Prime Ceramics Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 3302/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62912 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Keywords: Retrospective amendment; Commercial expediency
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 3302/AHD/2011 ASSESSMENT YEAR :2007-08 PRIME CERAMICS PVT. LTD. AT & PO: GAVASAD, PADRA JAMBUSAR ROAD, DISTRICT: VADODARA V/S . ACIT, CIRCLE 4, BARODA PAN NO. AABCP3755D (APPELLANT) .. (RESPONDENT) /BY APPELLANT MS. URVASHI SHODHAN, A.R. /BY RESPONDENT SHRI T. SANKAR, SR. D.R. /DATE OF HEARING 25.07.2012 /DATE OF PRONOUNCEMENT 24.08.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-III, BARODA, ORDER DATED 3 1.10.2011 FOR ASSESSMENT YEAR 2007-08. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING DISALLOWANCE MADE BY AO OF RS.27,44,434/- CLAIMED BY THE APPELLA NT TOWARDS PAYMENT OF ONGC GAS CHARGES DUE TO REVISION IN THE PRICE WITH RETROSPECTIVE EFFECT. LD. CIT(A) FAILED TO APPRECI ATE THE FACT THAT THE LIABILITY CRYSTALLIZED BY WAY OF DEBIT NOTE DATE 30 .03.2007 FOR GAS ALREADY USED FOR PRODUCTION THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING IS ALLOWABLE IN THE YEAR UNDER CONSIDERATION. THIS AD JUDICATION BY LD. CIT(A) NOT ADHERING TO ACCOUNTING PRINCIPLES DESERV ES TO BE QUASHED. ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 2 2. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMI NG ADDITION MADE BY AO OF RS.2,52,240/- U/S 40A (3) OF THE ACT. LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT IS MADE TO M ADHYA GUJARAT VIJ AGENCY IN CASH ON THE BASIS OF COMMERCIAL EXPEDIENC Y SINCE MGVCL REFUSED TO ACCEPT THE PAYMENT BY OUTSTATION CHEQUE. LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY AO AS THE RULE 6DD(B) OF THE ACT PROVIDES THAT IN CASE OF PAYMENT TO GOVERNM ENT AGENCY DISALLOWANCE UNDER THE PROVISIONS OF SECTION40A(3) IS NOT REQUIRED TO BE MADE. THE ORDER OF LD. CIT(A) BEING ERRONEOUS REQU IRES TO BE QUASHED. 2. THE FIRST GROUND OF APPEAL IS AGAINST CONFIRMING DISALLOWANCE MADE BY THE A.O. OF RS.27,44,434/- FOR PAYMENT OF ONGC GAS CHARGES. THE BRIEF FACT OF THE CASE IS THAT THE APPELLANT COMPANY ENGAGED I N THE BUSINESS OF MANUFACTURING OF CERAMIC GLAZE MIXTURE/GLASS FRIT. THE APPELLANT FILED RETURN OF LOSS OF RS.24,41,982/- WHEREAS THE LD. A.O. HAD COM PUTED THE INCOME U/S. 143(3) OF THE IT ACT AT RS.5,72,889/-. THE ASSESSE E CONSUMED GAS IN MANUFACTURING PROCESS WHICH WAS PURCHASED FROM ONGC . THE CONSUMPTION OF GAS WAS SUBSTANTIALLY INCREASED WHEREAS THE PROD UCTION OF THE ASSESSEE COMPANY HAD NOT BEEN INCREASED COMPARE TO CONSUMPTI ON OF GAS. THE ONGC HAD RAISED DEBIT NOTES FOR PRICE HIKE STATED T O HAVE BEEN RECEIVED BY THE APPELLANT IN FIRST WEEK OF APRIL, 2007. THEREF ORE, LD. A.O. COULD NOT FIND THE LIABILITY TO PAY THE SAID AMOUNT AS NOT CRYSTALLIZE D DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. T HE DEBIT NOTES WERE RAISED BY THE ONGC IN PRECEDING YEAR AND WERE RECEI VED BY THE APPELLANT IN THE SUBSEQUENT FINANCIAL YEAR I.E. 07-08. THE EXTR A PRICE RAISED BY THE ONGC THROUGH DEBIT NOTES WAS ARISEN IN THE FINANCIAL YE AR 2007-08 RELEVANT TO ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 3 ASSESSMENT YEAR 2008-09. THE ASSESSEE WAS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, THE A.O. DID NOT ALLOW THE EXPENDITURE OF RS.27,44,434/-. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE FILED THE APPEAL BEFORE THE CIT(A)-III, BARODA, WHO HAS CONFIRMED TH E ADDITION BY RELYING UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V/S CIT . 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE LIABILITY HAD BEEN CRYSTALLIZED IN FINANCIAL YEAR 06-07 VIDE DEBIT NOTE DATED 30.03.2007 AND THE DEBIT NOTES WER E RECEIVED IN THE FIRST WEEK OF APRIL 2007. THE ONGC IS A GOVERNMENT COMPA NY. THE LIABILITY WAS UNDISPUTEDLY PERTAINED FOR THE PERIOD OF 01.04.2005 TO 30.09.2006. HE FURTHER RELIED UPON THE HONBLE GUJARAT HIGH COURT DECISION IN CASE OF CIT-I VS. MANOJ B. MANSUKHANI IN TAX APPEAL NO. 941 OF 2010 WHERE HONBLE GUJAR AT HIGH COURT HAS CONFIRMED THE FINDINGS OF THE ITAT. IN T HIS CASE, THE ACTUAL EXPENDITURE WAS PERTAINED TO FINANCIAL YEAR 2003-04 AS SERVICES WERE PROVIDED IN THE MONTH OF FEBRUARY, 2004 AND MARCH, 2004 WHEREAS THE DEBIT NOTE WAS ISSUED IN APRIL 2004. THE TRIBUNAL HAD DE CIDED IN THIS CASE THAT MERELY THE DEBIT NOTE ISSUED IN SUBSEQUENT YEAR, TH E EXPENSES CANNOT BE DISALLOWED. THE ITAT RELIED UPON THE PRINCIPLE LAI D DOWN IN CASE OF BHARAT EARTH MOVERS 245 ITR 428 (SC) AND THE OBSERVATION OF THE HONBLE SUPREME COURT IS THAT THE LAW IS SETTLED IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWE D ALTHOUGH THE LIABILITY ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 4 MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTUR E DATE, WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOU LD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTU AL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED T HE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IN NOT CERTAIN. THEREFORE, RESPE CTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT, THE ADDITION MADE BY AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESS EE. 5. ANOTHER SIDE, LD. D.R. RELIED UPON THE ORDERS OF THE CIT(A) AND A.O. AND REQUESTED TO CONFIRM THE ADDITIONS. 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW, HEARD THE ARGUMENTS OF BOTH THE SIDES AND GONE THROUGH THE CA SE LAWS CITED BY BOTH THE PARTIES. THE EXPENSES WERE UNDISPUTEDLY RELATED TO THE PERIOD OF 01.04.2005 TO 30.09.2006. THE DEBIT NOTE WAS DATED 30.03.2007 AND RECEIVED IN THE FIRST WEEK OF APRIL 2007. FOLLOWING THE HONBLE SUPREME COURT DECISION IN CASE OF BHARAT EARTH MOVERS (SUPRA), THE LIABILITY WAS DEFINITELY ARISED IN THE FINANCIA L YEAR 06-07 BUT QUANTIFIED ON THE RECEIPT OF DEBIT N OTES. THE LIABILITY WAS CERTAIN NOT CONTINGENT. THEREFORE, LD. CIT(A) WAS NOT JUSTIFYING IN CONFIRMING THE CLAIM OF THE ASSESSEE OF RS. 27,44,434/-. ACC ORDINGLY, THE ORDER OF THE CIT(A) IS REVERSED AND THE APPELLANTS APPEAL IS AL LOWED. ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 5 7. THE SECOND GROUND OF APPEAL IS AGAINST CONFIRMIN G THE ADDITION OF RS.2,52,240/- U/S 40A (3) OF THE ACT. THE A.O. OBS ERVED THAT THE ASSESSEE MADE CASH PAYMENT EXCEEDING RS.20,000/- OTHERWISE T HAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT TO MADHYA GUJARAT VIJ COMPANY LIMITED OF RS.12,61,203/-. THE A.O. FOUND THE VIOLATION OF SECTION 40A(3) OF THE IT ACT. THEREFORE, HE MAD E ADDITION OF RS.2,52,240/- I.E. 20% OF RS.12,61,203/-. 8. BEING AGGRIEVED WITH THE ORDER OF THE A.O., THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A), WHO HAS CONFIRMED THE ADDITION. THE OBSERVATION OF THE CIT(A) IN PARAGRAPH NO. 7.2 IS AS UNDER:- 7.2 I HAVE GONE THROUGH THE FACTS OF THE CASE, OBS ERVATION OF THE AO AS ALSO THE SUBMISSION MADE BY THE AR. THE APPELLA NT HAS NOT MADE IT A CASE THAT THERE IS NO BANKING FACILITY AT MUVAL V ILLAGE, TAL. PADRA, DISTRICT BARODA. NON-MAINTENANCE OF BANK ACCOUNTS AT THIS PLACE BY THE APPELLANT WILL NOT MAKE IT GO OUT OF PERVIEW OF SEC TION 40A(3). AS PER THE PROVISIONS OF SECTION 40A(3), THE PAYMENT CAN B E MADE EITHER BY A CROSSED CHEQUE DRAWN ON A BANK OR BY A CROSSED BANK DRAFT. HENCE, THE APPELLANT COULD HAVE ALWAYS MADE THE PAYMENT TO MGVCL BY MEANS OF A CROSSED BANK DRAFT PAYABLE AT MUVAL VILL AGE. THUS, THE APPELLANT IS NOT ENTITLED FOR EXEMPTIONS PROVIDED U NDER RULE 6DD OF THE INCOME-TAX RULES R.W.S. 40A(3). IN SUCH A SITUATIO N, ACTION OF THE A.O. IS CORRECT. ACCORDINGLY, THIS GROUND OF APPEAL IS DIS MISSED. 9. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THESE PAYMENTS WERE MADE TO MADHYA G UJARAT VIJ COMPANY LIMITED WHICH IS GOVERNMENT UNDERTAKING WHO HAD REF USED TO ACCEPT THE ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 6 PAYMENT BY OUTSTATION CHEQUE. THESE PAYMENTS WERE FOR ELECTRIC CONSUMPTION. THEREFORE, IT SHOULD BE ALLOWED. 10. FROM THE SIDE OF THE REVENUE, HE RELIED UPON TH E ORDERS OF CIT (A) AND A.O. AND REQUESTED TO CONFIRM THE ADDITION. 11. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH T HE FACTS OF THE CASE. THE MADHYA GUJARAT VIJ COMPANY LIMITED IS A GOVERNM ENT UNDERTAKING OF THE GUJARAT GOVERNMENT. THE PAYMENTS WERE MADE FOR ELE CTRICITY CONSUMPTION IN CASH ON THE BASIS OF COMMERCIAL EXPEDIENCY. THE MG VCL HAS ALSO REFUSED TO ACCEPT THE PAYMENT THROUGH OUTSTATION CHEQUE. T HE GENUINENESS OF THE EXPENSES WERE NOT DOUBTED BY THE AUTHORITIES BELOW. THEREFORE, THE CIT(A) WAS NOT RIGHT IN CONFIRMING THE ADDITION U/S40A(3) OF THE IT ACT. ACCORDINGLY, THE ASSESSEE APPEAL IS ALLOWED. 12. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 24.08.2012 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ITA NO. 3302/AHD/2011 A.Y. 07-08 PAGE 7 ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 21.08.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 21.08.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 24.08.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 24.08.2012