SHV ENERGY LPG INFRASTRUCTURE P.LTD, GUJRAT V. DCIT CUR RG 10(2), MUMBAI

ITA 2581/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6715 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Valuation report
• Section: 27

Judgement Text

1 ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR , AM & SHRI VIJAY PAL R AO, JM ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) SHV ENERGY LPG INFRASTRUCTURE P LTD SURVEY NO.074 NAR SUBHASH NAGAR JAWAHAR VILLAGE PORBUNDER 360 575 GUJARAT VS THE DY COMMR OF INCOME TAX CIR.RANGE 10(2) MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAAC11502Q ASSESSEE BY SHRI NIMESHVORA REVENUE BY SHRI C K G NAIR PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22.1.2010 OF THE CIT(A) ARISING FROM OF THE PENALTY ORDER U/S 27 1(1)( C) FOR THE AY 2004-05. 2 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE COMP ANY HAS AN LPG TERMINAL AND STORAGE FACILITIES AT PORBANDAR. THESE FACILITIES ARE USED BY THE IMPORTERS OF LPG AND THE ASSESSEE RECEIVED BY WAY OF SERVICE CHARGES ON SUCH FACILITIES. THE ASSESSEE CONSTRUCTED THE STORAGE FACILITY DURING THE ASST YEAR 2000-0. FOR THE PURPOSE OF CONSTRUCTION OF THE FACILITY, THE ASSESSEE HAD IMPO RTED MATERIAL AND A SUM OF RS.33,73,30,052/- WAS CAPITALIZED DURING THE YEAR 2000-01 AND THE BALANCE 2 ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) UNUTILISED MATERIAL WERE HELD IN THE BALANCE SHEET AS STORES AND SPARES. DURING THE YEAR 2003-04 THE COMPANY HAD MADE PROVISION OF RS. 8,76,863/- UNDER THE HEAD PROVISION FOR SLOW/NON- MOVING STOCK. THIS PROVISIO N HAS BEEN CREATED BY DEBITING INTO P&L ACCOUNT. IN THE AY 2004-05 THIS PROVISION WAS ENHANCED BY A SUM OF RS. 8,15,000/- . THUS, THE TOTAL PROVISIONS COME TO RS. 16,91,824/-. THE ASSESSING OFFICER NOTED THAT THE PROVISION WAS MADE ON THE GROUND THA T THERE IS NO MOVEMENT OF THE SAID MATERIALS IN THE LAST THREE YEARS. HOWEVER, T HE TOTAL STORES OF SPARES WRITTEN OFF BY THE ASSESSEE IS RS. 8,76,863/- ONLY AND THE A MOUNT OF RS. 8,15,000/- DEBITED IN THE P&L ACCOUNT FOR AY 2004-05 IS MERELY A PROVISIO N. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE AND MA DE THE ADDITION OF RS. 8,15,000/- ON THIS ACCOUNT. PENALTY PROCEEDINGS U/S 271(1)( C ) WERE INITIATED AND A PENALTY OF RS. 3 LACS WAS IMPOSED VIDE ORDER DATED 31.3.2009. 3 ON APPEAL THE CIT(A) HAS CONFIRMED THE PENALTY LE VIED BY THE ASSESSING OFFICER . 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AND THE L D DR AND CONSIDERED THE RELEVANT RECORDS. IT IS TO BE NOTED THAT THE DISALL OWANCE MADE BY THE ASSESSING OFFICER IS ON THE GROUND THAT THE ASSESSEE MADE ONL Y A PROVISION OF THIS AMOUNT WITHOUT ACTUALLY WRITTEN OFF AND THEREFORE, THE AS SESSEE HAS WRONGLY DEBITED P&L ACCOUNT BY THE PROVISION ACCOUNT WITHOUT WRITING OFF OF THE SAME. THE CIT(A) IN QUANTUM APPEAL RECORDED THE FACTS IN PARA 3.2 A UNDER: 3.2 FROM THE ABOVE FACTS, TWO THINGS BECOME CLEAR. FIRST, THAT THE STORES AND SPARE, SHOWN IN THE BALANCE SHEET FOR THE AY 200 0-01, WAS AS A RESULT OF 3 ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) CONVERTING THE CAPITAL WORK-IN-PROGRESS INTO STORES A ND SPARES. TWO, IN THE FY 02-03 & 3-04, A PROVISION WAS CREATED FOR NON-MOVING STORES AND SPARES, BY DEBITING THE P&L ACCOUNT. THESE PROVISIONS WERE CREATE D ON THE PRINCIPLE THAT THERE WERE NO MOVEMENTS OF THESE SPARES IN THE L AST THREE YEARS. IN THE FY 2004-05, THE TOTAL STORES AND SPARES WERE ACTUALLY WR ITTEN OFF BY DEBITING THE PROVISION ACCOUNT TO THE STORES AND SPARES AND BY W RITING OFF THE BALANCE AMOUNT I.E. RS. 61,784/-. HENCE, IT IS QUITE CLEAR T HAT IN THE AY 03-04 AND 04-05 THERE WAS NO ACTUAL WRIT-OFF, BUT ONLY THE CREATION OF A PROVISION. UNDER THE PROVISIONS OF THE I T ACT, ONLY A DETERMINED LIABIL ITY IS ALLOWED AS AN EXPENSE. IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO SHOW T HAT THE LIABILITY HAS ACTUALLY ACCRUED DURING THE CURRENT YEAR. THERE IS NO VALUATION REPORT AVAILABLE WITH THE APPELLANT, OF ANY INDEPENDENT VALUER, TO SHOW T HAT THESE STORES AND SPARES HAD ACTUALLY BECOME OBSOLETE. 4.1 IT IS CLEAR FROM THE ORDER OF THE CIT(A) THAT THE DEPARTMENT HAS ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF THE AMOUNT WHICH WAS WRITTEN OFF BY THE ASSESSEE AND THE BALANCE WAS DISALLOWED BEING ONLY THE PROVISION. THE CIT(A) HAS CONCLUDED HIS FINDINGS IN PARA 3.5 OF THE QUANTUM APPEAL AS UNDER: 3.5 FROM THE ABOVE PROVISIONS OF THE ACCOUNTING S TANDARDS, IT IS QUITE CLEAR THAT MACHINERY SPARES, SPECIFIC TO PARTICULAR MACHINE RY, SHOULD B CAPITALIZED. THE COST OF SUCH SPARES IS TO BE WRITTEN OFF OVER ITS USEFUL LIFE. ONLY WHEN THESE SPARES ARE DISCARDED OR SOLD, THE WRITTEN DOWN VALUE OF SUCH SPARES, MINUS THE DISPOSAL VALUE, SHOULD BE WRITTEN OFF TO THE P&L ACC OUNT. IN THE INSTANT CASE THE SPARES HAVE BEEN ACTUALLY SOLD/WRITTEN OFF IN T HE ASSESSMENT YEAR 2005-06. HENCE, ANY WRITE OFF, AS PER ACCOUNTING STANDARDS, SHO ULD BE MADE IN THE AY 2005-06. 4.2 FROM THE ORDER OF THE CIT(A) IN QUANTUM APPEAL, IT IS MANIFEST THAT THE SAID STORES WERE ACTUALLY SOLD AND THE AMOUNT IN QUESTIO N HAS BEEN WRITTEN OFF IN AY 2005-06. IN VIEW OF THE FACTS, THE DISALLOWANCE IS MADE ON THE BASIS THAT THE ASSESSEE MADE A PROVISION OF REST OF THE NON MOVING STORES AND SPARES WITHOUT ACTUALLY WRITING OFF OF THE SAME DURING THE YEAR UN DER CONSIDERATION, WHICH WAS FINALLY WRITTEN OFF IN THE AY 2005-06. THEREFORE, THE CLAIM OF THE ASSESSEE CANNOT BE HELD AS ABSOLUTELY WRONG OR BOGUS. RATHER, IT CANN OT BE RULED OUT THAT THE CLAIM OF 4 ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) THE ASSESSEE IS BONAFIDE AND THE SAME CANNOT BE TER MED AS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME WHEN THE ASSESSEE DISCLOSED THE PRIMARY FACTS REGARDING THE PROVISION FOR NON MOVING STORES AND SPARES. OUT OF THE TOTAL CLAIM, A PART HAS BEEN ALLOWED BY THE DEPARTMENT TO THE EXTENT WHICH WAS ACTUALLY WRITTEN OFF AND THE BALANCE WAS DISALLOWED WHICH WAS UNDISPUTEDLY WRITTEN OFF IN THE AY 2005-06. THEREFO RE, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE DISALLOWANCE OF THE CLAIM OF THE ASSESSEE ON THE GROUND THAT MA KING PROVISIONS WITHOUT ACTUAL WRITTEN OFF DURING THE YEAR BUT IN THE NEXT YEAR W OULD NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. ACCORDINGLY, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS RELIANCE PETROPRODUCTS LTD REPORTED IN 322 ITR 158, THE PENA LTY LEVIED BY THE LOWER AUTHORITIES IS NOT JUSTIFIED IN THE CASE OF THE ASSESSEE; ACCOR DINGLY, THE SAME IS CANCELLED. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 22 ND DAY OF JULY 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:22 ND JULY 2011 RAJ* 5 ITA NO. 2581/MUM/2010 (ASST YEAR 2004-05 ) COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI