The DCIT, Circle-8, Ahmedabad V. M/s. Shree Sulphurics Pvt. Ltd., Ahmedabad

ITA 2289/AHD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68065 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 27-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 10-10-2012
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: U S BHATI
• Keywords: Depreciation; Earning of tax free income
• Section: 43B; 14A; 145

Judgement Text

, , , , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 1902/AHD/2012 AY 2009-10 SH. SULPHURICS P. LTD. 7 TH FLOOR, H.K. HOUSE, AHSRAM ROAD, AHMEDABAD. PAN: AAECS0968E JCIT, RANGE-8, AHMEDABAD. APPELLANT RESPONDENT ITA NO. 2289/AHD/2012 AY 2009-10 DCIT, RANGE-8, AHMEDABAD. SH. SULPHURICS P. LTD. 7 TH FLOOR, H.K. HOUSE, AHSRAM ROAD, AHMEDABAD. PAN: AAECS0968E APPELLANT RESPONDENT REVENUE BY : SHRI O.P. BATHEJA, SR. DR ASSESSEE(S) BY : SH. U.S. BHATI, AR / // / DATE OF HEARING : 27/11/2013 !' / DATE OF PRONOUNCEMENT: 19/12/2013 #$/ O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE APPEALS ARE CONNECTED WITH EACH OTHER HENCE CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDER. 2. THESE TWO APPEALS BY REVENUE AND THE ASSESSEE AR E DIRECTED AGAINST THE ORDER OF CIT(A)-14 DATED 24.07.12. BOTH APPEAL S WERE TAKEN UP TOGETHER AND ARE BEING DISPOSED BY A CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE TAKE UP THE ASSESSEES APPEAL ITA NO. 1902/AHD/2012. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEALS: ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 2 - 3.1 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING PROPORTIONATE DISALLOWANCE AMOUNTING TO RS 47,772/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961, BEING INTER EST NOT CAPITALIZED, IN RESPECT OF ADVANCES MADE TOWARDS PU RCHASE OF CAPITAL GOODS. 3.2 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS 8,62,460/- U/S 14A OF THE INCOM E TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME TAX RULE S, 1962. 4. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS FOR SCRUTINY AND ASSESSMENT U/S 143(III) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS ACT) WAS FRAMED VIDE OR DER DATED 27.12.2011. WHILE FRAMING THE ASSESSMENT, THE ASSE SSMENT OFFICER MADE VARIOUS ADDITIONS AND DISALLOWANCES I. E. CAPITALIZATION OF INTEREST AMOUNTING TO RS 47,772/- , DISALLOWANCE OF EXPENDITURE U/S 14A AMOUNTING TO RS 8,62,460/-, ADD ITION MADE U/S 145A OF THE ACT AMOUNTING TO RS 46,35,543/-, DI SALLOWANCE OF DEPRECIATION OF SOFTWARE AMOUNTING TO RS 1,46,913/- , DISALLOWANCE U/S 36(1)(III) AMOUNTING TO RS 5,799/- AND DISALLOW ANCE U/S 41(I) OF THE ACT AMOUNTING TO RS 3,80,848/-. THE ASSESSE E CARRIED THE MATTER BEFORE THE LEARNED CIT(A) WHO AFTER CONSIDER ING THE SUBMISSION PARTLY ALLOWED THE APPEAL. THE LEARNED CIT CONFIRMED THE DISALLOWANCE MADE U/S 36(1)(III) OF RS 47,772/- , AND DISALLOWANCE MADE U/S 14A AMOUNTING RS 8,62,460/- H OWEVER, DELETED THE ADDITION MADE U/S 145A OF THE ACT, THE ADDITION MADE ON DISALLOWANCE OF DEPRECIATION OF RS 4,62,632, THE ADDITION MADE ON DEPRECIATION OF SOFTWARE, THE ADDITION MADE U/S 36(1)(III) AMOUNTING TO RS 5,790/- AND ALSO DELETED THE ADDITI ON OF ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 3 - RS 3,80,848/- MADE U/S 41(1) OF THE ACT. BOTH THE REVENUE AND THE ASSESSEE HAVE CHALLENGED THIS ORDER BEFORE US. 5. THE FIRST GROUND OF ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF ADDITION MADE U/S 36(1)(III) OF THE INCOME TAX ACT 1961 AMOUNTING TO RS 47,772/- BEING INTEREST NOT CAPITAL IZED IN RESPECT OF ADVANCES MADE TOWARDS PURCHASE OF CAPITAL GAINS. 5.1 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND IS COVERED BY THE DECISION OF THE HONBLE IT AT RENDERED IN ITA NO. 1676/AHD/2012. HE DREW OUR ATT ENTION TO THE PARA 2 PAGE 1 OF DECISION OF THE HONBLE TRIBUNAL. ON THE CONTRARY, THE LEARNED SR. DR SUPPORTED THE ORDE R OF THE ASSESSING OFFICER. 5.2 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE HONBLE COORDINATE BENCH IN ITA 1676/AHD/2012 IN THE CASE OF ACIT VS. M/S VOLTAMP TRANSFORMERS LTD. HAS DECIDED THE SIMILAR ISSUE AS UNDER: HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND ON PERUSAL OF MATERIAL ON RECORD SPECIALLY WHEN THE AS SESSEE HAS DEMONSTRATED THAT THERE WERE NON-INTEREST BEARI NG OWN FUNDS OF RS 264.67 CRORES AND THOSE FUNDS WERE CLAI MED TO HAVE BEEN UTILIZED FOR THE PURPOSE OF CAPITAL WORK IN PROGRESS, THEN THERE WAS NO OCCASION ON THE PART OF THE AO TO PRESUME THAT THE INTEREST-BEARING FUNDS COULD HA VE BEEN USED AS A CAPITAL WORK-IN-PROGRESS. THE PRESUMPTIO N, IF ANY, COULD BE OTHERWISE ALSO; AS HELD IN THE CASE O F RELIANCE UTILITIES AND POWER LTD.(SUPRA). RESPECTFULLY FOLL OWING THIS ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 4 - DECISION, THE VIEW EXPRESSED BY LD. CIT(A) IS HEREB Y CONFIRMED AND THIS GROUND OF THE REVENUE IS DISMISS ED. 5.3 THE FACTS ARE IDENTICAL IN THIS CASE. MOREOVER , THE REVENUE HAS NOT POINTED OUT ANY CHANGE INTO THE FACTS. THE REFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE COORDINATE BENCH IN THE CASE OF ACIT VS. VOLTAMP TRANSFORMERS LTD. IN ITA NO. 1676/AHD/2012 THIS GRO UND OF THE ASSESSEES APPEAL IS ALLOWED. THE ASSESSING OF FICER IS DIRECTED TO DELETE THIS. 5.4 IN THE RESULT, THIS GROUND OF ASSESSEES APPEA L IS ALLOWED. 6. GROUND NO. 2 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF RS 8,62,460/- MADE U/S 14A OF THE ACT BY INVOKING R ULE 8D OF THE INCOME TAX RULES, 1962. 6.1 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FROM FUND. THEREFO RE, PROVISION OF SECTION 14A OF THE INCOME TAX ACT WAS WRONGLY INVOKED. 6.2 ON THE CONTRARY, THE LEARNED SR. DR SUBMITTED T HAT THE LEARNED CIT(A) WAS JUSTIFIED IN MAKING THE CONFIRMA TION AS THE ASSESSEE FAILED TO GIVE FUND CASH FLOW STATEMEN T. 6.3 ON THE CONTRARY, THE LEARNED COUNSEL FOR THE AS SESSEE RELIED ON THE DECISION OF THE HONBLE COORDINATE BENCH REN DERED IN ITA NO. 3247/AHD/2011 RENDERED IN THE CASE OF M/S A AKASH ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 5 - AGRO INDUSTRIES LTD. VS. ACIT, CIRCLE-1, AHMEDABAD PERTAINING TO THE ASSESSMENT YEAR 2008-09. 6.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LEA RNED CIT(A) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE O N THE BASIS THAT THE ASSESSEE HAS NOT DEMONSTRATED THE NE XUS BETWEEN THE INTEREST BEARING FUNDS AND INVESTMENT. HONBLE COORDINATE BENCH IN ITA NO. 3247/AHD/2011(SUPRA) HA S HELD THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED IN RELATION WITH INTEREST BEARING FUND AND NONTAXABLE INCOME EARNING. THE RULE 8D CAME INTO FORCE WITH EFFECT F ROM ASSESSMENT YEAR 2008-09 AND BEFORE COMPLYING RULE 8 D CONDITION OF SECTION 14A SHOULD BE FULFILLED FOR DISALLOWANCE UNDER RULE 8D. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION O F THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. UTI BANK LTD. (2013) 32 TAXMANN.COM 370(GUJARAT). 6.5 IN OUR VIEW, THE JUDGMENT OF HONBLE GUJARAT HI GH COURT WOULD NOT BE APPLICABLE AS THE ASSESSMENT YEAR IN T HAT CASE WAS 2003-04. HOWEVER, FOLLOWING THE DECISION OF THE HONBLE COORDINATE BENCH RENDERED IN THE CASE OF AA KASH AGRO INDUSTRIES LTD. VS. ACIT, CIRCLE-1, AHMEDABAD IN ITA NO. 3247/AHD/2011. WE, THEREFORE, RESTORE THIS ISSU E BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRE SH AFTER VERIFYING THE CLAIM OF THE ASSESSEE THAT THE ASSESS EE IS HAVING SUFFICIENT INTEREST BEARING FUND AVAILABLE A ND THE ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 6 - INTEREST BEARING FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENT TO EARN EXEMPT INCOME.. 6.6 IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 7. NOW GROUND NO. 3 IS GENERAL IN NATURE AND SAME D OES NOT NEED ANY INDEPENDENT ADJUDICATION. SAME IS THEREFORE DISMIS SED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. NOW WE TAKE UP THE REVENUE APPEAL IN ITA NO. 228 9/AHD/2012. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 8.1 THE FIRST GROUND IS AGAINST DELETION OF ADDITIO N OF RS 46,35,543/- MADE BY THE ASSESSING OFFICER U/S 14 5A OF THE ACT. 8.2 AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE H ONBLE ITAT RENDERED IN THE CASE OF VOLTAMP TRANSFORMERS L TD. IN ITA NO. 1676/AHD/2012. HE DREW OUR ATTENTION TO PA RA 4 PAGE 3 OF THE DECISION OF THE HONBLE ITAT. 8.3 ON THE CONTRARY, THE LEARNED COUNSEL OF THE DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 8.4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD, THE ASSESSING OFFICER MADE ADDITION U/S 145A OF THE ACT ON THE BASIS THAT AFTER THE PROVISIONS OF S ECTION 145 ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 7 - HAVE BEEN BROUGHT ON STATUTE, THERE IS NO DOUBT THA T THE ASSESSEE IS BOUND TO VALUE ITS CLOSING STOCK INCLUS IVE OF SALES TAX, CESS WHICH HAS BEEN INCURRED BY THE ASSESSEE F OR INVENTORY AND WITH EFFECT FROM 01.04.1999. THE ASS ESSEE IS NOT ENTITLED TO VALUE OF CLOSING STOCK EXCLUSIVE OF CESS TAX ETC. THE ASSESSING OFFICER MADE RELIANCE UPON VARIO US JUDICIAL PRONOUNCEMENTS. BUT THE LEARNED CIT(A) DE LETED THE ADDITION ON THE BASIS THAT HONBLE ITAT, AHMEDA BAD IN THE CASE OF ALPANIL INDUSTRIES VS. ACIT IN ITA NO. 169/AHD/2005 AND ITA NO. 170/AHD/2005 FOR THE ASSESSMENT YEAR 1999-2000 & 2000-01 HAS HELD AS UND ER: 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE, THE DISPUTE IS REG ARDING VALUATION OF CLOSING STOCK IN VIEW OF THE INSERTION OF PROVISIONS OF SECTION 145A OF THE ACT. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NO T INCLUDED THE ELEMENT OF EXCISE DUTY WHICH WAS PAID BY THE ASSESSEE HAS NOT INCLUDED THE ELEMENT OF EXCISE DUT Y WHICH WAS PAID BY THE ASSESSEE ON HIS PURCHASES OF RAW MA TERIAL. IN VIEW OF NON INCLUSION OF THIS EXCISE DUTY IN RES PECT OF WHICH MODVAT CREDIT WAS AVAILABLE TO THE ASSESSEE, ACCORDING TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), INCOME OF RS 26,95,884/- WAS UNDERSTA TED BY THE ASSESSEE. ON THE OTHER HAND THE CLAIM OF THE A SSESSEE IS THAT BY