ACIT, Circle 3(1), Hyderabad V. M/s Raasi Refractories Limited, Hyderabad

ITA 199/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61916 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained investment; Reasonable cause
• Section: 43B; 69

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. 199/HYD/2011 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 3(1), HYDERABAD. VS. RAASI REFRACTORIES LTD., RESPONDENT HYDERABAD. (PAN AABCR0333H) APPELLANT BY : MR.B.V. PRASAD REDDY RESPONDENT BY : MR. S. RAMA RAO DATE OF HEARING : 09/04/2012 DATE OF PRONOUNCEMENT : 0 6/06/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A), GUNTUR, DATED 15/11/2010 FOR THE ASSESSMENT YEAR 2006-07, WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUND S OF APPEAL:- 1. THE ORDER OF THE CIT(A) IS ERRED IN LAW IN ALLOW ING THE ASSESSEES APPEAL. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE ADDITION MA DE BY THE AO U/S 69 IN THE ABSENCE OF ANY DETAILS FURNISHED BY THE ASSESSEE COMPANY. 3. THE CIT(A) OUGHT TO HAVE UPHELD THE ADDITION MA DE BY THE AO ON ACCOUNT OF EXCISE DUTY ON CLOSING STOCK. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F REFRACTORY BRICKS AND MORTAR. IT FILED THE RETURN OF INCOME FOR THE Y EAR UNDER CONSIDERATION ON 24/01/2007, DECLARING TOTAL INCOME AT RS. 19,25, 584/-. THE AO WHILE DETERMINING THE ASSESSMENT HAD DISALLOWED AN AMOUNT OF RS. 71,75,808/- AS UNEXPLAINED DEBITS U/S 69 OF THE ACT SHOWN BY THE ASSESSEE IN THE BALANCE SHEET AS TRADE ADVANCES U NDER THE HEAD OTHER CURRENT ASSETS, LOAN AND ADVANCES ON THE GROUND TH AT THE ASSESSEE HAD 2 ITA NO. 199/HYD/2011 RAASHI REFRACTORIES LTD. NOT FURNISHED ANY PROOF IN SUPPORT OF THE INVESTMEN TS MADE. THE AO HAD ALSO DISALLOWED AN AMOUNT OF RS. 20,93,873/- U/S 20 0(1) R.W.S. 40(A)(IA) OF THE ACT, AS THE ASSESSEE HAD DEDUCTED THE TAX RE LATING TO THE PAYMENTS MADE TO THE CONTRACTORS AND HAD NOT REMITTED THE SA ME TO THE CENTRAL GOVERNMENT A/C WITHIN THE TIME STIPULATED. THE AO H AD ALSO DISALLOWED THE EXCISE DUTY ON CLOSING STOCK OF FINISHED GOODS CLAIMED AT RS. 19,43,175/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 3. GROUND NO. 1 IS GENERAL IN NATURE. 4. AS REGARDS THE GROUND NO.2 REGARDING ADDITION OF UNEXPLAINED INVESTMENT U/S 69 AT RS. 71,75,808/-, IT WAS EXPLAI NED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE COMPANY HAD TO GIVE ADVA NCES TO SUPPLIERS AND SERVICE PROVIDERS AS ALSO FOR OTHER BUSINESS REQUIR EMENTS. IT WAS FURTHER EXPLAINED THAT THE ADVANCES HAD BEEN GIVEN IN THE C OURSE OF NORMAL BUSINESS ACTIVITIES AND HAD BEEN DULY REFLECTED IN THE BOOKS OF ACCOUNT WHICH IS REGULARLY AUDITED AND PUBLISHED AND THESE ADVANCES WERE GIVEN IN THE YEAR 1999-00 AND NOT IN THE IMMEDIATELY PREC EDING PREVIOUS YEAR AND THE COMPANY IS REFLECTING THE SAME IN THE BOOKS OF ACCOUNT AND PUBLISHED ACCOUNTS OF THE COMPANY. IT WAS ALSO STAT ED THAT CHANGES IN SUCH ACCOUNTS HAD BEEN EFFECTED FROM TIME TO TIME D EPENDING UPON THE RELEVANT FACTS OF THE EACH PARTY DEPENDING UPON THE SUPPLIES MADE AND AMOUNTS ADVANCED FURTHER AS THESE WERE RUNNING ACCO UNTS AND SUCH THE VIEW OF THE AO THAT THESE BALANCES WERE STATIC FOR A LONG TIME AND THAT DETAILS CALLED FOR WERE NOT FILED, NOT CALL FOR DIS ALLOWING SUCH BALANCES, EXCEPT LEVYING ANY PENALTY FOR FAILURE TO SUPPLY TH E DETAILS CALLED FOR WITHOUT, THAT TOO, ANY REASONABLE CAUSE. AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD AS UND ER:- 4.2.2I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND GONE THROUGH THE ORDER OF THE AO. A PERUSAL OF THE ITEMS DISALLOWED REVEALED THAT THESE WERE THE TRADE ADVANCES OUTSTA NDING IN THE BALANCE SHEET AS ON 31/03/2006, WHICH THE AO NEVER HAS DISALLOWED FOR THE REASON THAT THE DETAILS CALLED FOR HAVE NOT BEEN FILED. AS RIGHTLY POINTED BY THE APPELLANT, FOR SU CH DEFAULTS, DISALLOWANCE IS NOT THE SOLUTION, BUT INVOKING THE RELEVANT PENALTY PROVISIONS. IT IS NOT THE CASE OF THE AO THAT SUCH BALANCES WERE THERE FOR THE LAST MANY YEARS AND THAT THESE WERE TIME B ARRED AND THAT 3 ITA NO. 199/HYD/2011 RAASHI REFRACTORIES LTD. THE APPELLANT WAS NOT ABLE TO EXPLAIN THEM. IN LIG HT OF THIS, I AM OF THE CONSIDERED OPINION THAT THE AO WAS NOT JUSTIFI ED IN SUBJECTING SUCH OUTSTANDING BALANCES TO TAX WHILE FINALIZING THE ASSESSMENT PROCEEDINGS AND AS SUCH HE IS DIRECTED TO DELETE T HE SAME. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, WE FIND FROM T HE ANNUAL REPORT FOR AY 2005-06 AT PAGE 26 OF THE PAPER BOOK THE TRADE ADVA NCES OUTSTANDING IN THE BALANCE SHEET AS ON 31/03/2006 AT RS. 71,75,808 /-. THE CIT(A), THEREFORE, DIRECTED THE AO TO DELETE THE ADDITION M ADE U/S 69 OF THE ACT AS UNEXPLAINED INVESTMENT ON THE GROUND THAT THE A O WAS NOT JUSTIFIED IN SUBJECTING SUCH OUTSTANDING BALANCES TO TAX WHIL E FINALIZING THE ASSESSMENT PROCEEDINGS. WE ARE OF THE OPINION THAT IF THE ADVANCES HAD BEEN GIVEN IN THE COURSE OF NORMAL BUSINESS ACTIVIT IES AND HAD BEEN DULY REFLECTED IN THE BOOKS OF ACCOUNT WHICH IS REGULARL Y AUDITED AND PUBLISHED AND IF THESE ADVANCES WERE GIVEN IN THE Y EAR 1999-00 AND NOT IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR, THE SEC TION 69 WILL NOT APPLY. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE DETAILS REGARDING TRADE ADVANCES AND DECIDE THE ISSUE IN ACCORDANCE WITH LA W AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND RAISED BY THE REVENUE IS TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. 6. AS REGARDS GROUND NO. 3, REGARDING THE ADDITION MADE ON ACCOUNT OF EXCISE DUTY ON FINISHED GOODS, THE AO NOTICED FR OM THE ACCOUNTS FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME OF THE ASSESSEE, THAT THE ASSESSEE HAD NOT PROVIDED EXCISE DUTY PAYABLE ON CL OSING STOCK OF FINISHED GOODS AMOUNTING TO RS. 1,21,44,842/-. ON B EING ASKED BY THE AO TO EXPLAIN AS TO WHY EXCESS DUTY PAYABLE ON CLOS ING STOCK OF FINISHED GOODS SHOULD NOT BE INCLUDED IN THE INVENTORY VALUA TION AND BROUGHT TO TAX, THE ASSESSEE, IN REPLY, SUBMITTED THAT PRIMA RY ACCOUNTING PRINCIPLE IS TO VALUE THE CLOSING STOCK OF FINISHED GOODS AT COST OR MARKET PRICE WHICHEVER IS LOWER. HE FURTHER SUBMITTED THAT THE F INISHED GOODS WHICH WERE REFERRED TO IN THE NOTES ON ACCOUNTS WERE THE GOODS WHICH WERE NOT 4 ITA NO. 199/HYD/2011 RAASHI REFRACTORIES LTD. CLEARED FROM THE FACTORY, HENCE, THE SAME WERE VALU ED AT COST WITHOUT TAKING INTO ACCOUNT THE ELEMENT OF EXCISE DUTY. IT WAS ALSO SUBMITTED THAT SINCE EXCISE DUTY PAYABLE WAS NOT DEBITED TO P &L A/C, THE SAME WAS NOT ADDED TO THE COST OF FINISHED GOODS. THE ASSESS EE CONTENDED THAT IN CASE EXCISE DUTY PAYABLE ON FINISHED GOODS WAS TO B E INCLUDED IN THE VALUATION, THE SAME HAD TO BE ALLOWED AS DEDUCTION SINCE THE SAME WAS PAID ON OR BEFORE DUE DATE OR FILING THE RETURN OF INCOME FOR THE CORRESPONDING ASSESSMENT YEAR. AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE, THE AO REFERRED SECTION 145A, WHICH WAS I NTRODUCED BY FINANCE AC, 1998 WITH EFFECT FROM 01/04/99 APPLICABLE FOR A Y 1999-00 ON WARDS AND ALSO REFERRING THE DECISION OF THE BRITISH PAIN TS INDIA LTD. VS. CIT, 111 ITR 53 [1978] (CAL.), HELD AS UNDER:- THE ISSUE WHETHER PROVISION TO EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS SHALL BE ALLOWED AS A DEDUCTION FOR THE SUBJECT ASSESSMENT YEAR IS CAREFULLY CONSIDERED. THE PROVI SION SO CREATED IS NOT AN ASCERTAINED LIABILITY AS ON 31 ST MARCH, OF THE ACCOUNTING YEAR SINCE THE LIABILITY GETS QUANTIFIED ONLY WHEN THE FINISHED GOODS ARE REMOVED FROM THE FACTORY. THE ASSESSEES ACTUAL LI ABILITY MAY GET MODIFIED BY THE TIME THE GOODS ARE ACTUALLY CLEARE D FROM THE FACTORY. THE GOODS MAY GET DAMAGED OR DESTROYED BEFORE THE CLEARANCE FROM THE FACTORY, IN WHICH CASE QUANTUM OF LIABILITY UN DERGOES A CHANGE. HENCE, THE PROVISION CREATED TOWARDS EXCISE DUTY P AYABLE ON CLOSING STOCK OF FINISHED GOODS IS ONLY A CONTINGENT LIABI LITY AND NOT AN ASCERTAINED LIABILITY AS ON 31 ST MARCH OF THE ACCOUNTING YEAR. HENCE, THE SAME CANNOT BE ALLOWED AS A DEDUCTION FOR THE SUBJECT ASSESSMENT YEAR. THE QUESTION OF INVOCATION OF SEC TION 43B AND ALLOWABILITY THERE UNDER DOES NOT ARISE. IN VIEW O F THE ABOVE, IT IS HELD THAT THE INVENTORY HAS TO BE REVALUED TO INCL UDE EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS AMOUNTI NG TO RS. 1,21,44,842/-. ACCORDINGLY, THE SUM OF RS. 19,43,1 75/- IS BROUGHT TO TAX. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE CIT(A). 7. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE ASS ESSEE IS A LISTED COMPANY AND FOLLOWS THE ACCOUNTING STANDARDS. THE V ALUE OF EXCISE DUTY PAYABLE ON THE FINISHING GOODS WAS COMPUTED BY IT A ND HAD BEEN DULY ADDED TO THE CLOSING STOCK AMOUNT. IT WAS FURTHER S UBMITTED THAT IT HAD FAILED TO UNDERSTAND THAT HOW THE AO HAD COME TO TH E CONCLUSION THAT THE VALUE OF EXCISE DUTY HAD NOT BEEN ADDED TO THE CLOSING STOCK. IT WAS POINTED OUT THAT THERE WAS NO ADVERSE COMMENT BY TH E AUDITOR ON THE 5 ITA NO. 199/HYD/2011 RAASHI REFRACTORIES LTD. RELATED CLAUSE OF TAX AUDIT REPORT AS WELL I.E. CLA USE 12(B) AND THE ASSESSEE HAD FILED COPIES OF STOCK VALUATION ALONG WITH DETAILS AND PRAYED FOR COMPLETE RELIEF ON THIS GROUND. AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF EXCISE DUTY ON FINISHED GOODS BY OBSERVI NG AS UNDER:- 6.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A PPELLANT, GONE THROUGH THE ORDER OF THE AO AND PERUSED THE D ETAILS FILED. IT IS TRUE THAT THE APPELLANT HAS LOADED THE EXCISE DUTY COMPONENT TO THE FINISHED GOODS LYING IN THE CLOSING STOCK AND SHOW N SUCH EXCISE DUTY COMPONENT AS A LIABILITY IN THE BALANCE SHEET. THU S, AS PER THE RELEVANT ACCOUNTING STANDARDS, THE ACCOUNTS HAVE B EEN PERFECTLY WRITTEN BY THE APPELLANT, AND AS THE VALUE OF THE FINISHED GOODS AND LOADING THE EXCISE DUTY COMPONENT HAS CLEARLY BEEN SHOWN IN SUCH ACCOUNTS, THE ADDITION MADE BY THE AO IN THIS REGA RD CANNOT BE UPHELD AND THE APPELLANT IS ENTITLED FOR FULL RELI EF IN THIS MATTER AND THE AOP IS ACCORDINGLY DIRECTED TO DELETE THE SAME . AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW. IT IS OBSERVED THA T THE ASSESSEE IS A LISTED COMPANY AND, THEREFORE, IT HAS TO FOLLOW THE ACCOUNTING STANDARDS. THUS, AS PER THE RELEVANT ACCOUNTING STANDARDS THE ACCOUNTS HAVE BEEN PRECISELY WRITTEN BY THE ASSESSEE AND AS THE VALUE OF THE FINISHED GOODS AND LOADING THE EXCISE DUTY COMPONENT HAS BEEN CLEA RLY SHOWN IN SUCH ACCOUNTS, HE DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF EXCISE DUTY ON FINISHED GOODS BY CONSIDERING THE SA ID FINDINGS ADVANCED BEFORE HIM BY THE ASSESSEE. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS. 19,43,17 5/- ON ACCOUNT OF EXCISE DUTY ON FINISHED GOODS. ACCORDINGLY, WE UPHO LD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE. 6 ITA NO. 199/HYD/2011 RAASHI REFRACTORIES LTD. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 06/06/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJ AYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 06/06/2012 KV COPY TO:- 1) THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE 3(1), HYDERABAD 2) M/S RAASI REFRACTORIES LTD. 6-3-349/20, ALPHA BUSINESS CENTRE, 2 ND FLOOR, ROAD NO. 1, BANJARA HILLS, HYDERABAD. 3) THE CIT (A), GUNTUR 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD