ACIT CIR 4(2), MUMBAI V. HINDUSTAN ORGANIC CHEMICALS LTD, MUMBAI

ITA 2201/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59668 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 17-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVASA RAO
• Assessee Lawyers: SATENDRA
• Section: 43B; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 2201/MUM/2010 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, APPELL ANT ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. HINDUSTAN ORGANIC CHEMICALS LTD., RESPONDENT 81, M.K. GARDEN ROAD, MARINE LINES, MUMBAI 400 002 (PAN AAACH2663P) APPELLANT BY : MR. GOLI SRINIVASA RAO RESPONDENT BY : MR. SATENDRA PANDEY/ MR. JITENDRA SINGH DATE OF HEARING : 09/01/2012 DATE OF PRONOUNCEMENT: 13/01/2012 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-10, MUMBAI, PASSED ON 06/12/2010 FOR THE ASS ESSMENT YEAR 2006-07. 2. GROUND NO.1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS. 2,98,02,560/- ON ACCOUNT OF DELAYED PAYMENT OF EMPL OYEES CONTRIBUTION TOWARDS PROVIDENT FUND UNDER THE PROVI SIONS OF SECTION 43B READ WITH SECTION 36(1)(VA) OF THE ACT. 3. THE AO DISALLOWED THE EMPLOYEES CONTRIBUTION TOW ARDS PF OF RS. 2,98,02,560/- ON THE GROUND THAT THE SAME WAS PAID BEYOND THE PRESCRIBED DUE DATE. BEFORE THE CIT(A), THE ASSESSE E SUBMITTED THAT ITA NO. 2201/MUM/2010 HINDUSTAN ORGANIC CHEMICALS LTD. 2 THE ENTIRE CONTRIBUTION WAS PAID BEFORE THE DUE DAT E OF FILING OF INCOME TAX RETURN AND RELIED UPON VARIOUS CASE LAWS INCLUDING THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF C IT VS. ALOM EXTRUSION LTD., 319 ITR 306 (SC) WHEREIN IT WAS HEL D THAT PAYMENT OF EMPLOYERS CONTRIBUTION TO PF IS ALLOWABLE ON ACTUAL PAYMENT BASIS MADE BEFORE THE DUE DATE OF FILING OF RETURN OF INC OME. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOL LOWING VARIOUS CASE LAWS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION LTD. (SUPRA) ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE CANVASSED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE ITA T, MUMBAI IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 3683/MUM/2010 F OR AY 2006-07 VIDE ORDER DATED 26 TH AUGUST, 2011. A COPY OF THE SAID ORDER IS AVAILABLE ON RECORD. THE LEARNED DR DID NOT CONTROV ERT THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASS ESSEE. 5. AFTER HEARING THE PARTIES AND PERUSING THE RECOR D, WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2006-07 (SUPRA) WHEREIN THE CO-ORDINATE BENC H RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION LTD. (SUPRA) ALLOWED THE CLAIM OF THE ASS ESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN A SSESSEES OWN CASE FOR AY 2006-07(SUPRA), WE UPHOLD THE ORDER OF THE C IT(A) ON THIS COUNT AND DISMISS THE GROUND RAISED BY THE REVENUE. 6. GROUND NO.2 IS DIRECTED AGAINST THE ACTION OF TH E CIT(A) IN DELETING THE DISALLOWANCE OF STAFF WELFARE EXPENSES OF RS. 2,60,000/- U/S 40A(9) OF THE ACT. 7. THE AO NOTED THAT AS PER ANNEXURE 6 TO FORM NO. 3CD, AN AMOUNT OF RS. 2,60,000/- IS DISALLOWABLE BEING THE SUM PAID BY THE ITA NO. 2201/MUM/2010 HINDUSTAN ORGANIC CHEMICALS LTD. 3 ASSESSEE AS AN EMPLOYER, NOT ALLOWABLE U/S 40A(9) O F THE ACT, AS THE SUM WAS CLAIMED TO HAVE INCURRED FOR THE CELEBRATIO N OF THE INDEPENDENCE DAY AND OTHER OCCASIONS. ON APPEAL, TH E CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION IN THE CASE OF CIT VS. B.G. SHRIKE & CO., 264 ITR 83 (BOM.), ON WHICH RELI ANCE PLACED BY THE ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE ITAT F OR AY 2006-07 (SUPRA) IN ASSESSEES OWN CASE. THE LEARNED DR ON T HE OTHER HAND DID NOT CONTROVERT THE SAID SUBMISSION OF THE LEARNED C OUNSEL FOR THE ASSESSEE. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07, WHEREI N THE BENCH HELD AS UNDER:- 6. THE ASSESSEE EXPLAINED TO THE AO THAT THE SAID E XPENDITURE HAS BEEN INCURRED FOR THE CELEBRATION OF SPORTS AND CULTURAL ACTIVITIES ON THE OCCASION ON THE INDEPENDENCE DAY AND SEVERAL OTHER OCCASIONS. THE AO DID NOT ACCEPT THE EXPLANAT ION OF THE ASSESSEE AND DISALLOWED THE ENTIRE CLAIM OF RS. 4 L AKH U/S 40A(9) OF THE ACT. THE ASSESSEE CARRIED THE SAID IS SUE BEFORE THE LD. CIT(A) WHO FOLLOWING THE ORDER FOR THE AY 2004- 05 ALLOWED THE CLAIM OF THE ASSESSEE. THE LEARNED DR FAIRLY CONCED ED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN A SSESSEES OWN CASE FOR AY 2004-05. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY SAME I S CONFIRMED. 10. SINCE THE ISSUE IS IDENTICAL TO THAT OF AY 2006 -07, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE AN D DISMISS THE GROUND RAISED BY THE REVENUE. 11. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS. 58,09,097/- U/S 14 5 OF THE ACT. ITA NO. 2201/MUM/2010 HINDUSTAN ORGANIC CHEMICALS LTD. 4 12. THE AO NOTED THAT THE TAX AUDIT REPORT SHOWED T HAT THE ASSESSEE COMPANY HAD NOT CONSIDERED THE DIRECT EXPENSES WHIL E COMPUTING THE VALUE OF CLOSING STOCK. THE AO, THEREFORE, WAS OF T HE VIEW THAT SUCH EXPENSES WERE REQUIRED TO BE LOADED WITH FOR VALUIN G THE CLOSING STOCK AND THE DIRECT EXPENSES, FREIGHT, STORAGE, ETC. WER E INCURRED ON ACCOUNT OF PURCHASE OF RAW MATERIAL. SINCE NO DETAI LS OF THE DIRECT EXPENSES HAD BEEN FURNISHED, THE AO ESTIMATED THE D IRECT EXPENSES AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATER IALS AND STORES, WHICH RESULTED IN TO THE ADDITION OF RS. 58,09,097/ - TO THE CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A). 13. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMI TTED THAT THE AO HAD MADE ADDITION OF RS. 58,09,97/- ON ESTIMATE BAS IS TOWARDS THE TRANSPORTATION COST AND OTHER DIRECT COST LIKE FREI GHT, STORAGE AS INCURRED TO CLOSING STOCK OF RAW MATERIALS AND A SP ARE PARTS. HE FURTHER SUBMITTED THAT NO DETAILS WERE ASKED FOR BY THE AO. IT WAS FURTHER SUBMITTED THAT THE VALUE OF CLOSING STOCK O F RAW MATERIALS AND THE STORES WERE RECORDED AT COST INCLUSIVE OF FREIG HT AND TRANSPORTATION. THE AR SUBMITTED THAT THE PURCHASE BOOK AND GENERAL LEDGER OF A PARTICULAR DAY REFLECTS THAT THE PURCHA SE IS ACCOUNTED AT RS. 2,90,70,603/- WHICH IS INCLUSIVE OF FREIGHT OF RS. 58,850/- AND THE GENERAL LEDGER REFLECTS THAT THE CLOSING STOCK OF R S. 11,9,27,965/- IS INCLUSIVE OF FREIGHT. IT WAS ALSO BROUGHT TO THE NO TICE OF THE CIT(A) THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE ORDER OF CIT(A) FOR AY 1999-00, 2002-03, 2004-05 AND 2006-07. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER:- 4.3 I HAVE CONSIDERED THE FACT. IT IS SEEN THAT THE APPELLANT HAS BEEN VALUING ITS CLOSING STOCK OF RAW MATERIAL INCL USIVE OF FREIGHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HAVING THE VALUE OF RS. 2.90 CRORE. IT IS FURTHER SEEN THAT THERE IS NO CHANGE IN THE VALUATION OF TH E STOCK. I FIND THAT THE VALUATION METHOD HAS NOT BEEN CHANGED BY T HE AO IN PAST YEAR AND THAT NO ADJUSTMENT TO THIS EFFECT WAS MADE IN THE SUBSEQUENT YEAR. THE CLOSING STOCK OF PREVIOUS YEAR WOULD BE THE ITA NO. 2201/MUM/2010 HINDUSTAN ORGANIC CHEMICALS LTD. 5 OPENING IS STOCK OF THE YEAR AND THEREFORE ESTIMATI ON OF THE STOCK IS NOT JUSTIFIED. FURTHER THE APPELLANT IS CONSISTE NTLY FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING STOCK. THIS ISS UE IS ALSO COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF CIT(A) FOR ASSESSMENT YEARS 1999-00, 2002-03, 2004-05 AND 2006 -07 DATED 17/12/2010. IN VIEW OF THESE FACTS, THE ADDIT ION MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS THEREFO RE ALLOWED. 14. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 15. THE LEARNED DR BESIDES RELYING UPON THE ORDER O F THE AO SUBMITTED THAT SINCE NO DETAILS OF DIRECT EXPENSES FILED BY THE ASSESSEE, THE AO ESTIMATED THE DIRECT EXPENSES AT 2 % OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH IS PROPER AND THE SAME IS IN ACCORDANCE WITH THE PROVISIONS O F SECTION 145 OF THE ACT. 16. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. IT IS SEEN THAT SINCE NO DETAILS OF THE DIRECT EXPENSES WERE FURNIS HED, THE AO ESTIMATED THE DIRECT EXPENSES AT 2% OF THE TOTAL VA LUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH RESULTED IN TO T HE ADDITION OF RS. 58,09,097/- TO THE CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THE CIT(A) GAVE A FINDING THAT THE APPELLANT HAS BEEN VALUING ITS CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF FREIGHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HAVING THE VALUE OF RS. 2.90 CRORE AND THERE IS NO CHANGE IN THE VALUATION OF THE STOCK. THE CIT(A) HELD THAT THE CL OSING STOCK OF PREVIOUS YEAR WOULD BE THE OPENING IS STOCK OF THE YEAR AND THEREFORE ESTIMATION OF THE STOCK IS NOT JUSTIFIED. THE CIT(A ) FINALLY DELETED THE ADDITION FOLLOWING THE EARLIER ORDERS OF CIT(A) IN ASSESSEES OWN CASE. ITA NO. 2201/MUM/2010 HINDUSTAN ORGANIC CHEMICALS LTD. 6 AFTER CONSIDERING THE FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE B Y THE AO AND THE SAME IS HEREBY UPHELD. ACCORDINGLY, THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF JANUARY, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 13 TH JANUARY, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.