INCLUSION OF THIS EXCISE DUTY IN THE CLOSIN G STOCK THERE WILL BE NO EFFECT IN THE PROFIT AS THE CORRESPONDIN G AMOUNT ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 8 - WILL ALSO BE THEN INCLUDED IN THE PURCHASE. THE AS SESSEE IN SUPPORT OF THE ABOVE ARGUMENT RELIED UPON THE VIEW EXPRESSED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN ITS GUIDELINES, WHEREIN IT WAS EXPLAINED THAT FO LLOWING OF EITHER INCLUSIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNTING WILL NOT HAVE ANY EFFECT ON THE PROFIT D ISCLOSED BY THE PROFIT AND LOSS ACCOUNT. THE ONLY EFFECT OF FO LLOWING INCLUSIVE METHOD WILL BE THAT THE EXCISE DUTY LIABI LITY WILL APPEAR IN THE BALANCE SHEET WHICH WILL BE ADDED BAC K TO THE INCOME OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 43B TO THE EXTENT NOT PAID BY THE ASSESSEE BEFORE T HE DUE DATE OF FURNISHING OF RETURN OF INCOME UNDER SECTIO N 139(1) OF THE ACT. THE ABOVE VIEW WAS ALSO EXPRESSED BY T HIS BENCH OF THE TRIBUNAL IN THE CASE OF THE DEPUTY COMMISSIO NER OF INCOME TAX, CIRCLE -1, BARODA VS. GUJARAT FLUORO- CHEMICALS LTD. IN ITA NO. 3742/AHD/2002 ASSESSMENT YEA 1999-00 ORDER DATED 28.09.2006. IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES HAVE NOT PROPERLY AP PRECIATED THE EFFECT OF SECTION 145A OF THE ACT. THE LEARNED COMMISSIONER OF INCOME (APPEALS) BY WAY OF AN ILLUS TRATION CONCLUDED THAT THERE WILL BE A DIFFERENCE IN THE PR OFIT ON FOLLOWING INCLUSIVE AND EXCLUSIVE METHOD OF ACCOUNT ING FOR EXCISE DUTY. IN THE ILLUSTRATION CITED IN THE ORDE R, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOUND THE DIFFERENCE AT RS 80/-. ACCORDING TO THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE INCLUSI VE METHOD IN THE ILLUSTRATION, THE ASSESSEES PROFIT W ORKED OUT TO RS 380/- WHEREAS IN THE EXCLUSIVE METHOD, THE AS SESSEES ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 9 - PROFIT COMES TO RS 300/-. THUS, THERE WAS A DIFFER ENCE OF RS 80/- IN THE PROFIT. WE ON A CLOSER LOOK AT THE ILL USTRATION FIND THAT THE DIFFERENCE HAS OCCURRED DUE TO AN ERROR BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN NOT CONSIDERING THE EXCISE DUTY EXPENDITURE OF THE ASSE SSEE. IT WAS OBSERVED FROM THE ILLUSTRATION THAT THE ASSESSE E HAS COLLECTED EXCISE DUTY OF RS 180/- BY UTILIZING THE RAW MATERIAL ON WHICH EXCISE DUTY OF RS 100/- WAS PAID TO THE GOVERNMENT. THUS, THE ASSESSEE WAS LIABLE TO PAY A FURTHER EXCISE DUTY OF RS 80/- TO THE GOVERNMENT. WHEN THE EXPENDITURE OF RS 80/- IS TAKEN INTO ACCOUNT IN THE ILLUSTRATION, GIVEN FOR INCLUSIVE METHOD THEN THE P ROFIT AS PER INCLUSIVE METHOD ALSO WORKS OUT TO RS 300/- WHICH I S EXACTLY THE SAME AS PER EXCLUSIVE METHOD. FURTHER, THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE ILLUSTR ATION CITED IN HIS ORDER HAS NOT ACCOUNTED FOR THE AMOUNT OF MODVAT UTILIZED BY THE ASSESSEE IN PAYMENT OF EXCIS E DUTY IN RESPECT OF RAW MATERIAL NOT UTILIZED FOR MANUFACTUR ING. IN THE ILLUSTRATION, THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) HAS SHOWN THAT ASSESSEE HAS UTILIZED AMOU NT OF RS 180/- OUT OF AMOUNT OF RS 200/- OF EXCISE DUTY PAID ON PURCHASE AGAINST THE EXCISE DUTY LIABILITY OF RS 18 0/- ON SALES. HOWEVER, THIS UTILIZATION OF RS 180/- WAS A LLOWED TO THE ASSESSEE IN RESPECT OF STOCK WHICH WAS NOT USED FOR MANUFACTURING ALSO TO THE EXTENT OF RS 80/-. THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) IGNORED THE FAC T THAT IF IN FUTURE THE CLOSING STOCK IS NOT UTILIZED FOR MANUFACTURING, THEN THE MODVAT CREDIT UTILIZED WOUL D BE ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 10 - REVERSED AND THE ASSESSEE WOULD BE FURTHER LIABLE T O PAY RS 80/- TO THE GOVERNMENT. IN A NUTSHELL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ARRIVED AT A CONCLUSION BECAUSE OF NOT CONSIDERING THE ASSESSEE S LIABILITY FOR UTILIZATION OF MODVAT CREDIT IN RESPE CT OF UNCONSUMED RAW MATERIAL. THE ISSUE CAN BE LOOKED I NTO FROM YET ANOTHER ANGLE. SECTION 145A REQUIRES REVA LUATION OF NOT INVENTORY ALONE BUT ALSO REQUIRES REVALUATIO N OF PURCHASE AN SALES. ON REVALUATION OF PURCHASE BY I NCLUDING THE AMOUNT OF EXCISE DUTY IN RESPECT OF WHICH MODVA T CREDIT IS AVAILABLE TO THE ASSESSEE, THE PURCHASE OF THE A SSESSEE WILL INCREASE RESULTING IN CORRESPONDING DECREASE IN THE PROFIT OF THE ASSESSEE. THE ASSESSEES CONTENTION THAT VALUE OF CLOSING STOCK IS CREDITED IN THE PROFIT AND LOSS ACCOUNT TO SET OFF THE VALUE OF UNCONSUMED ITEMS OF PURCHASE AND THEREFORE , BOTH SHOULD HAVE SAME BASIS CANNOT BE CONTROVERTED. THE ONLY EXCEPTION TO THIS THEORY IS THAT WHEN THE MODVAT VA LUE IS LESS THAN THE COST THEN EFFECTIVELY UNREALIZED LOSS IS A LLOWED AS A DEDUCTION TO THE ASSESSEE ON THE WELL SETTLED PRINC IPLES. IN THE INSTANT CASE, THE LOWER AUTHORITIES WERE NOT JU STIFIED IN REVALUING ONLY CLOSING STOCK SO AS TO INCLUDE THE A MOUNT OF EXCISE DUTY PAID ON PURCHASE WITHOUT REVALUING THE CORRESPONDING PURCHASES. WE HAVE GONE THROUGH THE GUIDELINES EXPLAINED BY THE ICAI AND FIND OURSELVES IN AGREEMENT THEREWITH THAT THERE WILL NOT BE ANY EFFE CT ON THE PROFIT OF LOSS ARRIVED AT EITHER BY FOLLOWING INCLU SIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. THE ONLY EFFECT WILL BE THAT THE EXCISE DUTY PAYABLE ON ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 11 - CLOSING STOCK OF FINISHED GOODS WILL BE TO THE EXTE NT NOT DEPOSITED WITH THE GOVERNMENT BEFORE THE DUE DATE O F FURNISHING OF RETURN WILL BE ADDED TO THE INCOME OF THE ASSESSEE IN VIEW OF PROVISION OF SECTION 43B OF THE ACT. IN VIEW OF THE DISCUSSION MADE HEREINABOVE, IN OUR CON SIDERED OPINION, THERE WILL BE NO EFFECT IN THE TAXABLE PRO FIT OF THE ASSESSEE BY INCLUDING THE AMOUNT OF EXCISE DUTY PAI D ON PURCHASES IN THE VALUE OF CLOSING STOCK OF RAW MATE RIAL, WHETHER AS RAW MATERIAL OR AS FORMING PART OF WORK- IN- PROGRESS OR FINISHED GOODS. WE THEREFORE, SET ASID E THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE IN BO TH THE YEAR UNDER APPEAL AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. 8.5 THEREFORE, RELYING UPON THE DECISION OF THE HON BLE ITAT, THE LEARNED CIT(A) DELETED THE ADDITION. THE LEARN ED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED UPON THE R ECENT DECISION OF THE HONBLE ITAT RENDERED IN ITA NO. 1676/AHD/2012 IN THE CASE OF ACIT VS. M/S VOLTAMP TRANSFORMERS LTD. THEREIN THE HONBLE ITAT RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT R ENDERED IN THE CASE OF NARMADA PETROCHEMICALS LTD. 327 ITR 369). THE HONBLE COORDINATE BENCH HAS ALSO RELIED UPON T HE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF UD AIKUMAR VS. JCIT RENDERED IN ITA NO. 3304/AHD/2011 AND ITA NO. 2585/AHD./2011. THE HONBLE ITAT AFTER CONSIDERING THOSE DECISIONS, RESTORED THE MATTER BACK TO THE ASSESSIN G OFFICER FOR VERIFYING THE FACTS BY THE ASSESSEE IN RESPECT OF ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 12 - MODVAT/CENVAT AND IF FOUND ACCORDING TO LAW LAID DO WN, NOT TO DISTURB METHOD OF ACCOUNTING OF THE ASSESSEE IN THIS REGARD. WE, THEREFORE, RESTORED THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AFTER VER IFYING THE FACTS AS ALSO THE ACCOUNTING POLICY OF THE ASSESSEE IN RESPECT OF MODVAT/CENVAT INCENTIVES AND IF FOUND ACCORDING TO THE LAW LAID DOWN, THEN NOT TO DISTURB THE METHOD OF AC COUNTING OF THE ASSESSEE IN THIS REGARD AND DELETE THE ADDIT ION. 8.6 IN THE RESULT, THIS GROUND OF APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 9. THE NEXT GROUND IS AGAINST THE DELETION OF THE A DDITION OF RS 3,40,632/- BY THE ASSESSING OFFICER ON ACCOUNT O F THE DEPRECIATION OF VEHICLE. 9.1 THE LEARNED SR. DR SUBMITTED THAT THE LEARNED C IT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION. THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE ITAT IN ITA NO. 1676/AHD/2012. HE DREW OUR ATTENTION TO PARA 10 PAGE 10 OF THE ORDER OF THE COORDINATE BENCH. 9.2 WE HEARD RIVAL CONTENTIONS AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER MADE DISALLOWANCE ON THE BASIS THAT UNDER SECTION 32 OF THE ACT READ WITH APPENDIX-I OF INCOME TAX RULES, 1962, THE HIGHER RATE OF DEPRECIATION IS ALLOWABLE ON THE NEW COMMER CIAL VEHICLE. HE OBSERVED THAT THERE IS DISTINCTION BET WEEN ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 13 - COMMERCIAL VEHICLE AND PRIVATE VEHICLE. EVEN THE R ATE FEE FOR REGISTRATION WITH RO FOR COMMERCIAL VEHICLE IS DIFFERENT AS COMPARED TO PRIVATE VEHICLE. THE REQUIREMENT OF REGISTRATION OF COMMERCIAL VEHICLE IS ALSO DIFFEREN T AS COMPARED TO PRIVATE VEHICLE. THE NUMBER PLATES ISS UED TO COMMERCIAL VEHICLES ARE DIFFERENT AS COMPARED TO PR IVATE VEHICLES. THE NUMBER PLATES FOR PRIVATE VEHICLES A RE WHITE BACKGROUND WITH BLACK NUMBERS WHEREAS IN THE CASE O F COMMERCIAL VEHICLES, THE NUMBER PLATES HAVE YELLOW BACKGROUND WITH BLACK NUMBERS. IN THE CASE OF THE ASSESSEE VEHICLE ON WHICH THE HIGHER RATE OF DEPRECIATION HA S BEEN CLAIMED IS NOT REGISTERED AS COMMERCIAL VEHICLE WIT H RTO, THEREFORE HIGHER RATE OF DEPRECIATION CANNOT BE ALL OWED ON SUCH VEHICLE. HOWEVER, THE LEARNED CIT(A) DELETED THIS ADDITION ON THE BASIS THAT THE VEHICLE PURCHASED BY THE APPLICANT FULFILS THE CONDITIONS PRESCRIBED IN INCO ME TAX ACT, MOTOR VEHICLES ACT AND FALLS WITHIN THE DEFINI TION OF COMMERCIAL VEHICLE. 9.3 WE FIND THAT THE COORDINATE BENCH IN ITA NO. 1676/AHD/2012(SUPRA) HAS HELD AS UNDER: ON HEARING BOTH THE SIDES, WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY INTERPRETED THE RELEVAN T PROVISIONS OF MOTOR VEHICLE ACT, WHEREIN THE WORD COMMERCIAL VEHICLE HAS BEEN DEFINED. ONCE THE RE LEVANT ACT HAS GIVEN A SPECIFICATION IN RESPECT OF A PARTI CULAR TYPE OF VEHICLE, THEN THERE IS NO SCOPE LEFT TO INTERPRE T THE COMMERCIAL VEHICLE AS PER COMMON PARLANCE OR COMMON ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 14 - UNDERSTANDING. THE FINDING IN THIS REGARD LD. CIT( A) IS HEREBY CONFIRMED. THIS GROUND OF THE REVENUE IS DIS MISSED. THE FACTS ARE IDENTICAL IN THIS CASE. NO CHANGE IN TO THE FACTS HAS BEEN BROUGHT ON BY REVENUE. THEREFORE, WE DON T FIND ANY INFIRMITY INTO THE ORDER OF THE CIT(A). 9.4 IN THE RESULT, THIS GROUND OF THE REVENUES APP EAL IS REJECTED. 10. GROUND NO. 3 IS AGAINST THE DELETION OF DISALLO WANCE OF DEPRECIATION OF RS 1,46,913/- MADE BY THE ASSESSING OFFICER. 10.1. THE LEARNED SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSE E SUPPORTED THE ORDER OF THE CIT AND SUBMITTED WITH T HIS ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE ITAT REN DERED IN THE CASE OF ACIT VS. VOLTAMP TRANSFORMERS LTD.(SUPR A). THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO PARA 12 PAGE 11 OF THE DECISION OF THE HONBLE I TAT. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERI AL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAD MAD E DISALLOWANCE ON THE BASIS THAT THE ASSESSEE IN HIS SCHEDULE OF FIXED ASSETS HAS SHOWN COMPUTER SYSTEM SOFTWARE WHI CH IS INTEGRAL PART OF COMPUTER UNDER THE BLOCK COMPUTER AND THE APPLICATIONS SOFTWARE HAS BEEN SHOWN UNDER THE BLOC K OF INTANGIBLE ASSETS. THE ASSESSEES OWN ACCOUNT SH OWS THE DIFFERENCE BETWEEN COMPUTER SOFTWARE AND APPLICATIO N SOFTWARE. ONCE THE ASSESSEE HAS TREATED SUCH APPLI CATION ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 15 - SOFTWARE BEING LICENSED INTANGIBLE ASSETS AS IN HIS BOOKS, HE CANNOT TREAT THE SAME DIFFERENTLY FOR THE INCOME TA X PURPOSES. HOWEVER, THE LEARNED CIT(A) DELETED THE ADDITION ON THE BASIS THAT THE NOTE NO. 7 OF THE APPENDIX-I OF INCOME TAX RULES DEFINES COMPUTER SOFTWARE AS ANY COMPUTER PROGRAMME RECORDED WITH ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE. THE INCOME TA X ACT DOES NOT MAKE ANY DIFFERENCE BETWEEN THE SYSTEM SOF TWARE AND THE APPLICATION SOFTWARE. THE SCHEDULE ONLY PR OVIDES DEPRECIATION @ 60% ON THE COMPUTER SOFTWARE AND THE TERM COMPUTER SOFTWARE HAS BEEN DEFINED IN THE APPENDIX- I. THE CLASSIFICATION MADE BY ACCOUNTING STANDARDS CANNOT OVERWRITE THE DEFINITION GIVEN BY THE INCOME TAX AC T. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON TH E DECISION OF THE HONBLE COORDINATE BENCH RENDERED IN THE CAS E OF ACIT VS. VOLTAMP TRANSFORMERS LTD. WHEREIN HONBLE ITAT HAS RECORDED THE FINDING OF LEARNED CIT(A) WHI CH IS REPRODUCED AS UNDER: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE A.O. HAS DISALLOWED THE DEPRECIATION @ 60% CLAIMED BY THE APPELLANT BY HOLDING THAT IT WAS AN APPLICATION SOF TWARE AND SHOULD BE TREATED AS INTANGIBLE ASSET AND ACCORDING LY IT WAS ENTITLED FOR DEPRECIATION @ 25%. THE APPELLANT HAS SUBMITTED THAT THE DISTINCTION BETWEEN SYSTEM SOFTW ARE AND APPLICATION SOFTWARE MADE BY THE A.O. IS NOT APPLIC ABLE. THE CLAIM OF THE APPELLANT IS DULY SUPPORTED BY THE PROVISIONS OF THE INCOME TAX ACT. IT HAS INVITED M Y ATTENTION ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 16 - TO NOTE NO. 7 OF THE APPENDIX-I WHICH DEFINES THE C OMPUTER SOFTWARE AS UNDER: COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISK, TAPE, PERFORATED MEDIA OR OTH ER INFORMATION STORAGE DEVICE. IT HAS FURTHER BEEN EXPLAINED BY THE APPELLANT THAT THE CLASSIFICATION MADE BY AS 26 SPECIFYING COMPUTER SO FTWARE AS INTANGIBLE ASSET HAS NO RELATION WITH THE APPLIC ABILITY OF DEPRECIATION AS PER I.T. RULES. AS CONSIDERING THE EXPLANATION OF THE APPELLANT, I AM INCLINED TO ACCEPT THE VIEW PROPOUNDED BY THE APPEL LANT. THE INCOME TAX ACT DOES NOT MAKE ANY DIFFERENCE BET WEEN THE SYSTEM SOFTWARE AND THE APPLICATION SOFTWARE. THE SCHEDULE ONLY PROVIDES THE DEPRECIATION @ 60% ON TH E COMPUTER SOFTWARE AND THE TERM COMPUTER SOFTWARE HAS ALSO BEEN DEFINED IN THE APPENDIX-I. THE CLASSIFIC ATION MADE BY THE ACCOUNTING STANDARDS CANNOT OVERWRITE T HE DEFINITION GIVEN IN THE INCOME TAX ACT. ACCORDINGL Y, THE APPELLANT IS ENTITLED TO DEPRECIATION @ 60%. THE G ROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 10.2. AFTER CONSIDERING THE DECISION OF THE LEARNED CIT(A), HONBLE COORDINATE BENCH TOOK A VIEW THAT THERE WAS NO REASON TO INTERFERE WITH THE FINDING OF THE LEARNED CIT(A). IN THIS CASE ALSO, THE LEARNED CIT(A) HAS TAKEN A V IEW THAT THE CLASSIFICATION BY THE ACCOUNTING STANDARDS CANN OT OVERWRITE THE DEFINITION GIVEN IN THE INCOME TAX AC T. ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 17 - THEREFORE, WE DONT FIND ANY REASON TO TAKE ANY DIF FERENT VIEW AS TAKEN BY THE HONBLE COORDINATE BENCH IN IT A NO. 1676/AHD/2012 (SUPRA). RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF THE REVENUES APPEAL IS REJECTED. 10.3 IN THE RESULT, THIS GROUND OF REVENUES APPEA L IS REJECTED. 11. GROUND NO. 4 IS AGAINST DELETION OF ADDITION MA DE OF RS 5,799/- MADE ON ACCOUNT OF DISALLOWANCE OF ESI PAYMENT. 11.1 THE LEARNED SR. DR SUPPORTED THE ORDER OF ASSE SSING OFFICER. ON THE CONTRARY, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AIMIL LTD. (321 ITR 508). WE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LEA RNED CIT(A) HAS RECORDED THE FINDING THAT THE CONTRIBUTI ON FOR THE MONTH OF JULY 2008 FOR WHICH THE DISALLOWANCE HAS B EEN MADE, HAS BEEN PAID TO THE GOVERNMENT ACCOUNT ON 22.08.2008. SINCE THE DATE IS DURING THE FINANCIAL YEAR AND IN ANY CASE BEFORE THE DATE OF FILING OF RETURN, TH E APPELLANT IS ENTITLED FOR DEDUCTION. THE LEARNED CIT(A) HAS FOLLOWED THE DECISION RENDERED IN THE CASE OF AGEW STEEL MANUFACTURERS PVT. LTD. VS. DCIT IN ITA NO. 488/AHD/2011, JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD. 319 ITR 306(SC) AND AL SO THE JUDGMENT OF HONBLE HIGH COURT IN THE CASE OF AIMIL LTD. 321 ITR 568(DEL). THEREFORE, WE DONT FIND ANY REA SON TO ITA NOS.1902/AHD/2012 & ITA NO., 2289/AHD/201 2 SH. SULPHURICS P. LTD.. VS. DCIT, RANGE-8, AHD. AY 2009-10 - 18 - INTERFERE IN THE ORDER OF CIT(A) AND THE SAME IS HE REBY UPHELD. 11.2 THIS GROUND OF THE REVENUE APPEAL IS REJECTED. 12. GROUND NO. 5 AND 6 ARE GENERAL IN NATURE AND TH EY DONT NEED ANY SEPARATE ADJUDICATION. 12.1 IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE COMBINED RESULT, BOTH THE APPEAL OF ASSE SSEE IN ITA NO. 1902/AHD/2012 AND REVENUES APPEAL IN ITA NO. 2289/ AHD/2012 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (KUL BHARAT) JUDICIAL MEMBER AHMEDABAD; DATED 19/12/2013 GHANSHYAM MAURYA, SR. P.S. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 19 TH OF DECEMBER, 2013 AT AHMEDABAD. TRUE COPY #$ %& '#&' #$ %& '#&' #$ %& '#&' #$ %& '#&'/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. %*() / THE RESPONDENT. 3. ++ , / CONCERNED CIT 4. ,() / THE CIT(A)-III, AHMEDABAD 5. &/0 % , , / DR, ITAT, AHMEDABAD 6. 012 3 / GUARD FILE. #$ #$ #$ #$ / BY ORDER, 4 44 4/ // / +5 +5 +5 +5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD