997-98 THE PROVISION S OF SECTION I45A OF THE ACT INSERTED BY THE FINANCE (NO. 2) ACT, 1998 W ITH EFFECT FROM APRIL BE INVOKED'. [4.4] I HAVE PERUSED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS MADE IN THIS REGARD. SINCE THE ISSUE IS SQUARELY CO VERED BY THE JURISDICTIONAL ITAT, I AM OF THE VIEW THAT NO ADDI TION SHOULD BE MADE ON ACCOUNT OF EXCISE AND CUSTOMS DUTY IN THE VALUATION OF CLOSING STOCK. THE ADDITION MADE BY THE AO IS THUS DIRECTED TO BE DELE TED. THE GROUNDS RAISED BY THE APPELLANT ARE THUS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE LEARNED D.R. AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT TH E ISSUE IS SQUARELY COVERED BY THE DECISION OF JURISDICTIONAL TRIBUNAL AND ACCORDINGLY RELYING ON THE AFORESAID DECISION DELETED THE ADDITION. NOT HING HAS BEEN BROUGHT ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A) AND THU S WE FIND NO REASON TO INTERFERE IN HIS ORDER AND THIS THE APPEAL OF REVEN UE IS DISMISSED. 10. SINCE THE ISSUE IN THE PRESENT APPEAL IS SIMIL AR TO THE ISSUES IN THE APPEALS CITED HEREINABOVE, WE RESPECTFULLY FOLLOWING THE DE CISIONS OF CO-ORDINATE BENCH OF TRIBUNAL CITED HEREINABOVE, WE ARE OF THE VIEW THAT NO ADDITION ON ACCOUNT OF MODVAT AND VAT AS MADE BY THE A.O NEEDS TO BE MADE IN THE PRESENT CASE. WE THEREFORE DIRECT ITS DELETION. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 10. WE FURTHER FIND THAT ON THE ISSUE OF GUIDANCE NOTES AND ACCOUNTING STANDARDS ISSUED BY THE' INSTITUTE OF CHARTERED ACC OUNTANT OF INDIA, THE HIGH COURT OF TELENGANA AND ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PACTS SECURITIES AND FINANCIAL SERVICES LTD. (2015) 374 I TR 681 (T & A.P) AT PARA 13 - 12 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 HAS NOTED THAT THE MERELY BECAUSE THE CENTRAL GOVER NMENT HAS NOT. A.Y. 2005-06 NOTIFIED IN THE OFFICIAL GAZETTE 'ACCOUNTING STANDA RDS' TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME, IT CANNOT BE STATED THAT THE ACCOUNTING STANDARDS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA OR THE ACCOUNTING STANDARDS REFLECTED IN THE 'GUIDANCE NOTE' CANNOT BE ADOPTED AS AN ACCOUNTING METHOD BY AN ASSESSEE. IT FURTHER HELD THAT NOTWITHSTANDING THE FACT THAT THE OPINION OF THE CH ARTERED ACCOUNTANTS OF INDIA WAS EXPRESSED IN THE 'GUIDANCE NOTE', WHICH HAD NOT ATTEND A MANDATORY STATUS, WOULD NOT BE A GROUND TO DISCARD THE BOOKS OF ACCOU NTS OF THE ASSESSEE OR THE METHOD OF ACCOUNTING FOLLOWED. 11. IN VIEW OF THE AFORESAID FACTS AND FOLLOWING T HE DECISIONS OF THE CO-ORDINATE BENCH CITED AND THE DECISION OF HON'BLE HIGH COURT HEREINABOVE, WE ARE OF VIEW THAT NO ADDITION ON ACCOUNT OF UNUTILIZED CENVAT CR EDIT WAS CALLED FOR IN THE PRESENT CASE. WE THUS DISMISS THE APPEAL OF REVENUE AND ALLOW THE C.O. OF ASSESSEE. 16. WE FIND THE RATIO OF THE JUDGMENT CITED ABOVE H AS RIGHTLY BEEN APPLIED BY THE LEARNED CIT(A). MORE SO, WHEN SUCH ADDITION ON UNUT ILIZED CENVAT CREDIT WAS MADE U/S 145A OF THE ACT BY THE LEARNED AO IN ASSESSEES OWN CASE FOR A.Y. 2010-11 THE SAME WAS DELETED BY THE FIRST APPELLATE AUTHORITY H OLDING THE SAID CREDIT CANNOT BE A SUBJECT MATTER OF ADDITION U/S 145A OF THE ACT BEIN G TAX NEUTRAL. WE FIND NO MERIT IN THE CASE MADE OUT BY THE REVENUE NEITHER ANY INFIRMITY IN THE ORDER IMPUGNED BEFORE US. HENCE, THE APPEAL IS DISMISSED. 17. IN THE RESULT, REVENUES APPEAL IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 24/01/2019 SD/- SD/- ( PRAMOD KUMAR ) ( MS. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 24/01/2019 - 13 - ITA NO.1770/AHD/2016 DCIT VS. ARCOY INDUSTRIES (IND) PVT. LTD. ASST.YEAR 2012-13 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-1, AHMEDABAD. 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 06/12/2018 (DICTATION PAGES 19) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10/12/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 09/01/2019 & 21/01/2019 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER