DCIT, Circle - 10, Kolkata, Kolkata V. M/s. Stadmed Private Ltd., Kolkata

ITA 200/KOL/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9535 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 01-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL JCITSRDR
• Keywords: Capital asset; Proportionate interest; Corroborative evidences; Capital receipt; Commercial expediency; Capital expenditure
• Section: 43B; 143(3); 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 136 & 200 / KOL / 2010 ASSESSMENT YEAR :2005-06 STADMED PVT. LTD. BLOCK-AA21, SECTOR-I, SALT LAKE CITY, KOLKAT-700 064 [ PAN NO.AAECS 1530 Q ] DCIT, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-69 V/S . V/S . DCIT, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 M/S STADMED PRIVATE LTD. BLOCK-AA-21, SECTOR-I, SALT LAKE, KOLKATA-64 /APPELLANT .. / RESPONDENT /BY ASSESSEE NONE /BY REVENUE SHRI RAJAT KUMAR KUREEL, JCIT-SR-DR /DATE OF HEARING 16-11-2016 /DATE OF PRONOUNCEMENT 18-01-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE CROSS-APPEAL BY THE ASSESSEE AND REVENUE ARE AGAINST THE COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-XII, KOLKATA DATED 27.10.2009. ASSESSMENT WAS FRAMED BY DCIT, CI RCLE-10, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 10.12.2007 FOR ASSESSMENT YEAR 2005 -06. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 2 2. AT THE OUTSET IT WAS OBSERVED THAT NEITHER ANYBO DY APPEARED NOR ANY ADJOURNMENT APPLICATION WAS RECEIVED ON BEHALF OF A SSESSEE WHEN THE APPEAL WAS CALLED FOR HEARING. IT WAS FURTHER OBSERVED BY THE BENCH THAT THE CASE IS VERY OLD AND ON EARLIER OCCASION ALSO NOTICES WERE ISSUED THROUGH RPAD BY THE TRIBUNAL AND REVENUE BUT FOUND NO RESPONSE. ON THE LAST ONE OF THE OCCASION THE NOTICE ISSUED VIDE REGISTERED A/D NO. 1878 DATED 7.4.2016 BY THE TRIBUNAL WAS UNSERVED WITH THE REMARK LEFT. T HEREFORE, IN THE ABSENCE OF ANY PLAUSIBLE REASON WE DECIDED TO DISPOSE OF TH E APPEAL ON MERIT AFTER HEARING SHRI RAJAT KUMAR KUREEL, LD. DEPARTMENTAL R EPRESENTATIVE APPEARED ON BEHALF OF REVENUE. 3. BOTH THE APPEALS ARE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY WAY CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 4. BRIEFLY, THE FACTS ARE THAT ASSESSEE IS A PRIVAT E LIMITED COMPANY AND ENGAGED IN MANUFACTURING OF ALLOPATHIC MEDICINES. T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF 34,15,360/-. SUBSEQUENTLY, THE CASE WAS SELECTED UN DER SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2)/142(1) OF THE ACT WA S ISSUED UPON ASSESSEE. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VID E ORDER DATED 10.12.2007 AT A TOTAL INCOME OF 1,20,28,390/- AFTER MAKING CERTAIN ADDITIONS / DISALLOWANCE TO THE TOTAL INCOME OF THE ASSESSEE. 5. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.136 /KOL/2010. FIRST ISSUE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUD ICATION. 6. SECOND ISSUE RAISED BY ASSESSEE IN THIS APPEAL I S THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY SUS TAINING THE DISALLOWANCE OF 20,000/- OUT OF TRAVELLING EXPENSE ON ACCOUNT OF NO N-AVAILABILITY OF EXTERNAL SUPPORTING EVIDENCE FOR VERIFICATION. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 3 7. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HA S CLAIMED TRAVELLING EXPENSES FOR 63,27,475/-. DURING THE SCRUTINY PROCEEDINGS, AO O BSERVED THAT SEVERAL TRAVELLING EXPENSES WERE CLAIMED ON TH E BASIS OF SELF-MADE VOUCHERS. THEREFORE THE GENUINENESS AND REASONABLEN ESS OF EXPENDITURE WERE NOT VERIFIED. ACCORDINGLY THE AO DISALLOWED A SUM OF 50,000/- AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 8. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO REDUCED DISALLOWANCE TO 20,000/- BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT . IT IS A FACT THAT THERE ARE SELF-MADE VOUCHERS AND THIS KIND OF EXPEN DITURE IS GENERALLY SEEN UNDER LOCAL TRAVELLING. HOWEVER, THE AO HAS SEGREGATED SUCH EXPENDITURE. INSTEAD HE MADE AN AD-HOC DISALLOWANCE . THOUGH AN ELEMENT OF SELF MADE VOUCHERS DO EXIST, THE PROPOSI TION OF SUCH EXPENDITURE COULD NOT BE VERY SUBSTANTIAL. AS SUCH THE DISALLOWANCE MADE AT RS.50,000/ IS ON A HIGHER SIDE. I FEEL IT W OULD BE REASONABLE TO DISALLOW RS.20,000/- INSTEAD OF RS.50,000/- TO MEET THE ENDS OF JUSTICE. ACCORDINGLY, I DIRECT THE AO TO RESTRICT THE DISALL OWANCE TO RS.20,000/-. THE APPELLANT GETS A PARTIAL RELIEF ON THIS COUNT. BEING AGGRIEVED BY THIS, ASSESSEE HAS COME UP IN AP PEAL BEFORE US. 9. BEFORE US THE LD. DR FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI ALS AVAILABLE ON RECORD BEFORE US. THE MAIN ISSUE BEFORE US IS THAT THE ASSESSEE CLAIMED THE TRAVELLING EXPENSES AMOUNTING TO RS.63,27,475/- OUT OF WHICH SOME EXPENSES WERE CLAIMED ON THE BASIS OF SELF MADE VOUCHERS. TH EREFORE THE AO ON AD-HOC BASIS DISALLOWED A SUM OF RS. 50,000/- WHICH WAS SU BSEQUENTLY RESTRICTED TO RS. 20,000/- BY THE LD. CIT(A). NOW, WE HAVE TO SEE WHETHER THE LD.CIT(A) WAS JUSTIFIED IN HIS ACTION. ON CAREFUL EXAMINATION OF THE FINDINGS OF BOTH THE LOWER AUTHORITIES, WE NOTICE THAT BOTH OF THEM HAVE DISALLOWED THE EXPENSES ON THE GROUND THAT MANY VOUCHERS WERE SELF MADE FOR THE TRAVELLING EXPENSES. BUT NONE OF THEM HAVE POINTED OUT THAT THE EXPENDIT URE WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. IN OUR VIEW, IT IS VER Y PERTINENT FACT THAT COLLECTING THE EXTERNAL DOCUMENTARY EVIDENCE FOR EACH AND EVER Y TRAVELLING COST IS NOT ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 4 REALISTIC. IT IS BECAUSE THE NATURE OF SUCH EXPENSE S CANNOT BE ORGANIZED OR SYSTEMATICALLY INCURRED FOR THE PURPOSES OF THE BUS INESS. IN SUCH A SITUATION, THE RELIANCE IS PLACED TO SEE THE PURPOSE FOR WHICH IT WAS INCURRED. IF THE PURPOSE OF TRAVELLING IS FOUND HAVING NEXUS WITH TH E BUSINESS AND AMOUNT OF SUCH EXPENDITURE IS REASONABLE THEN THE ISSUE OF DI SALLOWANCE IS NOT WARRANTED. THERE IS NO SPECIFIC SECTION FOR ALLOWIN G DEDUCTION FOR EXPENSES RELATING TO BUSINESS TOURS. THE CLAIM HAS TO BE PRE FERRED IN TERMS OF SECTION 37(1) OF THE ACT UNDER WHICH THE FOLLOWING CONDITIO NS ARE REQUIRED TO BE SATISFIED FOR CLAIMING DEDUCTION NAMELY EXPENDITURE HAS TO BE IN THE NATURE OF REVENUE EXPE NDITURENOT IN THE NATURE OF CAPITAL EXPENDITURE; IT MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS OR PROFESSION; IT MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36; AND THE EXPENDITURE SHOULD NOT BE PERSONAL EXPENDITURE OF THE ASSESSEE. IN THE CONTEXT OF TRAVEL/TOUR EXPENSES, SPECIALLY I N THE CASES OF NON-CORPORATE ASSESSEES LIKE INDIVIDUALS, HINDU UNDIVIDED FAMILIE S, FIRMS AND PARTNERSHIPS, THESE TESTS ARE GENERALLY APPLIED RIGIDLY/INSTINCTI VELY WITH A SET MIND THAT CONSIDERABLE PERSONAL BENEFIT IS DERIVED FROM SUCH EXPENSES AND HENCE, AT LEAST PART OF THESE SHOULD BE DISALLOWED, TREATING THE SAME AS NON-BUSINESS EXPENSE. THIS CAUSES CONSIDERABLE HARDSHIP TO THE T AXPAYERS INVOLVING THEM IN UNFRUITFUL LITIGATION. HOWEVER IN THE PRESENT CA SE THE ASSESSEE BEING CORPORATE CLAIMED SUCH TRAVELLING EXPENSES IN THE I MMEDIATE PRECEDING YEAR FOR RS.1,16,10,992/- BUT IN THE YEAR BEFORE US IT I S CONSIDERABLY LESS. THEREFORE IN THE INSTANT CASE AD HOC DISALLOWANCE TO THE EXTENT OF RS.20,000/- OF THE TO TAL EXPENSES MADE ON PROBABILITIES WHICH IS IN OUR VIEW NOT JUSTIFIED AS NO SPECIFIC ITEM OR INSTANCE OF PERSONAL EXPENDITURE WAS FOUND IN THE CIRCUMSTANCES OF THE CASE. WE HAVE NOTED THAT THE FACT OF EXPENDITUR E WAS WELL ESTABLISHED BY THE SELF MADE VOUCHERS BUT THE LOWER AUTHORITIES FA ILED TO BRING ANY INSTANCE ON RECORD ANY UNREASONABLENESS IN THE AMOUNT OF EXP ENDITURE AND THE PURPOSE FOR WHICH IT WAS INCURRED WHETHER PERSONAL OR COMMERCIAL. ON THESE FACTS, WE SEE NO REASONS TO MAKE ANY ADDITION/DISAL LOWANCE OF TRAVELLING COST. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 5 WE, THEREFORE, REVERSE THE ACTION OF THE LD. CIT(A) AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 11. NEXT ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 20,000/- ON ACCOUNT OF GENERAL EXPENSES THOUGH ASSESSEE CLAIME D SAID EXPENSES FOR 22,06,322/-. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT SEVERAL EXPENSES WERE CLAIMED ON THE BASIS OF SELF- MADE VOUCHERS. THEREFORE THE AO DISALLOWED A SUM OF RS.50,000/- AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 13. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO REDUCED THE SAID DISALLOWANCE TO RS.20,000/- BY OBS ERVING AS UNDER:- THE AO HAS GIVEN A FINDING THAT DUE TO SELF MADE V OUCHERS HE COULD NOT VERIFY THE GENUINENESS AND REASONABLENESS OF EN TIRE EXPENDITURE. FOR THE REASONS GIVEN IN EARLIER IS DIRECTED TO RES TRICT THE DISALLOWANCE TO RS.20,000/-. THE APPELLANT GETS A PARTIAL RELIEF ON THIS COUNT. BEING AGGRIEVED BY THIS, ASSESSEE HAS COME UP IN AP PEAL BEFORE US. 14. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 15. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI ALS AVAILABLE ON RECORD BEFORE US. THE MAIN ISSUE BEFORE US IS THAT THE ASSESSEE CLAIMED THE GENERAL EXPENSES FOR RS. 22,06,322/-. BUT OUT OF SA ID EXPENDITURE SOME EXPENSES WERE CLAIMED ON THE BASIS OF SELF MADE VOU CHERS. THEREFORE THE AO ON AD-HOC BASIS DISALLOWED A SUM OF RS.50,000/- WHI CH WAS SUBSEQUENTLY REDUCED TO RS.20,000/- BY THE LD. CIT(A). NOW WE HA VE TO SEE WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HIS ACTION. AFTER CONSIDERI NG THE RELEVANT RECORDS, WE ARE INCLINED TO DISAGREE WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES FOR THE REASONS SET OUT IN PARA NO. 10 IN GROUND NO. 2 IN THIS APPEAL. WE, THEREFORE, REVERSE THE ACTION OF THE LD. CIT(A) AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 6 16. NEXT COMMON ISSUE RAISED BY ASSESSEE IN THIS AP PEAL IN GROUND NO 3, 4 & 5 IS REGARDING THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE FOR THE LOAN GIVEN TO THE DIRECTORS. 17. ASSESSEE IN ITS BALANCE-SHEET HAS SHOWN ADVANCE S TO THE DIRECTORS AND OTHERS FOR RS.15,06,514/- AND RS.41,42,250/- RESPEC TIVELY. ON QUESTION BY AO ABOUT THE NATURE OF THE ADVANCES, ASSESSEE SUBMITTE D THAT IT IS NOT FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, AO DISALLOWED THE PROPORTIONATE INTEREST ON SUCH ADVANCES FOR RS.6.77 LACS AND ADDED TO THE TOT AL INCOME OF ASSESSEE. 18. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) AND SUBMITTED THAT ADVANCE TO OTHER FOR RS.41,42,250/- REPRESENTS THE MONEY ADVANCE TO THE SUPPLIERS AND THEREFORE IT WAS GIVEN FOR THE PURPOSE OF ASSESSEES BUSINESS. AS REGARDS THE ADVANCE TO DIRE CTORS, THE ASSESSEE SUBMITTED THAT IT WAS GIVEN OUT OF THE CURRENT ACCO UNT OF ASSESSEE AND NO BORROWED FUND WAS UTILIZED IN MAKING SUCH ADVANCE P AYMENT TO THE DIRECTORS. THE ASSESSEE FURTHER SUBMITTED THAT THE ADVANCE TO THE DIRECTORS HAS BEEN GIVEN OUT OF ITS OWN FUND OF THE ASSESSEE-COMPANY. ACCORDINGLY, LD. CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF ADVANCE TO OTHERS FOR RS.41,42,250/- BUT CONFIRMED THE INTEREST PERTAINING TO THE ADVANC E TO THE DIRECTORS FOR RS.15,06,514/- BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. AS REGARDS ADVANCES TO OTHERS, THE APPELLANT STATED THAT THESE ADVANCES W ERE GIVEN TO SUPPLIERS AS IN EARLIER YEARS. THE RELEVANT SCHEDULE OF ADVANCES HA S BEEN FILED. THE AO COMMENTED THAT THE ADVANCES GIVEN ARE NOT FOR THE P URPOSE OF BUSINESS. THE AO HAS NOT ELABORATED THE REASONS/ OBSERVATIONS ON WHICH HE CAME TO THAT CONCLUSION. IN ANY BUSINESS, IT IS NORMAL PRACTICE TO GIVE ADVANCES TO SUPPLIERS. THE AO HAS NOT BROUGHT ON RECORD ANY MAT ERIAL EVIDENCE TO SAY THAT THESE ADVANCES ARE NOT PAID. THE ONLY POINT RA ISED IS THAT THESE ADVANCES ARE NOT FOR THE PURPOSE OF BUSINESS. THIS VIEW OF T HE AO IS WITHOUT ANY BASIS AND HENCE NOT REASONABLE. ACCORDINGLY, I DIRECT THE AO TO DELETE THE INTEREST PORTION DISALLOWED RELATING TO THE ADVANCES TO SUPP LIERS. AS REGARDS LOANS GIVEN TO DIRECTORS, THE APPELLANT STATED THAT THE LOAN ADVANCED TO DIRECTORS WAS NOT FROM BORROWED FUNDS B UT FROM CURRENT ACCOUNT. THIS KIND OF ARGUMENT IS NOT TENABLE. THE POINT TO BE SEEN HERE IS WHETHER SUCH LOANS ARE GIVEN FOR THE PURPOSE OF BUSINESS AN D ARE IN THE NATURE OF ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 7 COMMERCIAL EXPEDIENCY. MOREOVER THE LOANS GIVEN FRO M OUT OF CURRENT ACCOUNT ALSO AFFECT THE OVERALL PICTURE OF THEE BUSINESS AS SIZABLE AMOUNTS ARE DIVERTED TO NON-BUSINESS PURPOSES. THE LD. AR ALSO BROUGHT TO MY NOTICE THE KARNATAKA HIGH COURT DECISION IN THE CASE OF CIT VS . SRIDEV ENTERPRISES & ORS. (1991) 192 ITR 165 IN SUPPORT OF THE VIEW THAT IT SUMS ARE ADVANCED FROM OWN FUNDS THEN THE INTEREST SHOULD NOT BE DISALLOWE D. THE FACTS OF THIS CASE ARE DIFFERENT FROM THE PRESENT CASE. AS SUCH THE DI SALLOWANCE OF INTEREST MADE PROPORTIONATE TO LOANS GIVEN TO DIRECTORS IS UPHELD . IN THE RESULT THE APPELLANT GETS A PARTIAL RELIEF. 19. BEING AGGRIEVED BY THIS, BOTH ASSESSEE AND REVE NUE HAVE COME UP IN APPEAL BEFORE US. THE REVENUE HAS RAISED THE ISSUE IN GROUND NO. 3 IN ITS APPEAL ITA 200/KOL/2010 AS FOLLOWS. 3. THAT THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, LD. CIT(A) HAS FAILED TO APPRECIATE THAT ADVANCE OF RS.41,42,250/- GIVEN TO OTHERS WAS NOT FOR BUSINESS PURPOSE AND NO BENEFIT WAS DERIVED OUT OF SUCH ADVANCE. 20. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF LOWER AUTHORITIES IN THE APPEAL FILED BY THE ASSESSEE. HOWEVER IN THE AP PEAL FILED BY THE REVENUE THE LD. DR HAS SUPPORTED THE STAND OF THE AO BY REI TERATING THE ARGUMENTS CONTAINED IN THE RESPECTIVE ORDERS, WHICH WE HAVE A LREADY ADVERTED TO IN THE PARA-15 ABOVE AND ARE NOT BEING REPEATED FOR THE SA KE OF BREVITY. 21. WE HAVE HEARD THE LD. DR PERUSED THE MATERIALS AVAILABLE BEFORE US ESPECIALLY THE IMPUGNED ORDER. IT WAS OBSERVED THAT THE ASSESSEE HAS GIVEN ADVANCE TO THE DIRECTORS AMOUNTING TO RS.15,06,514/ - AND TO OTHERS FOR RS.41,42,250.00 WITHOUT ANY BUSINESS PURPOSES. THUS , THE AO DISALLOWED THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON PRO RA TA BASIS TO THE TOTAL AMOUNT OF LOAN AS IT WAS NOT USED FOR BUSINESS PURP OSES. THE LD CIT(A) DECLINED TO INTERFERE IN THE ORDER OF THE AO IN THE CASE OF THE ADVANCE GIVEN TO THE DIRECTORS BUT DELETED THE DISALLOWANCE OF INTER EST IN THE CASE OF THE ADVANCES GIVEN OTHERS. THE REASONS FOR CONFIRMING T HE ADDITION AND DELETING THE ADDITIONS HAVE ALREADY BEEN EXPLAINED IN THE AB OVE PARAGRAPHS AND ARE NOT BEING REPEATED FOR THE SAKE OF BREVITY. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 8 THE CONTROVERSY ARISES IN CASES WHERE FUNDS ARE PUM PED OUT OF BUSINESS WITHOUT ANY COMMERCIAL PURPOSES. AND THE FUNDS OF T HE BUSINESS COMPRISE BOTH TYPE OF FUNDS NAMELY BORROWED AS WELL AS OWN F UNDS. IN ALL SUCH CASES WHERE MIXED FUNDS ARE USED FOR BOTH BUSINESS AND OT HER THAN BUSINESS PURPOSES, THERE IS NO PRESUMPTION THAT MONEYS USED FOR OTHER PURPOSES CAME OUT OF BORROWED FUNDS. IT CAN BE SAID THAT INTEREST FREE FUNDS GIVEN ARE OUT OF OWN FUNDS TO THE EXTENT OF CAPITAL AND RESERVES, AN D THIS PROPOSITION IS SUPPORTED BY THE DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. GOPIKRISHNA MURLIDHAR, 47 ITR 469 (AP) AND IN THE SAID CASE THEIR LORDSHIPS ACCEPTED THE CONTENTION THAT THE ASSESSEE IS ENTITLED TO WITHDRAW FROM CAPITAL. THE FACTS OF THAT CASE ARE THAT THE A SSESSEE IS A HINDU UNDIVIDED FAMILY CARRYING ON BUSINESS ON AN EXTENSI VE SCALE WITH A CAPITAL OF NEARLY RS. 20,00,000 (TWENTY LACS). DURING THE YEAR ENDED 9TH NOVEMBER, 1950, THE ASSESSEE MADE LARGE BORROWINGS FOR PURPOS ES OF HIS BUSINESS AND PAID INTEREST AMOUNTING TO RS. 93,611/- ON SAID BOR ROWINGS. DURING THE COURSE OF THAT YEAR, THE ASSESSEE WITHDREW FROM THE BUSINE SS FROM TIME TO TIME AMOUNT OF RS.1,77,984/- FOR HIS PERSONAL EXPENSES. THE INCOME-TAX OFFICER DISALLOWED A SUM OF RS.13,500/- ON PRO RATA , REPRESENTING THE INTEREST ELEMENT RELATING TO RS.1,77,984/-, SINCE HE WAS OF VIEW THA T AMOUNT OF RS.1,77,984/- WITHDREW WAS MADE IN THE NAME OF THE BUSINESS BUT U SED FOR HIS PERSONAL PURPOSES. ACCORDING TO HIM, MONEY WAS WITHDRAWN FRO M THE BOOKS OF ACCOUNT TO MEET THE PERSONAL EXPENDITURE OF THE ASSESSEE AN D, AS THIS SUM OF MONEY WAS NOT ACTUALLY USED FOR THE BUSINESS, THE INTERES T PAID THEREON COULD NOT BE ALLOWED AS PERMISSIBLE DEDUCTION. HOWEVER THE HONB LE COURT IN THAT CASE I.E. GOPIKRISHNA MURLIDHAR, (SUPRA) HAS TAKEN A CONTRARY VIEW. THE RELEVANT FINDING OF THE COURT IS REPRODUCED BELOW:- ' WE DO NOT THINK THAT WE CAN GIVE EFFECT TO THIS ARG UMENT. INDISPUTABLY, THESE AMOUNTS WERE BORROWED ONLY FOR THE PURPOSE OF BUSIN ESS OF THE FAMILY. THE ASSESSEE DREW OUT FROM TIME TO TIME VARIOUS SUMS OF MONEY AGGREGATING TO RS. 1,77,984/- FROM THE BUSINESS. IT IS NOT A CASE WHERE ANY PARTICULAR SUM PURPORTING TO BE BORROWED ON BEHALF OF THE BUSINESS WAS SPENT FOR HOUSEHOLD EXPENSES. THIS IS A CASE WHERE THE LOANS WERE TAKEN FOR CARRYING ON THE BUSINESS BUT THE FAMILY USED TO WITHDRAW SOME AMOUN TS FROM THE BUSINESS ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 9 WHENEVER OCCASIONS AROSE. THE FAMILY WAS SURELY ENT ITLED TO WITHDRAW FROM THE CAPITAL SUPPLIED BY IT WITH THE RESULT OF THE C APITAL BEING DEPLETED. THERE IS, THEREFORE, NO SUBSTANCE IN THE SUBMISSION THAT THE FACT THAT PART OF THE AMOUNT BORROWED WAS LATER ON USED FOR PERSONAL EXPENSES, W OULD DEPRIVE THE ASSESSEE OF THE BENEFITS. ' WITH THE HELP OF THIS RATIO OF THE JUDGMENT SUCH PR OBLEM CAN BE RESOLVED BY EXAMINATION AND ANALYSES OF FINANCIAL STATEMENTS PR EPARED ON THE BASIS OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT IS WELL ACCEPTED PROPOSITION THAT FOR THE PURPOSE OF ASCERTAINING PROFIT AND GAI NS, THE NORMAL PRINCIPLES OF COMMERCIAL ACCOUNTING SHOULD BE APPLIED, SO LONG AS THEY DO NOT CONFLICT WITH ANY EXPRESS STATUTORY PROVISIONS AS HELD BY THE HON 'BLE SUPREME COURT IN CIT VS. U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION, 225 ITR 703(SC) . THUS SUCH PROBLEM CAN BE RESOLVED BY ANALYZING STATEMENT OF ACCOUNTS AND IN PARTICULAR BALANCE-SHEET. WHERE DETAILS OF OWN CAPI TAL, BORROWED FUNDS AND INTEREST FREE FUNDS GIVEN OR UTILIZED FOR OTHER PUR POSES ARE AVAILABLE. THERE IS NO MUCH DIFFICULTIES IN EXAMINATION OF RIGHT TO REP LACE OWN CAPITAL TO BORROW FUNDS IN CASE OF INDIVIDUAL AND PARTNERSHIP FIRM. B UT IN THE CASE OF COMPANY, CAPITAL IS FUND OF PUBLIC/ SHARE HOLDERS WHICH IS M ANAGED BY THE BOARD OF DIRECTORS. IN THE CASE OF COMPANY THERE ARE CERTAIN RESTRICTIONS UNDER THE COMPANIES ACT IN USE OF CAPITAL/FUND FOR PERSON AL BENEFITS. SUCH REPLACEMENT IS REQUIRED TO BE AUTHORIZED BY PROPER RESOLUTION AND MUST BE IN CONFORMITY WITH THE PROVISIONS OF COMPANIES ACT AND RULES AND REGULATIONS OF REGULATORY BODIES. SAME ARE REQUIRED TO REFLECT IN THE FINANCIAL STATEMENTS PREPARED ON THE BASIS OF AUDITED BOOKS OF ACCOUNT. THE AUDITOR IS ALSO REQUIRED TO POINT OUT SUCH REPLACEMENT/UTILIZATION OF FUNDS. IF FUNDS ARE DIVERTED IN CONTRAVENTION OF STATUTORY PROVISIONS, THEN SAME MAY BE SUBJECT TO LEGAL AND PENAL CONSEQUENCES UNDER THE COMPANIES AC T AND OTHERS. THE ONUS IS ON THE ASSESSEE TO FURNISH THE RELEVANT MAT ERIAL REGARDING REPLACEMENT OF BORROWED FUNDS BY OWN CAPITAL AND IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 21.1 ON THE BASIS OF ABOVE DISCUSSION A PROPOSITION / FORMULA CAN BE LAID DOWN THAT IF AN ASSESSEE HAVING SUFFICIENT INTEREST FREE FUNDS, IN THE FORM OF ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 10 CAPITAL RESERVES AND OTHER FUNDS WITHOUT INTEREST B EARING FROM RELATIVES AND FRIENDS NOT RELATED TO BUSINESS, TO COVER FUNDS GIV EN INTEREST FREE OR UTILIZED OTHER THAN FOR BUSINESS PURPOSES, NO DISALLOWANCE I S WARRANTED. IF THE OWN FUNDS ARE NOT SUFFICIENT TO COVER INTEREST FREE ADV ANCES, A PROPORTIONATE DISALLOWANCE IS WARRANTED. WHILE EXAMINING INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE AND INTEREST FREE FUNDS GIVEN A CARE IS RE QUIRED TO BE TAKEN THAT THESE FUNDS WERE NOT RELATED TO BUSINESS OF THE ASS ESSEE. CAPITAL AND RESERVES ARE CERTAINLY ASSESSEE'S OWN INTEREST FREE FUNDS. THIS PROPORTION HAS BEEN FORTIFIED BY THE FOLLOWING DECISIONS : 1) HONBLE ITAT IN THE CASE OF TORRENT FINANCERS V. ACIT, 73 TTJ 624 (AHD.), 2) HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. PREM HEAVY ENGINEERING WORKS P. LTD., 285 ITR 554 (ALL.), 3) HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALE S CORPORATION V. CIT, 298 ITR 298 (SC). IF WE APPLY THE FORMULA LAID DOWN IN THE CASE OF AC IT VS GOPIKRISHNA MURLIDHAR, (SUPRA) WE FIND THAT THE ASSESSEE HAS SUBMITTED THAT IT HA S ITS OWN FUNDS OF RS. 5,22,90,200.00 AS ON 31.3.2005. THEREF ORE IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE WAS HAVING ITS OWN CA PITAL GREATER THAN THE LOANS AND ADVANCES GIVEN TO THE DIRECTORS. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT NO ADDITION IS WARRANTED. THER EFORE, THE ADDITION OF RS.6,77,000/- IS DELETED. NOW COMING TO THE REVENUES APPEAL WE FIND ON PERUS AL OF THE DETAILS OF THE ADVANCES PLACED ON PAGES 91 TO 92 OF THE PAPER BOOK THAT THE ASSESSEE HAS ADVANCED MONEY IN THE COURSE AND FOR THE PURPOSE OF THE BUSINESS. IT IS NORMAL PRACTICE IN ANY BUSINESS ORGANIZATION TO ADV ANCE THE MONEY TO THE EMPLOYEES, SUPPLIERS, PROJECTS, TAXES ETC. THE LD. DR HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDINGS OF LD. CIT(A). H ENCE WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF LD. CIT(A). HENCE THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. NOW COMING TO REMAINING ISSUE OF REVENUES APPEAL I N ITA NO.200/KOL/2010. 22. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE SUBSIDY RECEIVED FROM GOVERNMENT OF WEST BENGAL AS CAPITAL RECEIPT. 23. DURING THE YEAR, ASSESSEE HAS RECEIVED SUBSIDY FROM THE GOVT. OF WEST BENGAL FOR 29,53,161/- UNDER INDUSTRIAL PROMOTION ASSISTANCE S CHEME AND SAID SUBSIDY WAS GIVEN FOR THE EXPANSION OF CAPACIT Y, MODERNIZATION AND IMPROVING THE MARKETING CAPABILITY OF ASSESSEE-COMP ANY. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE SAID AMOUNT SHOULD NOT BE ADDED TO THE TOTAL INCOME BY TREATING THE SUBSIDY AS REVENUE IN NATURE . IN COMPLIANCE THERETO, ASSESSEE SUBMITTED THAT THE CO-ORDINATE BENCH IN AS SESSEES OWN CASE FOR AYS 1997-98, 1998-99 AND 2001-02 AS TREATED CAPITAL RECEIPT. HOWEVER, AO TREATED THE SUBSIDY AS REVENUE IN NATURE BECAUSE OP TION WAS GIVEN TO THE ASSESSEE TO ADJUST THE SUBSIDY WITH THE COMMERCIAL TAXES. THE AO ALSO OBSERVED THAT THE SUBSIDY AMOUNT HAS NOT BEEN REDUC ED FROM THE CAPITAL ASSET. IN VIEW OF ABOVE, AO TREATED THE SUBSIDY AS REVENUE IN NATURE AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 24. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT THE SUBSIDY WAS GIVEN FOR T HE PURPOSE OF EXPANSION AND MODERNIZATION OF ITS UNIT AND NOWHERE IT WAS CO NNECTED WITH REVENUE RECEIPT. THE ASSESSEE ALSO SUBMITTED THAT SIMILAR I SSUE WAS DECIDED BY THE CO-ORDINATE BENCH IN FAVOUR OF ASSESSEE FOR AYS 199 6-97 TO 1998-99 AND 2001-02. SIMILARLY, LD. CIT(A) ALSO DECIDED THE ISS UE IN FAVOUR OF ASSESSEE FOR AYS 1999-00, 2001-2002 AND 2003-04 RESPECTIVELY. AC CORDINGLY, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- THE FACT OF THE CASE AND THE ISSUE INVOLVED IN THE PRESENT CASE IS SIMILAR TO FACTS OF THE CASES DECIDED BY THE JURISDICTIONAL KO LKATA TRIBUNAL AND HIGH COURT. I FIND IN THE EARLIER YEARS IN THE APPELLANT S OWN CASE MY PREDECESSOR FOLLOWING THE JURISDICTIONAL ITAT DECISIONS [RASOI LTD. MENDINE PHARM. LTD. (SUPRA)] HELD THE WBIPA AS CAPITAL RECEIPT. I AM AL SO OF THE VIEW THAT THE SOLE ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 12 PURPOSE BEHIND THE GRANT OF ASSISTANCE IS TO TIDE O VER THE FINANCIAL CRISIS AND PROMOTION OF INDUSTRIES AND THAT BOTH THESE ACTIVIT IES ARE RELATED TO CAPITAL FIELD AND CANNOT BE LINKED UP WITH DAY TO DAY OPERATIONS OF THE APPELLANT IN ANY MANNER. RESPECTFULLY FOLLOWING THE JURISDICTIONAL K OLKATA ITAT AND HIGH COURT DECISIONS DISCUSSED EARLIER, I TREAT WBIPA AS A CAP ITAL RECEIPT AND DIRECT THE AO TO DELETE THE ADDITION OF RS.29,53,161/- BEING AGGRIEVED BY THIS, REVENUE HAS COME UP IN APP EAL BEFORE US. 25. BEFORE US LD. DR VEHEMENTLY RELIED ON THE ORDER OF AO. 26. WE HAVE HEARD THE LD. DR AND PERUSED THE RECORD S AVAILABLE. THE ASSESSEE HAS RECEIVED GRANT FROM THE WEST BENGAL GO VERNMENT AMOUNTING TO RS.29,53,161/- UNDER THE INDUSTRIAL PROMOTION SCHEM E OF W.B. THE AO HAS TREATED THE SAME AS REVENUE IN NATURE AND ACCORDING LY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER THE LD. CIT(A ) HAS ALLOWED THE SAME BASED ON THE FACTS WHICH IS ALREADY DISCUSSED ABOV E. NOW THE MAIN CRUX OF THE CONTROVERSY IS AS TO WHETHER THE GRANT RECEIVED BY THE WEST BENGAL GOVERNMENT IS CAPITAL OR REVENUE IN NATURE. AT THE OUTSET WE FIND THAT THE ISSUE IS ALREADY COVERED IN FAVOUR OF ASSESSEE IN I TS OWN CASE IN ITA NO. 772/KOL/2005 FOR THE AY 2001-02 VIDE ORDER DATED 26-082005. THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER IS REPRODUCED B ELOW:- 18. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF TAX AUTHOR ITIES. WE HAVE ALSO CONSIDERED THE CASE LAW CITED BY BOTH THE PARTIES A ND THE APPELLATE ORDERS EARLIER PASSED BY THE COORDINATE BENCH OF ITAT, KOL KATA AS REFERRED ABOVE. WE FIND THAT THE SAME ISSUE CAME UP FOR CONSIDERATI ON BEFORE THE ITAT C BENCH, KOLKATA IN THE CASE OF MENDINE PHARMACEUTIC AL (P) LTD. FOR ASSESSMENT YEAR 1997-98 IN ITA NO. 2403/KOL/2003 . IN ITS ORDER DATED 26 TH MARCH, 2004, THE TRIBUNAL RECORDED THE FOLLOWING MA TERIAL FINDING.:- WE HAVE PERUSED THE ORDERS OF THE TRIBUNAL PLACED ON RECORD. WE FIND THAT THE SCHEME UNDER WHICH THE ASSESSEE BEFORE US RECEIVED THE FINANCIAL ASSISTANCE, HAS BEEN EXAMINED IN DETAIL I N THOSE EARLIER ORDERS BY THE TRIBUNAL. THE TRIBUNAL IN THOSE CASES HAS OBSERVED THAT THERE IS NOTHING IN THE SCHEME WHICH WOULD BE CONSI DERED TO HELP THE INDUSTRIES IN CARRYING ON THEIR OPERATIONS ON DAY T O DAY BASIS. WHEN FINANCIAL CRISIS IS FACED BY SOME BUSINESS, PUMPING IN OF FRESH CAPITAL IS REQUIRED TO HELP THE BUSINESS TO TIDE OVER SUCH FIN ANCIAL CRISIS. THE FINANCIAL HELP, IN THIS REGARD HAS, THEREFORE, GOT TO BE CONSIDERED AS HAVING AN ENDURING EFFECT OF DRAGGING THE BUSINESS OUT OF POOR FINANCIAL ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 13 CONDITIONS BEING FACED BY THE INDUSTRIES. THE SCHEM E OF THE WEST BENGAL GOV. DOES NOT AN ALL ENVISAGE GIVING ANY SUB SIDY IN RESPECT OF SPECIFIC ITEMS OF EXPENSES LIKE SALES-TAX, POWER, W ATER, ETC. AND HENCE THE SAME CANNOT BE REGARD TO BE OF REVENUE NATURE. SINCE THE ASSESSEE HAS RECEIVED THE FINANCIAL ASSISTANCE UNDE R THE SAME SCHEME, IN OUR VIEW, THE CIT(A) WAS JUSTIFIED IN FO LLOWING THE EARLIER ORDER OF THE TRIBUNAL AND HENCE WE UPHOLD THE SAME. SINCE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE ARE IDENTICAL TO THE FACTS IN ASSESSEE OF M/S MEDINE PHARMACEUTICAL (P) LTD (SUPRA), WE SEE NO REASON TO DIFFER FROM THE VIEW EARLIER TAKEN BY THE BENCH. RESPECTFULLY FOLLOWING THE AFORESAID ORDER, WE DECIDE THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTE RFERE IN THE ORDER OF LD. CIT(A). HENCE THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 27. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.48,28,867/- ON ACCOUNT OF EXCISE DUTY PERTAINING TO FINISHED GOODS. 28. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT ASSESSEE HAS NOT INCLUDED EXCISE DUTY PAYABLE ON TH E CLOSING STOCK OF FINISHED GOODS LYING IN FACTORY. THE AO CALLED UPON THE ASSESSEE FOR EXPLANATION IN COMPLIANCE THERETO. ASSESSEE SUBMITT ED THAT THE LIABILITY FOR MAKING PAYMENT OF EXCISE DUTY ARISE AT THE TIME OF REMOVAL OF GOODS. THEREFORE THE SAME WAS NOT INCLUDED IN THE CLOSING STOCK. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE IN VIEW OF PROVIS IONS OF SEC. 145A OF THE ACT. THUS THE EXCISE DUTY FOR RS.48,28,867/- WAS AD DED TO THE TOTAL INCOME OF ASSESSEE. 29. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT IT HAS BEEN VALUING ITS CLO SING STOCK OF FINISHED GOODS WITHOUT INCLUSION OF EXCISE DUTY CONSISTENTLY. CONS IDERING THE SAME, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING AS UND ER:- THE OTHER ARGUMENT OF THE APPELLANT IS THAT IT NEIT HER PAID NOR INCURRED NOR DEBITED SUCH EXCISE DUTY. ACCORDING TO APPELLANT, P AYMENT OF EXCISE DUTY ARISES ON REMOVAL OF FINISHED GOODS FROM FACTORY PR EMISES. THE DECISIONS OF ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 14 MADRAS HIGH COURT IN THE CASE OF CIT VS. ENGLISH EL ECTRIC CO. LTD. (243 ITR 512) AND CIT VS. DYNA VISION LTD (267 ITR 600) SUPP ORT THE APPELLANTS VIEW WHEREIN IT WAS HELD THAT EXCISE DUTY PAYABLE ON CLO SING STOCK DID NOT FORM PART OF THE VALUATION OF CLOSING STOCK. FOLLOWING THE AB OVE DECISIONS, THE MADRAS HIGH COURT IN THE CASE OF CIT VS. ASHOK LEYLAND LTD . [2007] 294 ITR 380 HELD THAT WHILE CALCULATING VALUATION OF CLOSING STOCK CUSTOM S AND EXCISE DUTY COMPONENT HAD TO BE EXCLUDED . THE COURT FURTHER HELD THAT CUSTOMS AND EXCISE DUTY WERE TO BE ALLOWED U/S. 43B WHICH W ERE PAID ON GOODS MANUFACTURED THOUGH LYING IN STOCK. THE BOMBAY HIG H COURT IN THE CASE OF CARTINI INDIA LTD VS. ACIT & ORS (2007) 291 ITR 355 SUPPORTED THE ABOVE VIEW, WHEREIN IT WAS HELD THAT AS FAR AS EXCLUSION OF EXCISE DUTY FROM CLOSING STOCK IS CONCERNED, EXCISE DUTY COULD NOT FORM PART OF THE CLOSING STOCK AS THE PAYMENT WAS NOT DEBITED TO THE P&L A/C. THE COURT FURTHER OBSERVED THAT IF THE AMOUNT WAS TREATED AS THE PART OF THE CLOSING S TOCK THEN IT SHOULD HAVE BEEN ALLOWED FOR DEDUCTION U/S. 43B THE HON'BLE ITAT, ALLAHABAD BENCH IN THE CASE OF S HYAM BIRI WORKS LD VS. ACIT (2006) 108 ITD 489 HELD THAT EXCISE DUTY IS P AYABLE EITHER AT THE POINT OF TIME OF MANUFACTURE OR AT THE TIME OF REMOVAL OF SUCH MANUFACTURED GOODS KEPT AT AN APPROVED PLACE OF STORAGE. SEC. 145A CLE ARLY PROVIDES THAT EXCISE DUTY IS INCLUDIBLE IN CLOSING STOCK ONLY WHEN IT IS ACTUALLY PAID. SINCE THE ASSESSEE HAD NOT PAID EXCISE DUTY ON GOODS KEPT IN BONDED WAREHOUSE, QUESTION OF INCLUDING IT IN THE CLOSING STOCK DID N OT ARISE. IN VIEW OF THE ABOVE DETAILED DISCUSSION AND RESPEC TFULLY FOLLOWING THE CITED JUDICIAL DECISIONS, I DIRECT THE AO TO DELETE THE A DDITION MADE ON ACCOUNT OF EXCISE DUTY TO THE VALUE OF CLOSING STOCK. BEING AGGRIEVED BY THIS, REVENUE HAS COME UP IN APP EAL BEFORE US. 30. THE LD. DR BEFORE US VEHEMENTLY RELIED ON THE O RDER OF AO. 31. HEARD LD. DR AND PERUSED THE MATERIALS AVAILABL E ON RECORD. WE FIND THAT THE AO HAS MADE THE ADDITION OF THE EXCISE DUT Y ON THE CLOSING STOCK OF FINISHED GOODS AS PER THE PROVISIONS OF SECTION 145 A OF THE ACT. HOWEVER WE FIND THAT THE LIABILITY FOR THE PAYMENT OF THE EXCI SE DUTY ARISES AT THE TIME OF REMOVAL OF THE GOODS AND IN THE INSTANT CASE THE FI NISHED GOODS ARE LYING IN THE CLOSING STOCK. THEREFORE THERE IS QUESTION OF I NCLUDING THE EXCISE DUTY IN THE CLOSING STOCK OF THE FINISHED GOODS. IN THIS CO NNECTION WE RELY IN THE CASE OF CIT VS. SVP INDUSTRIES LIMITED REPORTED IN 228 T AXMAN 104. THE RELEVANT EXTRACT IS EXTRACTED BELOW : SECTION 145A OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - IN CERTAIN CASES (EXCISE DUTY) - ASSESSMENT YEAR 2004-05 - AN ADDITION WAS MADE TO ITA NO.136 & 200/KOL/2010 A.Y. 2005-06 STADMED PVT. LTD. VS. DCIT, CIR-10, KOL . PAGE 15 INCOME OF ASSESSEE-COMPANY ON ACCOUNT OF NON-INCLUS ION OF EXCISE DUTY INCLOSING STOCK OF FINISHED PRODUCTS - ON LAS T DATE OF ACCOUNTING YEAR, GOODS WERE LYING IN BONDED WAREHOUSE NEITHER EXCI SE DUTY WAS PAID NOR DUTY WAS INCURRED - FURTHER, DUTY HAD NOT BEEN INC LUDED AND DID NOT FORM PART OF COST AS IT WAS NOT CLAIMED IN PROFIT AND LOSS AC COUNT WHETHER EXCISE DUTY BEING PAYABLE AT TIME OF REMOVAL OF GOODS AND NOT AT TIME OF MANUFACTURE, DUTY WOULD BE PAYABLE ONLY AT TIME OF UNBONDING AND, THUS, ADDITION WAS TO BE DELETED - HELD, YES [PARA 10] [I N FAVOUR OF ASSESSEE] RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTE RFERE IN THE ORDER OF LD. CIT(A). HENCE THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 32. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. 33. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED AND THAT OF REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 18/ 01/2017 SD/- SD/- (#$) () (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S &'(- 18 / 01 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-STADMED PVT. LTD. BLOCK-AA-21, SECTOR-I, SALT LAKE CITY, KOL-64 2. /REVENUE-DCIT, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 3.'0'12 3 / CONCERNED CIT KOLKATA 4. 3- / CIT (A) KOLKATA 5.6 78$$12, 12, / DR, ITAT, KOLKATA 6.8;<=> / GUARD FILE. BY ORDER/ , /TRUE COPY/ /' 12,