THE ACIT, 3(1), V. M/S TESLA TRANSFERMERS,

ITA 267/IND/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6071 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: ANIL KHAA
• Section: 43B; 143(3)

Judgement Text

PAGE 1 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : AABCT1005C I.T.A.NO.267/IND/2008 A.Y. : 2005-06 ACIT, M/S. TESLA TRANSFORMERS, 3(1), VS 30-B, INDUSTRIAL AREA, BHOPAL. GOVINDPURA, BHOPAL APPELLANT RESPONDENT APPELLANT BY : SMT. APARNA KARAN, SR. DR RESPONDENT BY : SHRI ANIL KHABYA, C. A. DATE OF HEARING : 27/01/2010 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDE R OF THE LD. CIT(A)-II, BHOPAL, DATED 24.03.2008, FOR THE ASSESS MENT YEAR 2005-06. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. IN GROUND NOS. 1 & 2, THE REVENUE IS AGGRIEVED BY T HE DECISION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF R S. 6,67,239/-MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FABRICATION CHA RGES PAID BY THE ASSESSEE TO SISTER CONCERN M/S. NEW ERA ENTERPRISES . PAGE 2 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL 4. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS CARRYING ON BUSINESS OF MANUFACTURING OF TRANSFORMERS. THE ASSE SSEE COMPANY HAD PAID RENT OF RS. 2 LAKHS TO ITS SISTER CONCERN M/S. NEW ERA ENTERPRISES DURING THE YEAR UNDER CONSIDERATION . THE ASSESSEE COMPANY HAD ALSO PAID LABOUR CHARGES OF RS. 6,67,239/- TO ITS SISTER CONC ERN M/S. NEW ERA ENTERPRISES AS FABRICATION CHARGES DURING THE YEAR. VIDE NOTICE DATED 15.11.2007, THE ASSESSEE WAS REQUIRED TO FURNISH A COPY OF THE RENT AGREEMENT, WHICH WAS FILED ON 12.12.2007, WHICH SHO WED THAT M/S. NEW ERA ENTERPRISES HAD LEASED OUT THEIR ENTIRE FACTORY PREMISES AT 23-B, INDUSTRIAL AREA, GOVINDPURA, BHOPAL, ALONGWITH ALL MACHINERY TO THE ASSESSEE COMPANY. FURTHER, BY ORDER SHEET ENTRY DA TED 12.12.2007, THE ASSESSEE COMPANY WAS REQUIRED TO CLARIFY THE PREMIS ES FROM WHICH NEW ERA ENTERPRISES WAS OPERATING AND THE MACHINERY THE Y WERE USING FOR JOB WORK WHEN ENTIRE FACTORY AND MACHINES HAD ALREADY B EEN RENTED TO THE ASSESSEE COMPANY. IN REPLY DATED 14.12.2007, IT HA D BEEN STATED THAT THE ENTIRE FACTORY AND MACHINE OF NEW ERA ENTERPRISES W AS BEING USED BY THE ASSESSEE COMPANY. NO REPLY TO THE SPECIFIC QUERY RE GARDING PREMISES AND MACHINERY USED BY THE NEW ERA ENTERPRISES HAD BEEN GIVEN. THE A.O. NOTICED THAT THE M/S. NEW ERA ENTERPRISES DID NOT W ORK FOR ANY CONCERN OTHER THAN THE ASSESSEE COMPANY, THE SISTER CONCERN DID NOT HAVE ANY TAXABLE INCOME DURING THE ASSESSMENT YEAR UNDER CON SIDERATION AND HAD PAGE 3 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL NOT PAID ANY TAX AND THE SISTER CONCERN SHOWED ITS ADDRESS AS 23-B, INDUSTRIAL AREA, GOVINDPURA, BHOPAL, IN ITS RETURN OF INCOME AND PREMISES LEASED OUT TO THE ASSESSEE COMPANY. THE A.O. REACHE D TO THE CONCLUSION THAT M/S. NEW ERA ENTERPRISES DID NOT HAVE THE RESO URCES FOR CARRYING OUT FABRICATION WORK FOR THE ASSESSEE COMPANY AND MEREL Y DIVERGING ITS PROFITS BY SHOWING PAYMENT OF FABRICATION CHARGES T O ITS SISTER CONCERN. THE ARRANGEMENT WAS DESIGNED TO AVOID TAX DUE WAS C LEAR. THE A.O. DISALLOWED THE LABOUR CHARGES OF RS. 6,67,239/- AS NOT BEING GENUINE. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN THE DETAILED SUBMIS SIONS WERE MADE WITH REGARD TO ALLOWABILITY OF THIS CLAIM PARTICULARLY I N VIEW OF THE FACT THAT IN ASSESSMENT YEAR 2002-03 AND 2004-05, THE A.O. HAD A LLOWED SIMILAR CHARGES IN ASSESSMENTS FRAMED U/S 143(3) OF THE ACT . THE LD. CIT(A) AGREEING WITH THESE SUBMISSIONS DELETED THE DISALLO WANCE. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE AS UNDER :- I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE L D.AUTHORIZED REPRESENTATIVE AND REASONS GIVEN BY THE ASSESSING O FFICER FOR MAKING THE ADDITION. I FIND FORCE IN THE ARGUMENTS OF LD.AUTHORIZED REPRESENTATIVE. THE A.O. HAS ACCEPTED THE PART OF TRANSACTION AND HAS GIVEN THE FINDING THAT THE SIST ER CONCERN HAS WORKED EXCLUSIVELY FOR THE APPELLANT AND THE SISTER CONCERN HAS PAGE 4 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL NOT TAXABLE INCOME. I HAVE ALSO EXAMINED THE AUDITE D ACCOUNTS OF THE SISTER CONCERN AND FIND THAT THE CHARGES OF FAB RICATION PAID BY THE APPELLANT ARE JUST SUFFICIENT TO MEET THE WAGE COST OF THE SISTER CONCERN. THE WORKERS OF THE SISTER CONCERN W ERE COVERED BY PROVIDENT FUND AND ESI AUTHORITIES. THE SISTER CONC ERN HAS MORTGAGED ITS ENTIRE BUSINESS APPARATUS FOR THE BEN EFIT OF APPELLANT. THESE PAYMENTS HAVE BEEN ALLOWED IN PAST AFTER SCRUTINY AND THERE IS NO CHANGE IN THE FACTS AND CI RCUMSTANCES OF THE CASE THIS YEAR. IN THESE CIRCUMSTANCES, THE ADD ITION OF RS. 6,67,239/- IS MISCONCEIVED AND IS SET-ASIDE. THIS G ROUND IS DECIDED IN FAVOUR OF APPELLANT AND AS SUCH, IT IS A LLOWED. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 7. IT IS NOTED THAT IN TWO PREVIOUS ASSESSMENT YEARS A ND TWO SUBSEQUENT YEARS UNDER THE SAME SET OF FACTS, NO SU CH DISALLOWANCE HAS BEEN MADE. HENCE, FOR THIS REASON ALONE, THE ACTION OF THE A.O. IS NOT JUSTIFIED IN LAW. APART FROM THIS, THE LD. CIT(A) H AS ALSO EXAMINED THE FACTS BEFORE DELETING SUCH DISALLOWANCE MADE BY THE ASSESSING OFFICER AND NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE REVENUE IN SUPPORT OF ALLEGATIONS MADE BY THE DEPARTMENT IN THE GROUN DS OF APPEAL. HENCE, PAGE 5 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL IN OUR VIEW, THESE FINDINGS OF THE FACTS REMAIN DIS PUTED. IN THIS VIEW OF THE MATTER, WE DISMISS BOTH THESE GROUNDS OF THE RE VENUE. 8. GROUND NO. 3 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON A CCOUNT OF INCREASE IN VALUE OF CLOSING STOCK AT RS. 18,93,249 AND NOT MAKING SIMULTANEOUS ADJUSTMENT FOR PROVISION OF EXC ISE RS. 18,93,249/- AND NOT MAKING SIMULTANEOUS ADJUSTMENT FOR PROVISION OF EXCISE DUTY WITHOUT APPRECIATING THE F ACT THAT THE A.O. HAD CATEGORICALLY MENTIONED IN THE ASSESSM ENT ORDER THAT ADEQUATE BALANCE IN PERSONAL LEDGER ACCO UNT IS NOT RELEVANT BECAUSE ASSESSEE HAD ALREADY CLAIMED T HE EXPENDITURE FOR PAYMENT OF EXCISE DUTY IN THE SUBSE QUENT ASSESSMENT YEAR AND IT CANNOT ARGUE THAT THE EXPEND ITURE WAS ALLOWABLE IN THE YEAR UNDER CONSIDERATION . 9. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY HAD NOT INCLUDED THE EXCISE DUTY IN THE VALUATION OF CLOSIN G STOCK. THIS FACT WAS MENTIONED IN THE NOTES TO ACCOUNTS AS WELL AS THE A SSESSEES REPLY. AS PER THE PROVISIONS OF SECTION 145A, THE INVENTORY SHOUL D BE ADJUSTED BY THE AMOUNT OF EXCISE DUTY AND THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE AMOUNT OF EXCISE DUTY ON FINISHED GOODS MAY NOT BE ADDED TO THE PAGE 6 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL CLOSING STOCK. IN REPLY, THE ASSESSEE ACCEPTED THAT THE EXCISE DUTY ON STOCK OF FINISHED GOODS SHOULD HAVE BEEN ADDED WHILE VALU ING CLOSING STOCK OF FURNISHED GOODS. THE ASSESSEE FURTHER CONTENDED THA T THERE WOULD BE NO EFFECT ON THE PROFITS OF THE ASSESSMENT YEAR IN QUE STION SINCE THERE WAS ADEQUATE BALANCE IN ITS PERSONAL LEDGER ACCOUNT WIT H THE EXCISE DEPARTMENT TO COVER THE EXCISE DUTY ON FINISHED GOO DS STOCK. THE A.O. DID NOT ACCEPT THE ASSESSEES EXPLANATION AND HELD THAT AS PER THE REQUIREMENT OF SECTION 145A, EXCISE DUTY WAS TO BE INCLUDED IN STOCK OF FINISHED GOODS AS ON 31.3.05 AND THERE WILL BE A NE T EFFECT ON PROFIT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BY WAY OF I NCREASE IN VALUE OF CLOSING STOCK. HENCE, THE EXCISE DUTY AT 16.32 % ON FINISHED GOODS STOCK OF RS. 1,16,00792/- WORKED OUT TO RS. 18,.93,249/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 10. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE AND ANALYZING THE FACTUAL MATRIX DELETED T HE DISALLOWANCE, SO MADE BY THE ASSESSING OFFICER. RELEVANT FINDINGS OF THE LD. CIT(A) RE AS UNDER :- I HAVE CONSIDERED THE ARGUMENTS OF THE LD. AR AND REASONS GIVEN BY THE ASSESSING OFFICER IN MAKING THE ADDITI ON. I AGREE WITH THE ARGUMENT OF LD. AUTHORIZED REPRESENT ATIVE PAGE 7 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL THAT ONCE EXCISE DUTY IS ADDED AS COST OF FINISHED GOODS, CORRESPONDING LIABILITY WOULD BE REQUIRED TO BE CRE ATED AS ON 31.03.2005 AND THERE WOULD BE NO EFFECT OF TAXABLE PROFIT. THIS PROVISION OF DUTY HAS TO BE PAID BEFORE FILING THE RETURN WITHIN PRESCRIBED TIME. THE APPELLANT HAS PAID RS. 10,77,576/- BEFORE FILING THE RETURN AND THE SAME I S ALLOWABLE U/S 43B. SO FAR AS BALANCE AMOUNT OF RS. 8,15,673/- IS CONCERNED, RESPECTFULLY FOLLOWING DECISION OF HON'B LE PUNJAB & HARYANA HIGH COURT THE SAME IS ALSO ALLOWA BLE SINCE THIS AMOUNT IS ALSO COVERED BY THE FREE ADVA NCE AVAILABLE IN RG23 PART II REGISTER. THE ENTIRE ADD ITION OF RS. 18,93,249/- IS SET-ASIDE. THIS GROUND IS DECIDE D IN FAVOUR OF APPELLANT. THESE GROUNDS ARE ALSO DECIDED IN FAV OUR OF APPELLANT AND AS SUCH, THEY ARE ALLOWED. 11. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 12. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 13. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. PAGE 8 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL 14. IT IS NOTED THAT PROVISIONS OF SECTION 145A ARE MAN DATORY, HENCE, NECESSARY ADJUSTMENTS IN THE VALUE OF CLOSIN G STOCK HAS TO BE CARRIED OUT. HOWEVER, CONSEQUENTLY, THE INCOME HAS TO BE COMPUTED AFTER GIVING EFFECT TO THE PROVISIONS OF SECTION 43B OF T HE ACT, AND IN THAT VIEW OF THE MATTER, THE ADJUSTMENT IN THE VALUE OF CLOSI NG STOCK BY THE AMOUNT OF EXCISE DUTY OF ONE HAND AND SUBSEQUENT DEDUCTION OF SUCH EXCISE DUTY U/S 43B OF THE ACT, WOULD NOT RESULT INTO ANY ADDIT ION TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION . ACCORDI NGLY, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THIS A DDITION. THUS, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY, 2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 5 TH FEBRUARY , 2010. CPU* 281.2 PAGE 9 OF 9 I.T.A.NO. 267/IND/2008 M/S. TESLA TRANSFORMERS, BHOPAL