ADDL CIT 1(3), MUMBAI V. THIRUMALAI CHEMICALS LTD, MUMBAI

ITA 3349/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49135 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT LAL
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

1 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NOS. 2072/MUM/2009, ASSESSMENT YEARS 2005-06 THIRUMALAI CHEMICALS LIMITED, THIRUMALAI HOUSE, ROAD NO. 29, SION (E), MUMBAI 400 022. PAN AAACT2015M VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 1(3). APPLICANT RESPONDENT ITA NOS. 3349/MUM/2009, ASSESSMENT YEARS 2005-06 ADDL. COMMISSIONER OF INCOME TAX, RANGE 1(3). VS. THIRUMALAI CHEMICALS LIMITED, THIRUMALAI HOUSE, ROAD NO. 29, SION (E), MUMBAI 400 022. PAN AAACT2015M APPLICANT RESPONDENT ASSESSEE BY SHRI HIRO RAI DEPARTMENT BY SHRI HEMANT LAL ORDER PER R.K. PANDA A.M. THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDER DT. 6.2.2009 OF THE CIT(A)- XXI, MUMBAI RELATING TO A.Y. 2005-06 . THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO. 2072/MUM/2009 (BY ASSESSEE) 2. IN GROUNDS OF APPEAL NO.1, THE ASSESSEE HAS CHAL LENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER IN DISALLOWING THE EXPENSES OF ` 2,14,091/- ON THE GROUND THAT THE SAME ARE PRIOR P ERIOD EXPENSES. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE GROUND IS DECIDED AGAINST THE ASSESSEE BY THE DECIS ION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING A.YRS. I.E. 2 002-03, 2003-04 & 2004-05 2 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. VIDE CONSOLIDATED ORDER DATED 29.12.2010 IN ITA NOS . 2203/M/2007, 538/MUM/2008 & 539/MUM/2008 WHICH WAS NOT OBJECTED TO BY THE LD. D.R. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 4. IN GROUNDS OF APPEAL NO. 2, THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER IN NOT DIRECTING THAT THE EXPENSES TREATED AS PRIOR EXPENSES IN A.Y. 2006-07 BE ALLOWED AS A DEDUCTION FOR THIS YEAR . 5. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISS UE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDIN G A.YRS. I.E 2002-03, 2003- 04 & 2004-05. WE FIND THE TRIBUNAL FOR THE A.Y. 20 02-03 AT PARA 10 OF THE SAID ORDER HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE BY HOLDING AS UNDER :- 10. LEARNED REPRESENTATIVES FAIRLY AGREED THAT THE AFORESAID GRIEVANCE SO RAISED BY THE ASSESSEE IS SQUARELY COV ERED BY THE TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1996-97, WHEREIN, A CO-ORDINATE BENCH OF THIS TRIBU NAL VIDE ORDER DATED 6 TH JANUARY, 2009, INTER ALIA, OBSERVED AS FOLLOWS: 32. GROUND NOS.7 AND 8 DEAL WITH THE DISALLOWANCE TOWARDS PRIOR PERIOD EXPENSES. IN GROUND NO.7, THE ASSESSEE IS ASSAILIN G THE CONFIRMATION OF DISALLOWANCE OF ` 21,03,290/- AS PRIOR PERIOD EXPENSES WHICH AMOUNT WAS DISALLOWED BY THE AO. IN GROUND NO.8, IT IS CONTEN DED THAT IN THE NEXT YEAR, I.E. 1997-98 DISALLOWANCE OF ` 6,92,027/- HAS BEEN MADE TOWARDS PRIOR PERIOD EXPENSES. THE LEARNED A.R. SUBMITTED THAT THE BILLS WERE RECEIVED AFTER THE CLOSE OF THE YEAR AND AS SUCH TH E DEDUCTION OUGHT TO HAVE BEEN ALLOWED FOR ` 21.03 LAKHS. HE RELIED ON SOME DECISIONS IN SUPPORT OF HIS CASE. IN THE ALTERNATIVE, IT WAS PL EADED THAT SINCE THE PROCEEDINGS FOR AY 1996-97 ARE OPEN BY VIRTUE OF TH ESE APPEALS, THE DISALLOWANCE MADE IN THE SUCCEEDING YEAR FOR THE EX PENSES RELATABLE TO THE INSTANT YEAR BE ALLOWED. 33. WE FIND THAT THE ASSESSEE IS A COMPANY MAINTAIN ING ITS ACCOUNTS ON MERCANTILE BASIS. UNDER THIS SYSTEM OF ACCOUNTING THE EXPENSES ARE ALLOWED AS DEDUCTION ON THE BASIS OF ACCRUAL NOTWIT HSTANDING THE DATE OF PAYMENT. THE IMPORTANT THING TO BE CONSIDERED IS TH E TIMING OF CRYSTALISATION OF THE LIABILITY AND NOT WHEN THE AC TUAL PAYMENT IS MADE. IN 3 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. CONTRAST, IN THE CASH SYSTEM OF ACCOUNTING THE DEDU CTION IS ALLOWED TOWARDS EXPENSES AS AND WHEN PAYMENT IS MADE IRRESP ECTIVE OF THE TIME OF THE ACCRUAL OF LIABILITY. THE DISPUTED AMOUNT R EPRESENTS THE CASES IN WHICH THE LIABILITY WAS INCURRED BY THE ASSESSEE IN THE PRECEDING YEAR BUT THE BILLS WERE RECEIVED IN THE CURRENT YEAR. AS THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION FOR THESE AMOUNTS IN THE YEAR IN WH ICH THESE WERE INCURRED, BEING THE PRECEDING YEAR AND NOT THE PRES ENT YEAR, THE SAME CANNOT BE ALLOWED IN THE CURRENT YEAR ON THE RECEIP T OF BILLS OR MAKING OF THE PAYMENT. IF THE PRIOR PERIOD EXPENSES ARE ALLO WED IN THE SUBSEQUENT YEAR, THE VERY CONCEPT OF THE MERCANTILE SYSTEM OF ACCOUNTING WILL STAND ABROGATED. WE, THEREFORE, HOLD THAT THE ASSESSEE H AS BEEN RIGHTLY DENIED THE BENEFIT OF DEDUCTION OF ` 21.03 LAKHS REPRESENTING PRIOR PERIOD EXPENSES. SIMILAR VIEW HAS BEEN TAKEN BY THE JODHPU R BENCH OF THE TRIBUNAL IN THE CASE OF ARAVALI MINERALS & CHEMICAL S INDUSTRIES (P)LTD V ACIT (2007) 108 ITD 163 (JODH) TO WHICH ONE OF US ( NAMELY THE AM) IS PARTY. GROUND NO.7 IS THUS NOT ALLOWED. INSOFAR A S GROUND NO.8 IS CONCERNED WE FIND MERIT IN ALLOWING DEDUCTION FOR T HE REASON THAT IN THE SUCCEEDING YEAR THE SAME AMOUNT WAS DISALLOWED AS R ELATABLE TO THE INSTANT YEAR. SINCE THE PROCEEDINGS FOR THE INSTAN T YEAR ARE CONTINUING IN THE FORM OF THE PRESENT APPEALS, IN OUR CONSIDERED OPINION THE ASSESSEE DESERVES DEDUCTION OF ` 6.92 LAKHS. GROUND NO.8 IS, THEREFORE, ALLOWED. RESPECTFULLY FOLLOWING THE VIEWS SO ARTICULATED BY OUR ESTEEMED COLLOGUES, WE DISMISS GROUND NO.5 AND ALLOW GROUND NO.6 AS THE OB SERVATIONS MADE BY THE TRIBUNAL IN THE AFORESAID ORDER WILL APPLY MUTATIS -MUTANDIS IN THE PRESENT YEAR AS WELL. 5.1 FOLLOWING THE DECISION OF THE TRIBUNAL IN THE A SSESSEES OWN CASE CITED SUPRA AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUG HT TO OUR NOTICE WE DIRECT THE A.O. TO ALLOW THE EXPENDITURE RELATABLE TO THIS YEAR AS AN ALLOWABLE DEDUCTION. 6. GROUNDS OF APPEAL NO. 3 & 4 BY THE ASSESSEE READ S AS UNDER:- THE LEARNED CIT WAS NOT JUSTIFIED IN : 3. NOT ALLOWING A DEDUCTION OF ` 25,84,492/- IN RESPECT OF LEASE RENTALS, IN LINE WITH THE STAND TAKEN BY THE DEPART MENT IN THE EARLIER YEARS. THIS CLAIM IS WITHOUT PREJUDICE TO THE CLAI M MADE BY THE APPELLANT IN RESPECT OF LEASE RENTALS IN THE EARLIE R YEARS. 4. NOT ALLOWING A DEDUCTION OF ` 1,89,89,649/- IN RESPECT OF EXPENDITURE ON CATALYSTS, IN LINE WITH THE STAND TA KEN BY THE DEPARTMENT IN THE EARLIER YEARS. THIS CLAIM IS WIT HOUT PREJUDICE TO 4 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. THE CLAIM MADE BY THE APPELLANT IN RESPECT OF EXPEN DITURE ON CATALYSTS IN THE EARLIER YEARS. 6.1. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ABOVE TWO GROUNDS RAISED BY THE ASSESSEE ARE DECIDED AGAI NST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS. I.E. 200 2-03, 2003-04 & 2004-05 VIDE CONSOLIDATED ORDER DATED 29.12.2010 IN ITA NOS . 2203/M/2007, 538/MUM/2008 & 539/MUM/2008. IN VIEW OF THE ABOVE SUBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE AND IN ABSENCE OF ANY OBJECTION BY THE LD. D.R. , THE ABOVE GROUNDS RAISED BY THE ASSESSEE ARE DISM ISSED. 7. GROUND NO. 5 BY THE ASSESSEE RELATES TO DISALLOW ANCE OF AN AMOUNT OF ` 2,82,20,853/-REPRESENTING A PART OF THE EXPENDITURE ON CATALYSTS INCURRED DURING THE YEAR. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT IN THE P&L ACCOUNT, THE ASSESSEE COMPANY HAD DEBITED AN AMOUNT OF ` 47,210,502/- UNDER THE HEAD CATALYST WRITTEN OFF. IN THE COMPUTATION OF INCOME, AN AMOUN T OF ` 1,89,89,649/- HAD BEEN ADDED BACK. ON BEING CONFRONTED BY THE A.O., IT WAS STATED THAT THE ASSESSEE COMPANY USED TO PURCHASE CATALYST IN THE F ORM OF RINGS AND THE SAME ARE REPLACED AT AN INTERVAL OF 4-5 YEARS AND ACCORD INGLY THE SAME HAVE BEEN CLAIMED AS REVENUE EXPENDITURE. THE A.O., HOWEVER, NOTED THAT AN AMOUNT OF ` 2,82,20,853/- HAS BEEN INCURRED BY THE ASSESSEE AGA INST PURCHASE OF RINGS WHICH ARE GOING TO LAST FOR A PERIOD OF 4-5 YEARS T HEREFORE THE SAME IS ENDURING IN NATURE. HE ACCORDINGLY REJECTED THE CLAIM OF TH E ASSESSEE TREATING THE SAME AS REVENUE EXPENDITURE. WHILE DOING SO, HE FURTHER NOTED THAT ON ACCOUNT OF SIMILAR FACTS, THE DEPARTMENT HAS DISALLOWED THE CL AIM OF THE ASSESSEE FURTHER, THE ASSESSEE COMPANY ALSO COULD NOT SUBSTANTIATE IT S CLAIM THAT THE SAID CATALYST IS IN THE NATURE OF CONSUMABLE GOODS. HE ACCORDINGLY MADE AN ADDITION OF ` 2,82,20,853/-. 5 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. 7.2 IN APPEAL, THE CIT(A) FOLLOWING THE ORDER OF HI S PREDECESSOR FOR A.Y. 2002- 03 AS WELL HIS OWN ORDER FOR A.Y. 2004-05 DISMISSED THE GROUND RAISED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 7.3 AFTER HEARING BOTH THE SIDES, WE FIND THE CIT( A) IN HIS ORDER FOR A.Y. 2004-05 IN ASSESSEES OWN CASE HAS IN FACT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF ITAT IN ASSESSEE S OWN CASE IN ITA NO. 4953/MUM/2000 DT. 31.10. 2007 FOR A.Y. 2004-05. TH E RELEVANT PORTION OF THE ORDER OF CIT(A) IN PARA NO. 13 & 14 ARE EXTRACTED B ELOW:- 4 TH GROUND OF APPEAL IS REGARDING EXPENDITURE OF ` 94,72,664/- ON CATALYSTS, BEING TREATED AS CAPITAL EXPENDITURE BY THE A.O. THIS ISSUE IS ALSO COVERED BY THE HONBLE ITATS D ECISION IN THE APPELLANTS OWN CASE VIDE ITA NO. 4943/MUM/2000 DTD . 31.10.2007 FOR A.Y. 1994-95. RESPECTFULLY FOLLOWING THE DECIS ION OF THE HONBLE ITAT IN APPELLANTS OWN CASE, THE EXPENDITURE ON CA TALYSTS IS DIRECTED TO BE TREATED AS REVENUE EXPENDITURE. CONSEQUENTLY , THE ASSESSING OFFICER WILL WITHDRAW THE ADDITIONAL DEPRECIATION I N RESPECT OF THE SAID CAPITAL EXPENDITURE, IF THE SAME HAS BEEN GIVE N. IN THE RESULT, THE APPELLANT SUCCEEDS ON 4 TH GROUND OF APPEAL. FROM THE ABOVE, IT IS CLEAR THAT IN A.Y. 2004-05, T HE CIT(A) HAS CONSIDERED THE EXPENDITURE ON CATALYSTS AS REVENUE EXPENDITURE. HO WEVER, THE CIT(A) WHILE PASSING THE ORDER FOR A.Y. 2005-06 HAS ERRONEOUSLY TREATED THE SAME AS CAPITAL EXPENDITURE BY HOLDING THAT THE SAME HAS BEEN DECID ED AGAINST THE ASSESSEE BY HIM IN THE PRECEDING YEAR WHICH IS FACTUALLY IN-COR RECT. SINCE THE FACTS DURING THE A.Y. 2004-05 ARE IDENTICAL TO THE FACTS OF THE IMPUGNED ASSESSMENT YEAR AND SINCE THE CIT(A) WHILE FOLLOWING THE ORDER FOR A.Y. 2004-05 HAS INCORRECTLY MENTIONED THE SAME AS DECIDED AGAINST THE ASSESSEE, THEREFORE, THE ORDER OF THE CIT(A) FOR A.Y. 2005-06 IS SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. GROUND NO. 6 BY THE ASSESSEE READS AS UNDER:- 6 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. WHILE DECIDING THE GROUND RELATING TO THE ADDITION MADE PLACING RELIANCE UPON SECTION 145A, THE LEARNED CIT(APPEALS ) HAS ERRED IN DIRECTING THAT ONLY THE OPENING STOCK SHOULD BE GRO SSED UP. HE SHOULD HAVE DIRECTED THAT ALL THE DEBITS ON THE DEB IT SIDE OF THE PROFIT AND LOSS ACCOUNT SHOULD BE GROSSED UP. 8.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DURING ASSESSMENT PROCEEDINGS NOTED THAT THE AUDITORS IN THE AUDIT RE PORT U/S 44AB OF THE INCOME-TAX ACT, 1961 HAS MENTIONED THAT THE COMPANY FOLLOWS EXCLUSIVE METHOD FOR ACCOUNTING OF CENVAT CREDIT AVAILED. HE NOTED THAT AS PER THE REMARK GIVEN BY THE AUDITORS IF INCLUSIVE METHOD IS TO BE FOLLOWED, THEN CERTAIN ADJUSTMENTS ARE TO BE MADE. HE ACCORDINGLY OBSERVE D THAT THE ASSESSEE COMPANY HAS NOT INCLUDED THE EXCISE DUTY ON CENVAT OF ` 6,61,15,109/- IN THE CLOSING STOCK FOR YEAR ENDED 31 ST MARCH, 2005. AFTER ANALYZING THE PROVISION OF SECTION 145A OF THE ACT AND FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC), HE INCREASED THE VALUE OF CLOSING STOCK BY ` 6,61,15,109/- AS POINTED BY THE AUDITORS. 8.2 IN APPEAL, THE CIT(A) WHILE GIVING PARTIAL RELI EF TO THE ASSESSEE HAS HELD AS UNDER VIDE PARA 11.2 OF HIS ORDER :- I HAVE CAREFULLY CONSIDERED THE ISSUE. THERE IS NO DOUBT THAT THE FACTS OF THE CASE ARE DISTINGUISHABLE FROM THE FACTS IN T HE CASE OF BRITISH PAINTS (I) LTD. RELIED UPON BY THE A.O. FURTHER, HO NBLE HIGH COURT OF DELHI AND HIGH COURT OF PUNJAB AND HARYANA HAVE HEL D THAT OPENING STOCK HAS ALSO TO BE GROSSED UP. THE SAME VIEW HAS ALSO BEEN FOLLOWED BY THE MUMBAI BENCH OF THE ITAT. THERE IS NO JUDGM ENT OF ANY HIGH COURT HAVING CONTRARY VIEW. RESPECTFULLY FOLLOWING THE DECISIONS OF ITAT, MUMBAI AND THE HIGH COURTS OF DELHI AND PUNJA B AND HARYANA ON THIS ISSUE, THE A.O. IS DIRECTED TO ALLOW THE GR OSSING UP OF OPENING STOCK ALSO. 8.3 AGGRIEVED BY SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE US. 7 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF A.O. AND THE CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE D ECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. HITEC PLAST CONTAINERS (I) LTD. REPORTED IN [2009] 31 SOT 112 (MUM) SUBMITTED THAT FOR THE P URPOSE OF THE PROVISIONS OF SECTION 145A ADJUSTMENTS REQUIRED ON ACCOUNT OF AMO UNT OF TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE NEEDS TO BE MADE FOR VALUATION OF PURCHASE, SALE OF GOODS AND INVENTORY. SINCE THE A .O. HAD SIMPLY RELIED ON THE COMMENTS OF THE AUDITORS FOR ADJUSTMENT TO BE CARRI ED OUT ON CLOSING STOCK ON ACCOUNT OF UNUTILIZED MODVAT CREDIT BALANCE AND HAD NOT APPLIED PROVISIONS OF SECTION 145A IN TOTO, THEREFORE, SUCH AN EXERCISE W AS NOT JUSTIFIED. HE SUBMITTED THAT ACCORDING TO THE SAID DECISION, THE DISALLOWANCE, IF ANY, HAS TO BE MADE U/S 145A BY MAKING ADJUSTMENTS TO PURCHASES , SALES AND INVENTORIES IN RESPECT OF TAX, DUTIES AND CESS PAID BY THE ASSE SSEE. HE SUBMITTED THAT THE TRIBUNAL WHILE DECIDING THE ISSUE HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. MAHAVIR ALUM INIUM LTD. [2008] 297 ITR 77. HE SUBMITTED THAT THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF MAHALAXMI GLASS WORKS PVT. LTD. HAS FOLLOWED THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALUMINIUM LTD. (S UPRA). REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. BE CK INDIA LTD. REPORTED IN (2010) 127 TTJ (MUMBAI) 410, HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHEN THE ASSESSEE FOLLOWS EX CLUSIVE METHOD OF VALUATION AS REGARDS EXCISE DUTY, IT IS NOT JUSTIFIED TO MAKE ADDITION ON ACCOUNT OF CENVAT CREDIT TO THE CLOSING STOCK WITHOUT MAKING A CORRES PONDING ADJUSTMENT IN OPENING STOCK. INVENTORY IN SECTION 145A WILL NECES SARILY INCLUDE IN ITS FOLD BOTH OPENING AS WELL AS CLOSING STOCK. HE SUBMITTED THAT IF ONLY OPENING STOCK IS ADJUSTED THEN, THE INCOME WILL GO DOWN. HE ACCO RDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT(A) NEEDS SOME MODIFICATION. 10. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE A.O. 8 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. 11. AFTER HEARING BOTH THE SIDES, CONSIDERING THE O RDER OF THE A.O. AND LD. CIT(A) AND THE VARIOUS DECISIONS CITED BEFORE US, W E ARE OF THE CONSIDERED OPINION THAT THE MATTER REQUIRE FRESH ADJUDICATION AT THE LEVEL OF A.O. IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S MAHALAXMI GLASS WORKS (P) LTD. (SUPRA). WE, THEREF ORE, RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE ISS UE AFRESH IN THE LIGHT OF THE DECISION CITED SUPRA AND IN ACCORDANCE WITH LAW AFT ER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACC ORDINGLY. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 12. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED TH E ORDER OF THE LD. CIT(A) IN SUSTAINING THE ADDITION OF ` 1,14,064/- AS AGAINST 1,58,064/- ADDED BY THE A.O. ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES. 12.1 FACTS IN BRIEF ARE THAT THE ASSESSEE HAD DEBIT ED AN AMOUNT OF ` 53,35,966/- TOWARDS LEGAL AND PROFESSIONAL CHARGE. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE A.O. NOTED THAT SUND RY RECEIVABLE FROM M/S JLM INTERNATIONAL INC. HAS BEEN SETTLED AT US $ 40,000/ - AND FOR SETTLING THE ABOVE AMOUNT, THE ASSESSEE COMPANY HAS PAID US $ OF 8081. 40 TO THE CONSULTANT/TRUST. THE ASSESSEE COMPANY HAS CREDITE D IN ITS BOOKS AT US $ OF 36407.64. ON BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED THAT EXCESS PAYMENT HAS BEEN MADE TO SETTLE THE ACCOUNT IN THE SUBSEQUENT YEARS AND TREATED AS ADVANCE PAID. HOWEVER, ACCORDING TO THE A.O. SINCE THE ASSESSEE IS LIABLE TO ACCOUNT FOR THE ENTIRE AMOUNT AS INCOME O F THE YEAR, THE UNACCOUNTED PART OF SETTLED AMOUNT OF US $ 3592.36 ( I.E. US $ 40000 US $ 36407.64) HAS TO BE TREATED AS INCOME. ACCORDINGLY, THE A.O. MAD E AN ADDITION OF ` 1,58,064/- BEING EQUIVALENT AMOUNT IN INDIAN RUPEES . 12.2 BEFORE THE LD. CIT(A), THE ASSESSEE FURNISHED A COPY OF THE LETTER OF ATTORNEY DATED 18.3.2005 AND RELATED TRUST STATEMEN T ACCORDING TO WHICH THE ATTORNEY HAD RETAINED US $ 1,000 FOR FURTHER FEES A ND REMITTED $ 36,407/-. 9 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. THIS STILL LEAVES A GAP OF US $ 2,592.36. IT WAS SU BMITTED BEFORE THE LD. CIT(A) THAT THE ABOVE DIFFERENCE IS RELATED EXPENSES FOR T HE SETTLEMENT. HOWEVER, IN ABSENCE OF ANY FURTHER DETAILS REGARDING THE DIFFER ENCE OF US $ 2592.36, THE LD. CIT(A) HELD THAT THE SAME EXPENSES IS NOT RELATED T O BUSINESS. HE ACCORDINGLY SUSTAINED THE ADDITION TO THE EXTENT OF ` 1,14,064/- (BEING INDIAN RUPEE VALUE OF US $ 2592.36). AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 12.3 AFTER HEARING BOTH THE SIDES, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ADMITTEDLY, THE ASSESSEE COULD NOT GIVE THE DETAILS OF EXPENSES TO THE TUNE OF US $ 2592.36. WE DO NOT FIND ANY ME RIT IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT THE CONSULTANT HAS DE BITED THE VARIOUS AMOUNT AND SENT THE BALANCE AMOUNT AND THE ASSESSEE HAS NO T CREDITED ANY LESSER FIGURE. IT IS THE SETTLED PROPOSITION OF LAW THAT FOR CLAIMING ANY EXPENDITURE, THE ONUS IS ALWAYS ON THE ASSESSEE TO PROVE TO THE SATI SFACTION OF THE A.O. REGARDING THE GENUINENESS OF SUCH EXPENDITURE. SUCH ONUS HAS NOT BEEN DISCHARGED IN THE INSTANT CASE. THEREFORE, IN ABSENCE OF ANY FURT HER MATERIAL BROUGHT TO OUR NOTICE, THE ADDITION SUSTAINED BY THE LD. CIT(A) BE ING JUSTIFIED IS UPHELD. THE GROUND RAISED BY THE ASSESSEE ON THIS ACCOUNT IS DI SMISSED. 13. IN GROUNDS OF APPEAL NO. 8, THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF ` 15,38,526/- U/S 14A READ WITH RULE 8-D. 13.1. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY HAS SHOWN DIVIDEND INCOME OF ` 38,88,451/- ON AN INVESTMENT OF ` 24,00,22,077/-. THE ASSESSEE COMPANY HAS CARRIED OUT PURCHASE AND SALE OF SHARES DURING THE YEAR. DURING THE YEAR, THE ASSESSEE COMPANY HAS SOLD 3690 0/- EQUITY SHARES OF IDBI FOR A CONSIDERATION OF ` 32,41,290/-. THE A.O. ASKED THE ASSESSEE TO EXPLAI N AS TO WHY DISALLOWANCE SHOULD NOT BE MADE U/S 14A OF T HE ACT. REJECTING THE 10 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE A.O . DISALLOWED 25% OF THE DIVIDEND INCOME I.E ` 9,72,113/- AS EXPENDITURE ATTRIBUTABLE TO EARNING TAX FREE DIVIDEND INCOME U/S 14A. IN APPEAL, THE CIT(A) DIR ECTED THE A.O. TO RECOMPUTE THE DISALLOWANCE U/S 14A KEEPING IN VIEW THE PRINCI PLES LAID DOWN UNDER RULE 8-D. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE A SSESSEE IS IN APPEAL BEFORE US. 13.2. AFTER HEARING BOTH THE SIDES, WE FIND IDENTIC AL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-0 5. WE FIND THE TRIBUNAL VIDE ORDER DATED 29 TH DECEMBER 2010 IN ITA NO. 539/MUM/2008 HAS DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO 2% OF THE DIVI DEND INCOME BY HOLDING AS UNDER:- 38. WE SEE SUBSTANCE IN THE LEARNED COUNSELS PLEA IN VIEW OF THE FACT THAT THE DISALLOWANCE @ 2% FROM DIVIDEND INCOM E HAS BEEN REACHED FINALITY IN OTHER YEARS AND IN VIEW OF THE FACT THAT THE DISALLOWANCE @ 10% FOR THE PROPORTIONATE MANAGEMENT EXPENDITURE INDEED APPEARS TO BE EXCESSIVE INASMUCH AS NO REASO NS HAVE BEEN ASSIGNED BY ANY OF THE AUTHORITIES BELOW TO DEMONST RATE ANY DIRECT EXPENSES INCURRED FOR EARNING THE DIVIDEND INCOME O R TO DEMONSTRATE THAT SUCH A HIGHER PERCENTAGE OF OVERALL EXPENDITUR E CAN INDEED BE ATTRIBUTED TO THE ACTIVITIES RELATING TO EARNING OF DIVIDEND INCOME- PARTICULARLY IT IS NOT EVEN THE CASE OF THE REVENUE THAT ANY BORROWED FUNDS HAVE BEEN USED IN MAKING THE INVESTMENT. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO RESTRICT THE QUANTUM OF DI SALLOWANCE TO 2% OF THE DIVIDEND INCOME. THE ASSESSE GETS RELIEF ACCOR DINGLY. THIS GROUND IS PARTLY ALLOWED. 13.3 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND C ONSIDERING THE FACT THAT RULE 8D IS NOT APPLICABLE TO THE PRESENT CASE IN VI EW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG. CO. LTD. VS. DCIT REPORTED IN (2010) 328 ITR 81 (BOM.), WE D IRECT THE A.O. TO RESTRICT THE 11 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. QUANTUM OF DISALLOWANCE TO 2% OF DIVIDEND INCOME. T HIS GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 3349/MUM/09 (A.Y. 2005-06) 14. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ORDER OF LD. CIT(A) IN DIRECTING THE A.O. TO ALLOW BAD DEBTS AGGREGATING T O ` 73,63,992/-. 14.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE AS SESSEE COMPANY HAS WRITTEN OFF SUNDRY BALANCES OF ` 69,68,188/-. ON BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS WRITTEN OFF VARIOUS SUNDRY DEBTORS AMOUNTING TO ` 73,63,992/- AND WRITTEN BACK SUNDRY CREDITORS AMOU NTING TO ` 3,95,802/- AND NET OF THESE TWO I.E. ` 69,68,188/- HAS BEEN DEBITED TO THE P&L ACCOUNT. ON BEING FURTHER QUESTIONED BY THE A.O., THE ASSESSEE FURNISHED FURTHER DETAILS AND IT WAS NOTED BY THE A.O. THAT T HE ASSESSEE HAS SIMPLY STATED THAT AS PER POLICY OF THE COMPANY, IF ANY BALANCE I S OUTSTANDING FOR A PERIOD EXCEEDING 2-3 YEARS, THE SAME IS GENERALLY WRITTEN OFF. ACCORDING TO THE A.O., FOR CLAIMING BAD DEBTS AS PER THE PROVISIONS OF SEC TION 36(1)(VII) R.W.S. 36(2) OF THE ACT, THE ASSESSEE HAD TO ESTABLISH THAT THE DEB T HAD BECOME IRRECOVERABLE. RELYING ON A COUPLE OF DECISIONS, THE A.O. NOTED TH AT THE ASSESSEE HAS FAILED TO ESTABLISH ITS CLAIM OF BAD DEBTS OF ` 73,63,992/- AS REQUIRED U/S 36(1)(VII) SINCE MOST OF THE DEBTORS ARE WELL ESTABLISHED, FINANCIAL LY SOUND COMPANIES AND ARE REGULARLY DOING VERY GOOD BUSINESS. NOT BEING SATIS FIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE, THE A.O. DISALLOWED THE CLAI M OF BAD DEBTS OF ` 73,63,992/-. 14.2. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF STAR CHEMI CALS (BOMBAY) P. LTD. ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 12 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. 14.3 AFTER HEARING BOTH THE SIDES, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE CIT(A). THERE IS NO DISPUTE TO THE FACT THAT T HE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS AMOUNTING TO ` 73,63,992/- IN ITS BOOKS OF ACCOUNT. IN THE CASE OF TRF LTD. VS. CIT, THE HONBLE SUPREME COURT HELD TH AT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I.T. ACT, 1961 W.E.F. APR IL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECES SARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IN THE INSTANT CASE, ADMITTEDLY THE ASSESSEE HAS WRITTEN OFF THE BAD DEB TS IN THE P&L ACCOUNT. THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPRE ME COURT CITED SUPRA, THE ASSESSEE IS ENTITLED TO CLAIM BAD DEBTS AS DEDUCTIO N. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 15. GROUND NO. 2 RELATES TO THE ORDER OF THE CIT(A) IN DIRECTING THE A.O. THAT ADJUSTMENT TO THE VALUE OF THE OPENING STOCK SHOULD BE MADE WHILE MAKING ADDITION OF UNUTILIZED CENVAT CREDIT IN THE CLOSING STOCK. 15.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABO VE GROUND IS CO-RELATED TO GROUND NO. 6 IN ITA NO. 2072/MUM2009 FOR A.Y. 2005- 06. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSE SSEE HAS BEEN SENT BACK TO THE A.O. FOR FRESH ADJUDICATION. FOLLOWING THE SAME RATIO, THE GROUND RAISED BY THE REVENUE IS ALSO RESTORED TO THE FILE OF THE A.O . FOR FRESH ADJUDICATION. THIS GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPO SE. 16. GROUND NO. 3 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE AN AMOUNT OF ` 58,73,257/- BEING UNCLAIMED DEPOSITS/DIVIDEND/DEBENTURES/INTERESTS IGNORING THE PROVISIONS OF SECTION 28(IV)/41(1) OF THE INCOME TAX ACT, 1961. 13 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. 16.1. THE FACTS OF THE CASE IN BRIEF ARE THAT IN THE BALA NCE SHEET THE ASSESSEE COMPANY HAS SHOWN UNCLAIMED DEPOSIT OF ` 10,12,000/-, UNCLAIMED INTEREST OF ` 28,30,357/-, UNCLAIMED DEBENTURE OF ` 15,37,550/-, UNCLAIMED INTEREST ON DEBENTURE AT ` 4,93,340/- AND UNCLAIMED DIVIDENDS AT ` 2315169/-. ACCORDING TO THE A.O., AS PER THE TERMS AND CONDITION OF THE INVESTORS EDUCATION AND PROTECTION FUND, THE UNCLAIMED DIVIDEND CAN ONLY BE TRANSFERRED TO IEPF AND NOT TO UNCLAIMED DEPOSIT/INTEREST/DEBENTURE ETC. F OR THIS PROPOSITION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (1996) 222 ITR 344 (SC ). SINCE THE ASSESSEE COMPANY HAS TRANSFERRED THE UNCLAIMED DEPOSIT, INTE REST, DEBENTURE AND INTEREST ON DEBENTURE AFTER A GAP OF 7 YEARS TO TH E ACCOUNT OF INVESTORS EDUCATION AND PROTECTION FUND, THE A.O. DISALLOWED AN AMOUNT OF ` 58,73,247/-. 16.2 IN APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAS CREDITED THE IMPUGNED AMOUNTS TO THE I EPF AS PER CLAUSES (C), (D) AND (E) OF SUB SECTION (2) OF THE COMPANIES ACT. H E NOTED THAT THE RELIANCE PLACED ON THE DECISION OF T.V. SUNDARAM IYENGAR & S ONS LTD. (SUPRA) BY THE A.O. IS MISPLACED AND OUT OF CONTEXT. AGGRIEVED BY SUCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 16.3 AFTER HEARING BOTH THE SIDES, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE CIT(A). WE FIND THE PROVISIONS OF 205(C)(1) AND 205(C)(2) ARE AS UNDER:- 205 C(1) THE CENTRAL GOVERNMENT SHALL ESTABLISH A FUND TO BE CALLED THE INVESTOR EDUCATION AND PROTECTOR FUND (HEREINAFTER IN THIS SECTION REFERRED TO AS THE FUND). (2) THERE SHALL BE CREDITED TO THE FUND THE FOLLOWI NG AMOUNTS, NAMELY :- (A) AMOUNTS IN THE UNPAID DIVIDEND ACCOUNTS OF COM PANIES; (B) THE APPLICATION MONEYS RECEIVED BY COMPANIES F OR ALLOTMENT OF ANY SECURITIES AND DUE FOR REFUND; (C) MATURED DEPOSITS WITH COMPANIES; 14 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. (D) MATURED DEBENTURES WITH COMPANIES; (E) THE INTEREST ACCRUED ON THE AMOUNTS REFERRED T O IN CLAUSES (A) TO (D); (F) GRANTS AND DONATIONS GIVEN TO THE FUND BY THE CENTRAL GOVERNMENT, STATE GOVERNMENTS, COMPANIES OR ANY OTH ER INSTITUTIONS FOR THE PURPOSES OF THE FUND; AND (G) THE INTEREST OR OTHER INCOME RECEIVED OUT OF I NVESTMENTS MADE FROM THE FUND; PROVIDED THAT NO SUCH AMOUNTS REFERRED TO IN CLAUSE (A) TO (D) SHALL FORM PART OF THE FUND UNLESS SUCH AMOUNTS HAVE REMAINED UNCLAIME D AND UNPAID FOR A PERIOD OF SEVEN YEARS FROM THE DATE THEY BECAME DUE FOR PAYMENT. SINCE THE ASSESSEE COMPANY HAS CREDITED THE IMPUGNE D AMOUNTS TO THE IEPF WHICH IS IN LINE WITH SUB-SECTION (1) AND (2) OF 20 5(C) WHICH IS A STATUTORY REQUIREMENT, THEREFORE, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 15.06.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE PRESIDENT ACCO UNTANT MEMBER MUMBAI, DATED 15 TH JUNE, 2011. RK 15 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI, MUMBAI 4. THE CIT- CITY -1, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 16 ITA 2072 & 3340/ /M/2009 M/S THIRUMA LAI CHEMICALS LTD. DATE INITIALS 1 DRAFT DICTATED ON 4.5.2011, 2.6.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 5.5.2011,3.6.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER