Khetan minerals pvt.ltd., Jaipur V. ITO, Jaipur

ITA 385/JPR/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5349 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATEJA CIT DHK
• Keywords: Question of law; Tax effect; Revenue expenditure; Capital expenditure
• Section: 40A(3); 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO.385/JP/14 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S KHETAN MINERALS PVT. LTD. 41, KALPATARU SHOPPING CENTRE, SHASTRI NAGAR, JAIPUR CUKE VS. THE INCOME TAX OFFICER, WARD 4(1), JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCK 0022 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BATEJA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18.03.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 28 /04/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASESSEE AGAINST THE ORDER OF CIT(A)-2, JAIPUR DATED 02.04.2014 WHEREIN THE ASSESSEE HAS TAKEN FO LLOWING GROUNDS OF APPEAL: (1) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE TRADING ADDITION OF RS. 10,92,161/- MADE BY THE AO BY APPLY ING G.P. RATE OF 21.62% AS AGAINST G.P. RATE OF 7.16% DECLARED BY TH E ASSESSEE. HE HAS FURTHER ERRED IN UPHOLDING THE SAID ADDITION BY NOT ACCEPTING THE REGULAR SYSTEM OF ACCOUNTING FOLLOWED FOR BOOKING OF EXPEND ITURE ON BLADE SEGMENT AND FILING MATERIAL. ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 2 (2) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE ADDITION OF RS.2,37,127/- MADE BY THE AO ON ACCOUNT OF VALUATIO N OF CLOSING STOCK EVEN WHEN INCOME IS ESTIMATED BY APPLICATION OF GR OSS PROFIT RATE. (3) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE DISALLOWANCE OF RS.7,90,600/- MADE BY THE AO IN RES PECT OF PAYMENT OF ELECTRICITY CHARGES TO AJMER VIDHYUT VITRAN NIGAM LTD. BY APPLYING PROVISIONS OF SECTION 40A(3). (4) THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS.2,33,825/-. 2. FIRSTLY, REGARDING GROUND NO. 1, BRIEFLY THE FA CTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND PRODUCTION OF MARBLE BLOCK, SLAB AND TILES. THE AO NOTICED THAT THE GROSS PROFIT DECLARE D DURING THE YEAR IS 7.16% AS AGAINST 21.62% IN THE PREVIOUS YEAR AND CALLED FOR THE EXPLANATION. THE ASSESSEE FILED ITS EXPLANATION FOR FALL IN G.P. RAT E, THE AO, HOWEVER, HELD THAT THE REASONS ARE VAGUE AND DEVOID OF ANY SOUND BASIS . HE THEREAFTER HELD THAT PURCHASE OF BLADE SEGMENT IS DISPROPORTIONATE TO TH E PRODUCTION OF SLAB AND TILES AND THEREFORE THE ENTIRE PURCHASE OF BLADE SE GMENT CANNOT BE TREATED AS REVENUE EXPENDITURE. THE HEAVY PURCHASE OF BLADE SE GMENT AND THE FILING MATERIAL HAS BROUGHT DOWN THE GROSS PROFIT, NO SCIE NTIFIC CALCULATION HAS BEEN PROVIDED REGARDING THE USE OF BLADE SEGMENT AND THE FILING MATERIAL AND THE TRADING RESULTS ARE NOT OPEN FOR VERIFICATION. THER EFORE, HE INVOKED SECTION 145(3) AND APPLIED G.P. RATE OF 21.62% AS DECLARED IN THE PREVIOUS FINANCIAL YEAR TO MAKE TRADING ADDITION OF RS.10,92,161/-. 2.1 THE LD. CIT(A) OBSERVED THAT ASSESSEE HAS CLAIM ED THE EXPENSES ON BLADE SEGMENT AND THE FILING MATERIAL ONLY ON THE BASIS O F PURCHASES AND NOT ON THE BASIS OF CONSUMPTION WHICH IS A DEFECT IN THE BOOKS OF ACCOUNTS. EVEN IF BLADE SEGMENTS ARE CONSIDERED AS REVENUE ITEM, WHAT CAN B E CLAIMED IN THE P&L A/C IS ONLY CONSUMPTION OF THESE ITEMS AND NOT THE ENTI RE PURCHASES. THEREFORE, HE CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF EXCESS CLAIM OF CONSUMPTION OF BLADE SEGMENT AND FILING MATERIAL. 2.2 THE LD. AR SUBMITTED THAT THE MAIN REASON FOR D ECLINE IN THE G.P. RATE DURING THE YEAR IS DUE TO INCREASE IN EXPENDITURE O N BLADE SEGMENT AND FILLING MATERIAL. THE LOWER AUTHORITIES HAVE NOT DOUBTED TH E INCURRING OF THE ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 3 EXPENDITURE ON BLADE SEGMENT AND FILING MATERIAL. T HE ISSUE RAISED BY THE AO IS THAT THE SAME IS CAPITAL EXPENDITURE AND THAT INCRE ASE IN EXPENDITURE HAS NOT RESULTED IN HIGHER PRODUCTION. BOTH THESE ISSUES RA ISED BY THE AO ARE IRRELEVANT IN ALLOWING THE EXPENDITURE U/S 37(1). IT IS NOT IN DISPUTE THAT THESE EXPENDITURE ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. BY INCURRING THE EXPENDITURE ON BLADE SEG MENT AND FILLING MATERIAL NEITHER ANY NEW ASSET HAS BEEN CREATED NOR THE CAPA CITY OF THE MACHINE HAS BEEN INCREASED AND THEREFORE THE SAME CANT BE CONS IDERED AS CAPITAL EXPENDITURE. FURTHER THE LAW DOES NOT PROVIDE THAT EXPENDITURE WOULD BE ALLOWED ONLY WHEN THERE IS CORRESPONDING REVENUE GE NERATION FROM THE SAME. ONCE, THE EXPENDITURE IS CONSIDERED AS REVENUE EXPE NDITURE, THE SAME NEEDS TO BE ALLOWED IRRESPECTIVE OF WHETHER THERE IS CORR ESPONDING INCREASE IN THE PRODUCTION OR NOT. THEREFORE FOR THIS REASON, THE R EJECTION OF THE BOOKS OF ACCOUNTS AND CONSEQUENT ADDITION BY APPLICATION OF THE G.P. RATE IS NOT JUSTIFIED. 2.3 IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HA S CONFIRMED THE ADDITION BY OBSERVING THAT THE APPELLANT HAS DEMONSTRATED TH AT ITS G.P. RATE FOR THE YEAR IS BETTER THAN THE LAST YEAR IF THE BLADE SEGMENT A ND FILING EXPENSES ARE EXCLUDED BUT AT THE SAME TIME HE OBSERVED THAT THE ENTIRE PURCHASE OF BLADE SEGMENT AND FILING MATERIAL IS NOT CONSUMED AND THE REFORE, THE CLAIM IN RESPECT OF THESE EXPENSES IS EXCESSIVE. IN MAKING T HESE OBSERVATIONS, THE LD. CIT(A) IGNORED THE FACT THAT THE PURCHASE OF BLADE SEGMENT AND FILING MATERIAL IS CHARGED TO P&L A/C IN THE YEAR OF PURCHASE ON A REGULAR AND CONSISTENT BASIS. FROM THE COMPARATIVE G.P. RATE CHART PLACED ON RECO RD, IT CAN BE NOTED THAT THE PERCENTAGE OF BLADE SEGMENT AS A RATIO TO SALE IN AY 06-07 WAS 14.17%, IN AY 07-08 WAS 4.27% AND IN THE YEAR UNDER CONSIDERAT ION IS 9.01%. THUS, SUCH PERCENTAGE IS LOWER AS COMPARED TO AY 06-07. FURTHE R, DURING THE YEAR THE ASSESSEE WAS HAVING HUGE QUANTITY OF CRACK STOCK AN D TO MAKE THEM SALEABLE ASSESSEE INCURRED EXPENDITURE OF RS.5,61,007/- FOR PURCHASE OF FILING MATERIAL. THESE EXPENDITURE HAS BEEN ACCEPTED BY CIT(A) TO BE REVENUE EXPENDITURE. HAVING HELD SO, THERE WAS NO JUSTIFICATION FOR CONF IRMING THE ADDITION BY PRESUMING THAT THE BLADE SEGMENT AND FILING MATERIA L WAS NOT CONSUMED BY IGNORING THE CONSISTENT SYSTEM OF ACCOUNTING ADOPTE D BY THE ASSESSEE WHERE PURCHASE OF THESE ITEMS ARE BOOKED AS EXPENDITURE. 2.4 IT WAS FURTHER SUBMITTED THAT IF A PART OF THES E EXPENDITURE ARE HELD NOT ALLOWABLE FOR THE REASON THAT IT IS NOT CONSUMED, T HE SAME HAS TO BE CONSIDERED IN THE OPENING STOCK OF THE NEXT YEAR. I N NEXT YEAR, THE CLOSING STOCK IS ACCEPTED AND THEREFORE, THE SAME HAS TO BE ALLOW ED IN THAT YEAR. THE ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 4 SUPREME COURT IN CASE OF CIT VS. EXCEL INDUSTRIES L TD. 358 ITR 295 HELD THAT WHEN THE RATE OF TAX REMAINED THE SAME IN PRESENT A .Y. AS WELL AS IN SUBSEQUENT A.Y., THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREF ORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THE LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY N OT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. THE PUNJAB & HARYANA HIGH CO URT IN CASE OF CIT VS. SATISH ESTATE PVT. LTD. (2014) 226 TAXMAN 11 WHERE ADDITIO N OF RS.75 LAKHS WAS MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF TH E LAND BUT THE CLOSING STOCK OF LAND SHOWN BY THE ASSESSEE IS ACCEPTED BY AO AS OPENING STOCK FOR THE SUBSEQUENT YEAR IN THE ASSESSMENT MADE U/S 143(3) F OR THE SUBSEQUENT YEAR DELETED THE ADDITION MADE BY THE AO AS NO LOSS TO T HE REVENUE HAS BEEN CAUSED. THEREFORE, THE ADDITION CONFIRMED BY THE CI T(A) IS UNJUSTIFIED. 2.5 THE LD. CIT(A) HAS GIVEN HIS FINDING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMEN T ORDER AND APPELLANTS WRITTEN SUBMISSION. AO NOTICED THAT THERE WAS SUBS TANTIAL FALL IN GP DURING THE YEAR ON ACCOUNT OF EXCESS CLAIM OF DIRECT EXPENSES FOR BLADE SEGMENTS AND FILING MATERIAL. AO FOUND THAT WITH NO INCREASE IN PRODUC TION, APPELLANT CLAIMED THESE EXPENSES TO THE EXTENT OF RS. 12.41 LAKHS. A O ALSO MENTIONED THAT THESE EXPENSES CANNOT BE TREATED AS REVENUE FOR EACH ITEM S COSTING MORE THAN RS. 1.5 LAKHS. AO REJECTED THE BOOK RESULTS AFTER POINTING OUT THESE DEFECTS AND ALSO NON-MAINTENANCE OF STOCK REGISTER AND ESTIMATED GRO SS PROFIT ON THE BASIS OF LAST YEAR. APPELLANT SUBMITTED THAT GROSS PROFIT I N THIS LINE OF BUSINESS SIS VERY FLUCTUATING AND THEREFORE CANNOT BE EQUATED. ON REJ ECTION OF THE BOOKS RESULTS, IT WAS ARGUED THAT STOCK REGISTERS WERE KEPT AND BO OKS OF ACCOUNTS AND VOUCHERS WERE ALSO AUDITED THEREFORE BOOK RESULTS C ANNOT BE REJECTED. APPELLANT ALSO WORKED OUT GROSS PROFIT FOR LAST YEA R AND THIS YEAR BY EXCLUDING BLADES SEGMENTS AND FILING EXPENSES AND DEMONSTRATE D THAT GROSS PROFIT THIS YEAR IS BETTER THAN LAST YEAR IF THESE TWO EXPENSE S ARE EXCLUDED. CONSIDERING THE SUBMISSIONS OF THE APPELLANT, IT IS CLEAR THAT FALL IN GROSS PROFIT DURING THE YEAR IS ONLY ON ACCOUNT OF EXCESS CLAIM OF BLADE SE GMENTS AND FILING EXPENSES. SINCE APPELLANT CLAIMED THESE EXPENSES ONLY ON THE BASIS OF PURCHASES AND NOT ON THE BASIS OF CONSUMPTION, THERE IS DEFECT IN THE BOOKS OF ACCOUNTS. EVEN IF BLADE SEGMENTS ETC. ARE CONSIDERED STORES AND SPARE S AND REVENUE ITEM, WHAT CAN BE CLAIMED IN P&L ACCOUNT IS ONLY CONSUMPTION O F THESE ITEMS AND NOT THE ENTIRE PURCHASES. SINCE THERE ARE ABNORMAL PURCHAS ES OF THESE ITEMS CORRESPONDING TO THE PRODUCTION, OBVIOUSLY THEN ENT IRE PURCHASED ITEMS COULD NOT HAVE BEEN CONSUMED. ONLY CONSUMED STORES AND S PARES CAN BE CLAIMED AS ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 5 REVENUE IN THE P&L ACCOUNT T. SINCE APPELLANT CLAI MED THESE EXPENSES ON THE BASIS OF PURCHASE, THERE IS INHERENT DEFECT IN THIS CLAIM. IF CONSUMPTION OF BLADE SEGMENTS AND FILING EXPENSES ARE CONSIDERED ON THE BASIS OF PRODUCTION, SUBSTANTIAL PART OF THESE EXPENSES ARE NOT CLAIMABL E IN THE P&L ACCOUNT. SINCE APPELLANT ITSELF DEMONSTRATED THAT ITS GP FOR THE Y EAR IS BETTER THAN LAST YEAR IF BLADE SEGMENTS AND FILING EXPENSES ARE EXCLUDED, IT IS CLEAR THAT TO THE EXTENT OF FALL IN GP DURING THE YEAR, THESE BLADE SEGMENTS AN D FILING EXPENSES WERE NOT CONSUMED AND THEREFORE CLAIM IN RESPECT OF THESE EX PENSES IS EXCESSIVE. ACCORDINGLY, THE ADDITION MADE BY THE AO BY EQUATIN G CURRENT YEARS GP WITH LAST YEAR IS JUSTIFIED. I THEREFORE, CONFIRM THE A DDITION MADE BY THE AO WHICH IS NECESSARY ON ACCOUNT OF EXCESS CLAIM OF CONSUMPTION OF BLADE SEGMENT AND FILING EXPENSES. 2.6 LD DR IS HEARD WHO HAS RELIED ON THE ORDER OF T HE LOWER AUTHORITIES. 2.7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAS INCURRED BLADE SEGMENT EXPENDITURE OF RS. 6,80,332/- AND FIL LING MATERIAL EXPENSES OF RS. 5,61,007/. AS PER AO, THESE ARE THE TWO EXPENS ES WHICH HAVE CAUSED DECLINE IN G.P. OF 7.16% AS AGAINST G.P OF 21.62% I N THE PREVIOUS YEAR. AS PER AO, THERE HAS BEEN A SUBSTANTIAL INCREASE IN THESE EXPENDITURE AS COMPARED TO PREVIOUS YEAR AND AT THE SAME TIME, THE INCREASE IN EXPENDITURE HAS NOT RESULTED IN CORRESPONDING INCREASE IN THE PRODUCTIO N OF TRADING RESULTS OF THE APPELLANT. THE AO HAS THUS DISALLOWED THE EXPEND ITURE TO THE EXTENT OF RS. 10,92,161/- OUT OF TOTAL EXPENDITURE OF RS. 12,41, 339/- BY WAY OF ENHANCING THE G.P. RATE. AS PER THE AO, HIGH VALUE ARTICLES LIKE BLADE SEGMENT THE VALUE OF WHICH VARIES BETWEEN RS. 1.5 LACS TO 1.79 LACS CANN OT BE TERMED AS SPARES AND STORES, EXPENDITURE ON SUCH ARTICLES ARE OF CAPITAL NATURE, THEREFORE, THE ENTIRE AMOUNT OF PURCHASE OF BLADE SEGMENT CANNOT BE TREAT ED AS REVENUE EXPENDITURE AND ONLY A PART OF BLADE SEGMENT WHICH HAS BEEN PUT TO USE CAN BE ALLOWED AS REVENUE EXPENDITURE. AS PER THE LD. AR, THE BLADE SEGMENT AND FILLING MATERIAL EXPENDITURE ARE IN THE NATURE OF S TORES AND SPARES AND FORMS PART OF MANUFACTURING EXPENSES OF THE APPELLANT. F URTHER AS PER ACCOUNTING POLICY FOLLOWED CONSISTENTLY AND REGULARLY BY THE A PPELLANT COMPANY, THE EXPENSES ARE DEBITED TO PROFIT AND LOSS ACCOUNT IN THE YEAR OF ISSUE OF SUCH BLADE SEGMENT AND FILLING MATERIAL FOR THE MANUFACT URING ACTIVITY. FURTHER THE BLADE IS REPLACED IN THREE OR FOUR YEARS DEPENDING UPON THE USAGE AND WHEN THE SAME IS REPLACED, IT WILL THE EFFECT THE MANUFA CTURING COST. FURTHER THE FILLING MATERIAL IS USED IN THE YEAR WHEN THE MAJO R DEFECTS ARISE IN THE MARBLE ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 6 BLOCK, DUE TO WHICH MARBLE SLABS NEEDS FILLING TO CONCEAL THE DEFECTS SO THAT GOOD SALE PRICE OF THE PRODUCT MAY BE RECOVERED. 2.8 HAVING CONSIDERED THE RIVAL ARGUMENTS, WE AGREE WITH THE CONTENTIONS OF THE LD. AR THAT BY INCURRING THE EXPENDITURE OF BL ADE SEGMENT AND FILLING MATERIAL, NO NEW ASSET HAS BEEN CREATED OR THE CAP ACITY OF THE MACHINE HAS BEEN INCREASED AND JUST BY LOOKING AT THE QUANTUM OF EXPENDITURE THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. FURTHER WHERE THE EXPENDITURE HAS BEEN LAID DOWN WHOLLY AND EXCLUSIVELY FOR THE PURPO SES OF BUSINESS, IT IS A SETTLED LAW THAT THE SAME MAY OR MAY NOT RESULT INT ANGIBLE BENEFIT IN THE HANDS OF THE APPELLANT. IT IS ALSO NOTED THAT ON A COMPA RATIVE BASIS GIVEN THE CYCLICAL NATURE OF THE BLADE SEGMENT EXPENDITURE, IT WAS 9.0 1% TO THE SALES DURING THE YEAR AS AGAINST 4.27% IN A.Y. 2007-08 AND 14.17% I N A.Y. 2006-07. IN THE PAST, THE DEPARTMENT HAS ACCEPTED THE SAME AND HAS ALLOWE D THE SAME TO THE APPELLANT AND THE FACTS ARE NO DIFFERENT DURING THE YEAR UNDER CONSIDERATION. THEREFORE, WE AGREE WITH THE CONTENTIONS OF THE LD. AR THAT THESE EXPENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE WHICH HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IT WIL L BE ALLOWED FOR TAX PURPOSES. 2.9 FURTHER, COMING TO THE CONTENTIONS OF THE LD. C IT(A) WHERE HE OBSERVED THAT THE APPELLANT HAS CLAIMED THESE EXPENSES ONLY ON THE BASIS OF PURCHASE AND NOT ON THE BASIS OF CONSUMPTION. FIRSTLY, AS FAR AS THE BLADE SEGMENT EXPENSES ARE CONCERNED, THESE EXPENDITURE ARE INCU RRED PRIMARILY FOR PURCHASE OF BLADE AND RELATED STORES AND SPARES WHI CH HAVE USED FOR CUTTING MARBLE SLABS. ONCE THE BLADES ARE PUT ON THE MACHIN ES, THE SAME ARE PUT TO USE AND SUBSEQUENTLY ON ACCOUNT OF WEAR AND TEAR T HE SAME ARE REPLACED AND SUCH REPLACEMENT DEPENDS ON A QUALITY AND QUANTITY OF MARBLE SLABS TO BE CUT OVER THE PERIOD. IN OTHER WORDS, ONCE EXISTING BL ADES ARE REPLACED WITH THE NEW BLADES, THE SAME ARE PUT TO USE AND CONSUMED, A ND WHERE DURING THE YEAR NEW BLADES ARE PURCHASED AND PUT TO USE AS WELL, BO TH THE ACT OF PURCHASE AND CONSUMPTION BY WAY OF PUT TO USE HAVE HAPPENED AND THE CLASSICAL THEORY OF PART CONSUMPTION CANNOT BE APPLIED IN THE PECULIAR FACTS OF THE PRESENT CASE. REGARDING FILLING MATERIAL, IT IS NOTED THAT THE AS SESSEE WAS HAVING HUGE QUANTITY OF CRACK STOCK AND TO MAKE THEM SALEABLE, ASSESSEE INCURRED EXPENDITURE OF RS. 5,61,007/- FOR PURCHASE OF FILLI NG MATERIAL DURING THE YEAR. GIVEN THAT THE SAID EXPENDITURE WAS NOT INCURRED IN THE PREVIOUS YEAR, IT CANNOT BE SAID THAT THE EXPENDITURE WAS EXCESSIVE D URING THE YEAR UNDER CONSIDERATION. IN THE ENTIRETY OF THE FACTS AND CI RCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFI ED IN CONFIRMING THE TRADING ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 7 ADDITION BY ENHANCING THE G.P RATE IN THE HANDS OF THE APPELLANT. WE ACCORDINGLY ALLOW THIS GROUND OF THE APPELLANT. 3. IN GROUND NO.2, THE APPELLANT HAS CHALLENGED THE ADDITION OF RS 2,37,127 ON ACCOUNT OF VALUATION OF CLOSING STOCK. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT IN A.Y. 2006-07, THE LD. CIT(A)- III, JAIPUR HAS HELD THAT 50% CLOSING STOCK OF SLAB & TILES OF ASSESSEE COMPANY BE VALUED @ 40% OF THE COST INSTEAD OF 25% AS HAD BEEN VALUED BY THE ASSESSEE. ON THE BASIS OF SUCH DECISION, THE AO ADDED A SUM OF RS. 2 ,37,127/- TO THE TOTAL INCOME OF THE ASSESSEE. 3.1 THE LD CIT(A) CONFIRMED THE ADDITION HOLDING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. AO MADE ADDITION I N RESPECT OF VALUATION OF STOCK OF SLAB AND TILES ON THE BASIS OF APPEAL O RDER IN ASSESSMENT YEAR 2006-07. SINCE THIS ADDITION IS BASED ON VALUATION OF STOCK CONFIRMED IN APPEAL, ASSESSING OFFICER IS JUSTIFIED IN DOING SO. AS REGARDS APPELLANTS ARGUMENT THAT WHEN BOOKS WERE REJECTED NO SEPARATE ADDITION ON VALUATION OF STOCKS SHOULD BE MADE, IT IS CLARIFIED THAT TRADING ADDITION WAS CONFIRMED ON ACCOUNT OF EXCESS CONSUMPTION OF B LADE SEGMENTS AND FILING EXPENSES WHICH HAS NOTHING TO DO WITH VALUAT ION OF CLOSING STOCK. RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESS OR IN ASSESSMENT YEAR 2006-07, ADDITION MADE BY THE AO IS CONFIRMED. 3.2 LD AR HAS SUBMITTED THAT THE CLOSING STOCK OF O NE YEAR BECOMES THE OPENING STOCK OF THE NEXT YEAR. THE AO HAS INCREASE D THE VALUE OF THE CLOSING STOCK OF THIS YEAR BY RS.2,37,127/- BUT HAS ADOPTED THE VALUE OF OPENING STOCK FOR THE NEXT YEAR AS DECLARED BY THE ASSESSEE. THER EFORE, IF THE VALUE OF CLOSING STOCK IS INCREASED, THE VALUE OF OPENING STOCK FOR THE NEXT YEAR WOULD ALSO BE REQUIRED TO BE INCREASED AND THEREFORE THERE WOULD NOT BE ANY TAX EFFECT. THE SUPREME COURT IN CASE OF CIT VS. EXCEL INDUSTRIES L TD. 358 ITR 295 HELD THAT WHEN THE RATE OF TAX REMAINED THE SAME IN PRESENT A .Y. AS WELL AS IN SUBSEQUENT A.Y., THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREF ORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THE LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY N OT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. THE PUNJAB & HARYANA HIGH CO URT IN CASE OF CIT VS. SATISH ESTATE PVT. LTD. (2014) 226 TAXMAN 11 WHERE ADDITIO N OF RS.75 LAKHS WAS MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK OF TH E LAND BUT THE CLOSING STOCK ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 8 OF LAND SHOWN BY THE ASSESSEE IS ACCEPTED BY AO AS OPENING STOCK FOR THE SUBSEQUENT YEAR IN THE ASSESSMENT MADE U/S 143(3) F OR THE SUBSEQUENT YEAR DELETED THE ADDITION MADE BY THE AO AS NO LOSS TO T HE REVENUE HAS BEEN CAUSED. IN THE PRESENT CASE ALSO FOR SUBSEQUENT A.Y . 09-10, AO HAS ACCEPTED THE CLOSING STOCK DECLARED BY THE ASSESSEE AS OPENI NG STOCK AND ALSO ACCEPTED THE CLOSING STOCK DECLARED IN THAT YEAR. THEREFORE, THE ADDITION MADE BY HIM IS LEGALLY NOT TENABLE. IT WAS FURTHER SUBMITTED THAT ONCE TRADING ADDITIO N IS MADE BY APPLICATION OF G.P. RATE, SEPARATE ADDITION ON ACCO UNT OF UNDERVALUATION OF CLOSING STOCK HAS RESULTED INTO DOUBLE ADDITION. IN VIEW OF THE ABOVE THE ADDITION CONFIRMED BY THE CIT(A) BE DIRECTED TO BE DELETED. 3.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL ON RECORD. THE APPELLANT HAS ACCEPTED THE ORDER OF LD CIT(A) FOR AY 2006-07 AND HAS NOT FILED ANY FURTHER APPEAL AGAINST THE SAID O RDER. HAVING ACCEPTED THE SAME AND THE FACT THAT THE AO HAS FOLLOWED THE SAME BASIS FOR VALUATION OF CLOSING STOCK FOR THE YEAR UNDER CONSIDERATION, PRI NCIPLE OF CONSISTENCY SHOULD APPLY AND WE SEE NO REASON TO DEVIATE FROM THE SAID POSITION ESPECIALLY WHEN THE SAME HAS BEEN ACCEPTED BY THE APPELLANT IN THE EARLIER YEAR. THE GROUND NO. 2 IS ACCORDINGLY DISMISSED. 4. IN GROUND NO.3, BRIEFLY THE FACT ARE THAT DURIN G THE YEAR, THE ASSESSEE HAS MADE PAYMENT OF RS.7,90,600/- (OUT OF WHICH RS. 6,07,029/- IN CASH) TO AJMER VIDYUT VITRAN NIGAM LTD ON ACCOUNT OF POWER ( FACTORY) EXPENSES. THE AO OBSERVED THAT THIS ISSUE HAS BEEN DECIDED IN FAV OUR OF THE DEPARTMENT AND THE ASSESSEES APPEAL IS PENDING IN RAJASTHAN HIGH COURT. ACCORDINGLY, HE MADE DISALLOWANCE OF THE SAME BY APPLYING THE PROVISIONS OF SECTION 40A(3). LD CIT(A) CONFIRMED THE DISALLOWANCE BY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN ASSESSEES OWN CASE FOR AY 2005-06. 4.1 THE LD. AR SUBMITTED THAT THOUGH THE CIT(A) CON FIRMED THE DISALLOWANCE BY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN ASSESSEES OWN CASE FOR AY 2005-06, THE ORDER OF THE HONBLE ITAT IS CHALLENGE D BY THE ASSESSEE AND THE HONBLE HIGH COURT HAS ADMITTED THIS ISSUE AS INVOL VING SUBSTANTIAL QUESTION OF LAW. IT WAS FURTHER SUBMITTED THAT AT THE TIME WHEN THE HONBLE ITAT PASSED THE ORDER FOR AY 05-06, THE DECISION OF DELHI HIGH COURT IN CASE OF R.C. GOEL VS. CIT 84 DTR 432/213 TAXMAN 305 AND GUJARAT HIGH COUR T IN CASE OF ANUPAM TELE SERVICES VS. ITO 2014-TIOL-161 WERE NOT BEFORE IT AS THEY WERE PRONOUNCED SUBSEQUENTLY. THE HONBLE ITAT IN CASE O F RAHUL PANCHOLI AFTER ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 9 CONSIDERING THESE DECISIONS HAVE DELETED THE SIMILA R ADDITION MADE U/S 40A(3). THEREFORE, CONSIDERING THE SUBSEQUENT DEVELOPMENT, THE ADDITION CONFIRMED BY CIT(A) U/S 40A(3) IS NOT JUSTIFIED. 4.2 THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE B Y FOLLOWING THE EARLIER DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CAS E FOR A.Y. 2005-06 AND THE RELEVANT FINDINGS OF THE COORDINATE BENCH ARE AS UN DER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E FACTS OF THE CASE. THE ASSESSEE HAS MADE THE PAYMENTS IN CASH IN ALL THE 1 2 MONTHS OF THE YEAR ON REGULAR BASIS WHICH EXCEEDED RS. 20,000/- EACH TIME . THE ARGUMENTS OF THE LD. AR IS THAT THIS PRESENT CASE IS COVERED UNDER RULE 6DD(L) OF THE ACT. SECTION 40A(3) IS A SECTION WHICH IS MANDATORY IN NATURE AN D IT PROVIDES FOR OUTRIGHT DISALLOWANCE OF ANY EXPENDITURE INCURRED FOR WHICH PAYMENT AT ANY ONE IS MADE EXCEEDING RS. 20,000/- OTHERWISE THAN BY A CR OSSED CHEQUE OR CROSSED BANK DRAFT. THE SECTION COMMANDS THE TAXING AUTHOR ITY TO DISALLOW THE EXPENDITURE EVEN IF IT IS OTHERWISE ADMISSIBLE, IF THE PAYMENT IN CASH EXCEEDS RS. 20,000/- OTHERWISE THAN BY A CROSSED CHEQUE OR DRAFT. THERE IS NO DISCRETION LEFT WITH THE TAXING AUTHORITY UNDER THI S SECTION TO ALLOW SUCH EXPENDITURE. HOWEVER, THE RIGOUR HAS BEEN RELAXED TO SOME EXTENT UNDER RULE 6DD WHERE THE ASSESSEE CASE IS NOT COVERED. THE DE CISION RELIED UPON BY THE ASSESSEE HAVE BEEN CONSIDERED AND ARE NOT APPLICABL E IN THE CIRCUMSTANCES AND FACTS OF THE PRESENT CASE. THEREFORE, WE FIND NO IN FIRMITY IN THE ORDER OF LD. CIT(A) WHO HAS RIGHTLY CONFIRMED THE ACTION OF THE A.O. 4.3 IT IS NOTED THAT THE ABOVE ORDER OF THE COORDIN ATE BENCH IS CHALLENGED BY THE APPELLANT AND THE HONBLE RAJASTHAN HIGH COURT HAS ADMITTED THIS ISSUE AS INVOLVING SUBSTANTIAL QUESTION OF LAW. GIVEN REPEAT NATURE OF DISALLOWANCE IN THE HANDS OF THE APPELLANT AND THE FACT THAT THE SU BSTANTIAL QUESTION OF LAW HAS ALREADY BEEN ADMITTED BY THE HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE, WE DEEM IT FIT TO SET-ASIDE THIS MATTER TO TH E FILE OF THE AO TO EXAMINE THE SAME AFRESH AFTER CONSIDERING THE DECISION OF THE H ONBLE RAJASTHAN HIGH COURT. HENCE THIS GROUND IS ALLOWED FOR STATISTICAL PURPOS E. 5. IN GROUND NO.4, BRIEFLY THE FACTS OF THE CASE AR E THAT DURING THE YEAR ASSESSEE HAS PAID INTEREST OF RS.2,33,825/- TO THE BANK. THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD INVESTED RS.57,90,000/- WI TH M/S MAA TARA CERAMICS LTD IN EARLIER YEARS WHICH WAS CONTINUED I N THIS YEAR. THIS INVESTMENT IS NOT FOR BUSINESS PURPOSE OF THE ASSESSEE. LD CIT (A) CONFIRMED THE ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 10 DISALLOWANCE BY FOLLOWING THE DECISION OF ITAT IN A SSESSEES OWN CASE FOR AY 05-06. 5.1 THE LD AR SUBMITTED THAT THOUGH IN A.Y. 2005-06 SIMILAR DISALLOWANCE IS CONFIRMED BY HONBLE ITAT BUT HONBLE RAJASTHAN HIG H COURT HAS ADMITTED THE ASSESEES APPEAL ON THIS ISSUE. IT WAS FURTHER SUBMITTED THAT THE AMOUNT GIVEN TO M AA TARA CEREMICS LIMITED IS OUT OF OWN FUND AND THE BORROWED FUNDS HAS BEEN UTILIZED FOR THE PURPOSE FOR WHICH THE BORROWING WAS MADE. THEREFORE IN THES E CIRCUMSTANCES THE ISSUE NEEDS TO BE DECIDED INDEPENDENTLY WITHOUT BEING INF LUENCED BY THE EARLIER DECISION OF HONBLE ITAT. 5.2 THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 2,33,825/- BY FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y. 2005-06. IT IS NOTED THAT THE APPELL ANT HAS CHALLENGED THIS GROUND BEFORE THE HONBLE RAJASTHAN HIGH COURT AND THE SAM E IS ALSO BEEN ADMITTED BY THE HONBLE RAJASTHAN HIGH COURT. THIS MATTER I S ALSO SET-ASIDE TO THE FILE OF THE AO TO EXAMINE THE SAME AFRESH AFTER CONSIDERING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT. HENCE THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON /05/ 2016. ( R.P. TOLANI ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- / 05 /2016 PILLAI ITA NO. 385/JP/14 M/S KHETAN MINERALS PVT. LTD. JAIPUR VS, ITO, WARD 4(1), JAIPUR 11 VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S KHETAN MINERALS PVT. LTD. JA IPUR 2. THE RESPONDENT- THE ITO, WARD 4(1), JAIPUR 3. THE CIT(A) II, JAIPUR 4. THE CIT-II, JAIPUR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 385 /JP/14) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.