M/s. Annapurna Ispat, Bhavnagar V. The ACIT, Circle-2, Bhavnagar

ITA 188/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9475 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TUSHAR P HEMANI
• Keywords: Unexplained expenditure; Tax effect; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 69C; 11; 15; 43B; 271(1)(b); 139; 92; 139(1); 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 188/AHD/2014 (ASSESSMENT YEAR: 2009-10) M/S. ANNAPURNA ISPAT, LATI BAZAAR, BHAVNAGAR, V/S THE ACIT, CIRCLE-2, BHAVNAGAR (APPELLANT) (RESPONDENT) PAN: AAKFA 5642E APPELLANT BY : SHRI TUSHAR P. HEMANI, AR RESPONDENT BY : SHRI K. MADHUSUDAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 18 -01-201 7 DATE OF PRONOUNCEMENT : 23 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. CIT(A)-XX, AHMEDABAD DATED 16.12.2013 PE RTAINING TO A.Y. 2009- 10. 1. THE LEARNED CIT (A) HAS ERRED IN DIRECTING AO T O VERIFY WHETHER THE SUM OF RS.10,57,575/- I.E. THE INCREASE IN THE VALUE OF CLOSING STOCK COMPARED TO ITA NO. 188/ AHD/2014 . A.Y.2009-10 2 OPENING STOCK, CORRESPONDING TO INCREASE IN THE BAL ANCE OF CENVAT / MODVAT CREDIT HAS BEEN PAID BEFORE THE DUE DATE OF RETURN OF INCOME PRESCRIBED U/S 139(1) OF THE ACT AND TO MAKE DISALL OWANCE U/ S 43B TO THE EXTENT OF NON-PAYMENT OF THE SAID SUM, IF ANY. THE ISSUE OF ANY DISALLOWANCE U/S 43B OF THE ACT WAS NEVER THERE BEF ORE THE CIT (A). WITHOUT ISSUING NOTICE FOR ENHANCEMENT AS ALSO SHOW CAUSE NOTICE FOR BEFORE GIVING SUCH DIRECTIONS, THE DIRECTION TO APP LY PROVISIONS U/S 43B OF THE ACT IS NOT LEGAL AND WITHIN JURISDICTION OF THE CIT (A). 2. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS NOT FOLLOWED THE PRESCRIBED M ETHOD U/S. 145A OF THE ACT IN RESPECT OF THE VALUATION OF STOCK. THE A.O. NOTICED THAT THE ASSESSEE HAS INCLUDED EXCISE DUTY OF RS. 15,97,851/- TO THE VALUE OF CLOSING STOCK IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT I NSTEAD OF BALANCE OF EXCISE DUTY OF RS. 21,76,920/- AVAILABLE AS ON 31.0 3.2009. THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY DIFFERENCE OF RS. 5,79,069/- SHOULD NOT BE ADDED TO ITS TOTAL INCOME. 3. IN ITS REPLY, THE ASSESSEE EXPLAINED ITS METHOD OF ACCOUNTING STATING THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTIN G FOR TAXES, DUTIES, LEVIES ETC. THE ASSESSEE FURTHER POINTED OUT THAT I F THE INCLUSIVE METHOD OF ACCOUNTING IS FOLLOWED THEN THE RESULTANT FIGURE WI LL BE TAX NEUTRAL. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS VIOLATED T HE PROVISIONS OF SECTION 145A OF THE ACT AND MADE AN UPWARD ADJUSTMENT OF RS . 5,79,069/- TO THE VALUE OF THE STOCK. ITA NO. 188/ AHD/2014 . A.Y.2009-10 3 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND ONCE AGAIN EXPLAINED ITS METHOD OF ACCOUNTING. THE LD. CIT(A) WAS CONVIN CED WITH THE EXPLANATION OF THE ASSESSEE, DRAWING SUPPORT FROM THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ALPANIL INDUSTRIES IN ITA NOS. 169 & 170/AHD/2005 DATED 11.09.2009, THE LD. CIT(A) OBSERVED THAT THE ADDITION MADE BY THE A.O. IN RESPECT OF THE DIFFERENCE OF RS. 5,79,069/- IS NOT CORRECT AND DELETED THE SAME. SINCE THE REVENUE IS NOT IN APPEAL BEFORE US, THIS ISSUE HAS ATTAINED FINALITY. 5. HOWEVER, THE LD. CIT(A) AFTER VERIFYING THE FACTS W AS OF THE OPINION THAT THERE WAS AN INCREASE IN BALANCE OF CENVAT/MODVAT C REDIT BY RS. 10,57,575/- WHICH WAS THE DIFFERENCE OF THE CLOSING BALANCE OF RS. 28,05,502/- AND THE OPENING BALANCE OF RS. 17,47,98 7/-. THE LD. CIT(A) WAS OF THE OPINION THAT THE A.O. SHOULD HAVE DISALLOWED THIS AMOUNT CONSIDERING THE PROVISIONS OF SECTION 43B OF THE AC T IN CASE SUCH SUM WAS NOT PAID TILL THE DUE DATE OF THE RETURN OF INCOME U/S. 139(1) OF THE ACT. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO APPLY T HE PROVISIONS OF SECTION 43B OF THE ACT AND DISALLOW AN AMOUNT TO THE EXTENT OF NON-PAYMENT TILL THE DUE DATE OF FILING OF THE RETURN OF INCOME U/S. 139(1) OF THE ACT. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT APPLICABILITY OF THE PROVISIONS OF SECTION 43B WAS NEVER AN ISSUE BEFORE THE A.O. THE A.O. ADDED RS. 5,79,069/- BY MAKING AN UPW ARD ADJUSTMENT BEING THE DIFFERENCE BETWEEN CLOSING BALANCE OF EXCISE DU TY AND THE AMOUNT OF ITA NO. 188/ AHD/2014 . A.Y.2009-10 4 EXCISE DUTY INCLUDED BY THE ASSESSEE IN ITS CLOSING STOCK. IT IS SAY OF THE LD. COUNSEL THAT THE FIRST APPELLATE AUTHORITY HAS DECI DED THE ISSUE WHICH IS TOTALLY DIFFERENT FROM THE ISSUE RAISED BEFORE HIM. THIS AMOUNTS TO THE ENHANCEMENT OF THE ASSESSMENT WITHOUT NOTICE AND, T HEREFORE, BAD IN LAW. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE A.O. AND STATED THAT THE LD. CIT(A) HAS FOLLOWED THE DECISIO N OF THE CO-ORDINATE BENCH IN THE CASE OF ALPANIL INDUSTRIES (SUPRA). 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUT HORITIES BELOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS IN IS SUE BEFORE US. THE UNDISPUTED FACT IS THAT THE ISSUE BEFORE THE LD. CI T(A) WAS IN RESPECT OF THE UPWARD ADJUSTMENT OF RS. 5,79,069/- MADE BY THE A.O . INVOKING THE PROVISIONS OF SECTION 145A OF THE ACT. IT IS ALSO N OT IN DISPUTE THAT THE LD. CIT(A) WAS CONVINCED WITH THE METHOD OF ACCOUNTING OF THE ASSESSEE AND DELETED THE IMPUGNED ADDITIONS. 8. HOWEVER, WE FIND THAT THE LD. CIT(A) HAS TRAVELLED BEYOND THE GRIEVANCE BEFORE HIM AND INVOKED THE PROVISIONS OF SECTION 43 B OF THE ACT AND DIRECTED THE A.O. TO CONSIDER THE DISALLOWANCE OF R S. 10,57,515/-. IN OUR CONSIDERED OPINION, THIS AMOUNTS TO ENHANCEMENT. WE ALSO FIND THAT THIS ACT OF THE FIRST APPELLATE AUTHORITY IS WITHOUT NOT ICE AND IN CONTRAVENTION TO THE PROVISIONS OF SECTION 251(2) OF THE ACT. IN OUR CONSIDERED VIEW, ANY ENHANCEMENT WITHOUT NOTICE AND MADE IN CONTRAVENTIO N TO THE PROVISIONS OF SECTION 251(2) OF THE ACT VIOLATES THE MANDATORY PROVISIONS OF THE ACT AND CANNOT BE UPHELD. WE, THEREFORE, SET ASIDE TH E FINDINGS OF THE LD. ITA NO. 188/ AHD/2014 . A.Y.2009-10 5 CIT(A) TO THIS EXTENT, THE ADDITION OF RS. 5,79,069 /- STANDS DELETED AND THE OBSERVATIONS OF THE LD. CIT(A) QUA THE ENHANCEMENT IS STRUCK DOWN. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 2. THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND O N THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.13,533/- MADE IN RESPECT OF INSURANCE EXPENSES ON ACCOUNT OF SHORT ADJUSTMENT OF PREPAID INSURANCE EXPENSES. 9. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS PAID INSURANCE PREMIUM OF PART OF WHICH PERTAIN S TO NEXT FINANCIAL YEAR. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS C LAIMED EXCESS INSURANCE EXPENSES OF RS. 13,533/- WHICH IS THE DIFFERENCE B ETWEEN THE INSURANCE PREMIUM PAID AT RS. 39,416/- AND THE INSURANCE PRE MIUM RELATED TO THE FINANCIAL YEAR UNDER CONSIDERATION AT RS. 25,883/-. THE A.O. MADE THE ADDITION OF RS. 13,533/-. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL STATED THAT SINCE THE AS SESSEE COMPANY IS CHARGED TO TAX UNIFORMLY FOR ALL YEARS, IT WOULD HA VE NO REVENUE IMPLICATION WHETHER THE IMPUGNED EXPENDITURE IS ALLOWED IN THE YEAR UNDER CONSIDERATION. OR ANY OTHER ASSESSMENT YEAR. STRON G RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT G IVEN IN THE CASE OF ADANI ENTERPRISES LTD. IN TAX APPEAL NO. 573 OF 2016. PER CONTRA, LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. ITA NO. 188/ AHD/2014 . A.Y.2009-10 6 11. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS TRUE THAT THE ASSESSEE HAS INCURRED INSURANCE PREMIUM OF RS. 39,416/- DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO TRUE THAT THE ENTIRE INSURANCE PREMIUM DOES NOT PERTAIN TO THE YEAR UNDER CONSIDER ATION BUT AMOUNT OF RS. 13,533/- IS ATTRIBUTABLE TO THE NEXT FINANCIAL YEAR. IT WOULD NOT BE OUT OF PLACE TO REFER TO THE OBSERVATIONS MADE BY THE HON BLE HIGH COURT OF BOMBAY IN THE CASE OF NAGRI MILLS CO. LTD. 33 ITR 6 81 AND THE SAME READS AS UNDER:- WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORIT IES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDU CTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOU LD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATER IAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT ; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WH ETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTM ENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENER GIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT CO ME UP TO-US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPA RTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 12. IN OUR CONSIDERED OPINION, SINCE THE TAX EFFECT WOU LD BE NEUTRAL, WE DO NOT FIND ANY MERIT IN THE IMPUGNED DISALLOWANCE IN THE LIGHT OF THE AFORE-STATED OBSERVATIONS OF THE HONBLE HIGH COURT OF BOMBAY. WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO D ELETE THE ADDITION OF RS. 13,533/-. GROUND NO. 2 IS ALLOWED. ITA NO. 188/ AHD/2014 . A.Y.2009-10 7 3. THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AND O N THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF ID. AO IN ESTIMATING EXPEN DITURE ON INSTALLATION OF CERTAIN ASSETS @ 7% OF THE VALUE OF ASSET AND CONSEQUENTLY MAKING ADDITION IN THE SUM OF RS.7,73,443/'- U/S 69C OF THE ACT. 13. WHILE SCRUTINIZING THE BALANCE SHEET OF THE ASSESSE E, THE A.O. NOTICED THAT FOLLOWING ADDITIONS WERE MADE TO THE ASSETS DURING THE YEAR UNDER CONSIDERATION: (A) PLANT AND MACHINERIES RS. 64,52,684/- (B) FURNACE & CHOKE ASSEMBLY RS. 45,96 ,510/- 14. THE A.O. NOTICED THAT THE ASSESSEE HAS NOT DEBITED ANY EXPENSE RELATING TO THE INSTALLATION AND/OR LABOUR CHARGES. THE A.O. WA S OF THE OPINION THAT SUCH PLANT AND MACHINERIES CANNOT BE INSTALLED WITH OUT INCURRING ANY EXPENDITURE. THE A.O. ACCORDINGLY ESTIMATED 10% OF THE TOTAL ADDITIONS AND MADE AN ADDITION OF RS. 11,05,000/- U/S. 69C OF THE ACT. 15. ASSESSEE CONTESTED THE ADDITION BEFORE THE LD. CIT( A). THE LD. CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 7% OF THE TOTAL ADDITIONS AND DIRECTED THE A.O. TO RESTRICT THE ADDITION TO RS. 7 ,73,443/-. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE A.O. HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 69C OF THE ACT AN D THE LD. CIT(A) FURTHER ERRED IN PART CONFIRMING THE SAID ADDITION. IT IS T HE SAY OF THE LD. COUNSEL THAT SECTION 69C PROVIDES FOR ADDITION IN RESPECT O F ANY EXPENDITURE OR PART ITA NO. 188/ AHD/2014 . A.Y.2009-10 8 THEREOF INCURRED BY AN ASSESSEE IN CASE SUCH ASSESS EE IS NOT ABLE TO OFFER AN EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR EXPLANATION SO OFFERED BY THE ASSESSEE IS NOT FOUND TO BE SATISFACTORY TO THE A.O. 17. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE L EDGER OF PLANT AND MACHINERY AND POINTED OUT THAT THE ITEMS THEREIN AR E IN RESPECT OF CAPACITORS, MOTORS, CI MOULDS, ETC. WHICH DO NOT RE QUIRE ANY INSTALLATION. THEREFORE, THERE IS NO QUESTION OF INCURRING EXPEND ITURE OUTSIDE THE BOOKS. THE LD. COUNSEL FURTHER POINTED OUT THAT RS. 28,62, 206/- IS A BROUGHT FORWARD BALANCE FROM EARLIER YEAR. THEREFORE, THE S AID MACHINERIES WERE NEVER INSTALLED DURING THE YEAR UNDER CONSIDERATION . THE LD. COUNSEL FURTHER POINTED OUT THAT THE FURNACE & CHOKE ASSEMBLY AMOUN TING TO RS. 45,96,510/- WERE INSTALLED BY THE SUPPLIER, THEREFO RE, THE ASSESSEE NEVER INCURRED ANY EXPENDITURE ON THEIR INSTALLATION. TH E LD. COUNSEL CONCLUDED BY SAYING THAT THE IMPUGNED ADDITION DO NOT HOLD AN Y WATER AND DESERVE TO BE DELETED. PER CONTRA, THE LD. D.R. STRONGLY RELIE D UPON THE FINDINGS OF THE REVENUE AUTHORITIES. 18. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE IMPUGNED ADDITIONS HAVE BEEN MADE BY THE A.O. U/S. 69C OF THE ACT. SECTION 69C READS AS UNDER:- WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURR ED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPE NDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT IN THE O PINION OF THE [ASSESSING] OFFICER, ITA NO. 188/ AHD/2014 . A.Y.2009-10 9 SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITUR E OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSES SEE FOR SUCH FINANCIAL YEAR:] [PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED T O BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME]. 19. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS THAT THE PRE-REQUISITE FOR INVOKING SECTION 69C IS THAT THE ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE SOURCE OF WHICH IS NOT EXPLAINED OR THE EXPLANATION SO FURNISHED IS NOT FOUND TO BE SATISFACTORY. IN OUR U NDERSTANDING OF THE LAW, THE BURDEN IS ON THE REVENUE TO PROVE THAT THE ASSE SSEE HAS ACTUALLY INCURRED SOME EXPENDITURE WHICH IS NOT EXPLAINED. W E FIND THAT THE REVENUE AUTHORITIES HAVE NOT BROUGHT ANY EVIDENCE O N RECORD TO SHOW THAT THE ASSESSEE ACTUALLY INCURRED SOME EXPENDITURE IN THE INSTALLATION OF THE PLANT AND MACHINERIES. WE ALSO FIND THAT THE REVENU E AUTHORITIES DID NOT MAKE ANY ENQUIRY FROM THE SUPPLIERS OF THE PLANT AN D MACHINERIES WHEN COMPLETE BILLS /INVOICES WERE BEFORE THEM. IN OUR C ONSIDERED OPINION, THE ENTIRE ADDITION HAS BEEN MADE ON PRESUMPTION AND, T HEREFORE SUCH ADDITION CANNOT BE SUSTAINED. WE SET ASIDE THE FIND INGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED ADDITION. GR OUND NO. 3 IS ALLOWED. 20. THE OTHER GROUNDS ARE OF GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. ITA NO. 188/ AHD/2014 . A.Y.2009-10 10 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23 - 01- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 23/01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD