Dy.CIT, Cir-16(1), Hyderabad V. M/s Sponge Iron India Limited, Hyderabad

ITA 1834/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2839 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 17-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: LAXMINIVAS SHARMA
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1834/HYD/2012 ASSESSMENT YEAR: 2004-05 DY. COMMISSIONER OF INCOME-TAX, APPELLAN T CIRCLE 16(1), HYDERABAD. VS. M/S SPONGE IRON INDIA LTD., RESPONDENT HYDERABAD. (PAN/GIR NO. AADCS4045D/S-066) APPELLANT BY : SHRI M.H. NAIK RESPONDENT BY : LAXMI NIVAS SHARMA DATE OF HEARING : 04/04/2013 DATE OF PRONOUNCEMENT : 03/05/ 2013 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF CIT(A)-IV, VISAKHAPATNAM DATED 25/09/2012 FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY THE FACTS RELATING TO RAISE THIS GROUND ARE THAT THE AO FOUND THAT THE ASSESSEE HAS NOT PROVIDED FOR EXCISE DUTY ON STOCK OF FINISHED GOODS. ON BEING ASKED BY THE AO TO THE ASSESSEE TO EXPLAIN AS TO WHY EXCESS DUTY PAYABLE ON CLOSING OF FINISHED GOODS SHOULD NOT BE INCLUDED IN THE INVENTORY VALUA TION AND BROUGHT TO TAX, THE ASSESSEE, IN REPLY, HAS CONTEND ED THAT THE CLOSING STOCK IS VALUED AT COST OR MARKET VALUE WHI CHEVER IS LOWER. THE ASSESSEE SUBMITTED THAT THE FINISHED GOODS WHIC H WERE REFERRED TO IN THE NOTES ON ACCOUNTS WERE THE GOODS WHICH WERE NOT CLEARED FROM THE FACTORY AND, HENCE, THE SAME W ERE VALUED AT 2 ITA NO. 1834/HYD/2012 SPONGE IRON INDIA LTD. COST WITHOUT TAKING INTO ACCOUNT THE ELEMENT OF EXC ISE DUTY. IT WAS EXPLAINED THAT THE EXCISE DUTY PAYABLE WAS NOT DEBITED TO P&L A/C, AND THE SAME WAS NOT ADDED TO THE VALUE OF FINISHED GOODS. ALTERNATIVELY, THE ASSESSEE CONTENDED THAT I N CASE EXCISE DUTY PAYABLE ON FINISHED GOODS IS TO BE INCLUDED IN THE VALUATION, THE SAME HAS TO BE ALLOWED AS DEDUCTION SINCE IT IS PAID BEFORE THE DATE OF FILING OF RETURN. IN SUPPORT OF THIS CO NTENTION, THE ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS H IGH COURT IN THE CASE OF ENGLISH ELECTRIC COMPANY OF INDIA LTD., 243 ITR 512 AND INDO NIPPON CHEMICALS CO. LTD., 261 ITR 275. TH E AO AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE HELD TH AT THE PRINCIPLES LAID DOWN IN THE SAID CASES WERE NOT APP LICABLE TO THE ASSESSEE SINCE SECTION 145A IS INTRODUCED IN THE AC T W.E.F. 01/04/1999. REGARDING THE CONTENTION OF THE ASSESSE E THAT IF CLOSING STOCK OF FINISHED GOODS HAS TO INCLUDE EXCI SE DUTY, THE SAME IS REQUIRED TO BE ALLOWED U/S 43B. IT WAS STAT ED BY THE AO THAT EXCISE DUTY IS PAYABLE ON CLEARANCE OF GOODS F ROM FACTORY AND HENCE THE SAME CANNOT BE DEBITED TO P&L A/C SIN CE THE LIABILITY TO PAY EXCISE DUTY IS NOT ASCERTAINED AS ON 31/03/2004. THE PROVISION IF ANY SO DEBITED WOULD BE A UN-ASCER TAINED LIABILITY AND HENCE WILL NOT BE AN ALLOWABLE EXPENDITURE. THE REFORE, IT WAS STATED BY THE AO THAT THE QUESTION OF INVOCATION OF PROVISIONS OF SECTION 43B DOES NOT ARISE. 3. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE CONTEN DED THAT THE EXCISE DUTY IS LIABLE ONLY WHEN THE FINISHED GO ODS ARE MOVED OUTSIDE FACTORY. HE FURTHER CONTENDED THAT SINCE TH E STOCK IS WITHIN THE FACTORY PREMISES NO EXCISE DUTY IS LIABL E/PAYABLE. THE ASSESSEE CONTENDED THAT NO ADDITION AS PER THE PRO VISIONS OF SECTION 145A IS CALLED FOR AS THE DUTY IS, THEREFOR E, NOT PAYABLE NOR PAID NOR ALLOCATED TO THE VALUE OF FINISHED GOO DS. ASSESSEE IN 3 ITA NO. 1834/HYD/2012 SPONGE IRON INDIA LTD. THIS REGARD RELIED ON THE DECISION OF HONBLE GUJAR AT HIGH COURT IN THE CASE OF NARMADA CHEMATUR PETRO CHEMICAL LTD., 2 33 CTR 265 WHICH DECIDED THE ISSUE AFTER CONSIDERING VARIOUS D ECISIONS AND ALSO THE PROVISIONS OF SECTION 145A. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE UNDISPUTED FACT IN THIS RE GARD IS THAT THE FINISHED GOODS HAVE NOT BEEN MOVED OUT OF FACTORY P REMISES AND HENCE THE LIABILITY OF PAYMENT OF EXCISE DUTY DID N OT ARISE AND, THEREFORE, AS RIGHTLY OBSERVED BY THE AO, THERE IS NO LIABILITY AS FAR AS EXCISE DUTY COMPONENT IS CONCERNED. HE FURTH ER OBSERVED THAT HOWEVER, THE AO INVOKING PROVISIONS OF SECTION 145A ADDED EXCISE DUTY COMPONENT TO THE FINISHED GOODS STOCK. THE CIT(A) OBSERVED THAT IN THIS REGARD ASSESSEE RIGHTLY RELIE D ON THE GUJART HIGH COURT DECISION IN CASE OF NARMADA CHEMATUR PET RO CHEMICALS LTD., 233 CTR 265 AS THIS ISSUE WAS DEALT BY VARIOU S COURTS AND THE HONBLE BOMBAY HIGH COURT IN CASE OF LOKNETE BA LASAHEB DESAI SSK LTD., 339 ITR 288 (B0M.) CLEARLY HELD THA T THE WORD INCURRED USED IN 145A(B) MUST BE CONSTRUED TO MEAN THE LIABILITY ACTUALLY INCURRED BY THE ASSESSEE. THE CIT(A) FURTH ER OBSERVED THAT THOUGH THE DATE OF MANUFACTURE IS THE RELEVANT DATE OF DUTIABILITY, THE RELEVANT DATE FOR THE DUTY LIABILI TY IS THE DATE ON WHICH THE GOODS ARE CLEARED. IN OTHER WORDS, IN RES PECT OF EXCISABLE GOODS MANUFACTURED AND LYING IN SOCK, THE EXCISE DUTY LIABILITY WILL GET CRYSTALLIZED ON THE DATE OF CLEA RANCE OF GOODS AND NOT ON THE DATE OF MANUFACTURE. SIMILAR VIEW IS HE LD BY GUJARAT HIGH COURT IN CASE OF NARMADA CHEMATUR 327 ITR 369. THE CIT(A) HELD THAT IT IS NOT IN DISPUTE IN THE PRESENT CASE THAT THE GOODS ARE NOT CLEARED FROM THE FACTORY, THEREFORE, RESPEC TFULLY FOLLOWING THE HONBLE BOMBAY HIGH COURT AND GUJART HIGH COURT , THE CIT(A) HELD THAT THE LIABILITY FOR EXCISE DUTY DID NOT CRY STALLIZE AND HENCE 4 ITA NO. 1834/HYD/2012 SPONGE IRON INDIA LTD. PROVISIONS OF SECTION 145A ARE NOT ACCEPTABLE TO AS SESSEES. HE, THEREFORE, DIRECTED THE AO TO DELETE THE ADDITION M ADE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AN D HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED BOTH ON FACTS AND IN THE CIRCUM STANCES OF THE CASE WITHOUT GOING INTO THE MERIT OF THE ORD ER OF THE AO. 2. THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSES SEE IN RESPECT OF ADDITION MADE TOWARDS VARIATION IN THE V ALUATION OF CLOSING STOCK DESPITE THE FACT THAT THE PROVISIO NS OF SEC. 145A OF THE IT ACT, 1961 IS CLEAR IN ITS TERMS THAT THE VALUE OF THE LIABILITY TOWARDS TAXES, CESS/DUTY WHATSOEVE R NAME CALLED ARE TO BE ADDED TO THE VALUE OF THE CLOSING STOCK FOR THE PURPOSE OF DETERMINATION OF THE CLOSING STOCK V ALUATION AS AT THE END OF THE PREVIOUS YEAR. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CIT(A) GAVE A CATEGORICAL FINDING THAT THE UNDISPUTED FACT IN THIS REGARD IS THAT THE FINISHED GOODS HAVE NOT BEEN MOV ED OUT OF FACTORY PREMISES AND HENCE THE LIABILITY OF PAYMENT OF EXCISE DUTY DID NOT ARISE. THE CIT(A) RELIED UPON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF LOKNETE BALASAHEB DESAI S SK LTD., 339 ITR 288 (BOM.) WHEREIN IT WAS CLEARLY HELD THAT THE WORD INCURRED USED IN 145A(B) MUST BE CONSTRUED TO MEAN THE LIABI LITY ACTUALLY INCURRED BY THE ASSESSEE. THE CIT(A) OBSERVED THAT THOUGH THE DATE OF MANUFACTURE IS THE RELEVANT DATE FOR DUTIAB ILITY, THE RELEVANT DATE FOR THE DUTY LIABILITY, IS THE DATE O N WHICH THE GOODS ARE CLEARED. IN OTHER WORDS, IN RESPECT OF EXCISABL E GOODS MANUFACTURE AND LYING IN STOCK, THE EXCISE DUTY LIA BILITY WILL GET CRYSTALLIZED ON THE DATE OF CLEARANCE OF GOODS AND NOT ON THE DATE OF MANUFACTURE. WE FIND THAT, IN THE CASE UNDER CON SIDERATION, THE LIABILITY FOR EXCISE DUTY DID NOT CRYSTALLIZE, THE PROVISIONS OF SECTION 145A ARE NOT APPLICABLE TO ASSESSEES CASE. THEREFORE, WE 5 ITA NO. 1834/HYD/2012 SPONGE IRON INDIA LTD. FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) IN DIR ECTING THE AO TO DELETE THE ADDITION MADE TOWARDS VARIATION IN THE V ALUATION OF CLOSING STOCK. ACCORDINGLY, THE GROUNDS RAISED BY T HE REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 3 RD MAY, 2013. KV COPY TO:- 1) DCIT, CIRCLE -16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAAR BHAVAN, BASHEERBAG, HYDERABAD. 2) M/S SPONGE IRON INDIA LTD., 6 TH FLOOR, KHANIJ BHAVAN, NMDC BUILDING, MASAB TANK, HYDERABAD. 3) THE CIT (A), VISAKHAPATNAM. 4) THE CIT - CONCERNED 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.