The DCIT, Circle 3(1)(1), Ahmedabad V. M/s. Patel Alloy Steel Pvt. Ltd., Ahmedabad

ITA 2817/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8482 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 26-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Maximum Marginal Rate

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 2817/AHD/2016 (ASSESSMENT YEAR: 2013-14) DCIT, CIRCLE-3(1)(1), AHMEDABAD APPELLANT VS. M/S. PATEL ALLOY STEEL (P) LTD., 297/300, PHASE-II, GIDC, VATVA, AHMEDABAD RES PONDENT PAN: AABCP2984J / BY REVENUE : SHRI PRASOON KABRA, SR. D.R. / BY ASSESSEE : SMT. URVASHI SHODHAN, A.R. /DATE OF HEARING : 19.04.2018 /DATE OF PRONOUNCEMENT : 19.04.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2013-14 AR ISES AGAINST THE CIT(A) - 9, AHMEDABADS ORDER DATED 03.08.2016, IN C ASE NO. CIT(A)- 9/364/DCIT-CIR-3(1)(1)/15-16, IN PROCEEDINGS U/S. 1 43(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. ITA NO. 2817/AHD/2016 [DCIT VS. M/S. PATEL ALLOY ST EEL (P) LTD.] A.Y. 2013-14 - 2 - 2. THE REVENUES FIRST GRIEVANCE IN THE INSTANT APPE AL IS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING SECTION 4 0A(2)(B) DISALLOWANCE OF RS.3,98,31,244/- QUA THE ASSESSEES REMUNERATION PA ID TO ITS DIRECTORS WITH THE FOLLOWING DETAILED DISCUSSION: 4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS, CASE LAW RELIED UPON AS WELL AS THE OBSERVATIONS MADE BY THE A.O. IN THE ASSESSMENT ORDER. IT IS OBSERVED THAT A.O. HAS MADE AN ADDITION OF RS.3,98, 31,244/- ON ACCOUNT OF DISALLOWANCE OF REMUNERATION PAID TO DIRECTORS U/S. 40A(2) OF THE ACT. A.O. HAS OBSERVED THAT THERE HAS BEEN EXTRA ORDINARY INCREAS E IN THE SALARY PAID TO SHRI K.H. JAVERI AND SHRI ABHISHEK K. JAVERI OVER THE YE ARS. WITH REGARD TO THIS INCREASE IN THE SALARY OF DIRECTORS RIGHT FROM F.Y. 2003-04 THE A.O. HAS MENTIONED AT PARA 4.2 THAT ON SIMILAR GROUND, THE A DDITIONS HAVE BEEN MADE DURING A.Y. 2008-09 AND A.Y. 2009-10 WHEREIN THE IS SUE HAD BEEN DISCUSSED AT LENGTH. FURTHER A.O. HAS ALSO OBSERVED THAT THE APPELLANT HAS NOT CLAIMED THAT THERE IS IMPROVEMENT, MODIFICATION OR ALTERATI ON IN THE SERVICES BEING RENDERED BY THE DIRECTORS IN EARLIER YEARS AS COMPA RED TO RELEVANT A.Y. FURTHER, THERE IS NO EVIDENCE TO SHOW THAT QUALIFIC ATIONS OF THESE DIRECTORS HAVE BEEN IMPROVED WITH THE DETAILS OF REASONING GI VEN BY THE A.O. AT PARA 4.5 OF THE ORDER. DURING THE APPELLATE PROCEEDINGS APPE LLANT HAS SUBMITTED THAT IN EARLIER YEAR SUBSTANTIAL RELIEF HAVE BEEN GRANTED A GAINST ADDITION MADE U/S.40A(2) OF THE ACT BY THE THEN CIT(A). APPELLANT FURTHER POINTED OUT THAT HON'BLE ITAT, BENCH: 'C', AHMEDABAD IN ITA NO.857 & 1213/AHD/2012 DTD.8/4/2016 IN APPELLANT'S OWN CASE FOR A.Y. 2008- 09 HAS DEALT WITH THE ISSUE OF ADDITION MADE U/S.40A(2) OF THE ACT AT PARA 11 & 12 BY HOLDING AS UNDER: '11. LD. AUTHORIZED REPRESENTATIVE STATES THAT THE THERE IS NO DISPUTE ABOUT GENUINENESS OF THE IMPUGNED REMUNERATIONS. IT 'S A QUESTION OF EXCESSIVE ELEMENT THEREIN. IT IS SUBMITTED THAT ASS ESSEE'S PAYEES/DIRECTOR HAVE ALREADY PAID TAXES THEREUPON A T THE MAXIMUM MARGINAL RATE. THE ASSESSES EXPLAINS THAT THE IMPUG NED BENCHMARKING HAS BEEN DRAWN W.E.F. FINANCIAL YEAR 2003-04 AND NO T FROM PRECEDING ASSESSMENT YEAR. AND THAT NO COMPARABLE INSTANCE HA S BEEN QUOTED AS WELL IN THE LOWER ORDER EXCEPT FOLLOWING INFLATION I.T.A NOS. 1961,857,1213,2617,2921 & CO 210/AHD/2012 A.Y. 2004 -05, 08-09 & 09-10 PAGE NO ACIT VS. M/S. PATE/ ALLOY STEEL PVT. LTD 11 RATE @ 10% (SUPRA). CASE LAW OF (2014) 45 TAXMAN.COM 478 (GUJ) CIT VS. INDU NISAAN OXO CHEMICAL INDUSTRIES LTD. UPHOLDING TRIBU NAL'S FINDING THAT WHERE THE COMPANY LAW BOARD HAS ALREADY AUTHORIZED SUCH REMUNERATION AND RECIPIENT PAID TAXES AT MAXIMUM RA TE DOES NOT RESULT IN SECTION 40A(2)(B) DISALLOWANCE: IS CITED IN SUPP ORT. LD. DR REPRESENTING REVENUE PRAYS FOR RESTORATION OF THE E NTIRE DISALLOWANCE FIGURE. ITA NO. 2817/AHD/2016 [DCIT VS. M/S. PATEL ALLOY ST EEL (P) LTD.] A.Y. 2013-14 - 3 - 12. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R IVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE ASSESSING OFFICER HAS COMPARED THE IMPUGNED REMUNERATION WITH THAT PAID I N FY 2003-04. HE GIVES ANNUAL 10% INCREASE. WE FIND THIS APPROACH TO BE ENTIRELY UNSUSTAINABLE. ASSESSEE'S REMUNERATIONS IN PRECEDIN G ASSESSMENT YEARS ALREADY STAND ACCEPTED. THERE IS NO JUSTIFICATION T O DRAW THE CLOCK BACK TO FINANCIAL YEAR 2003-04 IN SUCH A CASE. WE FURTHE R DO NOT NOTICE COMPARISON OF THE IMPUGNED REMUNERATION VIS-A-VIS M ARKET RATE EITHER IN ASSESSMENT OR IN THE LOWER APPELLATE ORDER SO AS TO POINT OUT ANY EXCESSIVENESS ELEMENT. HON'BLE JURISDICTIONAL HIGH COURT IN ITS DECISION HEREINABOVE HAS ALREADY HELD THAT SECTION 40A(2)(B) DISALLOWANCE IS NOT TO BE INVOKED WHEN THE PAYEES ALREADY STAND ASS ESSED AT MAXIMUM RATE. THE CENTRAL BOARD OF DIRECT TAXES HAS ALSO IS SUED A CIRCULAR ON 06-07-1968 DIRECTING THE ASSESSING AUTHORITY NOT TO INVOKE THE IMPUGNED DISALLOWANCE IN ABSENCE OF ANY TAX E/ASION BEING NOTICED. WE QUOTE ALL THIS REASONING FOR ACCEPTING ASSESSEE' S ARGUMENTS AGAINST THE IMPUGNED SECTION 40A(2)(B) DISALLOWANCE. THE RE VENUE'S CORRESPONDING GROUND IS REJECTED. THE I.T.A NDS. 1961,857,1213,2617,2921 & CO 210/AHD/2012 A.Y. 2004 -05, 08-09 & 09-10 PAGE NO ACIT VS. M/S. PATEL ALLOY STEEL PVT. LTD 12 ASSESSING OFFICER IS DIRECTED TO DELETE THE ENTIRE DISALLOWANCE SUM OF RS.3,21,96,741/-.' RESPECTFULLY FOLLOWING THE ORDER OF HON'BLE ITAT, B ENCH: 'C', AHMEDABAD THE A.O. IS DIRECTED TO DELETE THE ADDITI ON OF RS.3,98,31,244/-. THUS THIS GROUND OF APPEAL IS ALLOWED. 3. BOTH THE LEARNED REPRESENTATIVES REITERATE THEIR RESPECTIVE PLEADINGS DURING THE COURSE OF HEARING. SUFFICE TO SAY, IT H AS COME ON RECORD THAT THIS TRIBUNAL HAS ALREADY ADJUDICATED THE VERY ISSUE IN ASSESSEES FAVOUR IN SAID EARLIER ASSESSMENT YEARS (SUPRA). THERE IS NO DIST INCTION ON FACTS OR LAW INDICATED AT THE REVENUES BEHEST DURING THE COURSE OF HEARING. LEARNED COUNSEL INFORMS US THAT A CO-ORDINATE BENCH IN ASSE SSMENT YEAR 2012-13 HAS ALSO FOLLOWED THE SAID EARLIER FINDINGS IN ITS ORDE R DATED 15.01.2018. ITS COPY IS PLACED ON RECORD AT THE ASSESSEES BEHEST. WE THUS ADOPT JUDICIAL CONSISTENCY TO AFFIRM CIT(A)S ORDER UNDER CHALLENGE IN THE IMPU GNED ASSESSMENT YEAR AS WELL. THE REVENUE FAILS IN ITS FORMER SUBSTANTIVE G ROUND. 4. REVENUES LATTER SUBSTANTIVE GROUND SEEKS TO REV IVE ADDITION OF RS.27,78,369/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF RE-VALUATION OF ITA NO. 2817/AHD/2016 [DCIT VS. M/S. PATEL ALLOY ST EEL (P) LTD.] A.Y. 2013-14 - 4 - STOCK U/S.145A OF THE ACT HAS DELETED IN COURSE OF THE LOWER APPELLATE PROCEEDINGS AS FOLLOWS: 5.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS, CASE LAW RELIED UPON AS WELL AS THE OBSERVATIONS MADE BY THE A.O. IN THE ASSESSMENT ORDER. IT IS OBSERVED THAT A.O. HAD MADE AN ADDITION OF RS.27,78 ,369/- ON ACCOUNT OF INCORRECT VALUATION OF CLOSING STOCK U/S.145A OF TH E ACT. THE A.O. HAS OBSERVED AT PARA 5.1 OF THE ORDER THAT IN A.Y. 2009 -10 TO A.Y. 2012-13 ADDITIONS HAVE BEEN MADE BY ADDING AMOUNT OF UNUTIL IZED CENVAT TO THE CLOSING STOCK OF THE ASSESSEE AND TREATING THE SAME AS THE INCOME OF THE ASSESSEE. DURING THE APPELLATE PROCEEDINGS APPELLAN T HAS SUBMITTED THAT HON'BLE ITAT, BENCH: 'C', AHMEDABAD HAS CONSIDERED THE SAME ISSUE IN ITS OWN CASE FOR A.Y. 2008-09 VIDE ITA NO.857 & 1213 AT PARA 25 ON PAGE 26 OF THE SAID ORDER BY HOLDING AS UNDER: 25. THE REVENUE STRONGLY SEEKS TO RESTORE ASSESSING OFFICER'S FINDINGS. LD. AUTHORIZED REPRESENTATIVE POINTS OUT THAT THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING MEANING THER EBY THAT IF THE IMPUGNED ADDITION IS RESTORED, IT WOULD BE AGAIN A REVENUE NEUTRAL ACTION AS HELD IN THE LOWER APPELLATE FINDINGS. HE QUOTES HON'BLE JURISDICTIONAL HIGH COURT DECISION IN TAX APPEAL NO . 436 AND 437/2011 CIT VS. BELL GRANITO CERAMICA DATED 13-06-2012 FOLL OWING ITS EARLIER JUDGMENT ACIT VS. NARMADA CHEMATOR PETRO-CHEMICALS LTD. (2010) 233 CTR 265 (GUJ) REJECTING REVENUE'S SUBSTANTIAL Q UESTION FRAMED IN CHALLENGING TRIBUNAL'S ORDER THAT NO SUCH ADDITION COULD BE MADE ON ACCOUNT OF EXCISE DUTY TO CLOSING STOCK UNLESS A BA LANCING I.T.A NOS.1961,857,1213,2617,2921 & CO 210/AHD/2012 A.Y. 2004-05, 03- 09 & 09-10 PAGE NO ACIT VS. M/S. PATEL ALLOY STEEL PVT. LTD 27 DEDUCTION IS ALLOWED IN P & L ACCOUNT. AND ALSO THA T IF CENTRAL EXCISE DUTY IS NOT DUE AND PAYABLE, THE SAME CANNOT BE CON SIDERED AS COST TO RAW MATERIAL AS WELL AS FINISHED GOODS APPEARING IN THE CLOSING STOCK. LD. DR FAILS IN POINTING OUT ANY EXCEPTION TO THIS PRINCIPLE. WE FOLLOW THE SAME FOR UPHOLDING THE LOWER APPELLATE FINDINGS UNDER CHALLENGE. THIS THIRD SUBSTANTIVE GROUND IS ALSO DECLINED. REV ENUE'S APPEAL ITA 1213/AHD/2012 IS DISMISSED. IN A.Y. 2008-09 TNE ADDITION OF RS.47,41,915/- WAS MADE BY THE A.O. BY ADDING CENVAT VALUE PAID ON RAW MATERIAL IN ITS CLO SING STOCK. CIT(A) HAS DELETED THE SAID ADDITION. AS MENTIONED ABOVE AT PA RA 25, HON'BLE ITAT HAS UPHELD THE DECISION OF CIT(A). RESPECTFULLY FOLLOW ING THE ORDER OF HONBLE ITAT, A.O. IS DIRECTED TO DELETE THE ADDITION OF RS .27,78,369/- MADE U/S.145A OF THE ACT. THUS, GROUND NOS. 2 & 3 ARE HEREBY ALL OWED. 5. BOTH THE LEARNED REPRESENTATIVES INDICATE DURING THE COURSE OF HEARING THAT THE ASSESSEE HAD SUCCEEDED ON THE VERY ISSUE I N PRECEDING ASSESSMENT YEAR ITA NO. 2817/AHD/2016 [DCIT VS. M/S. PATEL ALLOY ST EEL (P) LTD.] A.Y. 2013-14 - 5 - 2012-13 AS WELL (SUPRA). THE CIT(A) APPEARS TO HAVE FOLLOWED THIS TRIBUNALS ORDER IN ASSESSMENT YEAR 2008-09. IT THUS EMERGES THAT THE INSTANT ISSUE IS BEING DECIDED IN ASSESSEES FAVOUR SINCE THERE IS N O CHANGE IN CASE SO FAR AS THE RELEVANT RE-VALUATION OF STOCK IS CONCERNED. WE TH EREFORE AFFIRM THE CIT(A)S FINDINGS QUA THE INSTANT ISSUE AS WELL. 6. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 19 TH DAY OF APRIL, 2018.] SD/- SD/- (PRAMOD KUMAR) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD: DATED 19/04/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ()*+ ,--. ./0 / DR, ITAT, AHMEDABAD 1+23 / GUARD FILE. BY ORDER / . // ./0