The ITO, Dewas V. M/s Hind Syntax Ltd., Dewas

ITA 328/IND/2010

• Counselvise Citation: 32822714 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: S S DESH
• Keywords: TDS
• Section: 43B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. PAN NO. : AAACH6203P I.T.A.NO. 328 & 329 / IND /20 10 A.Y S . : 2004 - 05 & 2005 - 06 INCOME - TAX OFFICER, M/S. HIND SYNTEX LIMI T ED, DEW AS VS DEWAS. APPELLANT RESPONDENT APPELLANT BY : SHRI KESHAVE SAXENA, CIT DR RESPONDENT BY : SHRI S.S.DESHPANDE, C. A. DATE OF HEARING : 21.06.2011 DATE OF PRONOUNCEMENT : 18 .08.2011 O R D E R PER R. C. SHARMA, A.M. TH ESE ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 12.3.2010 FOR THE ASSESSMENT YEAR S 2004 - 05 AND 2005 - 06 . 2. COMMON GROUNDS HAVE BEEN RAISED IN BOTH THE YEARS, THEREFORE, BOTH THE APPEALS HAVE BEEN HEARD TOGETHER AND ARE NOW DISPOSED BY THIS CONS OLIDATED ORDER. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY - : 2 : - 2 DERIVES INCOME FROM MANUFACTURING OF SYNTHETIC BLENDED YARN AND POWER GENERATION FOR CAPTIVE CONSUMPTION. 4. FIRST COMMON GROUND IN BOTH THE YEARS PERTAINING TO DISALLOWANCE OF MANUFACTURING LOSS. IN THE ASSESSMENT YEAR 2004 - 05, THE ASSESSEE IS AGAINST THE DELETION OF ADDITION OF RS. 28,25,956/ - MADE BY THE ASSESSING OFFICER DISALLOWING THE MANUFACTURING LOSS CLAIMED BY THE ASSESSEE. ON THE BASIS OF ANNUAL ACCOUNTS, IN THE NOTES OF ACCOUNTS, THE AO TOOK THE QUANTITATIVE INFORMATION AND HELD THAT THE ASSESSEE HAS CONSUMED RAW MATERIAL OF 11619980 KGS., WHILE THE FINISHED PRODUCTS WERE TO THE TUNE OF 11575257 KGS. AND, THUS, THE LOSS WAS QUANT IFIED AT 44720 KGS. DURING THE COURSE OF PRODUCTION. 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE AO HAS NOT CONSIDERED THE OPENING STOCK, STOCK - IN - PROGRESS AND CLOSING STOCK OF RAW MATERIAL/FINISHED GOODS WHILE COMPUT ING THE ACTUAL WASTAGE AND SIMPLY RELIED ON THE QUANTITATIVE DETAILS FURNISHED IN THE NOTES OF ACCOUNT. THE PERCENTAGE OF WASTAGE EVEN SHOWN IN THE INPUT - OUTPUT STATEMENT IS 2.96 % WHICH IS QUITE COMPARABLE - : 3 : - 3 WITH THE RESULT SHOWN IN THE PRECEDING TWO YEARS WHERE SUCH WASTAGE STOOD AT 2.88 % AND 2.87 % RESPECTIVELY. 6. THE FINDING RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD. CIT D.R. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) IN DELETING THE ADDITION ON ACCOUNT O F MANUFACTURING LOSS. 7. THE NEXT COMMON GRIEVANCE RELATES TO DELETION OF ADDITION ON ACCOUNT OF PROVISION FOR EXCISE DUTY IN THE ASSESSMENT YEAR 2004 - 05. 8. THE AO OBSERVED THAT SUCH PROVISION WAS LIABLE TO BE ADDED U/S 43B OF INCOME - TAX ACT, 1961. IT WAS SUBMI TTED BY THE ASSESSEE THAT THE ASSESSEE COMPANY WAS PAYING EXCISE DUTY ON THE RAW MATERIAL PURCHASED. THE EXCISE DUTY PAID IS NOT DEBITED TO THE PURCHASE ACCOUNT, BUT IS DEBITED TO A SEPARATE ACCOUNT NAMED AS CENVAT RECEIVABLE ACCOUNT . THE DUTY WHICH IS P AYABLE ON THE CLEARANCES IS CREDITED TO THE CENVAT RECEIVABLE ACCOUNTS. IN THIS ACCOUNT, THERE IS A DEBIT BALANCE