The DCIT(OSD) Circle-8, Ahmedabad V. Voltamp Transformers Ltd., Ahmedabad

ITA 2544/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8498 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 15-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO. 2544/AHD/2014 ( / ASSESSMENT YEAR :2011-12) DY. COMMISSIONER OF INCOME TAX(OSD) CIRCLE 8, AHMEDABAD - 380015 # VS. VOLTAMP TRANSFORMERS LTD. 312 SANMAN II, OPP RELIANCE PETROL PUMP, PRAHLADNAGAR, SATELLITE, AHMEDABAD - 380054 $ # % & # PAN/GIR NO. : AAACV 5048 G ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI PRASOON KABRA, SR. D.R. ($'*) / RESPONDENT BY : SHRI ASHWIN SHAH, C.A. + ,*-. / DATE OF HEARING 12/09/2017 /012*-. / DATE OF PRONOUNCEMENT 26/09/2017 3# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD, DATED 04/06/2014 FOR THE ASSESSMENT YEAR (AY) 2011-12, ON THE FOLLOWING GROUNDS: I. WHETHER THE LD. COMMISSIONER OF INCOME-TAX (APPEALS )-XIV, AHMEDABAD IS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 2 - OF RS.4,23,71,333/- U/S.145A OF THE ACT BY AO ON AC COUNT OF DISALLOWANCE OF CENVAT RECEIVABLE. II. WHETHER THE LD. COMMISSIONER OF INCOME-TAX (APPEALS )-XIV, AHMEDABAD IS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.51,52,843/- MADE BY AO. ON ACCOUNT OF DISALLO WANCE U/S.14A R.W.R. 8D III. WHETHER THE LD. COMMISSIONER OF INCOME-TAX (APPEALS )-XIV, AHMEDABAD IS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.51,52,843/- BEING DISALLOWANCE U/S.14A R.W.R. 8D TO THE BOOK PROFIT COMPUTED U/S.115JB OF THE ACT. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE, DURING THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAD SHOWN THE AMOUNT REC EIVABLE ON ACCOUNT OF UNUTILIZED/CLOSING BALANCE ON ACCOUNT OF MODVAT/ CENVAT CREDIT UNDER LOANS AND ADVANCES AND THE SAME WAS NOT INC LUDED IN THE VALUE OF CLOSING STOCK. SINCE THE PROVISIONS OF SECTION 1 45A OF THE ACT REQUIRES THAT THE TAXES/DUTY/CESS/FEES RELATED TO STOCK NEED TO BE INCLUDED IN THE VALUE OF CLOSING STOCK, SO VIDE ORDER SHEET ENTRY D ATED 20/01/2014, THE ASSESSEE WAS REQUESTED TO EXPLAIN THE REASONS FOR E XCLUSION OF MODVAT/CENVAT FROM CLOSING STOCK AND SHOW CAUSE WHY THE SAME SHOULD NOT BE INCLUDED IN THE VALUE OF CLOSING STOC K AS PER PROVISIONS OF SECTION 145A OF THE ACT. 2.2 IN RESPONSE TO THE SAME THE ASSESSEE VIDE ITS L ETTER DATED 31/01/2014 HAS SUBMITTED AS UNDER : ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 3 - 1. AS PER BALANCE SHEET AS ON 31.03.2011 CENVAT CR EDIT RECEIVABLE IS RS.3,18,09,545 AND SERVICE TAX RECEIVABLE IS RS. 1,05,61,788 UNDER SECTION 145A. IT IS PROPOSED TO ADD THE SAME UNDER SECTION 145A. IN THIS CONNECTION, IT MAY PLEASE BE NOTED THAT AS PER AS-2 ON VALUATION ON INVENTORY, THE PURCHASES ARE DEBITED NET OFF CENVAT AND THE CLOSING STOCK OF RAW MATERIAL AND WIP IS VALUED NET OFF CEN VAT SINCE THE COST OF PURCHASES DOES NOT INCLUDE CENVAT PAID AND THERE FORE, THE CLOSING STOCK IS ALSO VALUED NET OFF CENVAT. THE COMPANY DO ES NOT HAVE ANY STOCK OF FINISHED GOODS AS ON 31 ST MARCH, 2011 AND THEREFORE THERE IS NO QUESTION OF INCLUSION OF CENVAT IN THE STOCK OF FINISHED GOODS. 1.1 THE SAME IS THE CASE WITH SERVICE TAX RECEIVABL E. THIS REPRESENTS THAT THE ASSESSEE HAS PAID EXCESS SERVICE TAX AS AG AINST THE CENVAT CREDIT RECEIVABLE. THE SERVICE TAX RECEIVABLE HAS N OT RELATION WITH THE VALUATION OF CLOSING STOCK AND THEREFORE THE SAME S HOULD NOT BE ADDED UNDER SECTION 145A. 1.2 IT MAY PLEASE FURTHER BE NOTED THAT CENVAT CRED IT RECEIVABLE AND SERVICE TAX RECEIVABLE ARE NOT THE INCOME OF THE AS SESSEE AND THEREFORE IT CANNOT BE ADDED [CIT VS. INDO NIPPON CHEMICALS L TD 261ITR 275 (SUPREME COURT)]. 1.3 THE ASSESSEE FURNISHED THE AUDIT REPORT UNDER S ECTION 44AB ALONG WITH ANNEXURE TO THE ASSESSING OFFICER. THE COPY OF RECONCILIATION STATEMENT TO SHOW THAT THE EXCLUSIVE METHOD FOLLOWE D IS REVENUE NEUTRAL IS ENCLOSED. 1.4 FURTHER, THE UNUTILIZED BALANCE OF CENVAT IS NO T AN INCOME AND IS USED AGAINST EXCISE DUTY PAYABLE IN THE SUBSEQUENT YEAR AND THEREFORE THE SAME CANNOT BE TREATED AS INCOME. THE DETAILS O F THE CENVAT CREDIT UTILIZED IS GIVEN IN SCHEDULE 6 TO THE TAX AUDIT RE PORT. IT MAY ALSO BE NOTED THAT THE COST OF RAW MATERIAL DEBITED TO PROF IT & LOSS ACCOUNT DOES NOT INCLUDED EXCISE DUTY PAID ON PURCHASES AND THEREFORE THE QUESTION OF INCLUSION OF UNUTILIZED EXCISE DUTY IN THE CLOSING STOCK DOES NOT ARISE. 1.5 THEREFORE CENVAT CREDIT RECEIVABLE [WHICH INCL UDES SERVICE TAX RECEIVABLE] CANNOT BE CONSIDERED AS INCOME AS HELD BY SUPREME COURT ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 4 - IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS LTD 261 ITR 275 (SUPREME COURT), IT WAS HELD AS UNDER:-'HELD (I) TH AT MERELY BECAUSE THE MODVAT CREDIT WAS AN IRREVERSIBLE CREDIT AVAILA BLE TO MANUFACTURES UPON PURCHASE OF DUTY PAID RAW MATERIAL AND THAT WO ULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED UNDER THE ACT: INCOME WAS NOT GENERATED TO THE EXTENT OF THE MODVAT CREDIT ON UNC ONSUMED RAW MATERIAL AND (II) THAT IT WAS NOT PERMISSIBLE FOR T HE AO TO ADOPT THE GROSS METHOD FOR VALUATION OF RAW MATERIALS AT THE TIME OF PURCHASE AND THE NET METHOD FOR VALUATION OF STOCK ON HAND.' THE ABOVE REFERRED JUDGMENT WAS DELIVERED PRIOR TO INSERTION OF SECTION 145A BUT THE PRINCIPLES LAID DOWN A VERY IMPORTANT. IT HAS LAID DOWN THAT IF THERE IS CENVAT CREDIT RECEIVABLE, IT CANNO T BE CONSIDERED AS INCOME. 1.6 THE ATTENTION IS DRAWN TO THE RECENT GUJARAT HI GH COURT JUDGEMENT IN THE CASE OF ACIT VS. NARMADA CHEMATUR PETRO CHEM ICALS LTD 372 ITR 369 (GUJ). THE HIGH COURT HAS OBSERVED AS UNDER : 'ACCORDING TO THE SETTLED LEGAL POSITION AND ACCEPT ED PRINCIPLES OF ACCOUNTING, CLOSING STOCK HAS TO BE VALUED, AT THE OPTION OF THE ASSESSEE, AT COST OR MARKET PRICE, WHICHEVER IS LOWER. DUTY O F CENTRAL EXCISE IS LEVIED ON THE GOODS MANUFACTURED I.E. EXCISABLE GOO DS MANUFACTURED BY AN ASSESSEE. IT IS NOT A PART OF MANUFACTURING COST . IT CAN BE TERMED A POST MANUFACTURING COST. THEREFORE, UNLESS AND UNTI L IT IS ENTERED ON ONE SIDE, AS AN ITEM OF COST, IT CANNOT BE TAKEN AS A C OMPONENT OF THE VALUE OF THE CLOSING STOCK ON THE OTHER SIDE. THE TRUE PU RPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THO SE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT' 1.7 THE GUJARAT HIGH COURT HAS FOLLOWED THE PRINCIP LE LAID DOWN BY THE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS CIT 24 ITR 481 AND THE SAID PRINCIPLES ARE REITERATED BY SUPREME C OURT IN THE CASE OF CIT VS. HINDUSTAN ZINC LTD. 291 ITR 391. THE PRINCI PLES ARE REPRODUCED ON PAGE NO. 377 IN PARA NO. 16 OF THE RE PORT. THE ABOVE REFERRED PRINCIPLES THAT IF THERE IS NO DEBIT THAT THERE IS NO CREDIT ARE AFFIRMED BY SUPREME COURT IN THE CASE OF CIT VS. DY NAVISION LTD 348 ITR 380. ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 5 - 1.8 IT MAY PLEASE BE NOTED THAT THE CIT(A) HAS DELE TED THE ABOVE REFERRED ADDITION FOR AY. 2009-10. THE ITAT, AHMEDA BAD IN PARA NO.7.1 ON PAGE NO.8 HELD AS UNDER: ' IN RESULT, ON THE SAME LINES WE DEEM IT PROPER TO RESTORE THIS GROUND BACK TO THE S TAGE OF THE AO TO VERIFY THE FACTS AS ALSO THE ACCOUNTING POLICY ADOP TED BY THE ASSESSEE IN RESPECT OF MODVAT/CENVAT INCENTIVES AND IF FIND ACC ORDING TO THE LAW LAID DOWN, THAN NOT TO DISTURB THE METHOD OF ACCOUNTING OF THE ASSESSEE IN THIS REGARD. WE DIRECT ACCORDINGLY. THIS GROUND MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE.' 1.9 THE KIND ATTENTION IS DRAWN TO PARA NO.12(B) OF THE 3CD REPORT UNDER SECTION 44AB WHICH IS REPRODUCE FOR READY REF ERENCE: 'EXCISE/VAT PAID ON INPUT IS SET OFF AGAINST THE EX CISE PAYABLE ON FINISHED GOODS AND NO PORTION OF EXCISE/VAT PAID ON INPUT IS DEBITED TO P&L ACCOUNT, AND HENCE SUCH EXCISE /VAT IS NOT CONS IDERED FOR THE PURPOSE OF VALUATION OF CLOSING STOCK' 2.3 ASSESSEES SUBMISSION WERE CONSIDERED CAREFULLY BUT NOT FOUND ACCEPTABLE BY THE LEARNED AO AND ADDITION OF RS.4,2 3,71,333/- WAS MADE U/S.145A OF THE ACT. 2.4 LD. CIT(A) HELD THAT THE IT MAY PLEASE BE NOTE D THAT THE CIT(A) HAS DELETED THE ABOVE REFERRED ADDITION FOR A.Y. 20 09-2010. THE ITAT, AHMEDABAD IN PARA NO. 7.1 ON PAGE NO.8 