M/s. Panax Appliances Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 2847/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80384 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Assessee Lawyers: ABH AV DESAI
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 2847 / AHD/ 20 1 2 (A SSESSMENT YEAR: 2008 - 09) PENAX APPLIANCES PVT. LTD. 8 J.P. NAGAR, OLD PADRAROAD, BARODA 390015 V/S THE ACIT, CIRCLE - 4, BARODA (APPELLANT) (RESPONDEN T) PAN: AABCP 8171B APPELLANT BY : SHRI ABH AV DESAI, A.R. RESPONDENT BY : SHRI B. KULSHRESTHA, D.R. ( )/ ORDER DATE OF HEARING : 27 - 08 - 2014 DATE OF PRONOUNCEMENT : 19 - 09 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - III, BARODA DATED 13.9.2012. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE MANUFACTURING AND TRADI N G OF TORCHES AND ARTICLES AND JOB WORK. . ASSESSED FILED HIS RETURN OF INCOME FOR A.Y. 08 - 09 ON 08.09.2009 DECLARING TOTAL INCOME AT RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 22 .10.2010 AND TOTAL INCOME WAS DETERMINED BEFORE ADJUSTMENT OF UNABSORBED DEPRECIATION WAS RS. 33,67,487/ - . AGGRIEVED BY THE ORDER OF A.O, ASSESSE E ITA NO 2847/AHD/2012 . A.Y. 2008 - 09 2 CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 13.09.2012 GRANTED PARTIAL RELIEF TO THE ASSESSED. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSED IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LEARNED ASSESSING OFFICER HAD DISALLOWED AND THE HON'BLE CIT(A) HAS CONFIRMED AN AMOUNT OF RS 7536691 - BEING INTEREST ACCRUED BUT NOT DUE FOR P AYMENT BY THE ASSESSEE AS PER THE AGREEMENT WITH THE SWAMINARAYAN BANK AND HENCE NOT PAID BEFORE THE DUE DATE OF FILLING OF RETURN OF INCOME. YOUR APPELLANT SUBMITS THAT THE SAME IS NOT JUSTIFIED AND THEREFORE BE DELETED. 2. THE HON' BLE CIT (A) HAS CONFIRMED THE ADDITION OF RS 16016/ - OUT OF TOTAL REPAIR EXPENSES OF RS 160156/ - BEING DEBITED TO PROFIT & LOSS ACCOUNT. YOUR APPELLANT SUBMITS THAT AD HOC DISALLOWANCE OF 10% WITHOUT ANY MATERIAL ON RECORD IS NOT JUSTIFIED AND HENCE SHOULD BE DELETED. 3. THE LEARNED A SSESSING OFFICER HAD ADDED RS 1512415/ - ON ACCOUNT OF UNDER VALUATION OF CLOSIN G STOCK WHICH WAS CONFIRMED BY HON BLE CIT (A). YOUR APPELLANT SUBMITS THAT VALUATION OF CLOSING STOCK IS AS PER AS 2 PRESCRIBED BY THE ICA1 AND HENCE SUCH VALUATION SHOULD BE A CCEPTED AS CORRECT AND THE ADDITION MADE ON THIS GROUND SHOULD BE DELETED. WHILE THE LEARNED H ON'BLE CIT (A)OVERLOOKS THE WRONG VALUATION MADE BY ASSESSING OFFICER, WHERE IN SMALL ITEMS OF TORCHES AND LARGE ITEMS OF TORCHES WERE VALUED AT SAME PRICE ALTHOU GH DETAILED VALUATION OF EAC H HAND EVERY PART OF TORCH WAS SUBMITTED AS PER EXCISE RECORDS. GROUND NO. 1 IS WITH RESPECT TO DISALLOWANCE OF RS. 7,53,699 U/S 43B. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT THERE WAS INCREASE IN THE CLOSING BALANCE OF RS. 7,53,699 LOAN PAYABLE TO SWAMINARAYAN CO - OP. BANK LTD AND IT WAS ON ACCOUNT OF INTEREST ACCRUED BUT NOT PAID. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY INTEREST ACCRUED AND NOT PAID BE DISALLOWED U/S 43B OF THE ACT. THE ASSESSEE I NTERALIA SUBMITTED THAT SWAMI NARAYAN CO - OP. BANK LTD HAS CEAS ED TO EXIST AND THE LIQUIDATOR HAS BEEN APPOINTED. FURTHER AS PER THE AGREEMENT ENTERED BY THE ASSESSEE WI TH SWAMINARAYAN CO - OP. BANK LTD, I NTEREST WAS NOT PAYABLE IMMEDIATELY BUT WAS PAYABLE ONL Y AFTER THE PRINCIPAL REPAYMENT. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE CONSIDERED THE AMOUNT OF INTEREST ACCRUED BUT NOT PAID TO BE NOT ALLOWABLE U/S. 43B AND ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O, ASSESSED CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER: - 2.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT. WHE T HER THE PAYMENT IS MADE TO THE BANK OR THE LIQUIDA T OR WILL NO T MAKE ANY DIFFERENCE IN APPLICABILITY OF SECTION 43B. ONCE THE APPELLANT HAS DEBITED THE INTEREST TO ITS PROFIT AND LOSS ACCOUNTS, IT WILL BE ALLOWED ONLY AS PER THE PROVISIONS OF SECTION 4 3 B AND HENCE THE A.O HAS RIGHTL Y DISALLOWED THIS CLAIM. EVEN IF T HE CONTENTIONS OF THE APPELLANT ARE ACCEPTED, THE AMOUNT WILL NOT BECOME ALLOWABLE AS PER APPELLANTS OWN SUBMISSIONS THAT IT HAS NOT ACCRUED FOR PAYMENT. HENCE THE DISALLOWANCE MADE BY THE A. O IS JUSTIFIED. ITA NO 2847/AHD/2012 . A.Y. 2008 - 09 3 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, ID. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER SUBMITTED THAT SHRI SWAMINARAYAN CO - OP. BANK LTD HAS NOT BEEN NOTIFIED AS A S CHEDULE BANK BY RESERVE BANK OF INDIA AND THEREFORE THE PROVISIONS OF SECTION 43B(E) ARE NOT APPLICABLE TO THE ASSES S EE. HE FURTHER SUBMITTED THAT AS PER THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE CO - OP. BANK , THE INTEREST BECAME PAYABLE ONLY AFTER THE PRINCIPAL REPAYMENT WAS MADE AND THEREFORE THE INTEREST ACCRUE D BUT DID NOT BECOME PAYABLE UNDER THE YEAR UNDER REVIEW. THE ID. A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE A CLAIM OF EXPENDITURE ONLY IN THE F.Y. 2012. THE ID. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVA L SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, ID. A.R. HAS SUBMITTED THAT SWAMINARAYAN CO - OP. BANK L TD. HAS NOT BEEN NOTIFIED AS A S CHEDULE BANK BY RBI AND THEREFORE THE PROVISIONS OF SECTION 43B ARE NOT APPLICABLE TO IT. HE ALSO PLACED RELI ANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UPENDRA KAPADIA REPORTED IN 2013 30 TAXMANN. COM. 203 (BOM). HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. IT HAS BEEN FURTHER SUBMITTED THAT AS PER THE AGREEMENT ENTER ED BY THE ASSESSEE WITH THE CO - OP. BANK , THE INTEREST WAS PAYABLE ONLY AFTER THE ENTIRE PRINCIPAL AMOUNT HAS BEEN REPAID AND THEREFORE THOUGH ACCRUED BUT WAS NOT PAYABLE IN THE YEAR UNDER REVIEW. BEFORE US REVENUE HAS NOT BEEN BROUGHT ANY MATERIAL ON RECO RD TO CONTROVERT THE AFORESAID SUBMISSIONS OF THE ASSESSEE. WE FUR T HER FIND THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UPENDRA KAPADIA (SUPRA) HAS HELD THAT NON PAYMENT OF INTEREST ON L OAN TAKEN FROM A CO - OP. BANK WILL NOT ATTRACT DISALLOWANCE U /S 43B. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO DISALLOWANCE U/S 43B CAN BE MADE IN THE PRESENT CASE. WE ACCORDINGLY DIRECT ITS DELETION. ITA NO 2847/AHD/2012 . A.Y. 2008 - 09 4 GROUND NO. 2 WAS NOT PRESSED AND THEREFORE DISMISSED AS NOT PRESSED. GROUND NO. 3 IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 8. DURING THE COURSE OF ASSESSMENT PROCEEDING S, A.O NOTICED THAT ASSESSEE HAS NOT VALUED THE STOCK AT THE COST PRICE. HE NOTICED VARIOUS DISCREPANCY IN THE STATEMENT SUBMITTED BY THE ASSESSEE. HE ACCORDINGLY WORKED OUT THE UNDER VALUATION OF CLOSING STOCK MADE BY THE ASSESSEE TO THE EXTENT OF RS. 15,12,415/ - AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) CONFIRMED THE ORDER OF A.O BY HO LDING AS UNDER: - 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE AR OF THE APPELLANT. THE MAIN CONTENTION OF THE APPELLANT IS THAT THE VALUATION OF COMPONENTS BF104, FF124 ETC. SHOULD NOT BE DONE AS A SINGLE ITEM BUT SHOULD BE DONE B Y ADDING UP THE VALUE OF COMPONENTS CONSTITUTING THESE ITEMS. ACCORDINGLY, THE APPELLANT HAS ALSO SUBMITTED A VALUATION OF THESE COMPONENTS ON THE BASIS OF THE COST OF THE COMPONENTS CONSTITUTING THEM. A COMPARISON OF THE VALUATION MADE BY THE AO WHICH HAS BEEN ANNEXED TO THE ASSESSMENT ORDER AND THE VALUATION DONE BY THE APPELLANT SHOWS THAT THERE IS DIFFERENCE IN VALUATION OF CLOSING STOCK ONLY. EXCEPT THIS, ALL OTHER FIGURES ARE SAME IN BOTH THE COMPUTATIONS EXCEPT THAT THE AO HAS ALSO COMPUTED VALUES PE R UNIT ALSO WHICH HAS NOT BEEN DONE BY THE APPELLANT IN ITS COMPUTATION. WHEN THE VALUE PER UNIT AS COMPUTED BY THE AO IS SEEN, THEN IT IS FOUND THAT THE APPELLANT HAS TAKEN THE VALUE OF CLOSING STOCK AT MUCH LESSER VALUE THAN THE VALUE PER UNIT OF OPENING STOCK, PURCHASES AND CONSUMPTION COMPUTED ON THE BASIS OF APPELLANT'S OWN DATA. FOR READY REFERENCE SUCH COMPUTATION IS GIVEN BELOW : PARTICULARS VALUE PER UNIT OF OPENING STOCK VALUE PER UNIT OF PURCHASES VALUE PER UNIT OF CONSUMPTION VALUE PER UN IT OF CLOSING STOCK P P REPOT 49.77 81.30 0.07 7.37 ABS 72.73 110.52 319.95 8.00 P.P.C.P. - MI 3530 62.67 85.86 83.63 40.58 MASTER BATCH 135.46 188.26 196.39 134.56 BF - 104 1,16 3.75 2.72 0.83 FF124 0.90 3.07 2.91 0.7 4 FF134 2.44 4.02 3.88 1.86 PF125 1.1 1.69 L 1.36 1.26 ITA NO 2847/AHD/2012 . A.Y. 2008 - 09 5 THUS THIS COMPUTATION SHOWS THAT THE APPELLANT HAS GROSSLY UNDERVALUED ITS CLOSING STOCK. IN MANY ITEMS, THE CLOSING STOCK HAS BEEN VALUED PER UNIT AT A LOVER VALUE THAN THE PURCHASES. THE APPELLANT HAS FAILED TO FURNISH ANY EXPLANATION IN THIS REGARD, EXCEPT AS MENTIONED ABOVE REGARDING THE COMPONENTS OF THE COMPONENTS. SUCH EXPLANATIONS ARE CONTRADICTORY TO THE VALUATION MADE BY THE APPELLANT OF ITS OPENING STOCK, PURCHASES AND CONSUMPTIONS. THE AO HAS RIGHTLY OBSERVED THAT THE APPELLANT HAS NEITHER VALUED THE STOCK AT COST PRICE OR AT MARKET PRICE. HENCE THE AO HAS VALUED THESE ITEMS AT THE PURCHASE PRICE AS SHOWN BY THE APPELLANT IN ITS OWN UNDER T HESE CIRCUMSTANCES, I FIND NOTHING WRONG IN THE COMPUTATION MADE BY THE A. O FOR EVALUATING THE CLOSING STOCK. AS A RESULT THIS GROUND OF APPEAL IS DISMISSED. 9. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, ID. A.R. REI TERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE IS ENGAGED IN MANUFACTURING VARIETI ES OF TORCHES AND IT IS MANUFACTURED BY ASSEMBLING THE COMPONENTS SOURCE D FROM VARIOUS SUPPLIERS. THE CLOSING STOCK REPRESENTS VARIETY OF COMPONENTS LYING IN STOCK PENDING THEIR INDUCTION IN THE ASSEMBLY LINE. HE FUR T HER SUBMITTED THAT THE COMPONENTS HAVE BEEN GROUPED IN THE MAIN CATEGORY OF FINISHED PRODUCTS NAMELY BF - 104, FF - 124 ETC. FOR THE PURPOSE OF INCLUSION OF THE DATA IN THE TAX AUDIT REPORT STOCK OF THESE ITEMS WITH THEIR VALUES WERE GROUPED UNDER THE 14 CATEGORIES OF RESPECTIVE FINISHED PRODUCTS AND OTHER RAW MATERIALS IN ITS CATEGORIES FOR THE PURPOSE OF CONVENIENCE AND DISCLOSURE. HE FURHER SUBMITTED THAT FOR VALUATION OF STOC K ASSESSEE HAD APPLIED LAST PURCHASE PRICE (NET OF TAX) ON THE CLOSING INVENTORY AS PER THE METHOD CONSISTENTLY FOLLOWED AND ACCORDINGLY THE OPENING STOCK HAD ALSO BEEN VALUED IN SIMILAR MANNER. HE ALSO PLACED ON RECORD, THE WORKING OF THE STATEMENT, RAW M ATERIALS AT PAGE 21 TO 26 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE A.O HAD MISUNDERSTOOD EACH OF THE 23 CATEGORY CONTAINING AS RAW MATERIALS AS SPECIFIC ITEMS AS NOT A GROUP OF ITEMS COMBINED THERE UNDER. HE FURTHER SUBMITTED THAT A.O DERIVED THE A VERAGE COST BY DIVIDING YEARLY PURCHASE QUANTITY FROM YEARLY PURCHASE VALUE T HOU GH ASSESSEE HAD STATED THAT IT HAS CONSIDERED THE LAST PURCHASE PRICE FOR VALUATION. HE THEREFORE SUBMITTED THAT A.O HAD ERRED IN PRESUMING THE VALUE OF COMPONENTS HAVE BEEN ID ENTICAL VALUE AND APPLYING THE AVERAGE RATES SO DERIVED AND IN THE PROCESS MADE AN ADDITION OF RS. 15,12,415/ - . HE FUR T HER PLACED THE COPY OF THE PF121 0.26 0.59 0.53 0.23 ITA NO 2847/AHD/2012 . A.Y. 2008 - 09 6 WORKING OF VALUATION OF STOCK. THE ID. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF A.O. AND CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSE E IS MANUFACTURING VARIOUS TYPES OF TORCHES. ON BEHALF OF ASSESSEE, LD. A.R. HAS ALSO PLACED ON RECORD THE VARIOUS COMPONENTS WHICH GOES INTO THE MAKI NG O F TORCH AND ITS VALUATION AND CONSU MPTION THEREOF, G IVING THE VALUE OF STOCK PURCHASES CONSUMPTION ETC. THE ASSESSEE HAS ALSO SUBMITTED THE DETAILED WORKING OF THE CLOSING STOCK OF RANDOM BASIS OF A FEW ITEMS . BEFORE US, REVENUE HAS NOT POINTED OUT ANY MIS TAKE IN THE VALUATION OF STOCK MADE BY THE ASSESSEE. FURT H ER IT HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE S UBMISSIONS OF THE ASSESSEE ABOUT THE CONSISTENT METHOD OF VALUATION STOCK FOLLOWED BY ASSESSEE . IN VIEW OF THE AFORESAID FACTS, W E ARE OF THE VIEW THAT NO ADDITION ON ACCOUNT OF STOCK COULD BE MADE IN THE PRESENT CASE. WE ACCORDINGLY DELETE THE ADDITION MADE BY THE A.O. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRON OUNCED IN OPEN COURT ON 19 - 0 9 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH C OPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD