ACIT 4(2), MUMBAI V. HINDUSTAN ORGANICS CHEMICALS LTD, MUMBAI

ITA 3213/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83490 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: K GOPAL
• Keywords: Question of law; Revenue expenditure; Capital expenditure
• Section: 145; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER . / ITA NO. 3213/MUM./2013 ( / ASSESSMENT YEAR : 2009 10 ) ASSTT. COMMISSIONER OF INCOME TAX 4(2) AAYAKAR BHAVAN, 101, M.K. ROAD MUMBAI 400 020 .. / APPELLANT V/S M/S. HINDUSTAN ORGANIC S CHEMICALS LTD. HARICHANDRAI HOUSE, 81, M.K. ROAD MUMBAI 400 023 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACH2663P / REV E NUE BY : SHRI PITAMBAR DAS / ASSESSEE BY : SHRI K. GOPAL / DATE OF HEARING 31.07.2014 / DATE OF ORDE R 06.08.2014 / ORDER , / PER AMIT SHUKLA , J.M. T HE PRESENT APPEAL HAS BEEN PREFERRED BY REVENUE, C HALLENGING THE IMPUGNED ORDER DATED 13 TH FEBRUARY 213 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) VIII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT M/S. HINDU STAN ORGANICS CHEMICALS LTD. 2 'THE ACT' ) FOR THE ASSESSMENT YEAR 2009 10 , O N THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 9,13,519 OF BOND ISSUE EXPENSES WITHOUT APPRECIATING THE FACT THAT IT HAD BEEN INCURRED FOR RAISING CAPITAL AND HENCE BE TREATED AS CAPITAL EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF 2% OF THE TOTAL VALUE OF RAW MATERIAL, STORES AND SPARES IN CLOSING STOCK MADE U/S 145A ON AC COUNT OF DIRECT EXPENSES LIKE FREIGHT, STORAGE, ETC. 2 . AS REGARDS THE FIRST ISSUE I.E., DISALLOWANCE OF BOND ISSUE EXPENSES OF ` 9,13,519, IT IS SEEN FROM THE MATERIAL PLACED ON RECORD THAT THE ASSESSEE HAS INCURRED BOND ISSUE EXPENSES OF ` 248,98,771 OU T OF WHICH THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 9,13,519, TO THE PROFIT & LOSS ACCOUNT AND THE REMAINING AMOUNT HAS BEEN CARRIED TO SHARE PREMIUM ACCOUNT. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED AS UNDER: DURING THE YEAR, THE ASS ESSEE HAS INCURRED BOND ISSUE EXPENSES OF ` 251812290/ OF WHICH ` 24898771/ WERE DEBITED TO SECURITY PREMIUM ACCOUNT AND FITCH RATING EXPENSES OF BONDS OF ` 913519/ WAS DEBITED TO OTHER EXPENSES. THESE EXPENSES ARE TOWARDS THE BONDS OF ` 100 CRORES WHIC H ARE REDEEMABLE AT END OF ONE YEAR (PLEASE RERER SCHEDULE 4 UNSECURE LOANS TO THE AUDITED BALANCE SHEET. CONSIDERING THE SAME, THE BOND ISSUE EXPENSE OF ` 24898771/ WHICH WERE NOT CLAIMED AS EXPENSES IN PROFIT & LOSS ACCOUNT, THE SAME ARE CLAIMED IN CO MPUTATION OF INCOME. DETAILS OF BOND EXPENSES ARE ENCLOSED . M/S. HINDU STAN ORGANICS CHEMICALS LTD. 3 3 . HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE PURPOSE OF ISSUING BOND IS TO RAISE CAPITAL FOR THE PAYMENT OF LOAN TAKEN IN THE EARLIER YEARS AND, THEREFORE, THE SAME IS IN THE NATURE OF CAPITAL. HENCE, HE DISALLOWED THE SAID CLAIM. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), BESIDES RELYING UPON VARIOUS DECISIONS ALSO, RELIED UPON THE EARLIER YEARS ORDER OF THE LEARNED COMMISSIONER (APPEALS) AS WELL AS THE O RDER OF THE TRIBUNAL ESPECIALLY ORDER FOR THE ASSESSMENT YEAR 2006 07. THE LEARNED COMMISSIONER (APPEALS) ACCEPTED THE ASSESSEES CONTENTION AND FOUND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER YEARS ORDER OF THE TRIBUNAL AND AFTE R RELYING UPON THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 2006 07, DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE AS REVENUE EXPENDITURE. 5 . BEFORE US, BOTH THE PARTIES AGREED THAT THIS ISSUE STANDS COVERED BY IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 07. THE LEARNED COUNSEL FOR THE ASSESSEE MR. K. GOPAL, BROUGHT TO OUR NOTICE THAT THE H IGH COURT HAS ALSO CONFIRMED THIS ORDER OF THE TRIBUNAL IN THE APPEAL FILED BY THE DEPARTMENT IN CIT V/S HINDUSTAN ORGANIC C HEMICALS LTD., ITA NO.399/2012 ORDER PRONOUNCED ON 11 TH JULY 2014. M/S. HINDU STAN ORGANICS CHEMICALS LTD. 4 6 . IN VIEW OF THE AFORESAID SUBMISSIONS AND ALSO THE FACT THAT THE HIGH COURT IS CONFIRMED THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 07 , IN THE FOLLOWING MANNER: 10. AS FAR A S THE SECOND QUESTION IS CONCERNED, WE FIND THAT THE CIT (APPEALS) AS WELL AS THE ITAT MERELY FOLLOWED THE DECISIONS IN THE CASE OF THIS VERY ASSESSEE IN THE PRECEDING YEARS IN DELETING THE DISALLOWANCE OF ` 10,00,300 INCURRED TOWARDS BOND REGISTRATION CHA RGES AND IN VIEW THEREOF, THE ITAT CAME TO THE FINDING THAT THE SAID EXPENDITURE WAS A REVENUE EXPENDITURE AND HENCE ALLOWABLE UNDER SECTION 37(I) OF THE ACT. WE ARE OF THE VIEW THAT THE AFORESAID FINDING OF THE ITAT CANNOT BE IN ANY WAY SAID TO BE VITIATE D ON THE GROUND OF PERVERSITY OR ANY ERROR APPARENT ON THE FACE OF THE RECORD AND THEREFORE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW WHICH NEEDS TO BE ANSWERED BY THIS COURT. THUS, WE AFFIRM THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) F OLLOWING THE ORDER OF THE HIGH COURT . ACCORDINGLY , THE GROUND NO.1, RAISED BY THE DEPARTMENT STANDS DISMISSED. 7 . AS REGARDS THE DISALLOWANCE MADE IN THE CLOSING STOCK OF RAW MATERIAL ON AD HOC BASIS @ 2% MADE UNDER SECTION 145A, THE ASSESSING OFFICER ON A P ERUSAL OF AUDIT REPORT NOTED THAT THE ASSESSEE HAS NOT CONSIDERED THE DIRECT EXPENSES WHILE COMPUTING THE VALUE OF CLOSING STOCK. HE HELD THAT THE RAW MATERIALS ARE REQUIRED TO BE LOADED WITH THE DIRECT EXPENSES LIKE FREIGHT SHORTAGE, ETC., INCURRED ON ACC OUNT OF THE SAME AS NO DETAILS OF DIRECT EXPENSES HAS BEEN FURNISHED, THEREFORE, HE ESTIMATED 2% OF THE TOTAL VALUE OF THE CLOSING STOCK OF RAW MATERIALS AND STORES AND SPARES TO BE REPRESENTING THE M/S. HINDU STAN ORGANICS CHEMICALS LTD. 5 DIRECT EXPENSES INCURRED ON ACCOUNT OF RAW MATERIAL AND A CCORDINGLY AN ADDITION OF ` 54,35,420, WAS MADE IN THE CLOSING STOCK UNDER THE PROVISIONS OF SECTION 145A. 8 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED AS UNDER: THE APPELLANT, VIDE SUBMISSION DATED 05.12.2011, HAD SUBMITTED THAT T HE VALUE OF CLOSING STOCK OF RAW MATERIAL AND STORES INCLUDES FREIGHT CHARGES AND OTHER DIRECT CHARGES INCURRED ON RAW MATERIAL AND STORES. IN SUPPORT OF THE CLAIM; APPELLANT HAS SUBMITTED SAMPLE COPY OF PURCHASE DAY BOOK OF ITEM HAVING PURCHASE VALUE OF ` 3,56,54,540 (INCLUSIVE FREIGHT OF ` 30,260/ ) AND GENERAL LEDGER OF THE SAME ITEM REFLECTING THE CLOSING VALUE OF STOCK AT ` 3,56,54,540 (WHICH IS INCLUSIVE OF FREIGHT). THE SAME COPY IS SUBMITTED AT PAGE NO.7 TO 9. FROM THE ABOVE YOUR HONOURS MAY OBSERVE THAT, THE FREIGHT IS INCLUDED IN THE CLOSING VALUE OF THE STOCK. THEREFORE, THE ADDITION OF ` 54,35,420 TO CLOSING STOCK OF RAW MATERIAL AND STORES AND SPARES IS UNWARRANTED AND REQUIRE DELETION. ALSO, THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY CI T(A) FOR A.Y. 2006 07, 2007 08 AND A.Y. 2008 09. THE COPY OF THE CIT(A) ORDER FOR ASSESSMENT YEAR 2008 09 IS ENCLOSED FOR YOUR REFERENCE AT PAGE NO.10 TO 20. CONSIDERING ABOVE, YOUR HONOURS ARE REQUESTED TO DELETE THE ADDITION U/S 145A OF THE ACT. 9 . THE LE ARNED COMMISSIONER (APPEALS), AFTER FOLLOWING THE EARLIER YEAR ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR VARIOUS EARLIER YEARS, ALLOWED THE ASSESSEES GROUND. 10 . BEFORE US, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THIS ISSUE HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE BY THE TRIBUNAL UPTILL ASSESSMENT YEAR 2008 09. M/S. HINDU STAN ORGANICS CHEMICALS LTD. 6 11 . AFTER CONSIDERING THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS) AND ALSO THE EARLIER YEARS ORDER OF THE TRIBUNAL, WE FIND THAT THIS ISSUE HAS CONSIST ENTLY BEEN ALLOWED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. IN ASSESSMENT YEAR 2008 09, THE TRIBUNAL, VIDE ORDER DATED 9 TH NOVEMBER 2012, ITA NO.7981/MUM./ 2011, HAS DECIDED THE ISSUE IN THE FOLLOWING MANNER: 4. APROPOS GROUND NO.2, IT WAS STATED TO B E COVERED BY THE EARLIER DECISION OF THE TRIBUNAL RENDERED FOR A.Y 2007 - 08. THE FACTS ARE STATED TO BE IDENTICAL. FOR THE SAKE OF CONVENIENCE THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL DATED 13/01/2011 IN ITA NO.2201/MUM/2010 ON THE SIMILAR ISSUE IS REPRODUCED BELOW: 11. GROUND NO.3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS.58,09,097/ - U/S. 145 OF THE ACT. 12. THE AO NOTED THAT THE TAX AUDIT REPORT SHOWED THAT THE ASSESSEE COMPANY HAD NOT CONSIDERED THE DIRE CT EXPENSES WHILE COMPUTING THE VALUE OF CLOSING STOCK. THE AO, THEREFORE, WAS OF THE VIEW THAT SUCH EXPENSES WERE REQUIRED TO BE LOADED WITH FOR VALUING THE CLOSING STOCK AND THE DIRECT EXPENSES, FREIGHT, STORAGE, ETC. WERE INCURRED ON ACCOUNT OF PURCHASE OF RAW MATERIAL. SINCE NO DETAILS OF THE DIRECT EXPENSES HAD BEEN FURNISHED, THE AO ESTIMATED THE DIRECT EXPENSES AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH RESULTED IN TO THE ADDITION OF RS. 58,09,097/ - TO THE CLOSING ST OCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 13. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMITTED THAT THE AO HAD MADE ADDITION OF RS. 58,09,97/ - ON ESTIMATE BASIS TOWARDS THE TRANSPORTATION COST AND OTHER DIRECT COST LIKE FREIGHT, STORAGE AS INCURRED TO CLOSING STOCK OF RAW MATERIALS AND A SPARE PARTS. HE FURTHER SUBMITTED THAT NO M/S. HINDU STAN ORGANICS CHEMICALS LTD. 7 DETAILS WERE ASKED FOR BY THE AO. IT WAS FURTHER SUBMITTED THAT THE VALUE OF CLO SING STOCK OF RAW MATERIALS AND THE STORES WERE RECORDED AT COST INCLUSIVE OF FREIGHT AND TRANSPORTATION. THE AR SUBMITTED THAT THE PURCHASE BOOK AND GENERAL LEDGER OF A PARTICULAR DAY REFLECTS THAT THE PURCHASE IS ACCOUNTED AT RS. 2,90,70,603/ - WHICH IS I NCLUSIVE OF FREIGHT OF RS. 58,850/ - AND THE GENERAL LEDGER REFLECTS THAT THE CLOSING STOCK OF RS. 11,9,27,965/ - IS INCLUSIVE OF FREIGHT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE CIT(A) THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF CIT (A) FOR AY 1999 - 00, 2002 - 03, 2004 - 05 AND 2006 - 07. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER: 4.3 I HAVE CONSIDERED THE FACT. IT IS SEEN THAT THE APPELLANT HAS BEEN VALUING I TS CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF FREIGHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HAVING THE VALUE OF RS. 2.90 CRORE. IT IS FURTHER SEEN THAT THERE IS NO CHANGE IN THE VALUATION OF THE STOCK. I FIND THAT THE V ALUATION METHOD HAS NOT BEEN CHANGED BY THE AO IN PAST YEAR AND THAT NO ADJUSTMENT TO THIS EFFECT WAS MADE IN THE SUBSEQUENT YEAR. THE CLOSING STOCK OF PREVIOUS YEAR WOULD BE THE OPENING IS STOCK OF THE YEAR AND THEREFORE ESTIMATION OF THE STOCK IS NOT JUS TIFIED. FURTHER THE APPELLANT IS CONSISTENTLY FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING STOCK. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF CIT(A) FOR ASSESSMENT YEARS 1999 - 00, 2002 - 03, 2004 - 05 AND 2006 - 07 DATED 17/12/2010. IN VIEW OF THESE FACTS, THE ADDITION MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 14. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 15. THE LEARNED DR BESIDES RELYING UPON THE ORDER OF THE AO SUBMITTE D THAT SINCE NO DETAILS OF DIRECT M/S. HINDU STAN ORGANICS CHEMICALS LTD. 8 EXPENSES FILED BY THE ASSESSEE, THE AO ESTIMATED THE DIRECT EXPENSES AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH IS PROPER AND THE SAME IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145 O F THE ACT. 16. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS SEEN T HAT SINCE NO DETAILS OF THE DIRECT EXPENSES WERE FURNISHED, THE AO ESTIMATED THE DIRECT EXPENSES AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH RESULTED IN TO THE ADDITION OF RS. 58,09,097/ - TO THE CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THE CIT(A) GAVE A FINDING THAT THE APPELLANT HAS BEEN VALUING ITS CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF FREIGHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HAVING THE VALUE OF RS. 2.90 CRORE AND THERE IS NO CHANGE IN THE VALUATION OF THE STOCK. THE CIT(A) HELD THAT THE CLOSING STOCK OF PREVIOUS YEAR WOULD BE THE OPENING IS STOCK OF THE YEAR AND THEREFORE ESTIMATION OF THE STOCK IS NOT JUSTIFIED. THE CIT(A) FINALLY DELETED TH E ADDITION FOLLOWING THE EARLIER ORDERS OF CIT(A) IN ASSESSEES OWN CASE. 5. THE FACTS OF THE PRESENT YEAR ARE SIMILAR. THE A.O APPLIED SECTION 145A OF THE ACT. HE HAS OBSERVED THAT AUDIT REPORT HAS REVEALED THAT ASSESSEE COMPANY DID NOT CONSIDER DIRECT EXPENSES WHILE COMPUTING VALUE OF CLOSING STOCK. ACCORDING TO AO RAW MATERIAL WAS REQUIRED TO BE LOADED WITH THE DIRECT EXPENSES LIKE FREIGHT, STORAGE ETC. INCURRED ON ACCOUNT OF THE SAME. IN ABSENCE OF DETAILS HE ESTIMATED DIRECT EXPENSES TO THE TUNE OF 2% OF THE TOTAL VALUE OF THE CLOSING STOCK OF RAW MATERIAL AND ACCORDINGLY ADDITION OF RS.6,81,25,800/ - WAS MADE WHICH HAS BEEN DELETED BY LD. CIT(A) AS MENTIONED ABOVE. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE FACTS BEING IDENTICAL TO A.Y 20 07 - 08, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF CO - ORDINATE BENCH IN ASSESSEES OWN CASE, WE FIND NO INFIRMITY IN THE RELIEF GIVEN BY THE LD. CIT(A). GROUND NO.2 OF THE REVENUE IS D ISMISSED. M/S. HINDU STAN ORGANICS CHEMICALS LTD. 9 12 . THUS, CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEARS, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE DEPARTMENT AND THE SAME IS DISMISSED. 13 . 1 4 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 6 TH AUGUST 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 6 TH AUGUST 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 6 TH AUGUST 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI