Jalaram Ceramics Ltd, Ahmedabad V. The Dy.CIT., Circle-4, Ahmedabad

ITA 2187/AHD/2009

• Counselvise Citation: 218720514 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N C AMIN SHRI VINOD TANWANI
• Section: 194C

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER APPEAL(S) / CO BY APPELLANT VS. RESPONDENT SL. NO(S). ITA NO(S) / CO NO ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 2187/AHD/2009 2005-06 JALARAM CERAMICS LTD. KRISHNANAGAR NR.UNION BANK OF INDIA OPP.INDIA COLONY BAPUNAGAR PAN: AAA CJ 4876 E THE DY.CIT, CIRCLE-4 AHMEDABAD 2. 2365/AHD/2009 2005-06 ACIT(OSD)-I RANGE-4 AHD ASSESSEE 3. CO NO. 200/AHD/2009 (IN ITA 2365/A/09) 2005-06 ASSESSEE ACIT(OSD) 4. 839/AHD/2010 2006-07 ASSESSEE -DO- 5. 956/AHD/2010 2006-07 ACIT (OSD) ASSESSEE ASSESSEE BY : SHRI N.C. AMIN REVENUE BY : SHRI VINOD TANWANI, SR. D.R. '( ) *% / / / / DATE OF HEARING : 15/11/2011 ,'- ) *% / DATE OF PRONOUNCEMENT : 06/01/2012 . / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : FOR A.Y. 2005-06 CROSS APPEALS HAVE BEEN FILED ARI SING FROM THE ORDER OF THE CIT(A)-VIII, AHMEDABAD DATED 01/04/200 9 AND THE ASSESSEE ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 2 - HAS ALSO FILED A CROSS OBJECTION. FOR A.Y. 2006-0 7 THERE ARE CROSS APPEALS ARISING FROM THE ORDER OF CIT(A)-VIII DATED 20/11/2009. [A] ITA NO.2187/AHD/2009 FOR A.Y. 2005-06 (ASSESSE ES APPEAL) 2. GROUND RAISED BY THE ASSESSEE ARE ARGUMENTATIVE IN NATURE, HOWEVER, THE SUBSTANTIVE GROUND IS GROUND NO.1; REP RODUCED BELOW:- 1. THAT THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ALLEGED UNDER VALUATI ON OF CLOSING STOCK AMOUNTING TO RS.22,02,315/-. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASST.ORDER PASSED U/S.143(3) OF THE ACT DATED 20/12/2007 WERE THAT TH E ASSESSEE-COMPANY IS IN THE BUSINESS OF MANUFACTURING OF CERAMIC FLOOR T ILES. IT WAS FOUND BY THE AO THAT THE CLOSING STOCK OF FINISHED GOODS WAS DECLARED AT RS.2,75,28,940/-. THE CLOSING STOCK WAS VALUED BY INCLUDING THE AMOUNT OF EXCISE DUTY. THE CLOSING STOCK OF RAW-MATERIAL AND WORK-IN-PROGRESS WAS ALSO VALUED BY INCLUDING THE ELEMENT OF EXCISE DUTY. HOWEVER, WHILE PREPARING THE ACCOUNTS THE CLOSING STOCK OF T HE FINISHED GOODS WAS VALUED WITHOUT CONSIDERING THE EXCISE DUTY. THE AO HAS APPLIED THE RATIO OF BRITISH PAINTS 188 ITR 44 (SC) AND HELD IN VIEW OF THE PROVISIONS OF SECTION 145A THE CLOSING STOCK OF THE FINISHED GOOD S WAS TO BE VALUED AFTER INCLUDING THE EXCISE DUTY. THE AMOUNT OF EX CISE DUTY OF RS.22,02,315/- WAS ACCORDINGLY ADDED BY WAY OF ENHA NCEMENT IN THE VALUE OF THE CLOSING STOCK. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 3 - 3. AFTER CONSIDERING THE FACTS OF THE CASE, LD.CIT( A) HAS HELD AS UNDER:- 7.4. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE LD. A.R. CAREFULLY. AS PER THE PROVISIONS OF SEC.145A OF THE ACT THE VALUATION OF PURCHASE AND SALE OF GOODS AN D INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE- (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR I NCURRED BY THE ASSESSEE TO BR4ING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. 7.5. THEREFORE, UNDER THESE CIRCUMSTANCES, THE APPE LLANT IS REQUIRED TO INCLUDE THE EXCISE DUTY IN THE VALUE OF CLOSING STOCK. THE CASE LAWS RELIED UPON BY THE LD.A.R. DO NOT SUP PORT HIS CASE AS THEY HAVE BEEN RENDERED ON DIFFERENT FACTS. IN VIEW OF THIS THE ADDITION MADE BY THE A.O. AMOUNTING TO RS.22,02,315 /- IN THE INCOME OF THE APPELLANT IS HEREBY CONFIRMED. THE A LTERNATIVE CONTENTION OF THE LD.A.R. REGARDING CORRESPONDING C HANGE IN OPENING STOCK SHOULD BE MADE, HAS ALSO BEEN CONSIDE RED. THIS IS BEING CONSEQUENTIAL IN NATURE AND NOT BEING IN RESP ECT OF THIS ASSESSMENT YEAR, DOES NOT REQUIRE ANY SEPARATE ADJU DICATION. HOWEVER, THE APPELLANT IS OPEN TO APPLY BEFORE THE A.O. TO GET RECTIFICATION OF THE ORDER FOR SUBSEQUENT YEAR BY S UBSTITUTION OF THE CLOSING STOCK OF THIS ASSESSMENT YEAR AS OPENING ST OCK ACCORDINGLY. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION O F HON'BLE ITAT, MUMBAI C BENCH IN THE CASE OF CRODYDON CHEMICAL W ORKS LTD. VS. ACIT 11 SOT 295. 4. FROM THE SIDE OF THE ASSESSEE, LD.AR MR. N.C. AM IN APPEARED AND CITED TWO DECISIONS; NAMELY, ASST.CIT VS. NARMADA C HEMATUR ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 4 - PETROCHEMICALS LTD. 327 ITR 369 (GUJ.) AND CIT VS. REALEST BUILDERS AND SERVICES LTD. 307 ITR 202 (SC). ON THE OTHER H AND, FROM THE SIDE OF THE REVENUE MR.VINOD TANWANI, SR.DR HAS PLACED R ELIANCE ON SECTION 145A OF THE ACT AND SUPPORTED THE VIEW OF THE AO. 5. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, IT WAS FOUND THAT THE ASSESSEE HAD MAINTAINED A SEPARATE ACCOUNT FOR THE EXCISE DUTY AND THAT THE ASSESSEE HAD PAID THE EXCISE DUTY LEVIABLE ON FINISHED GOOD STOCK BEFORE THE FILING OF THE RETURN. THE EXCISE DUTY WAS NOT DEBITED TO P&L ACCOUNT AND IT WAS NOT CLAIMED AS AN EXPENDITURE. FOR THIS PROPOSITION CASE LAW CITED IS CIT VS. PARRY CONFECTIONARY 299 I TR 321. THE NEXT ARGUMENT IS THAT THE EXCISE DUTY IS LEVIABLE AND IN CLUDABLE IN THE CLOSING STOCK WHEN THE STOCK IS CLEARED FROM THE FACTORY. SINCE IT WAS NOT CLEARED FROM THE FACTORY, THEREFORE NOT INCLUDABLE IN THE VALUE OF THE CLOSING STOCK. CASE LAW RELIED UPON IS ASST.CIT VS. NARMADA CHEMATUR PETROCHEMICALS LTD. 327 ITR 369 (GUJ.). IT HAS AL SO BEEN ARGUED THAT IN THE PAST NO SUCH ADJUSTMENT WAS EVER MADE, HENCE TH E ADJUSTMENT FOR THE YEAR UNDER CONSIDERATION IS OTHERWISE REVENUE NEUTR AL FOR THIS LEGAL PROPOSITION CASE LAW RELIED UPON IS CIT VS. REALEST BUILDERS AND SERVICES LTD. 307 ITR 202 (SC). ASSESSEE HAS ALSO PLACED RE LIANCE ON ASHWIN A.SHAH 1 ITR 356 (TRIB)[AHD.] FOR THE LEGAL PROPOSI TION THAT THE LIABILITY ARISES ONLY AT THE TIME OF REMOVAL OF GOODS FORM TH E FACTORY. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW DISCUSSED IN ABOVE, WE HEREBY REVERSE THE FINDING O F THE LD.CIT(A) AND ALLOW THIS GROUND. ASSESSEES APPEAL IS ALLOWED. ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 5 - [B] ITA NO.2365/AHD/2009 FOR A.Y. 2005-06 (REVENUE S APPEAL) 6. THE SUBSTANTIVE GROUND READS AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE DISALLOWANCE OF RS.15,75,900/- MADE U/S.40(A)(I A) OF THE ACT. 6.1 THE APPELLANT HAD MADE PAYMENT TO GAIL LTD. TOW ARDS TRANSPORTATION CHARGES. THE OBJECTION OF THE AO WA S THAT THE PAYMENT WAS MADE WITHOUT OBSERVING THE PROVISIONS OF SECTIO N 194C OF THE I.T.ACT, SINCE TAX WAS NOT DEDUCTED. BY INVOKING T HE PROVISIONS OF SECTION 40(A)(IA) DISALLOWED THE IMPUGNED AMOUNT. 7. THE LD.CIT(A) HAS DISCUSSED THE FACTS OF THE CAS E AND THEREAFTER ARRIVED AT THE CONCLUSION ARE AS FOLLOWS:- 6.7. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE LD. A.R. CAREFULLY. I HAVE ALSO GONE THROUG H THE CONTRACT ENTERED INTO BY THE APPELLANT AND GAIL. AS PER T HE TERMS AND CONDITIONS OF THE AGREEMENT (PARA 4.1 OF THE AGREEM ENT), THE GAS SHALL BE DELIVERED TO THE BUYER I.E. APPELLANT AT T HE OUTLET STATION LOCATED AT THE BUSINESS PREMISES OF THE PP AT SANAN D. THUS, THE TITLE OF GAS SHALL PASS FROM SELLER AT THE POINT OF DELIVERY OF GAS TO THE BUYER. SINCE THE PROPERTY IN GOODS PASSES TO THE BUYER I.E. APPELLANT AFTER THE GAS IS TRANSPORTED FROM PLACE O F GAIL TO THE GAS METERING STATION (I.E. THE DELIVERY POINT), THE AMOUNT OF CHARGES PAID FOR TRANSPORTATION OF GAS FROM THE GAI L TO SUCH GAS METERING STATION IS PART OF THE CONTRACT FOR SALE, SINCE TILL THAT POINT OF TIME, THE PROPERTY IN GOODS REMAINS WITH T HE SELLER. SINCE THE PROPERTY IN GOODS REMAINS WITH THE SELLER TILL THAT POINT, IT IS THE RESPONSIBILITY OF THE SELLER TO SUPPLY GAS TO THE B UYER TILL THAT POINT AND WHATEVER CHARGES HE INCURS TILL THAT POINT ARE RECOVERED BY ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 6 - HIM AS THE PRICE OF SELLER OF GAS. THIS FACT IS AL SO VERIFIABLE FROM THE COPY OF SALES INVOICES, SPECIMEN THEREOF WAS FI LED DURING THE APPELLATE PROCEEDINGS. THUS, THE CONTRACT OF SALE AND THE DECISION OF TRIBUNAL AS REFERRED TO ABOVE NAMELY DY.CIT VS. REEBOK INDIA CO. 100 TTJ 976 (DEL) IS APPLICABLE TO THE FACTS O F THE CASE OF THE APPELLANT. 6.9 THEREFORE, KEEPING IN VIEW THE PRINCIPLE AS L AID DOWN BY THE HON'BLE SUPREME COURT AS REFERRED TO ABOVE, IT IS H ELD THAT THE CONTRACT BETWEEN THE GAIL AND THE APPELLANT IS A CO NTRACT OF SALE OF GAS AND THE TRANSMISSION CHARGES WHICH ARE LEVIE D BY THE GAIL ARE ONLY ANCILLARY AND INCIDENTAL ON SUCH SALE AS T HE GAS CAN NOT BE SENT TO THE BUYER WITHOUT TRANSPORTING THE SAME. IN THESE CIRCUMSTANCES, THE CONTRACT BETWEEN THE GAIL AND TH E APPELLANT CAN NOT BE TERMED AS WORK CONTRACT AS ENVISAGED U/S .194C OF THE ACT. IN VIEW OF THIS THE APPELLANT CAN NOT BE HELD LIABLE FOR THE VIOLATION OF THE PROVISIONS OF THAT SECTION AND PRO VISIONS OF SEC.40A(IA) OF THE ACT ARE NOT ATTRACTED IN ITS CAS E. THE A.O. HAS MENTIONED THAT THE APPELLANT SUBSEQUENT TO SURVEY D EDUCTED TAX AT SOURCE ON THE CONSOLIDATED AMOUNT OF BILL INCLUDING THE TRANSMISSION CHARGES. IN MY VIEW THE APPELLANTS A CTION DOES NOT ALTER THE LEGAL POSITION IN THIS REGARD. THEREFORE , THE APPELLANTS ACTION CANNOT BE MADE BASIS FOR DISALLOWING THE EXP ENSES UNDER THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. IN VIE W OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O. AMOUNTING TO RS.15,75 ,900/- IS HEREBY DELETED. 8. WE HAVE HEARD BOTH THE SIDES. AT THE OUTSET, A DECISION OF ITAT D BENCH AHMEDABAD PRONOUNCED IN THE CASE OF M/S.K RISHAK BHARATI VS. ITO BEARING ITA NO.1702, 1703, 2473,2474, 4573 & 4574/AHD/2007 TO IN A GROUP OF SIX APPEALS VIDE AN ORDER DATED 0 5/09/2008, IT WAS HELD THAT THE ISSUE WAS FOR CONTRACT OF SALE AND NOT A W ORK CONTRACT. A FACTUAL FINDING HAS ALSO BEEN RECORDED THAT AS PER THE AGRE EMENT THE DELIVERY OF GAS WAS REQUIRED TO BE MADE BY THE SELLER TO THE BU YER AT THE OUTLET STATION ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 7 - LOCATED AT THE BUSINESS PREMISES AT SANAND. CONS IDERING THOSE FACTS, IN OUR OPINION, LD.CIT(A) HAS RIGHTLY HELD THAT THE PR OVISIONS OF SECTION 40(A)(IA) WRONGLY INVOKED. THIS GROUND OF THE REV ENUE IS THEREFORE DISMISSED. IN THE RESULT, REVENUES APPEAL IS DISM ISSED. [C] ASSESSEES CO NO.200/AHD/2009 FOR A.Y. 2005-0 6 (IN ITA NO.2365/AHD/2009 A.Y. 2005-06) 9. THROUGH THIS CROSS OBJECTION, THE ONLY REASON FO R FILING WAS THAT THE ISSUE BEING COVERED BY A DECISION OF THE TRIBUNAL ( AS CITED SUPRA), THE GROUND OF THE REVENUE DESERVES TO BE DISMISSED. SI NCE A VIEW HAS ALREADY BEEN EXPRESSED WHILE DECIDING THE APPEAL OF THE REVENUE, THIS CO HAS BECOME REDUNDANT, THEREFORE DISMISSED. [D] ITA NO.839/AHD/2010 FOR A.Y. 2006-07 (ASSESSEE S APPEAL) 10. THE SUBSTANTIVE GROUND NO.1 READS AS UNDER:- 1. THAT THE LEARNED CIT(A) HAS ERRED BOTH IN LAW A ND ON THE FACTS OF THE CASE IN CONFIRMING THE ALLEGED UNDER-VALUATI ON OF CLOSING STOCK AMOUNTING TO RS.18,02,931/-. 10.1. ON IDENTICAL FACTS, THE AO HAD INVOKED THE PR OVISIONS OF SECTION OF SECTION 145A OF THE I.T. ACT. A VIEW HAS ALREAD Y BEEN EXPRESSED HEREINABOVE, THEREFORE FOR THIS YEAR AS WELL THIS G ROUND OF THE ASSESSEE IS ALLOWED. ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 8 - [E] ITA NO.956/AHD/2010 FOR A.Y. 2006-07 (REVENUE S APPEAL) 11. THE SUBSTANTIVE GROUND NO.1 READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.17,45,540/- MADE U/S.40(A)(IA) OF TH E ACT. 11.1. ON IDENTICAL FACTS, THE AO HAD MADE THE DISAL LOWANCE, HOWEVER WE HAVE UPHELD THE DELETION . A VIEW HAS ALREADY BE EN EXPRESSED HEREINABOVE, THEREFORE FOR THIS YEAR AS WELL THIS G ROUND OF THE REV IS DISMISSED. 12. WE SUMMARIZE THE RESULT AS UNDER:- 1. ITA NO.2187/AHD/2009 FOR A.Y. 2005-06 IS ALLO WED. 2. ITA NO.2365/AHD/2009 FOR A.Y. 2005-06 IS DISM ISSED. 3. CO NO.200/AHD/2009 FOR A.Y. 2005-06 IS DI SMISSED. 4. ITA NO.839/AHD/2010 FOR A.Y. 2006-07 IS AL LOWED. 5. ITA NO.956/AHD/2010 FOR A.Y. 2006-07 IS D ISMISSED. SD/- SD/- ( . .!'#$ ) ( ) % ( A.K. GARODIA ) ( M UKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 06/ 01 /2012 /*..', .'../ T.C. NAIR, SR. PS ITA NOS. 2187, 2365, CO 200/AHD/09, ITA NO.839 AND 956/AHD/2010 JALARAM CERAMICS LTD. VS. DCIT ASST.YEARS 2005-06 & 2006-07 - 9 - . ) 01 2 1- . ) 01 2 1- . ) 01 2 1- . ) 01 2 1-/ COPY OF THE ORDER FORWARDED TO : 1. 34 / THE APPELLANT 2. 0534 / THE RESPONDENT. 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-VIII, AHMEDABAD 5. 19! 0' , , / LEARNED DEPARTMENTAL REPRESENTATIVE, ITAT, AHMEDABAD 6. !$ :( / GUARD FILE. .' .' .' .' / BY ORDER, 51 0 //TRUE COPY// ; ;; ;/ // / < < < < ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..5.1.2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.1.2012 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 6.1.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6.1.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER