ACIT, New Delhi V. M/s. Gulshan Chemicals Ltd., New Delhi

ITA 3323/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6348 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: P N MEHTA
• Keywords: Loose papers; Revised return
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.3323/DEL/2012 ASSESSMENT YEAR : 2009-10 ACIT, CIRCLE 12 (1), NEW DELHI. VS. GULSHAN CHEMICALS LTD., E-12, GROUND FLOOR, GREATER KAILASH-I, NEW DELHI. PAN : AAACG4002H ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P.N. MEHTA, FCA DEPARTMENT BY : S HRI SATPAL SINGH, SR. DR ORDER PER A.D. JAIN, JUDICIAL MEMBER: THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2009-10 A GAINST THE ORDER DATED 26.04.2012, PASSED BY THE LD. CIT (A)-XV, NEW DELHI, TAKING THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS .37,68,727/- MADE BY THE AO ON ACCOUNT OF VARIATION IN CLOSING STOCK . 2. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS .5,00,000/- MADE BY THE AO ON ACCOUNT OF FUEL EXPENSES. ITA NO.3323/DEL/2012 2 3. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS .6,00,000/- MADE BY THE AO ON ACCOUNT OF STORES AND SPARES EXPENSES. 2. AS PER THE RECORD, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING, EXPORT AND IMPORT OF CHEMIC ALS. IT FILED ITS RETURN OF INCOME FOR THE YEAR ON 29.9.09, DECLARING INCOME OF ` 1,40,07,659/-. SUBSEQUENTLY, ON 26.11.09, IT FILED REVISED RETURN, D ECLARING INCOME OF ` 1,43,11,522/-. STILL LATER, ON 14.12.09, IT FILED A NOTHER REVISED RETURN DECLARING AN INCOME OF ` 1,05,42,795/-. 3. APROPOS GROUND NO.1, THE AO ASKED THE ASSESSEE TO EXPL AIN THE REASONS FOR DEDUCTION IN INCOME AS SHOWN IN THE REVISED RETURN. THE ASSESSEE SUBMITTED VIDE REPLY DATED 17.08.11 THAT THE DI FFERENCE IN THE INCOME WAS CAUSED DUE TO VARIATION IN THE VALUE OF CL OSING STOCK AS ON 31.3.09. THE AO OBSERVED THAT THE ASSESSEE REMAINED NOT ABLE TO PLACE ON RECORD ANY COGENT EVIDENCE SUPPORTING ITS CASE. AS A RE SULT, THE AO REJECTED THE EXPLANATION OFFERED BY THE ASSESSEE AND ADDED BACK AN AMOUNT OF ` 37,68,727/-, BEING THE DIFFERENCE IN THE CLOSING STOC K AS SHOWN IN THE RETURN FILED ON 14.12.09 AND THAT FILED ON 26.11.09, I.E., THE DIFFERENCE BETWEEN THE TWO REVISED RETURNS. 4. THE LD. CIT (A) DELETED THIS DISALLOWANCE. 5. THE LD. DR HAS CONTENDED THAT THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 37,68,727/- CORRECTLY MADE BY THE AO ON ACCOUNT OF VARIATION IN CLOSING STOCK; THAT WHILE DOING SO, THE L D. CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAD REMAINED UNAB LE TO PRODUCE ANY COGENT EVIDENCE TO SUPPORT ITS CASE. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MAT ERIAL ON RECORD WITH REGARD TO THIS ISSUE. WHILE DELETING THE DISALLO WANCE, THE LD. CIT (A) HAS ITA NO.3323/DEL/2012 3 DULY TAKEN INTO CONSIDERATION THE EXPLANATION OF TH E ASSESSEE THAT THE REASON FOR FILING THE REVISED RETURN WAS ON ACCOUNT OF MISTAK E IN TAKING THE VALUE OF THE CLOSING STOCK AT A HIGHER FIGURE OF ` 37,68,727/-, AS CONTENDED BEFORE THE AO. THE SAID MISTAKE HAD BEEN COMMITTED BY THE STAFF O F THE ASSESSEE COMPANY WHILE FILING THE ORIGINAL E-RETURN. IN COLU MN 4 OF PART A P&L, OF THE RETURN OF INCOME, THE CLOSING STOCK HAD WRONGLY BEEN MENTIONED AS ` 2,65,61,073/-, INSTEAD OF ` 2,27,92,346/-. IT WAS AS A RESULT OF THIS MISTAKE, THAT THE INCOME SHOWN IN THE RETURN HAD BEEN TAKEN A T ` 1,40,07,659/-, ON WHICH, THE ASSESSEE COMPANY HAD PAID A TOTAL TAX OF ` 47,61,204/-. THE MISTAKE CAME TO THE NOTICE OF THE MANAGEMENT LATER, WHEN THE CONCERNED EMPLOYEE HAD LEFT THE SERVICES OF THE COMPANY. THE OR IGINAL RETURN AND THE TAX FILED HAD ALSO BEEN MISPLACED BY THE EMPLOYEE. IT WAS ON NOTICING THE SAID MISTAKE THAT THE RETURN WAS REVISED, SHOWING THE CO RRECT VALUE OF CLOSING STOCK AT ` 2,27,92,346/- AND DECLARING THE ASSESSEES NET INCOME A T ` 1,05,42,795/- AND CLAIMING A REFUND OF ` 9,10,069/-. THESE CLARIFICATIONS WERE MADE IN THE ASSESSEES LETTER DATED 19.08.11, THE EXTRAC T WHEREOF HAS BEEN REPRODUCED IN THE IMPUGNED ORDER AT PAGES 4-5 THEREO F. IN THIS LETTER, IT WAS ALSO STATED BY THE ASSESSEE BEFORE THE AO THAT IN THE SCH EDULE-6 (INVENTORIES) OF THE ASSESSEES BALANCE SHEET AS ON 31.3.09 (A COPY WHEREOF WAS FILED) THE ASSESSEE HAD SHOWN THE DETAILS OF STOCK AS ` 2,27,92,346/-, AS PER THE REVISED RETURN OF INCOME DATED 14.12.09. THE ASSESSEE ALSO CONTENDED THAT THERE HAD BEEN NO CHANGE IN THE FIGU RES AS AUDITED BY ITS AUDITORS ON 31.7.09 AND THE ERROR HAD BEEN NOTICED I N THE COURSE OF THE INTERNAL CHECK BY THE COMPANY. THE ASSESSEE ALSO SUBMITTE D THAT THE ASSESSEES EXCISE RECORD IN RG-23, PART II AND RG-1 FOR R AW MATERIAL AND WORK-IN-PROGRESS AND FINISHED GOODS, RESPECTIVELY, ALSO SH OWED THE QUANTITY OF THE ASSESSEES STOCK AS ON 31.3.09, AS PER THE BALANCE S HEET AND RETURN OF INCOME FILED AND SUBMITTED TO THE CENTRAL EXCISE DEP ARTMENT, WHICH HAD ALSO BEEN VERIFIED BY THE CENTRAL EXCISE DEPARTMENT. THIS QUANTITY WAS ALSO GIVEN BY THE ASSESSEE COMPANY IN ITS COMPUTATION CHART FORMING PART OF FORM 3CD DULY AUDITED BY ITS AUDITORS. A COPY THEREOF WAS ATTAC HED. THE ASSESSEE HAD ITA NO.3323/DEL/2012 4 SUBMITTED ON THE BASIS OF THE ABOVE THAT THERE HAD BEE N NO CHANGE IN THE ORIGINAL STOCK FIGURES OF THE ASSESSEE AS AUDITED AND AS C ONTAINED IN THE REVISED RETURN FILED ON 14.12.09. FURTHER, THE ASSESSEE ALSO SUBMITTED THE FOLLOWING DOCUMENTS BEFORE THE LD. CIT (A) IN SUPPORT OF ITS CLAIM AS HAD BEEN DONE BEFORE THE AO:- A) PRINTED AUDITED BALANCE SHEET SHOWING THE VALUE OF I NVENTORY AS PER SCHEDULE NO.6 TO BE RS.227,92,346/-. B) DAILY STOCK STATEMENT RECEIVED FROM THE WORKS AND AS PE R THE EXCISE RECORDS AS ON 31.03.2009 SUBMITTED TO CENTRAL EXCISE DE PARTMENT AND STATE BANK OF INDIA, NEW DELHI. C) STATEMENT OF CLOSING STOCK OF FINISHED GOODS AND WORK-I N-PROGRESS AS ON 31.03.2009 SUBMITTED TO DEPARTMENT OF CENTRAL EXC ISE, BHIWADI. D) CONSUMPTION CHART AS ON 31.03.2009 (ANNEXURE TO THE T AX AUDIT REPORT GIVING COMPLETE OPENING PURCHASE, CONSUMPTION AND CLO SING STOCK OF RAW MATERIAL, WORK-IN-PROGRESS AND FINISHED GOODS). E) COPY OF RG-1 REGISTER OF CENTRAL EXCISE GIVING EACH F INISHED GOOD STOCK POSITION AS ON 31.03.2009. F) COPY OF RG-23-A, PART-1 OF CENTRAL EXCISE REGISTER GI VING INDIVIDUAL STOCK POSITION OF VARIOUS EXCISABLE RAW MATERIALS, PACKI NG MATERIAL AS ON 31.03.2009. 8. IT WAS SUBMITTED THAT THE ABOVE RECORDS, IN EACH CA SE, TALLIED WITH THE DAILY STOCK STATEMENT SUBMITTED AND THE TOTAL STOCK OF RAW MATERIAL, FINISHED GOODS, FUEL, PACKING MATERIAL AND WORK-IN-PROGRESS OF ` 2,27,92,346/-, AS PER THE AUDITED ACCOUNTS OF THE ASSESSEE COMPANY. 9. THE FACTUM OF THE ABOVE DOCUMENTS HAVING BEEN PRO DUCED BEFORE THE AO, WAS ACKNOWLEDGED ON HIS ORDER SHEET NOTING DATED 1 9.8.11. 10. THE ASSESSMENT ORDER (PAGE 1, SECOND PARA) ALSO MENTI ONS THAT: DURING THE COURSE OF HEARING BOOKS OF ACCOUNTS WER E PRODUCED WHICH HAVE BEEN TEST CHECKED. THE CLOSING STOCK WAS V ERIFIED WITH THE ITA NO.3323/DEL/2012 5 HELP OF BILLS/VOUCHERS AND THE CENTRAL EXCISE RECORD S AND THE CASE WAS DISCUSSED WITH THE ASSESSEES COUNSEL. 11. BEFORE US, THE DEPARTMENT HAS NOT BEEN ABLE TO RE FUTE THE FINDINGS OF FACT RECORDED BY THE LD. CIT (A). AS PER THE AUDITED BALANCE SHEET OF THE ASSESSEE, THE VALUE OF CLOSING STOCK IS ` 2,27,92,346/-. THE QUANTITY OF CLOSING STOCK TALLIES WITH THE FIGURE OF EXCISE RECORDS IN RG-23, PART II AND RG- 1. AS SUCH, THE LD. CIT (A) IS CORRECT IN HOLDING THA T THE AO WRONGLY TOOK THE VALUE OF STOCK OF THE ASSESSEE, AS SHOWN IN THE ORIGINAL R ETURN OF INCOME. THEREFORE, THE LD. CIT (A) RIGHTLY DIRECTED THE AO TO ADOPT THE FIGURE OF THE ASSESSEES CLOSING STOCK AT ` 2,27,92,346/-, AS DECLARED IN THE REVISED RETURN FILED ON 14.12.09, AS AGAINST THE VALUE OF CLOSING STOC K OF ` 2,65,61,073/-, AS TAKEN BY THE ASSESSEE IN ITS ORIGINAL RETURN OF INCOME. 12. IN VIEW OF THE ABOVE, FINDING NO ERROR THEREIN, THE CIT (A)S ORDER ON THIS ISSUE IS CONFIRMED. GROUND NO.1 IS REJECTED. 13. ADDRESSING GROUND NO.2, THE AO COMPARED THE FUEL EXPENSES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WITH THOSE OF T HE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND FOUND THAT THERE WAS A SUBST ANTIAL INCREASE THEREIN. HOLDING THAT THE BILLS/VOUCHERS PRODUCED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE, OUT OF THE TOTAL EXPENSES OF ` 26,27,504/-, THE AO DISALLOWED AN AMOUNT OF ` 5 LAC. 14. THE LD. CIT (A) DELETED THE SAID DISALLOWANCE. 15. THE LD. DR HAS CONTENDED THAT THE LD. CIT (A) HA S ERRED IN DELETING THE DISALLOWANCE OF ` 5 LAC CORRECTLY MADE BY THE AO ON ACCOUNT OF FUEL EXPENSES, WITHOUT TAKING INTO CONSIDERATION THE FACT T HAT THE BILLS/VOUCHERS PLACED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. 16. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE CI T (A)S ORDER IN THIS REGARD. ITA NO.3323/DEL/2012 6 17. THE CIT (A), WHILE DELETING THE DISALLOWANCE, HA S CONSIDERED EXPLANATION OF THE ASSESSEE THAT THE FIGURE OF ` 26,27,504/- WAS NOT THE FIGURE OF FUEL CONSUMPTION AND THE CORRECT FUEL CONS UMPTION WAS OF ` 6,32,63,773/-, AS COMPARED TO THAT OF ` 5,46,31,886/- FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE SALES OF THE ASSESSEE COMPANY DURING THE YEAR WERE OF ` 56,09,71,932/-, AS COMPARED TO THOSE OF ` 39,34,31,972/- FOR THE PRECEDING YEAR. PERCENTAGEWISE, IT WORKED OUT TO 11.28% FOR THE YEAR, AS COMPARED TO 30.89% FOR THE PRECEDING YEAR. THE AO H AD MADE THE ADDITION OUT OF THE CLOSING STOCK INCORRECTLY. ALL THE FUEL EX PENSES HAD BEEN MADE ON REGULAR BILLS FROM THE SUPPLIERS AND THE PAYMENT HAD B EEN MADE THROUGH ACCOUNT PAYEE CHEQUES. A COPY OF THE ASSESSEES FUEL ACCO UNT WAS FILED. 18. THE FINDINGS OF FACT RECORDED BY THE LD. CIT (A) IN THIS REGARD ALSO REMAINED UN-REBUTTED. ACCORDINGLY, THE CIT (A)S ORD ER IN THIS REGARD IS ALSO UPHELD. GROUND NO.2 IS REJECTED. 19. COMING TO GROUND NO.3, ON COMPARING THE STORES AN D SPARES EXPENSES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WITH TH OSE FOR THE IMMEDIATELY PRECEDING YEAR, THE AO FOUND THERE TO B E A SUBSTANTIAL INCREASE. HOLDING THAT THE BILLS/VOUCHERS PRODUCED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE, OUT OF THE TOTAL EXPENSES OF ` 23,90,280/-, THE AO MADE A DISALLOWANCE OF ` 6 LAC. 20. THE LD. CIT (A) DELETED THE DISALLOWANCE CONSIDER ING THAT DURING THE YEAR, THE ASSESSEE COMPANY HAD PURCHASED VARIOUS ITEMS OF SPARES AND EQUIPMENT REQUIRED FOR REPAIR AND MAINTENANCE. IT W AS THE ASSESSEES EXPLANATION, WHICH WAS NOTED BY THE LD. CIT (A) THAT THE ITEMS PURCHASED BY THE ASSESSEE WERE ISSUED TO THE PLANT AND CONSIDERED AS CON SUMED DURING THE YEAR. AT THE END OF THE FINANCIAL YEAR, PHYSICAL STOCK HAD BEEN TAKEN IN THE STORES AND A LIST OF ITEMS AVAILABLE, I.E., SPARES, E QUIPMENT, OTHER MECHANICAL EQUIPMENT, PIPES AND METAL COMPONENTS, ETC ., WAS MADE AND WAS DULY VERIFIED BY THE STORES INCHARGE AND THE ACC OUNTS SUPERINTENDENT ITA NO.3323/DEL/2012 7 AT THE PLANT. THE AMOUNT OF CLOSING STOCK AS PER THE P HYSICAL STOCK TAKING LIST AT THE END OF THE FINANCIAL YEAR WAS CREDITED TO THE ASSESSEES REPAIR AND MAINTENANCE - PLANT AND MACHINERY ACCOUNT AND DEBI TED TO THE STOCK OF STORES AND SPARES. THIS WAS THE PRACTICE REGULARLY C ARRIED ON BY THE ASSESSEE. FOR THE YEAR, CLOSING STOCK OF STORES AND SPARES A T ` 23,90,280/- AS PER THE PHYSICAL STOCK TAKING LIST, HAD BEEN CREDITED BY THE ASSESSEE TO ITS REPAIR AND MAINTENANCE - PLANT AND MACHINERY ACCO UNT AND DEBITED TO STORES AND SPARES. A COPY OF VOUCHER PASSED DATED 31.3 .09 ALONG WITH THE TOTAL PHYSICAL STOCK TAKING LIST DULY VERIFIED AT THE PLANT, WAS PLACED BEFORE THE CIT (A). PURCHASE BOOK ALONG WITH ORIGINAL BILLS FOR VERIFICATION OF THE STOCK ITEMS PURCHASED, OUT OF WHICH, THE ITEMS LEFT UN- USED WERE SHOWN IN THE STOCK LIST AS ON 31.3.09, WERE ALSO FILED. ALL THE PURCHASES WERE ON REGULAR BILLS. AS SUCH, THE AO WENT WRONG IN OBSERVING THAT THE BILLS/VOUCHERS WERE MADE ON LOOSE PAPERS AND WERE, HENCE, NOT VERIF IABLE. ALL THE PURCHASE TRANSACTIONS WERE THROUGH CHEQUE PAYMENT, BUT FOR SOME SMALL PURCHASES DONE ON URGENT BASIS AT THE PLANT ITSELF, IN CASH, THRO UGH REGULAR CASH MEMOS, ENTRY QUA WHICH WAS DULY MADE IN THE ASSESSEES BOO KS OF ACCOUNT. FURTHER, THE ASSESSEE HAD NOT CLAIMED THIS STOCK AS EXPE NSE U/S 37(1) OF THE IT ACT. RATHER, AN ASSET WAS CREATED IN THE INVENTORY TO BE CLAIMED IN THE NEXT YEAR. THE EXPENDITURE OF ` 23,90,280/- WAS, THUS, FOUND BY THE LD. CIT (A) TO BE THE FIGURE OF CLOSING STOCK AS PER THE ASSESSEE S BOOKS OF ACCOUNT. THE FINANCIAL STATEMENT PRODUCED SHOWED THAT THE ASSESS EE HAD INCURRED AN EXPENDITURE OF ` 22,44,950/- DURING THE YEAR ON STORES AND SPARES AS AGA INST A SIMILAR EXPENDITURE OF ` 43,21,655/- IN THE IMMEDIATELY PRECEDING YEAR. THE BOOKS OF ACCOUNT STOOD DULY AUDITED. THE AUDITORS HAD NOT QUALIFIED THE AUDIT REPORT. THE AO HAD NOT POINTED OUT ANY DISCREPANCY A BOUT THE EXPENSES CLAIMED TO HAVE BEEN INCURRED, NOR WAS THE GENUINENE SS OF THE EXPENDITURE DOUBTED. THERE WAS ALSO NO FINDING TO THE EFFECT THAT THE EXPENSES HAD BEEN INCURRED FOR ANY NON-BUSINESS PURPOSE. ITA NO.3323/DEL/2012 8 21. THE DETAILS OF THE ASSESSEES STORES AND SPARES, AS SUBMITT ED BEFORE THE LD. CIT (A) ALONG WITH ITS LETTER DATED 20.04.20 12, CONTAINING THE ABOVE EXPLANATION OF THE ASSESSEE, HAVE ALSO BEEN FILED BEFORE US, AT PAGES 66-81 OF THE ASSESSEES PAPER BOOK. THE DETAIL OF PHYSICAL STOCK OF STORES AND SPARES TAKEN ON 31.3.09 (APB 68) TOTALS TO ` 23,90,280.51. THE DETAILS OF STORES AND SPARES CLOSING STOCK FOR THE YEAR 2008-09 ARE AT APB 69-78 AND 80-81. THESE DETAILS INCLUDE DESCRIPTION OF THE STORES A ND SPARES, THE PARTY FROM WHOM THEY WERE PURCHASED, THE BILL NO., THE BIL LING DATE, THE QUANTITY, THE RATE AND THE AMOUNT. THE CLOSING STOCK AS ON 31.3 .09 HAS BEEN GIVEN AT APB 79. 22. NONE OF THE ABOVE EVIDENCE PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM, AS CONSIDERED IN DETAIL BY THE LD. CIT (A), HA VE BEEN REFUTED BEFORE US BY THE DEPARTMENT. THEREFORE, FINDING NO ERROR WHAT SOEVER IN THE CIT (A)S ORDER ON THIS ISSUE ALSO, THE SAME IS UPHELD. GROUND NO. 3 ALSO STANDS REJECTED. 23. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.05.201 4. SD/- SD/- [ R.S. SYAL ] [A.D. JAIN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 07 TH MAY, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.