M/s. Asta India Pvt Ltd., Vadodara V. DCIT, Circle-1(1)(1), Vadodara

ITA 2298/AHD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9464 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-04-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 16-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Cost of acquisition; Non-deduction of tax; TDS; Set aside; FORM 26AS
• Section: 143(3); 195; 192; 145

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD ( CONVENED THROUGH VIRTUAL COURT ) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2298/AHD/2017 ( ASSESSMENT YEAR : 2012-13) M/S. ASTA INDIA PVT. LTD. 725/726, GIDC, MANJUSAR, TAL: SAVLI, DIST VADODARA 391775 / VS. DCIT CIRCLE - 1(1) (1), VADODARA ./ ./ PAN/GIR NO. : AAFCA1141A ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. N. SOPARKAR, SR. ADVOCATE WITH SHRI PARIN SHAH, A.R. / RESPONDENT BY : SHRI L. P. JAIN, SR. D.R. DATE OF HEARING 18/08/2020 !'# / DATE OF PRONOUNCEMENT 21/08/2020 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-1, VADODARA (CIT(A) IN SHORT), DATED 31 .01.2017 ARISING IN THE ASSESSMENT ORDER DATED 11.03.2016 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2012-13. ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE READ HE REUNDER: 1 LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION TO CLOSING STOCK BY AO OF RS. 2, 93, 36, 409/- UNUTILI ZED CENVAT CREDIT U/S 145A OF THE ACT. 2 LD. CIT (A) ERRED IN LAW AND ON FACTS HOLDING THAT APPELLANT OUGHT TO HAVE PREPARED ITS ACCOUNTS AS PER THE INCL USIVE METHOD PRESCRIBED BY SECTION 145 A ONLY NOT APPRECIATING T HE FACT THAT EVEN IF INCLUSIVE METHOD IS USED THERE IS NO CHANGE IN TAXABLE INCOME. 3 LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT A PPRECIATING THAT LD. CIT (A) IN PREVIOUS YEAR SET ASIDE THE ISSUE TO AO TO VERILY RECONCILIATION OF CENVAT CREDIT & CLOSING STOCK PRE PARED IN SIMILAR MANNER BY THE APPELLANT. 4 LD. CIT (A) ERRED IN LAW AND ON FACTS NOT ADJUD ICATING ALTERNATE GROUND THAT IF ADDITION TO CLOSING STOCK IS SUSTAIN ED THEN AO BE DIRECTED TO ENHANCE OPENING STOCK OF SUBSEQUENT BY EQUAL AMOUNT. 5 LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION MADE BY AO OF RS.4,22,743/- ON ACCOUNT OF SHORT RECEIPT SHOWN AS PER FORM 26AS. 6 LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING ADDITION MADE BY AO OF RS. 17, 21, 392/- TOWARDS REIMBURSEMENT OF TRAVELING EXPENSE PAID TO FOREIGN PARTIES IN ABSENCE OF DEDUC TING TAX AT SOURCE. 7. LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING DISALLOWANCE MADE BY AO OF RS. 7,00,000/- TOWARDS TRAINING EXPEN SES PAID TO FOREIGN PARTIES NOT DEDUCTING TAX AT SOURCE WHEN AC TIVITIES DID NOT INVOLVE APPLICATION OF ANY TECHNICAL, MANAGERIA L OR CONSULTANCY SKILLS OR SPECIALIZED KNOWLEDGE. 3. GROUND NOS. 1 TO 4 CONCERN ADDITION TO CLOSING STOCK OF RS.2,93,36,409/- TOWARDS UNUTILIZED CENVAT CREDIT U NDER S.145A OF THE ACT. 3.1 WHEN THE MATTER WAS CALLED FOR HEARING, THE LEA RNED SENIOR COUNSEL ADVERTED TO THE ASSESSMENT ORDER AND POINTE D OUT THAT THE AFORESAID AMOUNT OF RS.2,93,36,409/- REPRESENTS UNU TILIZED CENVAT / VAT CREDIT AT THE END OF THE RELEVANT FINA NCIAL YEAR AND THE AO HAS WRONGLY INVOKED PROVISIONS OF SECTION 14 5A OF THE ACT ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 3 - TO ENHANCE THE VALUE OF THE CLOSING STOCK BY THE AF ORESAID AMOUNT. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS CONSI STENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING IN THIS REGARD AND THUS NON- INCLUSION OF EXCISE DUTY AND OTHER DUTIES ETC. IN T HE CLOSING STOCK AND CORRESPONDINGLY IN PURCHASE AS WELL AS SALE WOU LD NOT EVENTUALLY IMPACT THE RESULTANT PROFITS. IT WAS PO INTED OUT THAT IN THE EXCLUSIVE METHOD OF ACCOUNTING ADOPTED, THE EXC ISE DUTY, VAT ETC. ARE EXCLUDED BOTH FROM PURCHASE AS WELL AS FRO M THE SALES AND CLOSING STOCK REMAINING AT THE END OF FINANCIAL YEA R AND THEREFORE THE FINANCIAL RESULTS CONTINUE TO REFLECT TRUE AND CORRECT PICTURE WITHOUT ANY UNDER-REPORTING OF INCOME. IT WAS SUBM ITTED THAT ONCE THE CLOSING STOCK DETERMINED BY EXCLUSIVE METHOD IS DISTORTED BY INCREASE IN ITS VALUE ON ACCOUNT OF EXCISE DUTY COM PONENT ETC. THE CORRESPONDING ADJUSTMENTS WILL HAVE TO BE NECESSARI LY MADE IN SALES AS WELL AS IN PURCHASES AND OPENING STOCK ETC. TO M AKE IT INCLUSIVE. THUS, SUCH EXERCISE HAS NO IMPACT ON THE ULTIMATE F INANCIAL RESULTS. 3.2 THE LEARNED SENIOR COUNSEL THEREAFTER REFERRED TO PARA 4.3.1 OF THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE CIT( A) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE ON THE GROUND THAT R EQUIRED RECONCILIATION BETWEEN THE FINANCIAL ACCOUNTS AS PE R INCLUSIVE METHOD AND EXCLUSIVE METHOD HAS NOT BEEN FURNISHED. IT WAS STRONGLY CONTENDED THAT IN THE IDENTICAL FACT SITUA TION, THE CIT(A) IN EARLIER AY 2010-11 HAD RIGHTLY DIRECTED THE AO TO V ERIFY DETAILS OF DEVIATION FROM THE METHOD OF VALUATION PRESCRIBED U NDER S.145A OF THE ACT AND ITS EFFECT ON THE PROFIT OR LOSS OF COM PANY AND FIND OUT WHETHER AS A RESULT OF FOLLOWING INCLUSIVE METHOD A S PER SECTION 145A OF THE ACT, THERE IS ANY IMPACT ON THE NET PRO FIT IN ITS CASE FOR THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED TH AT THE CIT(A) IN AY 2010-11 HAD DIRECTED THAT IF THERE IS NO IMPACT ON THE NET PROFIT OF THE COMPANY AS A RESULT OF INCLUSIVE METHOD, THE N AO IS DIRECTED ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 4 - TO DELETE THE ADDITIONS MADE IN THAT YEAR. FOR THI S PURPOSE, THE LEARNED SENIOR COUNSEL REFERRED TO AN ORDER GIVING EFFECT TO THE ORDER OF THE CIT(A) CONCERNING AY 2010-11 DATED 12. 03.2020 WHEREIN THE AO ULTIMATELY GRANTED SUITABLE RELIEF T O THE ASSESSEE AFTER DUE VERIFICATION. IN THIS BACKDROP, IT WAS C ONTENDED THAT THERE WAS NO JUSTIFICATION FOR THE CIT(A) TO COMPLETELY D ISMISS THE CASE OF THE ASSESSEE WITHOUT ANY PROPER OPPORTUNITY IN T HE ABSENCE OF ANY DEVIATION IN THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED YEAR AFTER YEAR. 3.3 THE LEARNED SENIOR COUNSEL THEREAFTER REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. LUBI ELECTRONICS ITA NO. 2197/AHD/2016 ORDER DATED 18.02.2019 FOR THE PROPOSITION THAT IN A TAX NEUTRAL EXERCISE, NO ADDITION TOWARDS UNUT ILIZED MODVAT / CENVAT CREDIT IS WARRANTED. THE LEARNED SENIOR COU NSEL ALSO REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF PR.CIT VS. GUJARAT GAS COMPANY LTD. REFERRED TO BY THE CO- ORDINATE BENCH IN LUBI ELECTRONICS (SUPRA) TO BUTTR ESS THE STAND OF THE ASSESSEE FOR REVERSAL OF ACTION OF CIT(A). 4. THE LEARNED DR FOR THE REVENUE RELIED UPON THE O RDERS OF THE LOWER AUTHORITIES. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THE ISSUE. WHILE IT IS THE CASE OF THE REVENUE THAT UN UTILIZED CENVAT CREDIT OF RS.2,93,36,409/- REPRESENTS PART OF THE C LOSING STOCK OF THE ASSESSEE IN TERMS OF SECTION 145A OF THE ACT AND CO NSEQUENTLY THE CLOSING STOCK IS REQUIRED TO BE INCREASED TO THE EX TENT OF SUCH DUTY, IT IS THE CASE OF THE ASSESSEE ON THE OTHER HAND TH AT ADDITIONS MADE BY RESORTING TO SECTION 145A OF THE ACT IS NOT JUST IFIED IN THE GIVEN SET OF FACTS OF THE CASE WHERE THE ASSESSEE IS FOLL OWING EXCLUSIVE ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 5 - METHOD OF ACCOUNTING YEAR AFTER YEAR ON A CONSISTEN T BASIS. AS POINTED OUT ON BEHALF OF THE ASSESSEE, SIMILAR ADDI TION TOWARDS UNUTILIZED CENVAT CREDIT AT THE END OF THE YEAR WAS ALSO MADE IN AY 2010-11 IN THE CASE OF THE ASSESSEE WHERE THE CI T(A) HAD REMITTED THE ISSUE BACK TO THE FILE OF THE AO FOR F ACTUAL VERIFICATION OF THE ULTIMATE FINANCIAL IMPACT OWING TO EXCLUSIVE METHOD OF ACCOUNTING HAVING REGARD TO SECTION 145A OF THE ACT . 5.1 THE ISSUE INVOLVED IS ESSENTIALLY FACTUAL IN NA TURE AND REQUIRES FACTUAL EXAMINATION. BEFORE WE EMBARK FURTHER FOR ADJUDICATION OF DISPUTE, IT MAY BE PERTINENT TO RECKON IN BROAD SEN SE THAT CENVAT CREDIT IS A CREDIT OR AN ENTITLEMENT IN RESPECT OF CENTRAL EXCISE ON INPUTS PURCHASED IN RELATION TO THE MANUFACTURE OF FINAL PRODUCT. CENVAT CREDIT IS INCIDENTALLY ALSO AVAILABLE IN RES PECT OF DUTY PAID ON CAPITAL GOODS AS WELL SUCH AS MACHINERY, PLANT, SPARE PARTS OF MACHINERY ETC. IT IS AKIN TO CREDIT BALANCE IN BAN K ACCOUNT THAT CAN BE ADJUSTED TOWARDS THE LIABILITY OF EXCISE DUTY PA YABLE ON GOODS MANUFACTURED. THE CENVAT CREDIT SO ACCUMULATED IN RESPECT OF INPUTS OR CAPITAL GOODS PURCHASED CAN BE AVAILED FO R SET OFF AGAINST THE LIABILITY OF EXCISE DUTY ARISING TO ASSESSEE IN RESPECT OF OUTPUT OF SERVICE OR MANUFACTURE OF GOODS. THE OUTSTANDIN G ENTITLEMENT OF CENVAT TOWARDS CREDIT THUS BEING FUNGIBLE THUS DOES NOT TRULY REPRESENT THE ACTUAL DUTY LIABILITY IN RELATION TO CLOSING STOCK REPORTED BY AN ASSESSEE. THE AVAILABILITY OF CENVA T CREDIT IS DEPENDENT ON THE EXTENT OF UTILIZATION OF CREDIT AG AINST THE LIABILITY ARISING TO AN ASSESSEE ON GOODS MANUFACTURED AND HA S NO CO-RELATION TO THE CLOSING STOCK. THE EXCISE DUTY COMPONENT ON CLOSING STOCK IS THUS REQUIRED TO ASCERTAINED INDEPENDENTLY AS PE R QUANTUM OF STOCK. HENCE, THE CIT(A) HAS RIGHTLY APPROACHED TH E ISSUE ON DETERMINATION OF EXACT LIABILITY BY EITHER INCLUSIV E OR EXCLUSIVE METHOD. HOWEVER, WE DO NOT SEE ANY JUSTIFICATION I N THE ACTION OF ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 6 - THE CIT(A) IN DISMISSING THE PLEA OF THE ASSESSEE A LTOGETHER ON THE POINT. THE CIT(A), IN OUR VIEW, OUGHT TO HAVE GIVE N A REASONABLE OPPORTUNITY TO THE ASSESSEE FOR SUBSTANTIATING ITS CLAIM THAT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT IMP INGE UPON THE PROVISIONS OF SECTION 145A OF THE ACT, IN TANDEM WI TH THE ACTION OF THE CIT(A) IN AY 2010-11. 5.2 WE THEREFORE CONSIDER IT EXPEDIENT TO SET ASIDE THE DIRECTION OF THE CIT(A) ON THE ISSUE AND REMIT THE ISSUE TO THE FILE OF THE AO FOR SUITABLE VERIFICATION OF FACTS AFRESH. THE AO MAY SATISFY ITSELF THAT WHILE THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCO UNTING TOWARDS PURCHASE COSTS, SUCH METHOD DOES NOT IMPACT THE ULT IMATE PROFIT IN ANY MANNER. NEEDLESS TO SAY, THE ADDITION TOWARDS EXCISE DUTY, VAT ETC. WILL NOT BE PERMISSIBLE BY RESORTING TO SE CTION 145A OF THE ACT WHERE THE ACTION OF THE ASSESSEE IS FOUND TO BE TAX NEUTRAL. WITH THESE REMARKS, THE ENTIRE ISSUE IS SET ASIDE T O THE FILE OF THE AO FOR CONSIDERATION AFRESH IN TERMS OF OBSERVATIONS N OTED HEREINABOVE AND IN ACCORDANCE WITH LAW. IT SHALL BE OPEN TO TH E ASSESSEE TO MAKE ALL REPRESENTATIONS AND SUBMISSIONS CONCERNING THE ISSUE BEFORE AO AFRESH FOR DETERMINATION OF ISSUE IN ACCORDANCE WIT H LAW. 6. IN THE RESULT, GROUND NOS. 1 TO 4 ARE ALLOWED FO R STATISTICAL PURPOSES. 7. GROUND NO.5 CONCERNS ADDITION OF RS.4,22,743/- O N ACCOUNT OF SHORT RECEIPTS SHOWN AS PER FORM 26AS. 7.1 IN THE ABSENCE OF ANY COGENT EXPLANATION OFFERE D ON BEHALF OF THE ASSESSEE EITHER BEFORE THE CIT(A) OR BEFORE US TOWARDS IMPUGNED DIFFERENCE DETECTED BY REVENUE FROM THE ANNUAL STAT EMENT IN FORM ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 7 - 26AS, WE DECLINE TO INTERFERE WITH THE ORDER OF CIT (A) IN THIS REGARD. 7.2 IN THE RESULT, GROUND NO. 5 IS DISMISSED. 8. GROUND NO.6 CONCERNS DISALLOWANCE OF RS.17,21,39 2/- TOWARDS REIMBURSEMENT OF TRAVELLING EXPENSES PAID TO FOREIG N PARTIES WITHOUT DEDUCTION TAX AT SOURCE. 8.1 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE ISS UE. IT IS THE CASE OF THE ASSESSEE THAT IT IS INCORRECT TO SAY TH AT NO PROOF OF REIMBURSEMENT OF EXPENSES WAS FURNISHED BEFORE THE AO. WE NOTICE A LETTER DATED 09.03.2016 ADDRESSED TO THE AO BY TH E ASSESSEE IN THIS REGARD WHEREIN IT IS CLAIMED THAT OWING TO VOLUMINO US TRANSACTIONS INVOLVED TOWARDS SUCH REIMBURSEMENTS, THE ORIGINAL VOUCHERS, BILLS FOR FOREIGN TRAVELLING EXPENSES WERE PRODUCED FOR V ERIFICATION. THUS, A CONTRADICTORY VERSION IS COMING TO THE FORE . HENCE, WE CONSIDER IT EXPEDIENT THAT THE ISSUE IS REMITTED BA CK TO THE FILE OF THE AO FOR ENABLING THE ASSESSEE TO ESTABLISH THAT THE AFORESAID AMOUNT OF RS.17,21,392/- REPRESENTS ACTUAL REIMBURSEMENT O F TRAVELLING EXPENSES CLAIMED TO HAVE BEEN PAID TO FOREIGN PARTI ES WITHOUT ANY PROFIT ELEMENT EMBEDDED IN IT. THE AO SHALL PROVID E REASONABLE OPPORTUNITY TO THE ASSESSEE TO MAKE SUITABLE REPRES ENTATIONS AND SUBMISSIONS TO ESTABLISH ITS CASE. NEEDLESS TO SAY THAT A PAYMENT IN THE NATURE OF A MERE REIMBURSEMENT OF ACTUAL EXPENS ES WOULD NOT BE COVERED BY THE OBLIGATIONS CAST UNDER S.195 OF THE ACT IN THE ABSENCE OF ANY CHARGEABLE INCOME ANNEXED TO SUCH PA YMENT AND CONSEQUENTLY SECTION 40(A)(I) WOULD NOT BE ATTRACTE D IN THE LIGHT OF DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. 361 ITR 192 (GUJ) . HENCE, NO PART OF AMOUNT IN THE NATURE OF ACTUAL RE IMBURSEMENT CAN ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 8 - BE DISALLOWED OWING TO NON-DEDUCTION OF TAX. WITH THESE REMARKS, THE ORDER OF THE CIT(A) IS SET ASIDE ON THE ISSUE A ND REMITTED BACK TO THE FILE OF THE AO FOR FACTUAL VERIFICATION AS O BSERVED ABOVE. 8.2 IN THE RESULT, GROUND NO. 6 IS ALLOWED FOR STAT ISTICAL PURPOSES. 9. GROUND NO.7 CONCERNS DISALLOWANCE OF RS.7,00,000 /- ON ACCOUNT OF TRAINING EXPENSES. THE AO NOTICED THAT THE TRAINING EXPENSES IS IN THE NATURE OF FEE FOR TECHNICAL SERV ICE AND IS COVERED BY OBLIGATIONS OF DEDUCTION OF TAX AS STIPULATED UN DER S.195 OF THE ACT. NO REASONS COULD BE ASSIGNED FOR NON-COMPLIAN CE OF SECTION 195 OF THE ACT. IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION FOR NON-DEDUCTION OF TDS ON SUCH REMITTANCE, THE EXPENS ES INCURRED WERE DISALLOWED WITH THE AID OF SECTION 40(A)(I) OF THE ACT. 9.1 THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS ACT ION FOR NON- DEDUCTION EITHER BEFORE THE CIT(A) OR BEFORE THE TR IBUNAL WITH ANY REASONINGS. WE THUS DECLINE TO INTERFERE WITH THE ACTION OF THE AO. 9.2 IN THE RESULT, GROUND NO. 7 IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (RAJPAL YADAV) (PRADIP KUMA R KEDIA) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD: DATED 21/08/2020 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT THIS ORDER PRONOUNCED ON 21/08/2020 ITA NO. 2298/AHD/17 [M/S. ASTA INDIA PVT. LTD. VS. DCIT] A.Y. 2012-13 - 9 - 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56)