OF RS. 2,21,92,319/ - AS AT THE CLOSE OF THE YEAR. THIS AMOUNT IS ADJUSTABLE AGAINST THE CLEARANCE OF MATERIAL. AS PER ACCOUNTING STANDARD (AS - 2), THE ASSESSEE HAS VALUED THE - : 4 : - 4 CLOSING STOCK OF FINISHED GOODS AT COST OR NET REALIZABLE VALUE, WHICHEVER IS LESS AND HAS INCLUDED THE EXCISE DUTY PAYABLE IN THE SAID VALUATION. THE CORRESPONDING ENTRY TO THIS EXCISE DUTY ON FINISHED GOODS HAS BEEN MADE AND EXCISE DUTY HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT CREDITING THE EXCISE DUTY PAYABLE ACCOUNT. THIS HAS SET OFF THE EXCISE VALUE ADOPTED FOR THE VALUE OF FINISHED STOCK. ON THE REMOVAL OF GOODS IN SUBSEQUENT YEAR, THE EXCISE DUTY PAYABLE HAS BE EN REVERSED BY CREDITING IT TO THE EXCISE DUTY EXPENSES ACCOUNT, WHICH IN TURN IS ADJUSTED AGAINST CENVAT RECEIVABLE ACCOUNT . THERE IS A CREDIT BALANCE OF CENVAT AND THE AMOUNT OF EXCISE DUTY IS ADJUSTED IN THIS ACCOUNT, WHICH IS DEEMED TO HAVE BEEN PAID ON THE CLEARANCE OF GOODS. IT WAS CLAIMED THAT PROVISIONS OF SECTION 43B ARTE NOT APPLICABLE IN THE INSTANT CASE. 9. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE AO HAS NOT AT ALL CONSIDERED THE ISSUE IN A HOLISTIC MANNER. SINCE THE ASSESSEE WAS NOT INCLUDING THE EXCISE DUTY PAYMENT IN THE PURCHASE ACCOUNT AND RATHER MAINTAINING SEPARATE ACCOUNT FOR THIS PURPOSE, BUT AS PER ACCOUNTING STANDARD AND AS PER SECTION 145A OF - : 5 : - 5 INCOME - TAX ACT, 1961, HE HAS TO INCLUDE THE EXCISE DUT Y COMPONENT IN THE CLOSING STOCK, SUCH ENTRY WAS MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT WHICH WERE ULTIMATELY GOT REVERSED AND ADJUSTED LATER ON. THE SUBMISSIONS MADE BY THE ASSESSEE FULLY JUSTIFY THE PROCESS OF ACCOUNTING ENTRIES MADE IN THIS BEHALF . 10. THE FINDING RECORDED BY THE LD. CIT(A) IS NOT CONTROVERTED BY THE LD. SENIOR D.R., WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION ON ACCOUNT OF PROVISION FOR EXCISE DUTY. 11. NEXT GRIEVANCE OF THE REVENUE RELATES TO THE ADDITION ON ACCOUNT OF INTEREST RECEIVABLE. 12. IN THIS REGARD, THE AO FOUND THAT AS PER TDS CERTIFICATE THE ACTUAL INTEREST RECEIPT COMES AT RS. 1,59,02,801/ - , HOWEVER, THE ASSESSEE HAS SHOWN IT ONLY RS. 1,28,56,236/ - . THUS, IT WAS OBSERVED BY HIM THAT THERE WAS UNDER STATEMENT OF INCOME BY RS. 30,46,565/ - , WHICH WAS SHOWN BY THE ASSESSEE COMPANY AS INTEREST RECOVERABLE ON SALES. IN THE APPELLATE PROCEEDINGS, IT WAS SUBMITTED THAT ONCE THE AMOUNT IS SHOWN AS RECOVERABLE/RECEIVABLE, THE AMOUNT I S BOUND TO BE - : 6 : - 6 CREDITED TO THE INTEREST ON SALES ACCOUNT. IT WAS FURTHER CLARIFIED THAT THE SAME IS ALREADY CREDITED AND ONLY THE NET INTEREST PAYABLE IS CLAIMED AS EXPENDITURE. 13. THE LD. CIT(A) DELETED THE ADDITION AFTER RECORDING THE FINDING TO THE EFFECT T HAT AS PER NOTES TO THE ACCOUNTS [SCHEDULE - 16(2)], SUCH INTEREST WAS SHOWN AS UNDER THE HEAD ADVANCE RECOVERABLE. IT CLEARLY ESTABLISHES THAT THE SAME HAS ALREADY BEEN CREDITED TO THE INTEREST ON SALES ACCOUNT. FURTHER, THE ASSESSEE HAS ALSO SHOWN INTEREST PAYMENT ON NET BASIS. THE AO VIDE HIS REMAND REPORT DATED 23.02.2010 VERIFIED THE SAME AND ACCEPTED THE ASSESSEE S SUBMISSIONS IN THIS RESPECT. 14. IN VIEW OF THE FINDING RECORDED BY THE LD. CIT(A), WHICH IS AS PER REMAND REPORT DATED 23.2.2010, WHICH COULD N OT BE CONTROVERTED BY THE LD. CIT DR, WE DO NOT FIND ANY REASON TO INTERFERE IN HIS ORDER. 15. NEXT GRIEVANCE OF REVENUE RELATES TO DELETION OF ADDITION OF RS. 83.53 LAKHS ON ACCOUNT OF EXCISE DUTY REFUND. FROM THE RECORD, WE FOUND THAT THE ASSESSEE WAS EXPOR TING GOODS ON WHICH EXCISE DUTY WAS NOT PAYABLE, BUT WHENEVER - : 7 : - 7 THERE WAS CLEARANCE OF GOODS FOR EXPORT, THE EXCISE DUTY PAYABLE ON THE GOODS WAS CREDITED TO THE CENVAT ACCOUNT AND DEBITED TO THE EXCISE REBATE CLAIM ACCOUNT. THE LD. CIT(A) DELETED THE ADDITI ON AFTER OBSERVING THAT THE ASSESSEE COMPANY WAS REGULARLY FOLLOWING METHOD FOR SEPARATELY CONSIDERING THE EXCISE DUTY ELEMENT AND THE SAME HAS BEEN PROPERLY EXPLAINED AND DISCLOSED. WE FOUND THAT THE ASSESSEE HAS NOT DEBITED THE EXCISE DUTY PAID IN THE P URCHASE ACCOUNT AND AS SUCH THE REFUND OF THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE SAME. 16. DISALLOWANCE ON ACCOUNT OF BONUS PAYABLE WRITTEN OFF WAS DELETED BY THE LD. CIT(A) BY OBSERVING THAT THE ASSESSEE WAS MAKING PROVISION OF BONUS EVERY YEAR AND BONUS NOT PAID BEFORE DUE DATE OF FILING THE RETURN IS DISALLOWED IN THE COMPUTATION OF INCOME. THE ASSESSEE COMPANY HAS SIMPLY WRITTEN OFF THE AMOUNT OF BONUS PAYABLE O F EARLIER YEARS DURING YEAR UNDER CONSIDERATION AND OFFERED BACK AS INCOME IN THE PROFIT AND LOSS ACCOUNT AND THE INSTANT CASE WAS JUST REVERSAL OF SUCH AMOUNTS FOR WHICH DEDUCTION WAS NOT CLAIMED IN - : 8 : - 8 EARLIER YEARS. UNDER THESE CIRCUMSTANCES, PROVISIONS OF SECTION 43 B IS NOT APPLICABLE. ACCORDINGLY, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 17. THE AO HAS DISALLOWED LEGAL EXPENDITURE OF RS. 2.96 LAKHS BY OBSERVING THAT IN RESPECT OF EXPENSES OF RS. 2.05 LAKHS, THE SAME IS NOT VERIFIABLE AND PROVISIO N OF RS. 92,219/ - WAS MA DE FOR UN - ASCERTAINED LIABILITY. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THE REQUIRED DOCUMENTS AND AFTER CALLING FOR REMAND REPORT FROM THE AO, THE LD. CIT(A) DELETED THE SAME BY OBSERVING THAT COMPLETE D ETAILS OF LEGAL EXPENSES WERE FILED AND PROVISION WAS MADE ON 31 ST MARCH, 2004, IN RESPECT OF BILLS RAISED BY THE COUNSELS ENGAGED BY THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO DEDUCTED TDS ON SUCH PAYMENT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), FOR DELETING THE SAME. 18. EXACTLY, SIMILAR GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN THE ASSESSMENT YEAR 2005 - 06, FOLLOWING THE ANALOGY AS DISCUSSED HEREINABOVE FOR THE ASSESSMENT YEAR 2004 - 05, WE DISMISS ALL THE GROUND S RAISED BY THE REVENUE. - : 9 : - 9 19. I N THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST, 2011. SD/ - SD/ - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH AUGUST, 2011 . CPU* 2 228