DCIT CIR 6(1), MUMBAI V. BHARAT BIJLEE LTD, MUMBAI

ITA 3217/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3242 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR PRABHAKAR REDDY
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Capital asset; Rule of consistency; Earning of tax free income; Question of law; Capital expenditure
• Section: 43B; 14A; 145; 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,MUMBA I BENCH B, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3217/MUM/2013 ASSESSMENT YEAR: 2009-10 DCIT. CIR. 6(1), ROOM NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-20 VS. M/S BHARAT BIJLEE LTD. 6 TH FLOOR, ELECTRIC MANSION, APPASAHEN MARATHA MARG, PRABHADEVI, MUMBAI-400025. PAN: AAACB2900K (APPELLANT) (RESPONDENT) ITA NO.3227/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S BHARAT BIJLEE LTD. 6 TH FLOOR, ELECTRIC MANSION, APPASAHEN MARATHA MARG, PRABHADEVI, MUMBAI-400025. PAN: AAACB2900K VS. DCIT. CIR. 6(1), ROOM NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-20 (APPELLANT) (RESPONDENT) REVENUE BY : DR. PRABHAKAR REDDY (DR) ASSESSEE BY : SHRI RONAK G. DOSHI (AR) DATE OF HEARING : 15.03.2016 DATE OF PRONOUNCEMENT : 27.05.2016 O R D E R PER PAWAN SINGH, JM: 1. THESE TWO CROSS APPEALS FILED BY THE REVENUE AND AS SESSEE AGAINST THE ORDER OF CIT(A)- 14, MUMBAI DATED 28.01.2013 FOR ASSESSMENT YEAR (AY ) 2009-10 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDER. 2 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. 2. IN ITA NO. 3217/MUM/2013 THE REVENUE HAS RAISED FOL LOWING GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.61,53,000/- MADE ON ACC OUNT OF PROVISION FOR WARRANTY WITHOUT APPRECIATING THAT PROVISION MADE BY THE ASS ESSEE REPRESENTS ONLY A CONTINGENT LIABILITY AND THEREFORE NO DEDUCTION IS PERMITTED UNDER THE ACT FOR THE CONTINGENT LIABILITY'. 2. 'ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 61,53,000/- MADE ON AC COUNT OF PROVISION FOR WARRANTY WITHOUT APPRECIATING THAT PROVISION HAS BEEN MADE B Y THE ASSESSEE ONLY ON ESTIMATED BASIS AND THAT ASSESSEE HAD FAILED TO PROVE THAT TH E PROVISION WAS REASONABLE AND THE ESTIMATE FOR LIABILITY WAS BASED ON ANY SCIENTIFIC BASIS AFTER TAKING INTO ACCOUNT PAST DATA AND WAS BASED ON PRINCIPLES OF PRUDENCE' 3. 'ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.61,53,000/- MADE ON ACC OUNT OF PROVISION FOR WARRANTY FAILING TO APPRECIATE THAT FACTS OF THE CASE WERE E NTIRELY DIFFERENT FROM THE FACTS OF ROTORK CONTROLS INDIA LTD. AND THAT RATIO OF THE DE CISION OF ROTORK CONTROLS DID NOT APPLY TO THE FACTS OF THE CASE'. 4. 'ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMENT OF RS.2,77,80,717/- MADE IN THE CLOSING STOCK ON THE PREMISE OF FOLLOWING THE DECISION OF THE TRIBUNAL FOR EARLI ER YEARS WITHOUT VERIFYING AND CONSIDERING THE EVIDENCE WHETHER NECESSARY ADJUSTME NT (ADDITION) OF EXCISE DUTY WAS MADE TO THE CLOSING STOCK IN THE ASSESSMENT YEA R 1998-99 WHEN SECTION 145A HAS BEEN BROUGHT ON THE STATUTE OR NOT, BEFORE ALLO WING ADJUSTMENT FOR OPENING STOCK.' 5. 'THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED .' 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. IN ITA NO. 3227/MUM/2013 THE ASSESSEE HAS RAISED FO LLOWING GROUNDS OF APPEAL:- GROUND I: DISALLOWANCE OF EXPENDITURE ON REPAIRS OF RS. 4,30,081/-: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME - TAX (APPEALS)-14, MUMBAI ['THE CIT(A)'] ER RED IN UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE - 6(1), MUMBAI ['THE AO'] IN DISALLOWING THE EXPENDITURE INCURRED ON REPAIRS TO BUILDINGS AMOUNTING TO RS. 1,08,081/-, ON THE ALLEGED GROUND THAT THE SAME ARE CAPITAL IN NATURE. 2. FURTHER, THE CIT(A) ERRED IN DIRECTING THE AO TO VERIFY AS TO WHETHER AN AMOUNT OF RS. 3,22,000/- HAS BEEN ADDED IN THE COMPUTATION OF INCOME, WITHOUT APPRECIATING THE FACT THAT THE SAME WAS NEVER DEBITED TO THE PRO FIT AND LOSS ACCOUNT. 3. THE APPELLANT PRAYS THAT THE AFORESAID DISALLOWA NCE BE DELETED AND THE DIRECTION BE ANNULLED. GROUND 11: DISALLOWANCE U/S.14A R.W. RULE 8D OF THE INCOME-TAX RULES, 1962 ('THE RULES') OF RS.8,31,657/-: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING A SUM OF RS. 8,31,657/- BY TREATING THE SAME AS EXPENSES (INCLUDING INTEREST) INCURRED TOWA RDS EARNING. EXEMPT INCOME U/S. 14A OF THE ACT R.W.R. 8D OF THE RULES. 2. THE APPELLANT, THEREFORE, PRAYS THAT THE DISALLO WANCE OF RS. 8,31,657/- SHOULD BE DELETED OR SUBSTANTIALLY REDUCED. GROUND III: LEVY OF INTEREST 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE A.O. ERRED IN LEVYING INTEREST U/S. 234C OF THE ACT. 2. THE APPELLANT PRAYS THAT LEVY OF INTEREST U/S. 2 34C OF THE ACT BE DELETED. GROUND IV: GENERAL: THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER AND/OR AMEND ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. 3 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. 4. AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE HAS ARGUED THAT ALL THE GROUNDS RAISED IN BOTH THE APPEALS ARE COVERED EITHER IN ASSESSEES O WN CASE OR BY THE DECISIONS OF VARIOUS HIGH COURTS AND HONBLE SUPREME COURT. LD. DR FOR R EVENUE DISPUTED THE CONTENTION OF AR FOR ASSESSEE. 5. FIRST WE SHALL TAKE UP THE APPEAL FILED BY THE REVE NUE VIDE ITA NO. 3217/MUM/2013. THOUGH THE REVENUE HAS RAISED AS MANY AS SIX GROUND S OF APPEAL BUT AS PER OUR CONSIDERED OPINION THERE ARE ONLY TWO BASIC GROUNDS OF APPEAL: (I) DISALLOWANCE OF PROVISION FOR WARRANTY OF RS. 61,53 ,000/-. (II) ADJUSTMENT IN CLOSING STOCK U/S. 145A OF RS. 2,77,8 0,717/-. 6. FIRST WE SHALL TAKE UP THE GROUND NO.1 WHICH IS IN RESPECT OF DELETION OF DISALLOWANCE OF RS. 61,53,000/- FOR PROVISION OF WARRANTY. 7. AR OF THE ASSESSEE ARGUED THAT THIS ISSUE IS SQUARE LY COVERED BY THE DECISION OF HONBLE APEX COURT IN ROTORK CONTROL (I) PVT. LTD. VS. CIT (14 ITR 62 (SC) AND ORDER(S) OF ITAT IN ASSESSEES OWN CASE FOR AYS- 2005-06, 2006-07 AN D 2008-09. IN ROTORK CONTROL (I) PVT. LTD. THE HONBLE APEX CO URT WHILE DEALING WITH THE PROVISION FOR WARRANTY HELD AS UNDER: 13. IN THIS CASE WE ARE CONCERNED WITH PRODUCT WAR RANTIES. TO GIVE AN EXAMPLE OF PRODUCT WARRANTIES, A COMPANY DEALING IN COMPUTERS GIVES WARRANTY FOR A PERIOD OF 36 MONTHS FROM THE DATE OF SUPPLY. THE SAID COMPANY CONSIDERS FOLLOWING OPTIONS: (A) ACCOUNT WARRANTY EXPENSE IN THE YEAR IN WHICH I T IS INCURRED; (B) IT MAKES A PROVISION FOR WARRANTY ONLY WHEN THE CUSTOMER MAKES A CLAIM: AND IT PROVIDES FAR WARRANTY AT 2 PER CENT OF TURNOVER OF THE COMPANY B ASED ON PAST EXPERIENCE (HISTORICAL TREND). THE FIRST OPTION IS UNSUSTAINAB LE SINCE IT WOULD TANTAMOUNT TO ACCOUNTING FOR WARRANTY EXPENSES ON CASH BASIS, WHI CH IS PROHIBITED BOTH UNDER THE COMPANIES ACT AS WELL AS BY THE ACCOUNTING STANDARD S WHICH REQUIRE ACCRUAL CONCEPT TO BE FOLLOWED. IN THE PRESENT CASE, THE DE PARTMENT IS INSISTING ON THE FIRST OPTION WHICH, AS STATED ABOVE, IS ERRONEOUS AS IT R ULES OUT THE ACCRUAL CONCEPT. THE SECOND OPTION IS ALSO INAPPROPRIATE SINCE IT DOES N OT REFLECT THE EXPECTED WARRANTY COSTS IN RESPECT OF REVENUE ALREADY RECOGNIZED (ACC RUED). IN OTHER WORDS, IT IS NOT BASED ON MATCHING CONCEPT. UNDER THE MATCHING CONCE PT, IF REVENUE IS RECOGNIZED THE COST INCURRED TO EARN THAT REVENUE INCLUDING WA RRANTY COSTS HAS TO BE HILLY PROVIDED FOR. WHEN VALVE ACTUATORS ARE SOLD AND THE WARRANTY COSTS ARE AN INTEGRAL PART OF THAT SALE PRICE THEN THE APPELLANT HAS TO P ROVIDE FOR SUCH WARRANTY COSTS IN ITS ACCOUNT FOR THE RELEVANT YEAR, OTHERWISE THE MATCHI NG CONCEPT FAILS. IN SUCH A CASE THE SECOND OPTION IS ALSO INAPPROPRIATE. UNDER THE CIRCUMSTANCES, THE THIRD OPTION IS MOST APPROPRIATE BECAUSE IT FULFILS ACCRUAL CONCEPT AS WELL AS THE MATCHING CONCEPT. FOR DETERMINING AN APPROPRIATE HISTORICAL TREND, IT IS IMPORTANT THAT THE COMPANY HAS A PROPER ACCOUNTING SYSTEM FOR CAPTURING RELATI ONSHIP BETWEEN THE NATURE OF THE SALES, THE WARRANTY PROVISIONS MADE AND THE ACTUAL EXPENSES INCURRED AGAINST IT SUBSEQUENTLY. THUS, THE DECISION ON THE WARRANTY PR OVISION SHOULD BE BASED ON PAST EXPERIENCE OF THE COMPANY. A DETAILED ASSESSMENT OF THE WARRANTY PROVISIONING POLICY IS REQUIRED PARTICULARLY IF THE EXPERIENCE S UGGESTS THAT WARRANTY PROVISIONS ARE GENERALLY REVERSED IF THEY REMAINED UNUTILIZED AT THE END OF THE PERIOD PRESCRIBED IN THE WARRANTY. THEREFORE, THE COMPANY SHOULD SCRU TINIZE THE HISTORICAL TREND OF WARRANTY PROVISIONS MADE AND THE ACTUAL EXPENSES IN CURRED AGAINST IT. ON THIS BASIS A SENSIBLE ESTIMATE SHOULD BE MADE. THE WARRANT) PR OVISION FOR THE PRODUCTS SHOULD BE BASED ON THE ESTIMATE AT YEAR END OF FUTURE WARR ANTY EXPENSES. SUCH ESTIMATES 4 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. NEED REASSESSMENT EVERY YEAR. AS ONE REACHES CLOSE TO THE END OF THE WARRANTY PERIOD, THE PROBABILITY THAT THE WARRANTY EXPENSES WILL BE INCURRED IS CONSIDERABLY REDUCED AND THAT SHOULD BE REFLECTED IN THE ESTIMAT ION AMOUNT. WHETHER THIS SHOULD BE DONE THROUGH A PRO RATA REVERSAL OR OTHERWISE WO ULD REQUIRE ASSESSMENT OF HISTORICAL TREND. IF WARRANTY PROVISIONS ARC BASED ON EXPERIENCE AND HISTORICAL TREND(S) AND IF THE WORKING IS ROBUST THEN THE QUES TION OF REVERSAL IN THE SUBSEQUENT TWO YEARS, IN THE ABOVE EXAMPLE, MAY NOT ARISE IN A SIGNIFICANT WAY. IN OUR VIEW, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, PROVISION FOR WARRANTY IS RIGHTLY MADE BY THE APPELLANT-ENTERPRISE BECAUSE IT HAS INCURRED A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS. THERE IS ALSO AN OUTFLOW OF' RESOURCES . A RELIABLE ESTIMATE OF THE OBLIGATION WAS ALSO POSSIBLE. THEREFORE, THE APPELL ANT HAS INCURRED A LIABILITY, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, DURING THE RE LEVANT ASSESSMENT YEAR WHICH WAS ENTITLED TO DEDUCTION UNDER SECTION 37 OF THE 1961 ACT. THEREFORE, ALL THE THREE CONDITIONS FOR RECOGNIZING A LIABILITY FOR THE PURP OSES OF PROVISIONING STANDS SATISFIED IN THIS CASE. IT IS IMPORTANT TO NOTE THAT THERE AR E FOUR IMPORTANT ASPECTS OF PROVISIONING. THE: ARE - PROVISIONING WHICH RELATES TO PRESENT OBLIGATION, IT ARISES OUT OF OBLIGATING EVENTS. IT INVOLVES OUTFLOW OF RE SOURCES AND LASTLY IT INVOLVES RELIABLE ESTIMATION OF OBLIGATION. KEEPING IN MIND ALL THE FOUR ASPECTS, WE ARE OF THE VIEW THAT THE HIGH COURT SHOULD NOT TO HAVE INTERFE RED WITH THE DECISION OF THE TRIBUNAL IN THIS CASE. 8. FURTHER, THE HONBLE JURISDICTIONAL HIGH COURT IN A SSESSEES OWN CASE FOR AY-2005-06 REPORTED VIDE 365 ITR 258 (BOM) WHILE DEALING WITH SIMILAR GROUND HELD AS UNDER: AT THE OUTSET, THE COUNSEL AGREED THAT THE QUESTIO N POSED AT PARAGRAPH 4(I), NAMELY, THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF THE PROVISIONS FOR WARRANTY IS CONCERNED, THAT IS FULLY COVERED IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF ROTORK CONTROLS (P.) LTD. (SUPRA).THE APPEAL, THEREFORE, DOES NOT RAISE ANY S UBSTANTIAL QUESTION OF LAW IN RELATION TO THIS DEDUCTION. 9. WE HAVE NOTICED THAT THE SIMILAR DISALLOWANCE WAS M ADE IN SUBSEQUENT YEAR I.E. IN AY 2006-07, WHICH, ON THE APPEAL OF ASSESSEE WAS ALLOW ED IN FAVOUR OF ASSESSEE BY TRIBUNAL IN ITA NO. 8313/MUM/2010 AND AGAIN FOR AY 2008-09 V IDE ITA NO. 4053, 4160/MUM/2012 IN FAVOUR OF ASSESSEE, HENCE, KEEPING IN VIEW THE LAW LAID DOWN BY HONBLE APEX COURT, JUDGMENT OF HONBLE BOMBAY HIGH COURT AND VARIOUS ORDERS OF CO- ORDINATE BENCH OF ITAT, MUMBAI, AND FOLLOWING THE P RINCIPLE OF CONSISTENCY, WE FIND NO INFIRMITY OR ILLEGALITY IN THE ORDER PASSED BY THE CIT(A), HENCE, THIS GROUND OF APPEAL IS DISMISSED. 10. NEXT GROUND FOR OUR CONSIDERATION IS ADJUSTMENT IN CLOSING STOCK U/S. 145A OF THE ACT. 11. AR OF THE ASSESSEE ARGUED THAT THIS GROUND IS ALSO COVERED BY THE DECISION OF ITAT, MUMBAI IN ASSESSEES OWN CASE IN AY 2005-06 AND IN AY 2006-07 VIDE ITA NO. 1813, 1831/MUM/2010 AND BY THE JUDGMENT OF CO-ORDINATE BE NCH OF MUMBAI TRIBUNAL IN HAWKINS COOKERS LTD. VS. ITO IN ITA NO. 505/MUM/200 4 DATED 11.08.2008 AND FURTHER IN RAMARATAN WIRE LTD. VS. DCIT IN ITA NO. 2180/MUM /2012 AND ITA NO. 8503/MUM/2011 AND FURTHER AHMADABAD BENCH OF ITAT I N ALPANIL VS. ACIT IN ITA NO. 169/AHD./2005 AND ITA NO. 170/AHD./2005. 5 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. 12. WE HAVE SEEN THAT IN ASSESSEES OWN CASE, SIMILAR A DJUSTMENT WAS DISALLOWED AGAINST THE ASSESSEE IN AY 2005-06, HOWEVER, THE CO-ORDINATE BE NCH OF ITAT ALLOWED THE ADJUSTMENT VIDE ITA NO. 6410/MUM/2008 HOLDING AS UN DER: 45. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FO LLOWS: GROUND 5: ADJUSTMENT IN THE VALUE OF STOCK U/S. 1 45A OF RS. 20,92,601/- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO OF M AKING AN ADDITION OF RS. 20,92,601/- BY APPLYING THE PROVISIONS OF SECTION 1 45A OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ADDITION OF RS. 20 ,92,601/- MADE BY INVOKING SECTION 145A OF THE ACT OUGHT TO BE DELETED. 46. THIS IS WITH REFERENCE TO THE METHOD OF ACCOUNT ING AS STIPULATED UNDER SECTION 145A. THE ASSESSEE HAS FOLLOWED ACCOUNTING STANDARD (AS) 2 ON VALUATION OF INVENTORIES AND THE GUIDANCE NOTE ON ACCOUNTING TREATMENT FOR MODVAT/CE NVAT ISSUED BY THE ICAI AND ACCORDINGLY THE EXCLUSIVE METHOD FOR ACCOUNTING HAS BEEN FOLLOWED. HENCE THE ASSESSEE HAS VALUED ITS INVENTORY AS ON 31/3/2005 EXCLUSIVE OF T AXES, DUTIES ETC. PAID OR INCURRED ON SUCH CLOSING STOCK. THE EFFECT OF SECTION 145A HAS BEEN GIVEN IN THE TAX AUDIT REPORT. THE AO HAS MADE AN ADJUSTMENT OF RS. 20,92,601/- IN THE VA LUE OF CLOSING STOCK PURPORTED BY APPLYING THE PROVISIONS OF SECTION 145A OF THE ACT BY INCLUDING THE UNUTILIZED CENVAT CREDIT IN CLOSING STOCK OF RAW MATERIALS. THE AO HA S RELIED ON THE WORKING PUBLISHED IN AN ARTICLE AUTHORIZED ONE MR. K.L.JHANWAR IN THE MONTH OF DECEMBER, 2007 ISSUE OF THE ICAI MAGAZINE. FOR THE PURPOSE OF STATUTORY ACCOUNTS THE ASSESSEE HAS FOLLOWED THE AS-2 ON VALUATION OF INVENTORIES AND THE GUIDANCE NOTE ON A CCOUNTING TREATMENT FOR MODVAT/CENVAT ISSUED BY ICAI AND ACCORDINGLY IT FOL LOWED THE EXCLUSIVE METHOD FOR ACCOUNTING. HOWEVER FOR THE PURPOSE OF TAX RETURN T HE ASSESSEE HAS WORKED OUT THE IMPACT OF GROSSING UP OF TAX DUTY CESS ETC. BY RESTATING T HE VALUES OF PURCHASES AND INVENTORIES BY INCLUDING, INTERALIA THE EFFECT OF CENVAT CREDIT. T HE WORKING GIVEN ON PAGE NO.143 OF THE PB-1 COMPARING THE EXCLUSIVE METHOD FOLLOWED AND SE CTION 145A PROVISIONS. THEREFORE, SINCE THE ASSESSEE ALSO DRAWS THE ATTENTION TO PAGE NOS.140 143 OF PB-1 WHICH APTLY BRINGS OUT THAT SINCE THE ADJUSTMENT AS PER SECTION 145A H AS ALREADY BEEN DONE, THERE IS NO FURTHER ADJUSTMENT REQUIRED. FURTHER THE ASSESSEE ALSO RELI ES ON THE DECISION OF THE DELHI HIGH COURT IN CASE OF CIT VS. MAHAVIR ALUMINIUM LTD. (DEL)(SPL BENCH) WHEREIN IT IS HELD THAT FOR THE PURPOSE OF SECTION 145A THE MODVAT ELEMENT IN OPENI NG STOCK SHOULD ALSO BE ADJUSTED AND THE ADDITION ONLY TO CLOSING STOCK IS NOT APPROPRIA TE. BESIDES, THE BOMBAY ITAT HAS HELD IN THE CASE OF J.B.CHEMICALS V. ACIT (10 SOT 362) THAT FOR GIVING EFFECT TO SECTION 145A, THE ADJUSTMENT SHOULD BE MADE NOT ONLY TO THE CLOSING S TOCK BUT ALSO TO PURCHASES. THE ASSESSEE SUBMITS THAT THE WORKING SHOWN IN TAX AUDIT REPORT IS IN ACCORDANCE WITH THESE TWO DECISIONS AND HENCE THE ADDITION MADE BY THE AO ONL Y TO CLOSING STOCK DESERVES TO BE DELETED. HENCE THE ASSESSEE PRAYS THAT THE AFORESAI D ADJUSTMENT BE DELETED. 47. THE CIT(A) HOWEVER DID NOT AGREE WITH THE SUBMI SSIONS OF THE ASSESSEE. HE HELD THAT OPENING STOCK OF THE PRESENT WILL BE THE VALUE OF T HE CLOSING STOCK OF THE EARLIER YEAR AND IT CANNOT BE VARIED. HE, THEREFORE, CONFIRMED THE ORDE R OF THE AO. 48. BEING AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE HAS RAISED GROUND NO.5 BEFORE THE TRIBUNAL. 49. WE HAVE HEARD THE RIVAL SUBMISSIONS. A PERUSAL OF THE COMPUTATION OF INCOME AT PAGE 48 OF THE PAPER BOOK SHOWS THAT FROM THE PROFIT AS PR THE P&L ACCOUNT WHICH WAS ARRIVED AT BY THE ASSESSEE BY FOLLOWING EXCLUSIVE METHOD OF VA LUATION OF INVENTORY, THE ASSESSEE HAD ADDED THE IMPACT ON THE P&L ACCOUNT BY FOLLOWING TH E EXCLUSIVE METHOD. 50. THE ASSESSEE HAS ALSO NOT CLAIMED DEDUCTION ON ACCOUNT OF EXCISE DUTY ON CLOSING STOCK AMOUNTING TO RS.86,28,214/-. THUS THE ASSESSEE HAD DULY GIVEN EFFECT TO THE PROVISIONS OF SECTION 145A AS WELL AS THE PROVISIONS SECTION 43B OF THE ACT. IN OUR VIEW THE AO IGNORED THE SUBMISSIONS AND HAS PROCEEDED ON THE BASIS THAT ONLY CLOSING STOCK OUGHT TO HAVE BEEN REVALUED. IN OUR VIEW THIS IS CONTRARY TO THE DECIS ION RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A). EVEN THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF MAHALAXMI GLASS WORKS HAS 6 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. TAKEN THE VIEW AS WAS TAKEN BY THE HONBLE DELHI HI GH COURT IN THE CASE OF MAHAVIR ALLUMINIUM (SUPRA). IN VIEW OF THE ABOVE WE HOLD TH AT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) SHOULD BE DELETED. WE ACCOR DINGLY DIRECT THAT THE ADDITION MADE BE DELETED. AND THE SIMILAR RELIEF WAS GRANTED TO ASSESSEE IN A SSESSEES OWN CASE FOR AY 2006-07 IN ITA NO.1831/M/ 2012 HOLDING AS UNDER: 14. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2005-06 (SUPRA) WHEREI N THE TRIBUNAL HELD AS UNDER:- 50. THE ASSESSEE HAS ALSO NOT CLAIMED DEDUCTION ON ACCOUNT OF ASSESSEE HAD DULY GIVEN EFFECT TO THE PROVISIONS OF SECTION 145A AS W ELL AS THE PROVISIONS SECTION 43B OF THE ACT. IN OUR VIEW THE AO IGNORED THE SUBMISSIONS AND HAS PROCEEDED ON THE BASIS THAT ONLY CLOSING STOCK OUGHT TO HAVE BEEN REVALUED . IN OUR VIEW THIS IS CONTRARY TO THE DECISION RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A). EVEN THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHALAXMI GLASS WO RKS HAS TAKEN THE VIEW AS WAS TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CA SE OF MAHAVIR ALLUMINIUM (SUPRA). IN VIEW OF THE ABOVE WE HOLD THAT THE ADDI TION MADE BY THE AO AND CONFIRMED BY THE CIT(A) SHOULD BE DELETED. WE ACCOR DINGLY DIRECT THAT THE ADDITION MADE BE DELETED. GROUND NO.5 RAISED BY THE ASSESSEE IS ALLOWED. 15. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF AY 2005-06, WE RESPECTFULLY FOLLOW THE DECISION OF TRIBUNAL IN AY 2005-06 AND IN THE L IGHT OF THAT, WE CONFIRM THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY THE AO U/S 145 OF THE ACT. THUS, THIS GROUND OF APPEAL IS DISMISSED. 13. CONSIDERING THE FACTS AND LEGAL POSITIONS REFERRED ABOVE IN ASSESSEES OWN CASE AND FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE DO NOT F IND ANY ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY THE CIT(A). IN THE RESULT, APPEAL FILED B Y THE REVENUE IS DISMISSED. 14. NOW WE SHALL DISCUSS THE VARIOUS GROUNDS RAISED BY THE ASSESSEE IN ITA NO. 3227/MUM/2013, THOUGH THE ASSESSEE RAISED AS MANY AS FOUR GROUNDS, HOWEVER, AS PER OUR OPINION, THE ASSESSEE HAS ONLY TWO GROUNDS FOR OUR CONSIDERATION. 15. FIRST GROUND FOR OUR CONSIDERATION IS DISALLOWANCE OF EXPENDITURE ON REPAIR OF RS.4,30,081/-. AR OF THE ASSESSEE ARGUED THAT DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED EXPENDITURE OF RS.1,08,081/- ON REPAIRING PIPELINE. RS. 3,22,000/- RELATED TO BUILDING AND MACHINERY. THE AO DISALLOW ED BOTH THE EXPENDITURE HOLDING AS A CAPITAL EXPENDITURE AND CANNOT BE TREATED AS REVENU E EXPENDITURE. THE CIT(A) CONFIRMED THE DISALLOWANCE ON PIPELINE REPAIR HOLDING THAT AS SESSEE CONSTRUCTED THE PIPELINE DURING THE CURRENT YEAR IS A CAPITAL ASSET WHICH IS REQUIR ED TO BE CAPITALIZED AND SUSTAINED THE DISALLOWANCE. AND IN RESPECT OF AMOUNT OF RS. 3,22, 000/-,IT WAS CONCLUDED THAT FROM TAX AUDIT REPORT IT IS SEEN THAT SAID AMOUNT HAS BEEN CAPITALISED. HOWEVER, NO COMPUTATION OF INCOME WAS FILED WITH RETURN, HENCE IT CANNOT BE ASCERTAINED, IF THE SAID AMOUNT HAS ACTUALLY BEEN ADDED IN THE COMPUTATION OF INCOME AN D DIRECTED THE AO TO VERIFY THE SAME IF THE SAME IS ALREADY ADDED BACK AND THEN DELETE T HE ADDITION. THIS FACT IS DISPUTED BY LD. 7 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. AR OF THE ASSESSEE IN HIS SUBMISSIONS WHILE ARGUING HIS CASE. LD AR ARGUED THAT ASSESSEE INCURRED RS.2,22,000/- ON INSTALLATION AND RS. 100, 000/- ON IMPLEMENTATION OF SERVER, PURCHASED DURING THE YEAR AND DURING THE ASSESSMENT PROCEEDING IT WAS INADVERTENTLY SUBMITTED BEFORE AO THAT THE AMOUNT WAS EARLIER DEB ITED TO P/L A/C, HOWEVER THE ACTUAL POSITION WAS THAT SAID AMOUNT WAS EARLIER DEBITEDT O P/L ACCOUNT AND LATER CAPITALISED. LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E SUPPORTED THE ORDER OF AUTHORITIES BELOW AND ARGUED THAT THE INVESTMENT/EXPENDITURE MA DE BY ASSESSEE IS CAPITAL IN NATURE. 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE ORDER OF AUTHORITIES BELOW. WE FIND THAT BY MAKING MERE EXPE NDITURE ON REPAIRS, NO NEW ASSET CAME INTO EXISTENCE OR CREATED. THE EXPENDITURE OF RS.1,08,081/-WAS INCURRED FOR THE PURPOSE OF REPAIR AND MAINTENANCE. THE REVENUE AUTH ORITIES HAS NOT DISPUTED THE NATURE OF EXPENDITURE MADE ON REPAIR, RATHER, FORMING AN OPIN ION THAT THE PIPELINES REPAIR BY THE ASSESSEE ARE CAPITAL ASSET. KEEPING IN VIEW THE NAT URE OF EXPENSES WHICH WERE INCURRED ONLY ON THE REPAIR OF PIPELINE, THE ADDITION OF RS. 1,08,081/- IS DELETED. WITH REGARD TO DISALLOWANCE OF RS. 3,22,000/- WHICH CONSIST OF RS. 1,00,000/- FOR PURCHASE OF SERVER AND RS. 2,22,000/- INCURRED FOR INSTALLATION. THE LD. C IT(A) WHILE CONSIDERING THE NATURE OF EXPENSES INCURRED FOR INSTALLATION OF SERVER CONCLU DED THAT ASSESSEE HAS NOT FURNISHED COMPUTATION OF INCOME AS PER RETURN AND THE SAME CO ULD NOT BE ASCERTAINED WHETHER THE AMOUNT HAS BEEN ACTUALLY ADDED IN THE COMPUTATION O F INCOME AND DIRECTED THE AO TO VERIFY THE SAME. HENCE, WE DO NOT FIND ANY ILLEGALI TY OR INFIRMITY IN THE DIRECTION GIVEN BY LD. CIT (A) IN THE IMPUGNED ORDER. HENCE, THIS GROU ND OF APPEAL IS PARTLY ALLOWED. 17. SECOND GROUND FOR OUR CONSIDERATION IS DISALLOWANC E U/S. 14A R.W. RULE 8D(2) OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C LAIMED TO HAVE EARNED EXEMPT INCOME OF RS.1,16,15,394/- AND EXEMPT INTEREST OF R S. 24,955/-. THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE AGAINST THE SAID EXEMPT INCOME. THE AO INVOKED THE METHOD PRESCRIBED UNDER RULE 8D AND WORKED OUT THE DISALLO WANCE U/S. 14A AT RS. 8,31,657/-. LD. CIT(A) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE CONCLUDED THAT ASSESSEE HAS NOT VOLUNTARY DISALLOWED ANY AMOUNT ON ACCOUNT FOR EARNING EXEMPT INCOME. AS RULE 8D IS APPLICABLE FROM THE AY 2008-09, HENCE, THE RELIA NCE OF DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2004-05 TO 2006-07, AS CLAIMED BY A SSESSEE WERE NOT APPLICABLE AND REJECTED THE APPEAL OF ASSESSEE HOLDING AS UNDER: 6.14 I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF TH E APPELLANT AND ALSO THE DECISIONS CITED IN THIS REGARD. SUBSECTION (1) OF S ECTION 14A OF THE ACT PRESCRIBES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUBSECTION (2) PRESCRIBES THAT IF THE ASSESSING OFF ICER, HAVING REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IS NOT 8 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. SATISFIED, HE SHALL DETERMINE THE AMOUNT OF EXPENDI TURE INCURRED IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE METHOD AS MAY BE PRES CRIBED. SUBSECTION (3) PRESCRIBES THAT THE PROVISIONS OF SUBSECTION (2) SH ALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BE EN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . WITH EFFECT FROM AY 2008-09, RULE 8D HAS BEEN INTRODUCED, WHICH LAYS DOWN THE ME THOD OF COMPUTATION OF THE EXPENDITURE IN REGARD TO EXEMPT INCOME FOR THE PURP OSE OF DISALLOWANCE UNDER SECTION 14A. 6.15 IF ONE READS SUBSECTION (3) ALONG WITH SUBSECT ION (2), IT SIMPLY MEANS THAT IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF THE EXEMPT INCOME, THE AO SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE METH OD AS MAY BE PRESCRIBED IN VIEW OF THE PROVISIONS OF SUB-SECTION (2). THEREFORE, SI NCE FROM AY 2008-09, RULE 8D IS APPLICABLE, THE AO SHALL BE FREE TO COMPUTE THE DIS ALLOWANCE OF EXPENDITURE AS PER THIS RULE IN RESPECT OF THE EXEMPT INCOME IN ALL SU CH CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RESPECT OF THE SAID INCOME AND NO SUO-MOTO DISALLOWANCE OF EXPENDITURE HAS BEEN MADE BY THE AS SESSEE. THIS IS QUITE LOGICAL AS WELL, BECAUSE IT CANNOT BE THE CASE OF ANY INVESTOR THAT HE HAS NOT INCURRED EVEN A SINGLE PENNY FOR MAKING SUCH INVESTMENT AND EARNING OF EXEMPT INCOME THERE-FROM. THIS IS EXACTLY THE CASE OF THE APPELLANT, WHERE AC COUNTS ARE KEPT ON A MIXED FUND BASIS, AND FOR THE PURPOSE OF INVESTMENT IN SHARES ETC, SEPARATE ACCOUNTS HAVE NOT BEEN KEPT. ALTHOUGH THE APPELLANT HAS GIVEN A NUMBE R OF ARGUMENTS BASED ON THE FACTS OF ITS CASE, AS OUTLINED ABOVE, STILL, IN SPI TE OF THAT, DUE TO REASONS CITED ABOVE, IT CANNOT BE ACCEPTED THAT THE APPELLANT HAS NOT IN CURRED EVEN A SINGLE PENNY FOR MAKING INVESTMENT, MAINTAINING THE INVESTMENT PORTF OLIO AND THEREBY EARNING EXEMPT INCOME. EVEN IF THE REQUIREMENT OF AO'S SATISFACTIO N IN THIS REGARD IS CONSIDERED NECESSARY, THE VERY KNOWLEDGE OF THE FACT ON THE PA RT OF THE AO THAT THE APPELLANT HAS NOT DISALLOWED ANY EXPENDITURE SUO-MOTO, WAS SUFFIC IENT FOR HER TO COMPUTE THE DISALLOWANCE UNDER RULE 8D READ WITH SECTION 14A OF THE ACT. 6.16 THE LATEST DECISION AVAILABLE ON THIS ISSUE IS THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD, 328 ITR 81, WHEREIN THE HON'BLE COURT HAS HELD THAT THE DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS, FALLING WITHIN THE AMBIT OF SECTION 10 OF THE ACT A RE NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME. IT HAS ALSO BEEN HELD THAT PROVISIONS OF RULE 8D OF THE I.T RULES, 1 962 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. IT IS HELD BY THE HIGH COU RT THAT THE DISALLOWANCE FOR THE PURPOSE OF SECTION 14A SHALL BE COMPUTED AS PER RUL E 80 AND THE SAID RULE IS CONSTITUTIONALLY VALID. IN VIEW OF THIS DECISION TH EREFORE, IT IS EVIDENT THAT THE AO WAS JUSTIFIED IN COMPUTING THE DISALLOWANCE UNDER RULE 80 IN RESPECT OF THE APPELLANT'S EXEMPT INCOME BECAUSE THE APPELLANT HAD NOT MADE AN Y DISALLOWANCE SUO-MOTO AND CLAIMED THAT ABSOLUTELY NO EXPENDITURE HAS BEEN INC URRED IN RELATION TO THE EARNING OF EXEMPT INCOME. THE DECISION OF HON'BLE BOMBAY HI GH COURT IS BINDING AND THE AO HAS SIMPLY FOLLOWED THE SAME. HENCE I HAVE NO CH OICE THAN TO REJECT THE CONTENTION OF THE APPELLANT. 18. IN VIEW OF THE ABOVE OBSERVATION, WE FIND THAT ASSE SSEE NOT CLAIMED THAT INTEREST FREE FUNDS WERE AVAILABLE WITH HIM FOR MAKING INVESTMENT FOR E ARNING EXEMPT INCOME. ASSESSEE HAS NOT MADE VOLUNTARY DISALLOWANCE FOR EARNING EXEMPT INCOME WHILE FILING RETURN OF INCOME. THE AO INVOKED/APPLIED THE PROVISION OF RUL E 8D FOR WORKING OUT THE DISALLOWANCE ON THE BASIS OF JUDGMENT OF HONBLE JU RISDICTIONAL HIGH COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81). THE DISA LLOWANCE MADE BY AO IS REASONABLE ONE. LD. CIT(A) HAS ELABORATELY DISCUSSED ALL THE FACTORS LEADING TO WORKING OF THE 9 ITA NOS.3217 & 3227/M/2013 M/S BHARAT BIJLEE LTD. DISALLOWANCE IN ITS ORDER. HENCE, WE DO NOT FIND A NY INFIRMITY OR ILLEGALITY IN THE ORDER PASSED BY CIT(A). THUS, THIS GROUND OF APPEAL RAISE D BY ASSESSEE IS DISMISSED. 19. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED AND THE APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH MAY, 2016. SD/- SD/- (R. C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI; DATED 27/05/2016 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/