Aquapharma Chemicals Pvt. Ltd., Pune V. Additional Commissioner of Income-tax,

ITA 240/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9568 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: R G NAHAR
• Keywords: Rectification of order; Revenue expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 2099/PUN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE ....... / APPELLANT ' /VS. M/S. AQUAPHARM CHEMICALS PVT. LTD., S-122, 2, MIDC, BHOSARI, PUNE 411026 PAN : AAECA7014R / RESPONDENT / ITA NO. 240/PUN/2015 %' ( ')( / ASSESSMENT YEAR : 2009-10 M/S. AQUAPHARM CHEMICALS PVT. LTD., KHANDELWAL JAIN & ASSOCIATES, ALANKAR CINEMA BUILDING, 1 ST FLOOR, ABOVE UNITED BANK, PUNE 411001 PAN : AAECA7014R ....... / APPELLANT ' /VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE - 8, PUNE / RESPONDENT ASSESSEE BY : SHRI R.G. NAHAR REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 17-03-2017 / DATE OF PRONOUNCEMENT : 17-04-2017 2 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 * / ORDER PER VIKAS AWASTHY, JM : ITA NO. 2099/PUN/2014 HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -V, PUNE DATED 07-08-2014 FOR THE ASSESSMENT YEAR 2009-10 ASS AILING THE DELETING OF ADDITIONS MADE BY ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT. THE ASSESSING OFFICER VIDE ORDER DATED 29-12-2011 HAD INT ER ALIA MADE ADDITIONS ON ACCOUNT OF UNDER VALUATION OF INVENTORY ` 1,77,88,184/-, CONTRIBUTION TOWARDS UNAPPROVED GRATUITY FUN D ` 7,59,685/- AND LEGAL AND PROFESSIONAL CHARGES PAID TO SRG C ONSULTANT ` 41,74,500/-. IN FIRST APPELLATE PROCEEDINGS THE COMMISSIONE R OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER DELETED THE ADD ITIONS IN RESPECT OF CONTRIBUTION TOWARDS UNAPPROVED GRATUITY FUND AND PAYMENT OF LEGAL AND PROFESSIONAL CHARGES IN TOTO AND GRANTED PART RELIEF IN RESPECT OF VALUATION OF INVENTORY. SUBSEQUENTLY, THE COMM ISSIONER OF INCOME TAX (APPEALS) VIDE ORDER DATED 09-01-2015 PASSED U/S. 154 UPHELD THE FINDINGS OF ASSESSING OFFICER IN RESPECT OF DISALLOWAN CE OF CONTRIBUTION TOWARDS UNAPPROVED GRATUITY FUND. AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) PASSED U/S. 154 OF TH E ACT, THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL IN ITA NO. 240/PUN/2015. 2. THE FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSES SEE IS ENGAGED IN MANUFACTURING AND PROCESSING OF CHEMICALS. T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 3 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 22-09-2009 DECLARING TOTAL INCOME AS ` 5,65,65,793/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. STATUTORY NOTICE U/ S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS ISS UED TO THE ASSESSEE ON 19-08-2010. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS THE ASSESSING OFFICER MADE CERTAIN ADDITIONS / DISALLOWANCES IN THE INCOME RETURNED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-2011, T HE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TA X (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) GRANTED PART RELIE F TO THE ASSESSEE BY RESTRICTING THE ADDITION IN RESPECT OF UNDER VALUATION OF INVENTORY TO ` 3,64,990/-, ALLOWING ENTIRE AMOUNT OF ` 41,74,500/- PAID AS LEGAL AND PROFESSIONAL CHARGES TO SRG CONSULTANT BY TH E ASSESSEE AND BY DELETING SOME OTHER MINOR ADDITIONS MADE BY ASSE SSING OFFICER DURING THE COURSE OF SCRUTINY ASSESSMENT. THE COMMISSION ER OF INCOME TAX (APPEALS) INITIALLY DELETING THE ADDITION MADE IN RE SPECT OF ASSESSEES CONTRIBUTION TO GROUP GRATUITY SCHEME. HOWE VER, IN SUBSEQUENT RECTIFICATION ORDER PASSED U/S. 154 REJECTED THE CLAIM OF ASSESSEE. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME T AX (APPEALS), NOW, BOTH THE DEPARTMENT AND THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 3. THE DEPARTMENT HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD.CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION TO RS.3,6 4,990/- BEING 10% OF THE DIFFERENCE OF VALUATION OF CLOSING STOCK AS ON 31.0 3.2009 AND OPENING STOCK AS ON 1.4.2008 WHEN CIT(A) HAS PRINCIPALLY RE JECTED THE METHOD FOLLOWED BY THE ASSESSEE IN VALUATION OF STOCK AND IGNORED THE FACT THAT THE ASSESSEE HAS TREATED THE STOCK AS NON MOVABLE I TEM IN THE INVENTORY AND NOT OBSOLETE ITEMS WHILE VALUING ITS STOCK AS P ER THE AUDITOR'S REPORT. 4 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.7,59,6 85/- ON ACCOUNT OF CONTRIBUTION TO PROVIDENT FUND AND OTHER FUNDS WHEN THE FUNDS ARE NOT DULY APPROVED AND IGNORED THE PROVISIONS CONTAINED U/S 36(1)(V) R.W.S. 40A(7) AND ALSO THE DECISION OF SUPREME COURT IN TH E CASE OF SHRI SAJJAN MILLS LTD. VS CIT - 49 CTR 193 (SC). 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A) HAS FAILED TO EXAMINE THE ISSUE IN ITS PROPER PERSP ECTIVE THAT THE CONTRIBUTION TO PROVIDENT FUND AND OTHER FUNDS ARE ALLOWABLE ONLY TO THE FUNDS APPROVED U/S. 36(1)(V) AND 40A(7). THE LD. CI T(A) ALSO FAILED IN APPRECIATING THE FACT THAT THE PAYMENT DOES NOT REL ATE TO THE GRATUITY PAYMENT OF AN EMPLOYEE BUT RELATES TO CONTRIBUTION TO GRATUITY SCHEME WHICH IS NOT FOR AN APPROVED FUND THEREFORE NOT ALL OWABLE IN LAW. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.41 ,74,500/- OUT OF LEGAL AND PROFESSIONAL CHARGES BY IGNORING HIS OWN FINDIN G THAT ONE OF THE OBJECTIVES OF THE STUDY WAS TO EXPLORE ACQUISITION OF PHOSPHOROUS PRODUCER AND DEVELOPMENT OF TOLL MANUFACTURING ARRA NGEMENT FOR EXISTING PRODUCES WHICH WILL BRING INTO EXISTENCE OF NEW ASS ETS WHICH IS CAPITAL IN NATURE AND THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS OCL INDIA LTD. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. SINCE, THE RELIEF GRANTED IN RESPECT OF CONTRIBUTION TOWARDS UNAPPROVED PROVIDENT FUND ` 7,59,685/- WAS WITHDRAWN BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN A SUBSEQUENT ORDER PASSED U/S. 154 OF THE ACT, GROUND NOS. 2 AND 3 RAISED IN THE AP PEAL BY THE DEPARTMENT ASSAILING THE RELIEF GRANTED ON THIS ISSUE HAVE BECOME INFRUCTUOUS. THEREFORE, THE EFFECTIVE GROUNDS TO BE DECIDED IN THE APPEAL BY THE DEPARTMENT ARE GROUND NOS. 1 AND 4. 5 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 4. THE ASSESSEE IN ITS APPEAL HAS RAISED SOLITARY GROUND A ND THE SAME READS AS UNDER : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT, THE DISALLOWAN CE OF RS.7,59,685/- ON ACCOUNT OF PREMIUM PAID TO LIC UNDER GROUP GRATUITY SCHEME U/S. 40A(7)/36(1)(V) IS NOT IN ACCORDANCE WITH THE PROVI SIONS OF THE ACT. THE ADDITIONS SO MADE BE DELETED. JUST A PROPER RELIEF BE GRANTED TO THE APPELLANT ON THIS SCORE. 2. THE APPELLANT PRAYS TO E ALLOWED TO ADD, AMEND, MOD IFY, RECTIFY, DELETE, & RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HEARIN G. 5. SHRI R.G. NAHAR APPEARING ON BEHALF OF THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAD MADE APPLICATION TO THE CONCERNE D COMMISSIONER OF INCOME TAX FOR APPROVAL OF GROUP GRATUITY SCHEME WITH LIC ON 15-02-2000. THE LD. AR POINTED THAT THE COPY OF LETTER V IDE WHICH THE APPLICATION WAS MADE FOR APPROVAL OF GRATUITY SCHEME IS AT PAGES59 TO 61 OF THE PAPER BOOK. THE ASSESSEE HAS BEEN REGULARLY DEPOSITING PREMIUM IN GROUP GRATUITY SCHEME. HOWEVER, THE COMMISSION ER OF INCOME TAX (APPEALS) NEITHER REJECTED THE AFORESAID APPLIC ATION OF THE ASSESSEE NOR GRANTED APPROVAL TO THE SCHEME. THE ASS ESSEE IN ITS RETURN OF INCOME HAS BEEN REGULARLY CLAIMING THE BENEFIT O F CONTRIBUTION TOWARDS THE SAID GROUP GRATUITY SCHEME AND THE ASSESS ING OFFICER IN SCRUTINY ASSESSMENT PROCEEDINGS HAS BEEN GRANTING THE BENEFIT OF SAME IN ALL THE EARLIER ASSESSMENT YEARS. THIS IS THE FIRST YEAR WHEN THE REVENUE HAS RAISED DISPUTE IN RESPECT TO THE CONTRIBUT IONS MADE BY THE ASSESSEE UNDER GROUP GRATUITY SCHEME. IT IS NOT THE CASE OF DE PARTMENT THAT THE ASSESSEE HAS NOT CONTRIBUTED TOWARDS THE GR OUP GRATUITY FUND. THUS, THERE IS NO DOUBT ABOUT THE ASSESSEES CONTRIBUT ION TOWARDS THE SCHEME. THE ONLY ISSUE IS WITH REGARD TO ASSESSEE ELIGIB ILITY TO CLAIM 6 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 DEDUCTION IN RESPECT OF SUCH CONTRIBUTIONS UNDER THE PRO VISIONS OF SECTION 36(1)(V) R.W.S. 40A(7) OF THE ACT. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD SENT REMINDER TO THE COMMISSIONER OF INCO ME TAX-V, AKURDI, PUNE ON 26-10-2016 FOR APPROVING THE SCHEME. HO WEVER, NO COMMUNICATION WAS EVER RECEIVED FROM THE OFFICE OF COMMISSION ER OF INCOME TAX IN THIS REGARD. THE LD. AR SUBMITTED THAT THE ASSESSEE IS ELIGIBLE TO CLAIM BENEFIT OF CONTRIBUTION TOWARDS GROUP GRATUIT Y FUND AS THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS LAID DOWN FOR APPR OVAL OF FUND WITH LIFE INSURANCE CORPORATION OF INDIA. THE ASSESSE E HAS DONE ITS PART IN GETTING THE FUND APPROVED. INACTION AT THE E ND OF COMMISSIONER OF INCOME TAX SHOULD NOT PUT THE ASSESSEE IN DISADVANTAGEOUS POSITION. THE DELAY IN APPROVING THE SCHE ME FOR SUCH A LONG PERIOD CANNOT BE ATTRIBUTED TO THE ASSESSEE. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF HON BLE RAJASTHAN HIGH COURT IN THE CASE OF COMMISSIONER OF INCO ME TAX VS. JAIPUR THAR GRAMIN BANK REPORTED AS 388 ITR 228. 6. ON THE OTHER HAND SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) IN REJECTING THE CLAIM OF THE ASSESS EE WITH RESPECT TO CONTRIBUTION TOWARDS UNAPPROVED GROUP GRATUITY SCHE ME WITH LIC. IN SUPPORT OF HIS SUBMISSIONS THE LD. DR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMIS SIONER OF INCOME TAX VS. PETROLEUM AND MINERALS P. LTD. REPORTED A S 187 ITR 560. 7 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 6.1 IN RESPECT OF GROUNDS RAISED IN THE APPEAL BY THE DE PARTMENT, THE LD. DR SUBMITTED THAT IN GROUND NO. 1 THE DEPARTMENT HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESTRICTING THE ADDITION IN VALUATION OF CLOSING STOCK TO ` 3,64,990/-. THE ASSESSEE IN ITS BOOKS HAS NOT INCLUDED THE VALUE OF NON-MOVING ITEMS IN CLOSING STOCK. IN THE AUDITORS REPORT SOME OF THE ITEMS HAVE BEEN MENTIONED AS NON-MOVABLE IN THE INVENTORY AND NOT OBSOLETE ITEMS W HILE VALUING THE STOCK. WHETHER THE ITEMS ARE SLOW MOVING OR FAST M OVING, THEIR VALUE HAS TO BE TAKEN WHILE DETERMINING CLOSING STOCK. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS IMPUGNED ORDER HAS IN PRINCIPLE REJECTED THE METHOD FOLLOWED BY THE ASSESSEE FOR VALUATION OF STOCK. HOWEVER, BY APPLYING THE RATIO OF JUDGMENT RENDE RED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVAL INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX REPORTED AS 186 CTR 390 HAS GRANTED RELIEF TO THE ASSESSEE. THE RATIO OF SAID JUDGME NT DOES NOT APPLY IN THE CASE OF ASSESSEE. THE LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GRANTED RELIEF TO THE ASSESSEE WITHOUT EXAMINING THE DETAILS OF STOCK. THE LD. DR PRAYED FOR RESTORING THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR DETAILED EXAMINATION OF THE STOCK. 6.2 WITH RESPECT TO GROUND NO. 4 RAISED IN THE APPEAL, THE LD. DR SUBMITTED THAT FROM PERUSAL OF THE AGREEMENT UNDER WHICH THE PAYMENTS HAVE BEEN MADE TO M/S. SRG CONSULTANT PVT. LT D., IT IS CLEARLY EVIDENT THAT THE PAYMENTS ARE MADE IN RELATION T O ACQUISITION OF NEW PHOSPHONATE PRODUCTION FACILITY, CONSTRUCTION OF NEW FAC ILITY FROM GRASS ROOT LEVEL, TOLL MANUFACTURING ARRANGEMENT ETC. THE SAID PAYMENTS ARE CAPITAL IN NATURE AS THE EXPENDITURE HAS B EEN INCURRED TO 8 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 BRING INTO EXISTENCE NEW ASSET. THE COMMISSIONER OF INCOM E TAX (APPEALS) HAS IGNORED THE FACT THAT ONE OF THE OBJECTIVE O F THE STUDY CONDUCTED BY M/S. SRG CONSULTANT IS TO EXPLORE ACQUISITION OF PHOSPHOROUS PRODUCER AND DEVELOPMENT OF TOLL MANUFACTURIN G ARRANGEMENT FOR EXISTING PRODUCERS. THE EXPENDITURE HA S BEEN INCURRED FOR ESTABLISHING NEW LINE OF BUSINESS. EVEN IF THE EX PENDITURE IS FOR EXISTING BUSINESS IT IS FOR ENDURING BENEFIT. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS ) ON THE ISSUE AND UPHOLDING THE ORDER OF ASSESSING OFFICER. 7. THE LD. AR VEHEMENTLY SUPPORTING THE FINDINGS OF COMMIS SIONER OF INCOME TAX (APPEALS) IN RESPECT OF VALUATION OF CLOSING STO CK AND DELETING THE ADDITION IN RESPECT OF LEGAL AND PROFESSIONAL CHA RGES, REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY IS ENGA GED IN MANUFACTURING OF SPECIAL WATER TREATMENT CHEMICALS WHICH IS USED BY VARIOUS INDUSTRIES. THE PRODUCTS MANUFACTURED BY THE AS SESSEE ARE NOT SOLD TO GENERAL CUSTOMERS I.E. THE PRODUCTS ARE NOT SHELF PRODUCTS. THE PRODUCTS ARE CHEMICAL PRODUCTS USED AS RAW MATERIAL IN SPECIALIZED INDUSTRY. THE MAIN RAW MATERIAL IS YELLOW PHOSPHOROUS WHICH IS HIGHLY INFLAMMABLE. CONSIDERING THE SPECIFIC NATURE OF THE PRODUCT, IT IS NECESSARY TO MAINTAIN QUALITY CONTROL. ANY PRODUCT LYING IN INVENTORY FOR MORE THAN 6 MONTHS IS NORMALLY RENDERED UNUSABLE. 7.1 THE LD. AR SUBMITTED THAT FOR THE LAST SEVERAL YEARS T HE ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME METHOD OF VALUATION OF CLO SING STOCK I.E. EXCLUDING THE STOCK OF RAW MATERIAL FROM VALUATION WHICH IS MORE THAN 6 MONTHS OLD. THIS PRACTICE IS FOLLOWED AS PART OF CO MMERCIAL 9 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 PRUDENCE, AS WELL AS ACCOUNTING STANDARDS. THE LD. AR POIN TED THAT THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDERS U/S. 143(3 ) FOR THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 I.E. IN TH E LAST THREE PRECEDING ASSESSMENT YEARS AND IN THE SUCCEEDING ASSES SMENT YEARS I.E. ASSESSMENT YEARS 2010-11 AND 2011-12 HAS ACCEPTED THE MET HOD OF VALUATION OF STOCK CONSISTENTLY FOLLOWED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HA S RIGHTLY FOLLOWED THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVAL INDIA LTD. VS. DEPUTY COMMISSIONER OF INC OME TAX (SUPRA) WHILE GRANTING RELIEF TO THE ASSESSEE. 7.2 IN RESPECT OF GROUND NO. 4 RAISED IN APPEAL BY THE DE PARTMENT, THE LD. AR SUBMITTED THAT ASSESSEE HAD ENGAGED THE SER VICES OF M/S. SRG CONSULTANT PVT. LTD. TO CONDUCT STUDY TO IMPROVE PR OFITABILITY, KNOWLEDGE OF THE MARKET/COMPETITORS FOR THE GROWTH OF BU SINESS OF THE ASSESSEE. THE AGREEMENT WAS ENTERED INTO BY THE ASSE SSEE WITH M/S. SRG CONSULTANT PVT. LTD. FOR EXPANDING THE MARKET IN EXIST ING LINE OF THE BUSINESS INCLUDING GROWTH OF BUSINESS, EXPLORING ACQUISITIO N OF PHOSPHOROUS PRODUCER AND DEVELOPMENT OF TOLL MANUFACTURIN G ARRANGEMENT FOR EXISTING PRODUCERS. 94% OF THE TOTAL OUT PUT OF THE ASSESSEE IS EXPORTED OUT OF INDIA. THE EXPENDITURE WAS NOT INCURRED TO ESTABLISH NEW LINE OF BUSINESS, THEREFORE, THE SAID EXPENDITUR E IS NOT CAPITAL IN NATURE. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. IN GROUND NO. 1 OF THE APPEAL, THE DEPARTMENT HAS ASSAILED T HE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESTRICTING THE ADD ITION OF 10 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 VALUATION OF CLOSING STOCK TO ` 3,64,990/- AS AGAINST THE ADDITION OF ` 1,77,88,184/- MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE SAID ADDITION FOR THE REASON THAT THE ASSESSEE HAS NOT INCLUDED THE VALUE OF NON-MOVING ITEMS IN THE STOCK. THE ASSESSEE IS DEALING IN CHEMICALS, ESPECIALLY YELLOW PHOSPHOROUS WHICH IS HIGHLY INFLAM MABLE. THE SAID CHEMICALS ARE SUPPLIED BY THE ASSESSEE TO SPECIFIE D CUSTOMERS. IT HAS BEEN CONTENDED THAT THE STOCK OF PHOSPHOROUS WHICH IS MORE THAN 6 MONTHS OLD BECOME UNUSABLE. HENCE, WHILE DETERMININ G THE VALUE OF CLOSING STOCK, PHOSPHOROUS WHICH IS MORE THAN 6 M ONTHS OLD IS EXCLUDED FROM THE VALUE OF CLOSING STOCK. THIS METHOD OF VA LUATION OF CLOSING STOCK IS FOLLOWED BY THE ASSESSEE FOR THE PAST SEV ERAL YEARS. THE ASSESSEE HAS FILED COPY OF THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2006-07, 2007-08, 2008-09, 2010-11 AND 2011-12 AT PAGES 16 TO 30 OF THE PAPER BOOK TO SHOW THAT THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS HAS ACCEPTED THIS METHOD OF ACCOUNTING OF CLOSING STOCK. A PERUSAL OF THE ASSESSMENT ORDERS PLACED ON RECORD SHOWS THAT IN THE PRECEDING ASSESSMENT YEAR S AND IN THE SUCCEEDING ASSESSMENT YEARS THE ASSESSING OFFICER HAS NO T RAISED ANY OBJECTION IN EXCLUDING THE VALUE OF RAW MATERIAL WHICH IS MO RE THAN 6 MONTHS OLD. ALTHOUGH, THE ASSESSEE HAS BEEN CONSISTENT LY FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING STOCK I.E. EXCLUDING THE VALUE OF RAW MATERIAL WHICH IS MORE THAN 6 MONTHS OLD WHILE DETERMIN ING THE VALUE OF CLOSING STOCK, THE COMMISSIONER OF INCOME TAX (APPE ALS) HAS RESTRICTED THE ADDITION TO ` 3,64,990/- BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ALFA LAVA L INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA). IN THE SAI D CASE, THE HONBLE HIGH COURT APPROVED THE METHOD OF VALUATION OF CLOSING STOCK OF OBSOLETE ITEM AT 10% OF THE COST. 11 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 WE DO NOT FIND ANY INFIRMITY IN THE METHOD AND REASONING GIV EN BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN RESTRICTING T HE ADDITION TO ` 3,64,990/-. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT T HE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE. THE LD. DR HAS PRAYED FOR REMITTING THE MATTER BACK TO THE FILE OF ASSESS ING OFFICER FOR EXAMINATION THE DETAILS OF STOCK. WE DO NOT FIND MERIT IN TH E SUBMISSIONS OF THE LD. DR. NO USEFUL PURPOSE WOULD BE SERVE D BY REMITTING THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER HAS ACCEPTED THE METHOD OF VALUATION OF CLOSING STOC K DURING SCRUTINY ASSESSMENT PROCEEDINGS IN THE PRECEDING AND T HE SUCCEEDING ASSESSMENT YEARS. THE ASSESSING OFFICER SHOULD HAVE BEEN CONSISTENT IN DETERMINING THE VALUE OF CLOSING STOCK. NO MATERIAL HAS BEEN PLACED ON RECORD TO SHOW ANY CHANGE IN FACTS AND CIRCUMSTANCE S TO TAKE A DIFFERENT VIEW IN THE IMPUGNED ASSESSMENT YEAR. LACKING ME RIT IN THE SUBMISSIONS OF THE LD. DR ON THE ISSUE, WE DISMISS GROUND NO . 1 RAISED IN APPEAL BY THE DEPARTMENT. 9. GROUND NOS. 2 AND 3 IN APPEAL BY THE DEPARTMENT RE LATES TO DISALLOWANCE OF AMOUNT CONTRIBUTED BY THE ASSESSEE TOWAR DS UNAPPROVED GRATUITY FUND. THE COMMISSIONER OF INCOME TAX (APPEALS) HAD INITIALLY DELETED THE SAID ADDITION. SUBSEQUENTLY, VIDE R ECTIFICATION ORDER DATED 09-11-2015 PASSED U/S. 154 OF THE ACT, THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CLAIM OF THE ASSESSE E WITH RESPECT TO CONTRIBUTION TOWARDS UNAPPROVED GRATUITY FUND. THUS, IN VIEW OF THE SUBSEQUENT ORDER PASSED U/S. 154 OF THE ACT, GROUND NO S. 2 AND 3 OF THE APPEAL HAVE BECOME INFRUCTUOUS. 12 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 10. THE GROUND NO. 4 IN APPEAL BY THE DEPARTMENT RELATE S TO DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES ` 41,74,500/- PAID TO M/S. SRG CONSULTANT PVT. LTD. THE ASSESSEE HAS CLAIMED T HE SAID AMOUNT AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DIS ALLOWED THE CLAIM OF ASSESSEE ON PREMISE THAT THE EXPENDITURE HAS BE EN INCURRED FOR SETTING UP OF NEW LINE OF BUSINESS AND THUS IS CAPITAL IN NATURE. THE ASSESSEE HAS PLACED ON RECORD COPY OF THE AGREEMENT WITH M/S. SRG CONSULTANT PVT. LTD. AT PAGES 66 TO 70 OF THE PAPER BOO K. DURING THE FIRST APPELLATE PROCEEDINGS THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE OBJECTS AND TERMS AND CONDITIONS O F THE AGREEMENT ACCEPTED THE CLAIM OF ASSESSEE. THE OBJECTS AND THE SC OPE OF AGREEMENT HAVE BEEN REPRODUCED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER. A PERUSAL OF THE OBJECTS SHOWS THA T THE ASSESSEE HAD HIRED THE SERVICES OF M/S. SRG CONSULTANT PVT. LTD. TO IMPROVE PROFITABILITY AND GROWTH OF ITS EXISTING BUSINESS. THE STUDY WAS DIRECT ED TO EXPLORE NEW MARKETS FOR ITS EXISTING PRODUCTS AND EXP LORING ACQUISITION OF PHOSPHOROUS PRODUCER CURRENT IN OPERATION. WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE HAS BEEN INCUR RED BY THE ASSESSEE FOR THE EFFICIENT CONDUCT OF ITS PRESENT BUSINESS WITH MORE AWARENESS OF THE COMPETITORS, NEW MARKETS AND THE SOUR CE OF PROCUREMENT OF PRODUCT IN WHICH THE ASSESSEE IS ALREADY DEALING. THE EXPENDITURE WAS NOT INCURRED FOR OPENING ANY NEW LINE OF B USINESS HENCE, THE EXPENDITURE INCURRED IS NOT CAPITAL IN NATURE. WE CONCUR WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE HENCE, GROUND NO. 4 RAISED IN THE APPEAL BY THE DEPARTM ENT IS DISMISSED. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. 13 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 11. NOW, WE PROCEED TO DECIDE THE APPEAL OF THE ASSESSE E. THE SOLITARY ISSUE IN APPEAL IS WITH RESPECT TO DISALLOWANCE OF CO NTRIBUTION ` 7,59,685/- MADE TOWARDS PAYMENTS OF PREMIUM OF GROUP GRA TUITY FUND WITH LIFE INSURANCE CORPORATION OF INDIA. IT IS AN UNDISPUT ED FACT THAT THE ASSESSEE HAS CREATED GRATUITY TRUST AND THE ASSE SSEE HAS BEEN REGULARLY CONTRIBUTING TOWARDS THE FUND FOR THE WELFARE O F ITS STAFF. THE ASSESSEE HAD MADE AN APPLICATION TO THE CONCERNED COMM ISSIONER OF INCOME TAX FOR APPROVAL OF THE FUND WAY BACK ON 15-02-2 000. THE COMMISSIONER OF INCOME TAX NEITHER REJECTED THE APPLICATIO N OF THE ASSESSEE NOR ISSUED ANY LETTER COMMUNICATING APPROVAL OF THE FUND. IN THE MEANTIME THE ASSESSEE STARTED CONTRIBUTING TOWARD S THE SAID GROUP GRATUITY FUND WITH LIC. THE ASSESSING OFFICER GRANTED THE BENEFIT OF CONTRIBUTION TOWARDS THE SAID FUND IN THE ASSESSMENTS MA DE U/S. 143(3) OF THE ACT IN THE EARLIER ASSESSMENT YEARS. IT WAS ONLY IN THE ASSESSMENT YEAR UNDER APPEAL THAT THE CONTRIBUTION MAD E BY THE ASSESSEE TOWARDS THE SAID GROUND GRATUITY FUND WAS DISA LLOWED BY THE ASSESSING OFFICER. THE LD. DR INFORMED THE BENCH THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOW APPROVED TH E GROUP GRATUITY SCHEME FLOATED BY THE ASSESSEE. 12. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF COM MISSIONER OF INCOME TAX VS. JAIPUR THAR GRAMIN BANK (SUPRA) HAS HELD THAT ONCE THE ASSESSEE FULFILLS THE CONDITION LAID DOWN FOR APPROVAL AFTER HAVING CREATED A TRUST WITH LIFE INSURANCE OF INDIA AND THE ASS ESSEE HAS BEEN REGULARLY CONTRIBUTING TOWARDS THE SAID FUND, THE CLAIM OF T HE ASSESSEE CANNOT BE REJECTED ON THE GROUND THAT THE COMMISSIONE R OF INCOME TAX (APPEALS) HAS NOT APPROVED THE FUND. THE ASSESSEE SHOUL D NOT SUFFER FOR INACTION OF THE REVENUE AUTHORITIES. THUS, IN VIEW OF THE FACTS OF THE 14 ITA NOS. 2099/PUN/2014 & 240/PUN/2015, A.Y. 2009-10 CASE AND THE DECISION RENDERED BY THE HONBLE RAJASTH AN HIGH COURT COUPLED WITH THE FACT THAT NOW THE COMMISSIONER OF INCOME TAX HAS APPROVED THE FUND, THE CONTRIBUTION MADE BY THE ASSESS EE TOWARDS GROUP GRATUITY FUND IS ALLOWABLE U/S. 36(1)(V) OF THE ACT. T HE APPEAL OF THE ASSESSEE IS ALLOWED, ACCORDINGLY. 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISS ED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 17 TH DAY OF APRIL, 2017. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 17 TH APRIL, 2017 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-V, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, 5 6 / ASSISTANT REGISTRAR, ,- , / ITAT, PUNE