HELD AS UNDE R: 'IN THE RESULT, ON THE SAME LINES WE DEEM IT PROPER TO RESTORE THIS GROUND BACK TO THE STAGE OF THE AO TO VERIFY THE FACTS AS ALSO THE ACCOUNTING POLICY ADOPTED BY THE ASSESSEE IN RESPECT OF MODVAT /CENVAT INCENTIVES AND IF FIND ACCORDING TO THE LAW LAID DOWN, THAN NO T TO DISTURB THE METHOD OF ACCOUNTING OF THE ASSESSEE IN THIS REGARD . WE DIRECT ACCORDINGLY. THIS GROUND MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE.' ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 6 - THE CIT(A) HAS ALSO FOLLOWED THE ABOVE REFERRED ITA T ORDER FOR A.Y. 2009-2010 WHILE PASSING THE ORDER FOR A.Y. 2010-201 1 AND DELETED THE ADDITION. THE COPY OF CIT(A) ORDER FOR A.Y. 2010-20 11 IS ENCLOSED. 2.5 THE KIND ATTENTION IS DRAWN TO PARA NO. 12(B) O F THE 3CD REPORT UNDER SECTION 44AB WHICH IS REPRODUCED FOR READY RE FERENCE: 'EXCISE / VAT PAID ON INPUT IS SET OFF AGAINST THE EXCISE PAYABLE ON FINISHED GOODS AND NO PORTION OF EXCISE / VAT PAID ON INPUT IS DEBITED TO P & L A/C. AND HENCE SUCH EXCISE / IS NOT CONSIDERE D FOR THE PURPOSE OF VALUATION OF CLOSING STOCK.' 2.6 FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE I S COVERED BY ITAT ORDER AND HAS FULFILLED THE REQUIREMENTS OF ITAT OR DER FOR A.Y.2009-10 AND ALSO CIT(A) ORDER FOR A.Y. 2010-11 THEREFORE FO R A.Y.2011-12 THE APPEAL SHOULD BE ALLOWED AND THAT THERE IS NEED TO GIVE ANY DIRECTION TO THE AO. 2.7 IN OUR OPINION, THIS ISSUE IS COVERED BY THE IT AT ORDER DATED 22/03/2013 IN ITA NO.1676/AHD/2012 PARA NO.7.1 ON P AGE NO.8 AND PARA NO.6.3 OF AO ON PAGE NO.14 IT IS STATED THAT A O HAS VERIFIED THE REVENUE NEUTRAL STATEMENT AND IN THE MATTER OF CIT VS. INDO NIPPON CHEMICALS LTD.261 ITR 275. IT IS HELD THAT MODVAT R ECEIVABLE IS NOT INCOME. IN THE RESULT, THIS GROUND OF DEPARTMENT IS DISMISSED. 3. INTEREST EXPENSES DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IS NIL. THE DISALLOWANCE ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 7 - UNDER RULE 8D(2)(III) WORKS OUT TO BE RS.51,52,843/ -, BEING 0.5% OF AVERAGE INVESTMENT (BEING RS.103,05,68,638/-) AND T HE DISALLOWANCE U/S.14A OF THE ACT AS COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WORKS OUT TO RS.66,98,32 3/-. HOWEVER, SINCE RS.15,45,480/- HAS ALREADY BEEN DISALLOWED TOTAL DI SALLOWANCE COMES TO RS.51,52,843/-. HENCE THE SAID SUM OF RS.51,52,843/ - IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. IN THIS, LD. CIT DE CIDED GROUND IN FAVOUR OF THE ASSESSEE. 3.2 WE HAVE GONE THROUGH THE RELEVANT RECORD AND NO TICED THAT THERE IS AN INTEREST FREE FUND ON THE FORM OF CAPITAL & RESE RVE IS AS UNDER: CAPITAL : RS.10.12 CRORE RESERVE : RS.363.50 CRORE INVESTMENT IN MUTUAL FUND AS ON 31/03/2011 IS 41.08 CRORE ON PAGE NO.4 OF THE AO. THE ASSESSEE IS COVERED BY CIT VS. TORRENT POWER LTD. 363 ITR 474 (GUJ.). THE ASSESSEE HAS SUO MOTO ADDED EXPENDITURE OF RS.1 5,45,480/- RELATING TO EXEMPT INCOME UNDER SECTION 14A AS PER STATEMENT OF INCOME. 4. SO FAR GROUND NO.3 IS CONCERNED REGARDING ADDITI ON U/S.14A OF THE 51,52,843/- WHILE COMPUTING BOOK PROFIT U/S.115JB. LEARNED AO HELD THAT CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2 ) OF THE ACT IS SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE. THEREFORE, THE AMOUNT DISALLOWED U/S.14A R.W.R 8D NEEDS TO BE ADDED TO THE BOOK PROF IT U/S.115JB OF THE ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 8 - ACT. THEREFORE, THE TOTAL ADDITION OF RS.51,52,843/ - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4.2 AGAINST THE SAID ORDER, WHEN MATTER CAME BEFORE THE CIT(A) WHO PARTLY ALLOWED THIS GROUND OF THE ASSESSEE. 4.3 IN OUR CONSIDERED OPINION, THIS CASE IS COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, CIT VS. GUJARAT STAT E FERTILIZERS & CHEMICALS LTD. [2013] 36 TAXMANN.COM 230 (GUJARAT). HONBLE HIGH COURT HELD THAT, AS UNDER: SECTION 37(1), R.W.S. 28(IV) AND 41(1), OF THE INCO ME-TAX ACT, 1961 BUSINESS EXPENDITURE ALLOWABILITY OF [CORPORATE D EBT RESTRUCTURING EXPENSES] ASSESSMENT YEAR 2004-05 WHETHER, WHER E ASSESSEE INCURRED EXPENDITURE ON PAYMENT TO FINANCIAL CONSUL TANTS, WHO NEGOTIATED WITH BANKS AND FINANCIAL INSTITUTIONS IN CONNECTION WITH SCHEME OF CORPORATE DEBT RESTRUCTURING, FOR WAIVER OF INTEREST, SAME WAS ALLOWABLE AS REVENUE EXPENDITURE, AND WAS NOT CAPIT AL IN NATURE HELD, YES WHETHER, PRINCIPAL AMOUNT OF LOAN WAIVED WAS NOT TAXABLE UNDER SECTION 41(1) OR 28(IV) AS THERE HAD BEEN NO ALLOWA NCE OR DEDUCTION OF SUCH AMOUNT IN ANY PRECEDING YEAR HELD, YES [PARA S 4.3 & 5.5][IN FAVOUR OF ASSESSEE] 4.4 HOWEVER, SUFFICIENT INTEREST FREE FUND CAPITA L AND RESERVE RS.373.62 CRORE AGAINST INVESTMENT OF RS.41.08 CROR E AND SAME IS MENTIONED AT PAGE NO.4 OF THE AO. 5. THEREFORE, RESPECTFULLY FOLLOWING THE JURISDICTI ONAL HIGH COURT ORDER, WE DISMISS THIS GROUND OF THE DEPARTMENT. ITA NO.2544/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2011-12 - 9 - 6. IN THE RESULT APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26 / 09 /201 7 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/09/2017 PRITI YADAV, SR.PS !'#$ %$' # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-XIV, AHMEDABAD. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. & / BY ORDER, (9-- //TRUE COPY// '/ () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 18-09-2017 (DICTATION-PAD 5 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25/09/2017 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER