Saurashtra Cement Ltd., PORBANDAR V. The Assistant Commissioner of Income Tax, Circle-2, JAMNAGAR

ITA 341/RJT/2011

• Counselvise Citation: 34124914 RSA 2011
• Duration Of Justice: 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREM PRAKASH
• Keywords: Business expenditure; Opportunity of being heard; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . .. . . .. . , , , , . .. . . .. . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K. SRIVAST AVA, AM ITA NO. 341/RJT/2011 / ASSESSMENT YEAR:-2007-08 SAURASHTRA CEMENT LTD. NEAR RAILWAY STATION, PORBANDAR. PAN :AAHFS5211J ( */ APPELLANT) VS. THE A.SSTT. C.I.T., CIRCLE-2 JAMNAGAR. +,*/ RESPONDENT -. / ASSESSEE BY SHRI VIMAL DESAI, C.A. . / REVENUE BY SHRI PREM PRAKASH, D.R. . / DATE OF HEARING 19-04-2012 . / DATE OF PRONOUNCEMENT 31-05-2012 / / / / ORDER . .. . . . . . , , , , / T. K. SHARMA, J. M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 28-07-2011 OF C IT (A), JAMNAGAR FOR THE ASSESSMENT YEAR 2007-08.. 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE IN TH IS APPEAL ARE AS UNDER:- 1. THE ASSESSMENT ORDER U/S.143(3) IS BAD IN LAW . 2. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF RS.46,74,750/- BEING EXPE NSES INCURRED ON ISSUE OF DEBENTURES CONSIDERING IT AS C APITAL NATURE AND FURTHER ERRED IN NOT ALLOWING PROPORTION ATE DEDUCTION CONSIDERING IT AS DEFERRED REVENUE EXPEND ITURE. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME . ITA NO 341/RJT/2011 2 3. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.2,58,08,278/- BEING CLOSIN G CENVAT CREDIT ON ACCOUNT OF ADJUSTMENT TO THE VALUE OF CLOSING STOCK U/S. 145A. THE LEARNED CIT(A) HAS E RRED IN CONFIRMING THE SAME. 3. THE GROUND NO.1. IS GENERAL IN NATURE, THEREFORE , NEEDS NO ADJUDICATION. 4. THE FACTS IN BRIEF RELATING TO THE CONTROVERSY I NVOLVED IN GROUND NO.2 ARE THAT IN THE ASSESSMENT ORDER, AO DISALLOWED RS.46.7 4,750/- BEING EXPENSES INCURRED BY THE ASSESSEE ON ISSUE OF DEBENTURES. O N APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE FO LLOWING THE DECISION OF ITAT, AHMEDABAD SPECIAL BENCH DECISION IN THE CASE OF ASH IMA SINTEX LTD. VS. ACIT IN (2006) 102/TTJ/(AHD)(SB)/177 AND DELHI TRIBUNAL IN THE CASE OF DCIT VS. RANBAXY LAB LTD. DELHI A BENCH 89 TTJ (DEL) 100. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT TIME OF HEARING BEFORE US, ON BEHALF OF ASSES SEE, SHRI VIMAL DESAI,CA ,APPEARED AND CONTENDED THAT IN VIEW OF THE JUDGMEN T OF HONBLE RAJASTHAN HIGH COURT AT JODHPUR DELIVERED ON 20-11-2008 IN ITA NO. 8/2007 IN THE CASE OF CIT VS. SECURE METERS LTD., AO BE DIRECTED TO ALLOW THE EXPENDITURE INCURRED IN CONNECTION WITH ISSUE OF DEBENTURES. THE COUNSEL O F THE ASSESSEE FURTHER CLARIFIED THAT IN THIS DECISION, IT HAS BEEN HELD T HAT DEBENTURES WHEN ISSUED IS A LOAN, AND THEREFORE, WHETHER IT IS CONVERTIBLE, OR NON CONVERTIBLE, DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE, BEING LOAN, AN D THEREFORE, THE EXPENDITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE . HE FURTHER POINTED OUT THAT SLP OF THE DEPARTMENT AGAINST THIS ORDER HAS B EEN DISMISSED BY HONBLE SUPREME COURT IN SPECIAL LEAVE TO APPEAL (CIVIL)/ 2009 CC 10548/2009 VIDE ORDER DTD 11-08-09. THE COUNSEL OF THE ASSESSEE FUR THER POINTED OUT THAT THIS DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF M/S. SECURE METERS LTD. HAS BEEN FOLLOWED BY HONBLE KARNATAKA HIGH COURT I N THE CASE OF COMMISSIONER OF INCOME TAX & ANR. VS. ITC HOTELS LTD. REPORTED I N 334 ITR 109. THE HEAD- NOTE OF THE REPORTS 334 ITR 109 READS AS UNDER :- ITA NO 341/RJT/2011 3 BUSINESS EXPENDITURE-CAPITAL OR REVENUE EXPENDITUR E- EXPENSES INCURRED FOR ISSUE OF CONVERTIBLE DEBENTUR ES-EVEN IF THE DEBENTURE HAS TO BE CONVERTED INTO A SHARE AT A LATER DATE, THE EXPENDITURE INCURRED IN CONNECTION WITH ISSUE O F DEBENTURES HAS TO BE TREATED AS REVENUE EXPENDITURE - CIT VS. SECURE METERS LTD. (2009) 221 CTR (RAJ) 405: (2008) 16 DTR (RAJ) 53 FOLLOWED. 6. ON THE OTHER HAND, SHRI PREM PRAKASH, DR APPEARE D ON BEHALF OF THE REVENUE POINTED OUT THAT NONE OF THE AFORESAID JUDG MENTS WERE CITED BY THE ASSESSEE BEFORE THE LD. CIT(A). THEREFORE, IN THE I NTEREST OF JUSTICE, THE MATTER BE RESTORED TO THE FILE OF LD. CIT(A) SO THAT HE MAY R E-EXAMINE THE FACTS OF THE ASSESSEE CASE WITH THAT OF IN THE CASE OF M/S. SEC URE METERS LTD. AND OTHER JUDGMENTS NOW RELIED BY THE LD. COUNSEL OF THE ASSE SSEE. 7. RIVAL SUBMISSIONS ARE CONSIDERED. ADMITTEDLY, TH E VARIOUS DECISIONS WHICH ARE CITED BY THE LD. COUNSEL OF THE ASSESSEE BEFORE US WERE NOT CITED BY ANY OF THE DEPARTMENTAL AUTHORITIES BELOW. WE THEREFORE, I N THE INTEREST OF JUSTICE, SET- ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RES TORE THIS ISSUE TO THE FILE OF LD. CIT(A) WHO WILL EXAMINE THE FACTS OF THE ASSESSEES CASE WITH THAT OF M/S. SECURE METERS LTD. AND OTHER JUDGMENTS, RELIED BY T HE LD. COUNSEL OF THE ASSESSEE AND RE-ADJUDICATE THE DISALLOWANCE OF RS.4 6,74,750/- AFRESH AFTER HEARING BOTH THE SIDES. 8. THE FACTS RELATING TO CONTROVERSY INVOLVED IN GR OUND NO.3 ARE THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.2,58,08,278/ - ON ACCOUNT OF ADJUSTMENT TO THE VALUE OF CLOSING STOCK U/S.145A OF THE INCOM E TAX ACT. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE DISALL OWANCE FOR THE DETAILED REASON GIVEN IN PARA-25 OF THE IMPUGNED ORDER WHICH READS AS UNDER:- 25. I HAVE DULY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE FINDINGS GIVEN BY THE AO IN THE ASSESSMENT ORDE R. UNDER THE PROVISIONS OF SECTION 145A, ADJUSTMENT OF CENVAT CR EDIT IS REQUIRED TO BE MADE. VIDE SECTION 145A, VALUATION OF PURCHASE AND SALES OF GOODS AND INVENTORY HAS TO BE ADJUSTED FOR INCLUDING THE AMOU NT OF ANY TAX, CESS, OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BR ING THE GOODS TO ITS ITA NO 341/RJT/2011 4 PLACE OF LOCATION AND CONDITION ON THE DATE OF VALU ATION. THUS, AO IS BOUND TO MAKE ADJUSTMENT FOR ANY CENVAT ACTUALLY PAID OR INCURRED BY THE ASSESSEE IN RELATION TO PURCHASE AND SALES F GOODS AND INVENTORY SO HELD BY THE HON. ITAT MUMBAI J BENCH IN THE CASE OF L& T DEMAG PLASTIC MACHINERY P. LTD. VS. ITO 124 TTJ (MUM) 490. AS PE R EXPLANATION TO SECTION 145A, ANY TAX, DUTY, CESS, OR FEE UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENTS NOTWITHST ANDING ANY RIGHT ARISING AS A CONSEQUENCE OF SUCH PAYMENT. THIS EXPLANATION IS PURELY APPLICABLE TO EXCISE DUTY FOR WHICH CREDIT UNDER MODVAT IS TO BE CLAIMED. HENCE IT IS CLEAR THAT THE RAW MATERIAL WHICH IS LEFT IN THE CL OSING STOCK IS TO BE VALUED AFTER INCLUDING THE EXCISE DUTY. THE UNAVAILED/UNUT ILIZED MODVAT CREDIT CANNOT BE ALLOWED AS DEDUCTION U/S.43B.S IF MODVAT CREDIT AVAILABLE ON CLOSING STOCK IS SET OFF BEFORE THE DUE DATE OF FIL ING OF RETURN, THEN SUCH AMOUNT IS AVAILABLE FOR SET OFF U/S.43B. IT MEANS THAT IF MODVAT CREDIT IS AVAILED BEFORE THE DUE DATE OF FILING RETURN, THE N THERE WILL BE NO ADDITION [WIPRO LTD. VS. DCIT ITAT BANGLORE A BENCH 34 DTR(B NG) (TRIB) 493]. IN VIEW OF ABOVE, IT IS HELD THAT A.O. HAS RIGHTLY ADD ED AN AMOUNT OF RS.2,58,08,278/- U/S.145A OF THE ACT AND THEREFORE THE ACTION OF A.O. IS UPHELD. HOWEVER, A.O. IS DIRECTED TO EXAMINE THE CL AIM OF APPELLANT, IF ANY, U/S.43B OF THE ACT ON MERIT. THIS GROUND OF A PPEAL IS PARTLY ALLOWED. 9. AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. AT THE TIME OF HEARING, SHRI VIMAL DESAI, CA, A PPEARED AND POINTED OUT THAT THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOU NTING SECTION 145A OF THE I.T. ACT ENVISAGE THE INCLUSIVE METHOD OF ACCOUNTIN G. THE TAX AUDIT REPORT SHOWS SUCH ADJUSTMENT AND THE FACT THERE IS NO IMPACT OF FOLLOWING EITHER EXCLUSIVE OR INCLUSIVE METHOD OF ACCOUNTING ON THE PROFIT OR LOS S OF COMPANY. THUS, THE EFFECT OF PROVISIONS OF SECTION 145A IS TAX NEUTRAL. HE F URTHER POINTED OUT THAT IN THE GUIDANCE NOTE ISSUED BY THE ICAT, OPINED THAT THE A DJUSTMENT ENVISAGED BY SECTION 145A WILL NOT HAVE ANY IMPACT ON THE TRADIN G ACCOUNT. THE CENVAT ACCOUNT HAVING DEBIT BALANCE CANNOT BE CONSIDERED A S INCOME EVEN BY STRETCH OF IMAGINATION. IN SUPPORT OF THIS, COUNSEL OF THE AS SESSEE RELIED ON THE FOLLOWING DECISIONS:- 1. INDO NIPPON CHEMICALS CO. LTD. 261 ITR 275 (SC) ; 2. M/S. ALPANIL INDUSTRIES ITA NO. 169 & 170/AHD/2 005 (AHD. BENCH) & 3. M/S. SACHDEVA STEEL PRODUCT, ITA NO.1360/AHD/20 09(AHD.BENCH). ITA NO 341/RJT/2011 5 11. FINALLY, COUNSEL OF THE ASSESSEE POINTED OUT TH AT AS PER DECISIONS OF HONBLE AHMEDABAD BENCH IN THE CASE OF M/S. ALPANIL INDUSTRIES (SUPRA) AND IN THE CASE OF M/S. SACHDEV STEEL PRODUCTS (SUPRA), TH E DISALLOWANCE OF RS.2,58,08,278/- MADE BY AO ON ACCOUNT OF UNUTILIZE D CENVAT CREDIT OF RS.2,58,08,278/- IN THE VALUE OF CLOSING STOCK BY I NVOKING PROVISIONS OF SEC.145A BE DELETED. 12. ON THE OTHER HAND, SHRI PREM PRAKASH, DR APPEAR ED FOR THE REVENUE HAS POINTED OUT THAT BOTH THE AFORESAID DECISIONS OF HO NBLE AHMEDABAD BENCH WERE NOT CITED BEFORE THE LD. CIT(A) HE ACCORDINGLY, S UGGESTED THAT IN THE INTEREST OF JUSTICE, THE MATTER BE RESTORED TO THE FILE OF LD. CIT(A) WHO WILL RE-ADJUST THIS ADDITION AFRESH KEEPING IN VIEW THE RATIO OF BOTH THE AFORESAID DECISION OF HONBLE AHMEDABAD BENCH. 13. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF AUT HORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE DECISIONS OF AHMEDABAD I TAT IN THE CASE OF M/S. ALPANIL INDUSTRIES (SUPRA) AS WELL AS M/S. SACHDEVA STEEL PRODUCT (SUPRA) WERE NOT CITED BEFORE THE LD. CIT(A). WHETHER THE ASSES SEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING OR NOT ALSO NEEDS VERIFICATION . WE THEREFORE, IN THE INTEREST OF JUSTICE, SET-ASIDE THE ORDER OF LD. CIT(A) ON TH IS ISSUE AND ALSO RESTORE THIS ISSUE TO HIS FILE WITH THE DIRECTION THAT THE LD. C IT(A) WILL EXAMINE THE SAME AND RE-ADJUST THE ADDITION OF RS.2,58,08,278/- BEING CL OSING CENVAT CREDIT AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE BOT H SIDES. 14. IN THE RESULT, FOR STATISTICAL PURPOSES, THE AP PEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. . 4 31/05/2012 6 . THIS ORDER PRONOUNCED IN OPEN COURT ON 31 /05/2012. SD/- SD/- ( .. / D. K. SRIVASTAVA) ( .. / T. K. SHARMA) / ACCOUNTANT MEMBER /JUDICIAL MEMBER 4/ ORDER DATE 31/05/2012. /RAJKOT ITA NO 341/RJT/2011 6 . .. . +8 +8 +8 [phone] / COPY OF ORDER FORWARDED TO:- 1. * / APPELLANT-SAURASHTRA CEMENT LTD., PORBANDAR. 2. +,* / RESPONDENT-THE ASSTT. CIT.,CIRCLE-2, JAMNAGAR. 3. > / CONCERNED CIT, JAMNAGAR. 4. >- / CIT (A), JAMNAGAR.. 5. 8 +, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASSTT. REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.