DCIT 4(2), MUMBAI V. HINDUSTAN ORGANIC CHEMICALS LTD, MUMBAI

ITA 3875/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83538 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 25-08-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 15-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Keywords: Question of law; Capital receipt; Revenue expenditure
• Section: 43B; 37(1); 145

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) THE ACIT 4(2), ROOM NO.642, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. M/S. HINDUSTAN ORGANIC CHEMICALS LTD., 2 ND FLOOR, HARCHANDRAI HOUSE, MARINE LINES, MUMBAI 400002 PAN:AAACH2663P ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANT BY : SHRI PITAMBAR DAS ()$% * + * + * + * + /RESPONDENT BY :SHRI K.GOPAL & MS. NEHA PARANJPE ' * ,-' / / / / DATE OF HEARING : 25.8.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 25.08.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : ALL THESE APPEALS ARE FILED BY THE REVENUE. THEY ARE DIRECTED AGAINST THREE SEPARATE ORDERS PASSED BY LD. CIT(A)-IV, MUMBAI D ATED 30.03.2009 FOR ASSESSMENT YEARS 1999-2000, 2003-04 AND 2004-05. G ROUNDS OF APPEAL IN ALL THE APPEALS READ AS UNDER: GROUNDS FOR APPEAL FOR A.Y 1999-2000: 1 .ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE LIQUIDITY DAMAGE OF RS. 70 LACS, WI THHELD FROM PARTIES FOR NON- COMPLETION OF PROJECT IN TIME WITHOUT APPRECIATING THE FACT THAT THE RECEIPT OF THE ASSESSEE WAS BASICALLY DERIVED, FROM THE BUSINESS C ARRIED OUT BY THE ASSESSEE AND HENCE THE SAME AMOUNTS TO REVENUE RECEIPT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) DELETED THE ADDITION OF RS. 66,57,280/- MADE TO TH E VALUATION OF CLOSING STOCK ON ACCOUNT OF DIRECT COST TOWARDS AS ESTIMATED OVERHEA DS ON THE PREMISE THAT NO CHANGE IN THE VALUATION OF CLOSING STOCK HAS BEEN M ADE IN THE EARLIER ASSESSMENT ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 2 YEARS, WITHOUT APPRECIATING THE FACT THAT THE ASSES SCC FAILED TO FILE ANY DETAILS WITH REGARD TO THE DIRECT EXPENSES AS CALLED FOR BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DELAYED PAYMENTS OF PF & ESIC 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF EXCISE DUTY NOT INCLUDE D IN THE VALUE OF THE CLOSING STOCK THEREBY VIOLATING THE PROVISION OF SECTION 145A. 5. ON THE FACTS AND IN THE CIRCUMSTANCES O! THE EA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF EXCISE DUTY NOT INCLUDE D IN THE VALUE OF THE CLOSING STOCK WITHOUT APPRECIATING THE FACT THAT BY NOT INCLUDI NG THE EXCISE DUTY IN THE VALUE OF THE CLOSING STOCK, THE ASSESSEE HAS OBLITERATED THE ISSUE OF ALLOWABILITY U/S. 43B ALTOGETHER AND THEREBY REDUCING THE PROFIT TO THAT EXTENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E. THE IMPUGNED ORDER OF THE LD . CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERIT S TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. GROUNDS FOR APPEAL FOR A.Y 2003-04: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DELAYE D PAYMENTS OF PF & ESIC. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 20,50,522/- OF BON D ISSUE EXPENSES WITHOUT APPRECIATING THE FACT THAT IT HAD BEEN ESTABLISHED DURING THE ASSESSMENT PROCEEDINGS THAT ITS BENEFITS WERE ACCRUING OVER A PERIOD OF YEARS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID CIT(A) ERRED IN GIVING RELIEF OF RS.3.7 LACS ON ACCOUNT OF STAFF WELFARE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE AUDITOR HAD HIMSELF REPORTED THAT THE SE EXPENDITURE WAS NOT COVERED U/S 40A(9). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS T O BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. GROUNDS FOR APPEAL FOR A.Y 2004-05: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DELAYE D PAYMENTS OF PF & ES IC. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN GIVING RELIEF OF RS,4.27 LACS ON ACCOUNT OF STAFF WELFARE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE AUDITOR HAD HIMSELF REPORTED THAT THE SE EXPENDITURE WAS NOT COVERED U/S 40A(9). ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 3 3. .ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW , THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF EXCISE DUTY NOT INCLUDED IN THE VALUE THE CLOSING STOCK THEREBY VIOLATING THE PROVISION OF SECTION 14 5A. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF EXCISE DUTY NOT I NCLUDED IN THE VALUE OF THE CLOSING STOCK WITHOUT APPRECIATING THE FACT THAT BY NOT INC LUDING THE EXCISE DUTY IN THE VALUE OF THE CLOSING STOCK, THE ASSESSEE HAS OBLITERATED THE ISSUE OF ALLOWABILITY U/S. 43B ALTOGETHER ANTI THEREBY REDUCING THE PROFIT TO THAT EXTENT 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERIT S TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. AS SOME OF THE ISSUES IN ALL THESE APPEALS WERE COMMON AND THESE APPEALS WERE ARGUED TOGETHER BY BOTH THE PARTIES, HENCE, FO R THE SAKE OF CONVENIENCE ALL THESE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. IT MAY ALSO BE MENTIONED HERE THAT LD. AR HAS FILED CHARTS BEFORE US, WHIC H WERE CONSIDERED FOR THE PURPOSE OF DISPOSAL OF THESE APPEALS AND THESE CHARTS ARE ALSO PLACED ON RECORD, COPIES OF WHICH WERE ALSO GIVEN TO LD. DR. 3. GROUND NO.1 FOR ASSESSMENT YEAR 1999-2000 RELATE S TO DISALLOWANCE OF RS.70.00 LACS MADE ON ACCOUNT OF LIQUIDITY DAMA GES. THE AO HAS DISCUSSED THIS ISSUE IN PARA 5 OF THE ASSESSMENT ORDER. ACCORDI NG TO AO THE ASSESSEE COMPANY HAD RECEIVED A SUM OF RS.70.00 LACS AS LIQUIDITY D AMAGES BEING RECOVERED FROM PARTIES FOR NON COMPLETION OF PROJECTS IN TIME AND HAD CONSIDERED THE SAME AS CAPITAL RECEIPTS. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE SAME AND ALSO TO EXPLAIN THAT WHY THOSE RECEIPTS SHOULD NOT BE CONSI DERED AS REVENUE RECEIPTS. THE ASSESSEE FILED ITS EXPLANATION VIDE LETTER DATED 30 /11/2005. HOWEVER, WITHOUT DISCUSSING THE NATURE OF EXPLANATION THE AO TREATED THE SAID AMOUNT AS REVENUE RECEIPT AND ADDED THE SAME TO THE INCOME OF THE ASS ESSEE. LD. CIT(A) HAS CONSIDERED THIS ISSUE IN PARA -5 OF HIS ORDER. IT WAS PLEADED BEFORE LD. CIT(A) THAT THE SAID AMOUNT REPRESENT WITHHOLDING OF PAYMENTS WITH RESPE CT TO PROJECTS UNDERTAKEN BY VARIOUS PERSONS FOR NON-FULFILLING THE TERMS OF THE CONTRACT. ACCORDING TO LD. CIT(A) SUCH WITHHOLDING OF PAYMENT IS NOT A RECEIPT BUT WO ULD BASICALLY MEAN INCURRING LESS COST FOR THE PROJECT. THEREFORE, LD. CIT(A) H AS HELD THAT THE SAID AMOUNT CANNOT BE TREATED AS REVENUE RECEIPT AND DELETED THE ADDIT ION. IT MAY BE MENTIONED HERE THAT LD. CIT(A) HAS ALSO NOT PASSED A SPEAKING ORDE R ON THIS GROUND. ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 4 3.1 IN THE LIGHT OF THESE FACTS WE HAVE HEARD BOTH THE PARTIES. LD. AR WAS REQUIRED TO SHOW THE RELEVANT DETAILS OF THE PROJECT FROM WH ICH THESE PAYMENTS WERE WITHHELD AND THE GROUNDS UPON WHICH SUCH PAYMENTS WERE WITH HELD. LD. AR WAS ALSO REQUIRED TO REFER TO THE EXPLANATION FILED BEFORE A O, THE COPY OF WHICH WAS NOT FILED IN THE PAPER BOOK. HOWEVER, LD. AR COULD NOT POINT OU T TO ANY DETAIL OR EXPLANATION FURNISHED BEFORE AO AND LD. CIT(A). THE AO DISALLO WED THE SAME BY TREATING THE SAID AMOUNT AS REVENUE RECEIPT WITHOUT DISCUSSING I N DETAILS THE EXPLANATION OF THE ASSESSEE AND SIMILARLY LD. CIT(A) HAS ALSO NOT GI VEN ANY FINDING BY WAY OF A SPEAKING ORDER. IN ABSENCE OF CLARITY OF FACTS, AF TER HEARING BOTH THE PARTIES, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE T O THE FILE OF AO WITH A DIRECTION TO RE-ADJUDICATE THIS ISSUE AS PER PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND PLACING ALL T HE RELEVANT MATERIAL ON RECORD. WE DIRECT ACCORDINGLY. GROUND NO.1 FOR A.Y 1999-20 00 IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 4. APROPOS GROUND NO.2 FOR ASSESSMENT YEAR 1999-200 0, THE AO HAS DISCUSSED THIS ISSUE IN PARA-6 OF THE ASSESSMENT ORDER. THE AO IS OF THE OPINION THAT ASSESSEE COMPANY DID NOT CONSIDER DIRECT EXPENSES WHILE COMP UTING VALUE OF CLOSING STOCK. ACCORDING TO AO RAW MATERIALS WERE REQUIRED TO BE LOADED WITH DIRECT EXPENSES LIKE FREIGHT, LOADING & UNLOADING, STORAGE ETC. CONSIDE RING ALL THESE FACTORS THE AO ESTIMATED 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIAL AND STORE & SPARES AS DIRECT EXPENSES AND ADDED A SUM OF RS.66,57,280/ -. SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2004-05, WHEREBY ADDITION O F RS.47,55,340/- WAS MADE AND WHICH IS ALSO DISCUSSED IN PARA 8 OF THE ASSE SSMENT ORDER AND IS SUBJECT MATTER OF GROUND NO.3 & 4 FOR A.Y 2004-05.. IT MAY BE MENTIONED HERE THAT IN GROUND NO.3 & 4 FOR A.Y 2004-05 THE ISSUE RAISED BY THE REVENUE IS DELETION OF EXCISE DUTY IN THE VALUE OF CLOSING STOCK. HOWEVE R, THE ONLY ADDITION MADE BY THE AO BY REFERRING TO SECTION 145A OF THE INCOME TAX ACT, 1961(THE ACT) WAS RS.47,55,340/-, WHICH IS DISCUSSED BY AO IN PARA-8 OF THE ASSESSMENT ORDER AND THE SAID ADDITION IS NOT REGARDING EXCISE DUTY ON THE CLOSING STOCK AND LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA 5 AND BY RELYING UPO N HIS DECISION IN A.Y 1999-2000 HE HAS DELETED THIS DISALLOWANCE. THEREFORE, THE D ISALLOWANCE AGITATED BY REVENUE IN GROUND NO.3 &4 FOR A.Y 2004-05 IS A SUM OF RS.47,55 ,340/-, WHICH IS IDENTICAL TO GROUND NO.2 FOR A.Y 1999-2000. THIS ISSUE WAS PLEA DED TO BE COVERED IN FAVOUR OF ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 5 THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR A.Y 2007-08 AND 2008-09. COPIES OF THESE ORDERS ARE FURNISHED BEFORE US AND REFERENCE CAN BE MADE TO THE ORDER PASSED BY THE TRIBUNAL FOR A.Y 2007-08 VIDE ORDER D ATED 13/1/2012 IN ITA NO.2201/MUM/2010, COPY PLACED AT PAGE 7 TO 12 OF TH E PAPER BOOK. THE RELEVANT OBSERVATIONS READ AS UNDER: 11. GROUND NO.3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS.58,09,097/- U/S. 145 OF THE ACT . 12. THE AO NOTED THAT THE TAX AUDIT REPORT SHOWED T HAT THE ASSESSEE COMPANY HAD NOT CONSIDERED THE DIRECT EXPENSES WHILE COMPUTING THE VALUE OF CLOSING STOCK. THE AO, THEREFORE, WAS OF THE VIEW THAT SUCH EXPENSES W ERE REQUIRED TO BE LOADED WITH FOR VALUING THE CLOSING STOCK AND THE DIRECT EXPENSES, FREIGHT, STORAGE, ETC. WERE INCURRED ON ACCOUNT OF PURCHASE OF RAW MATERIAL. SINCE NO DE TAILS OF THE DIRECT EXPENSES HAD BEEN FURNISHED, THE AO ESTIMATED THE DIRECT EXPENSE S AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH RE SULTED IN TO THE ADDITION OF RS. 58,09,097/- TO THE CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 13. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMI TTED THAT THE AO HAD MADE ADDITION OF RS. 58,09,97/- ON ESTIMATE BASIS TOWARD S THE TRANSPORTATION COST AND OTHER DIRECT COST LIKE FREIGHT, STORAGE AS INCURRED TO CLOSING STOCK OF RAW MATERIALS AND A SPARE PARTS. HE FURTHER SUBMITTED THAT NO DETAILS WERE ASKED FOR BY THE AO. IT WAS FURTHER SUBMITTED THAT THE VALUE OF CLOSING STOCK O F RAW MATERIALS AND THE STORES WERE RECORDED AT COST INCLUSIVE OF FREIGHT AND TRANSPORT ATION. THE AR SUBMITTED THAT THE PURCHASE BOOK AND GENERAL LEDGER OF A PARTICULAR DA Y REFLECTS THAT THE PURCHASE IS ACCOUNTED AT RS. 2,90,70,603/- WHICH IS INCLUSIVE O F FREIGHT OF RS. 58,850/- AND THE GENERAL LEDGER REFLECTS THAT THE CLOSING STOCK OF R S. 11,9,27,965/- IS INCLUSIVE OF FREIGHT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE C IT(A) THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF CIT(A) FOR A Y 1999-00, 2002-03, 2004-05 AND 2006-07. AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER: 4.3 I HAVE CONSIDERED THE FACT. IT IS SEEN THAT TH E APPELLANT HAS BEEN VALUING ITS CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF FREI GHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HA VING THE VALUE OF RS. 2.90 CRORE. IT IS FURTHER SEEN THAT THERE IS NO CHANGE I N THE VALUATION OF THE STOCK. I FIND THAT THE VALUATION METHOD HAS NOT BEEN CHANGED BY THE AO IN PAST YEAR AND THAT NO ADJUSTMENT TO THIS EFFECT WAS MADE IN T HE SUBSEQUENT YEAR. THE CLOSING STOCK OF PREVIOUS YEAR WOULD BE THE OPENIN G IS STOCK OF THE YEAR AND THEREFORE ESTIMATION OF THE STOCK IS NOT JUSTIFIED. FURTHER THE APPELLANT IS CONSISTENTLY FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING STOCK. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE APPELLANT BY THE O RDER OF CIT(A) FOR ASSESSMENT YEARS 1999-00, 2002-03, 2004-05 AND 2006-07 DATED 1 7/12/2010. IN VIEW OF THESE FACTS, THE ADDITION MADE BY THE AO IS DELETED . THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 14. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S IN APPEAL BEFORE US. 15. THE LEARNED DR BESIDES RELYING UPON THE ORDER O F THE AO SUBMITTED THAT SINCE NO DETAILS OF DIRECT EXPENSES FILED BY THE ASSESSEE, T HE AO ESTIMATED THE DIRECT EXPENSES ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 6 AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MA TERIALS AND STORES, WHICH IS PROPER AND THE SAME IS IN ACCORDANCE WITH THE PROVISIONS O F SECTION 145 OF THE ACT. 16. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS SEEN THA T SINCE NO DETAILS OF THE DIRECT EXPENSES WERE FURNISHED, THE AO ESTIMATED THE DIREC T EXPENSES AT 2% OF THE TOTAL VALUE OF CLOSING STOCK OF RAW MATERIALS AND STORES, WHICH RESULTED IN TO THE ADDITION OF RS. 58,09,097/- TO THE CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THE CIT(A) GAVE A FINDING THAT THE APPELLANT HAS BEEN VALUING ITS CLOSING STOCK OF RAW MATERIAL INCLUSIVE OF FREIGHT CHARGES AS REFLECTED FROM THE PURCHASE DAY BOOK AND GENERAL LEDGER OF ITEM HAVING THE VALUE OF RS. 2.90 CRORE AND THERE IS NO CHANGE IN THE VALUATION OF THE STOCK. T HE CIT(A) HELD THAT THE CLOSING STOCK OF PREVIOUS YEAR WOULD BE THE OPENING IS STOCK OF T HE YEAR AND THEREFORE ESTIMATION OF THE STOCK IS NOT JUSTIFIED. THE CIT(A) FINALLY DELE TED THE ADDITION FOLLOWING THE EARLIER ORDERS OF CIT(A) IN ASSESSEES OWN CASE. 4.1 THE SAID ORDER WAS FOLLOWED BY THE TRIBUNAL IN RESPECT OF A.Y 2008-09 VIDE ORDER DATED 9/11/2012 IN ITA NO.7981/MUM/2011, COPY OF THE ORDER IS PLACED AT PAGES 13 TO 17 OF THE PAPER BOOK. 4.2 IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES, FINDING THAT THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISIONS RE NDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE WE DISMISS GROUND NO.2 OF REVEN UES APPEAL FOR A.Y. 1999- 2000 AND GROUND NO. 3 & 4OF REVENUES APPEAL FOR A .Y 2004-05. 5. APROPOS GROUND NO.3 FOR ASSESSMENT YEAR 1999-200 0 AND GROUND NO.1 FOR A.YS 2003-04 AND 2004-05 WHICH ARE REGARDING ADDIT ION MADE ON ACCOUNT OF DELAYED PAYMENT OF PF AND ESIC, IT WAS SUBMITTED T HAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDERS OF THE TRIBUNAL IN RESPECT OF A.Y 2006-07 WHICH WAS CONFIRMED BY HONBLE BOMBAY HIGH COURT. REFERENCE IN THIS REGARD WAS MADE TO THE DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF ASSESSEE NAMELY CIT VS. HINDUSTAN ORGANIC CHEMICALS LTD., 366 ITR 1 , WHEREIN THEIR LORDSHIPS HAVE DISMISSED THE DEPARTMENTAL APPEAL BY OBSERVING THAT THE DEDUCTION COULD NOT BE DISALLOWED. THEIR LORDSHIP HELD THAT THE SECOND PROVISO TO SECTION 43B WAS DELETED W.E.F. 1/4/2004 AND SIMULTANEOUSLY THE FIRST PROVIS O WAS AMENDED BRINGING ABOUT A UNIFORMITY IN DEDUCTIONS CLAIMED TOWARDS TAX, DUTY, CESS AND FEE ON THE ONE HAND AND CONTRIBUTION TO THE EMPLOYEES PF, SUPERANNUATIO N FUND AND OTHER WELFARE FUNDS ON THE OTHER HAND. THESE DEDUCTIONS BEING CLAIMED IN THE RETURN OF A.Y 2006-07, ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 7 THE AMENDMENT TO SECTION 43B WHICH CAME INTO FORCE W.E.F. 1/4/2004, WOULD HAVE CLEARLY APPLIED TO THE ASSESSEES CASE. THUS, THEI R LORDSHIPS HAVE CONFIRMED THE DELETION OF RS.1,82,77,138/- ON ACCOUNT OF DELAYED PAYMENT OF PF OF EMPLOYEES CONTRIBUTION IN RESPECT OF A.Y 2006-07. 5.1 IN THESE VIEW OF THE SITUATION, AFTER HEARING BOTH THE PARTIES, FOLLOWING THE AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL H IGH COURT IN ASSESSEES OWN CASE, WE DECLINE TO INTERFERE IN THE DELETION OF IMPUGNE D DISALLOWANCE AND THESE GROUND OF THE REVENUE ARE DISMISSED. 6. APROPOS GROUND NO.4 & 5 FOR A.Y 1999-2000, THESE GROUNDS RELATE TO ADDITION MADE BY THE AO OF A SUM OF RS.351.29 LACS BY APPLYI NG SECTION 145A OF THE ACT. THIS ISSUE HAS BEEN DISCUSSED BY AO IN PARA-8 OF TH E ASSESSMENT ORDER. ACCORDING TO AO THE ASSESSEE DID NOT INCLUDE A SUM OF RS.351. 29 LACS BEING EXCISE DUTY PAYABLE IN THE VALUE OF THE CLOSING STOCK. THE ST ATUTORY AUDITORS IN THE ANNUAL REPORT VIDE NOTE NO.11(B) HAD REPORTED AS FOLLOWS: NO PROVISION HAS BEEN MADE FOR EXCISE DUTY LIABILI TY OF RS.351.29 LACS(PREVIOUS YEAR 513.58 LACS) ON CLOSING STOCK OF GOODS MANUFAC TURED BUT NOT REMOVED. HOWEVER, THIS HAS NO IMPACT ON THE PROFIT & LOSS AC COUNT OF THE COMPANY. FURTHER, THE STATUTORY AUDITORS ON PAGE-48 OF THE A NNUAL REPORT ALSO STATED THE FOLLOWING NOTE: EXCISE DUTY PAYABLE ON FINISHED PRODUCTS MANUFACTU RED AND NOT REMOVED IS NOT INCLUDED IN THE VALUATION OF CLOSING STOCK. REFERRING TO THESE NOTES THE AO OBSERVED THAT THERE IS A CLEAR DIFFERENCE IN THE AUDITORS COMMENTS AT TWO DIFFERENT PLACES OF THE ST ATUTORY AUDIT REPORT. HE REQUIRED THE ASSESSEE TO EXPLAIN THE SAME. VIDE LETTER DATE D 7/11/2005 THE REPLY WAS GIVEN WHICH IS REPRODUCED IN THE ASSESSMENT ORDER. IT WA S SUBMITTED THAT THE COMPANY IS VALUING THE OPENING AND CLOSING INVENTORY AS PRESC RIBED UNDER SECTION 145A OF THE ACT AND REFERENCE WAS MADE TO AS-2 ISSUED BY INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND IT WAS SUBMITTED THAT ASSESSEE IS INCL UDING THE EXCISE DUTY IN VALUING OF CLOSING INVENTORY. IT WAS SUBMITTED THAT THE MA NAGEMENT DID NOT CHANGE METHOD OF VALUATION OF CLOSING STOCK FOR VALUING THE INVEN TORY AS ON 31/3/1999 AND INCLUDED ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 8 THE EXCISE DUTY IN THE VALUE OF CLOSING INVENTORY A S ON THAT DATE. REFERENCE WAS MADE TO ANNEXURE-3 OF THE TAX AUDIT REPORT GIVEN BY C.C.CHOKSI & COMPANY, WHERE IT WAS MENTIONED THAT WHAT WOULD BE THE IMPA CT ON THE INVENTORY ON INCLUSION OF EXCISE DUTY IN THE STOCK VALUE OF THE COMPANY AND SUCH ANNEXURE CLEARLY INDICATE THAT THE OPENING AND CLOSING VALUE OF INVENTORY HAS INCREASED BY THE AMOUNT MENTIONED IN ANNEXURE-3 OF TAX AUDIT REPORT , ON INCLUSION OF EXCISE DUTY IN THE VALUE OF THE INVENTORY. IT WAS SUBMITTED THAT THE IMPACT WAS SHOWN BY THE AUDITOR AT NIL, WHICH WOULD FURTHER JUSTIFY THAT TH E METHOD OF VALUATION ADOPTED BY THE ASSESSEE FOR CLOSING INVENTORY IS IN ACCORDANCE WITH SECTION 145A, WHICH IS PROPERLY FOLLOWED. THUS, IT WAS PLEADED THAT THE C ONTENTION OF REVENUE THAT THE EXCISE DUTY PAYABLE OF RS.351.29 WAS NOT INCLUDED I N THE VALUE OF CLOSING STOCK IS NOT CORRECT. CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE THE AO OBSERVED THAT SO FAR AS THE QUESTION OF TAXABILITY OF EXCISE DUTY I S CONCERNED THE SAME IS TAXABLE BUT IT WAS CLAIMED BY THE ASSESSEE THAT VALUATION OF C LOSING STOCK HAS ALREADY BEEN SHOWN AFTER INCLUSION OF EXCISE DUTY. THE AO DID NOT ACCEPT SUBMISSION OF THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS FAILED TO GIVE EVIDENCE OF INCLUSION OF EXCISE DUTY IN THE VALUATION OF FINISHED GOODS. AC CORDINGLY, THE ADDITION WAS MADE. 6.1 LD. CIT(A) HAS CONSIDERED THIS ISSUE IN PARA-8 OF HIS ORDER AND THE SUBMISSIONS MADE BEFORE AO WERE REITERATED BY THE A SSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REFERRING TO ANNEXU RE-3 OF THE TAX AUDIT REPORT LD. CIT(A) HAS COME TO A CONCLUSION THAT ASSESSEE COMPA NY IS A PUBLIC SECTOR UNDERTAKING , WHOSE ACCOUNTS ARE AUDITED BY THE AU DITORS OF THE OFFICE OF COMPTROLLER & AUDITOR GENERAL OF INDIA. ITS ANNUAL REPORT HAS CLEARLY STATED THAT THE IMPACT OF NON-PROVISION OF EXCISE DUTY ON PROFIT OF THE COMPANY WOULD BE NIL. THE TAX AUDITOR HAS ALSO MENTIONED THAT THE IMPACT ON A DJUSTMENT AS PER SECTION 145A IS NIL, THE ADDITION MADE BY THE AO WAS NOT CALLED FOR AND THEREFORE, LD. CIT(A) HAS DELETED THE SAME. 6.2 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. LD. DR RELIED UPON THE ASSESSMENT ORDE R AND ON THE OTHER HAND, LD. AR RELIED UPON THE SUBMISSIONS MADE BEFORE AO AS WELL AS LD. CIT(A). ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 9 6.3 WE HAVE CAREFULLY GONE THROUGH THE ANNEXURE-3 O F THE TAX AUDIT REPORT. THE AUDITORS OF THE COMPANY HAVE PREPARED DIFFERENT CH ART SHOWING IMPACT OF ADJUSTMENT TO BE MADE UNDER SECTION 145A OF THE ACT ON THE PROFIT AND LOSS OF THE ASSESSEE. THE IMPACT HAS BEEN SHOWN AT NIL. THESE DETAILS ARE FILED AT PAGE 18 TO 21 OF THE PAPER BOOK. PAGE-18 IS ANNEXURE 2 SHOWING THE METHOD OF VALUATION OF CLOSING STOCK. AT PAGE 19, ANNEXURE -3 DESCRIBING THE EFFECT OF PROFIT AND LOSS AFTER ADJUSTMENT REQUIRED UNDER SECTION 145A OF EXCISE DU TY IN THE RASAYANI UNIT AND IMPACT HAS BEEN SHOWN AT NIL. SIMILARLY, IN OTHER PAGES ALSO IN RESPECT OF SALES TAX IMPACT HAS BEEN SHOWN AT NIL. THE AO IS ALSO N OT DISPUTING THE CONTENTION OF THE ASSESSEE THAT ANNEXURE-3 OF THE TAX AUDIT REPORT D ISCLOSE ABOUT THE IMPACT OF INCLUSION OF EXCISE DUTY IN THE VALUE OF CLOSING ST OCK AS NIL. THE AO HAS ADDED THIS AMOUNT SIMPLY FOR THE REASON THAT ASSESSEE COULD NO T PRODUCE EVIDENCE TO SHOW THAT EXCISE DUTY HAS BEEN INCLUDED IN THE VALUE OF FINIS HED GOODS. LD. CIT(A) HAS ALREADY MENTIONED THAT THE ASSESSEE IS A PUBLIC SECTOR UND ERTAKING, WHOSE AUDIT HAS BEEN DONE BY COMPTROLLER & AUDITOR GENERAL OF INDIA. AF TER PERUSING ANNEXURE-3 OF THE TAX AUDIT REPORT IN WHICH NO DEFECT HAS BEEN POINTE D OUT BY AO OR LD. DR, WE ARE OF THE OPINION THAT LD. CIT(A) DID NOT COMMIT ANY ERR OR IN DELETING THE ADDITION AND WE DECLINE TO INTERFERE IN THE DELETION MADE BY LD.CIT (A). THIS GROUND OF THE REVENUE IS DISMISSED. 7. APROPOS GROUND NO.2 FOR A.Y 2003-04, WHICH IS RE GARDING DISALLOWANCE OF RS.20,50,522/- ON THE BOND ISSUE EXPENSES. AFTER HE ARING BOTH THE PARTIES WE FOUND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASSESSEE OWN CASE FOR A.Y 200 6-07, WHEREBY THEIR LORDSHIPS HAVE CONFIRMED THE DELETION OF DISALLOWANCE OF RS.1 0,00,300/- IN RESPECT OF BOND ISSUE EXPENSES. THEIR LORDSHIPS HAVE CONFIRMED THE SAID DELETION WITH THE FOLLOWING OBSERVATION. 7.1 FOLLOWING QUESTION WAS POSED BY THE REVENUE B EFORE THEIR LORDSHIPS FOR ANSWER. (B) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HONBLE TRIBUNAL, IN LAW, WAS RIGHT IN DELETING THE DISALLOWANCE OF RS. 10,00,300 ON BOND REGISTRATION CHARGES AND ALLOWING THE CLAIM OF THE ASSESSEE UNDE R SECTION 37(1) OF THE INCOME-TAX ACT,1961? ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 10 THEIR LORDSHIPS HAVE ANSWERED THE ABOVE QUESTION A S PER FOLLOWING OBSERVATIONS. AS FAR AS THE SECOND QUESTION IS CONCERNED, WE FIN D THAT THE COMMISSIONER OF INCOME- TAX (APPEALS) AS WELL AS THE INCOME-TAX APPELLATE T RIBUNAL MERELY FOLLOWED THE DECISIONS IN THE CASE OF THIS VERY ASSESSEE IN THE PRECEDING YEARS IN DELETING THE DISALLOWANCE OF RS.10,00,300 INCURRED TOWARDS BOND REGISTRATION CHARGES AND IN VIEW THEREOF, THE INCOME-TAX APPELLATE TRIBUNAL CAME TO THE FINDING THAT THE SAID EXPENDITURE WAS A REVENUE EXPENDITURE AND, HENCE, ALLOWABLE UND ER SECTION 37(1) OF THE ACT. WE ARE OF THE VIEW THAT THE AFORESAID FINDING OF THE INCOM E-TAX APPELLATE TRIBUNAL CANNOT BE IN ANY WAY SAID TO BE VITIATED ON THE GROUND OF PERVER SITY OR ANY ERROR APPARENT ON THE FACE OF THE RECORD AND, THEREFORE, DOES NOT GIVE RI SE TO ANY SUBSTANTIAL QUESTION OF LAW WHICH NEEDS TO BE ANSWERED BY THIS COURT. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOTH T HE PARTIES, WE DISMISS THIS GROUND OF THE REVENUE APPEAL. 8. APROPOS GROUND NO.3 FOR A.Y 2003-04 AND GROUND N O.2 FOR A.Y 2004-05, IT WAS CLAIMED THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL RENDERED FOR A.Y 2006-07 AND 2007-08, COPIES OF THESE ORDERS ARE FILED IN THE PAPER BOOK. IN ASSESSMENT YEAR 2006-07 THE ORDER PASSED BY THE TRIBUNAL IS DATED 26/8/2011 IN ITA NO.3683/MUM/2010 AND THIS I SSUE HAS BEEN DECIDED BY THE TRIBUNAL WITH THE FOLLOWING OBSERVATIONS. COP Y OF THIS ORDER IS PLACED AT PAGES 19 TO 23 OF THE PAPER BOOK. 4. GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN GIVING RELIEF OF RS.4 LACS ON ACCOUNT OF STAFF W ELFARE EXPENDITURE WITHOUT APPRECIATING THE FACT, THAT THE AUDITOR HAD HIMSELF REPORTED THA T THESE EXPENDITURE WAS NOT COVERED U/S.40A(9). 5. IN THE TAX AUDIT REPORT THE AUDITORS HAVE OBSERV ED THAT THE FOLLOWING PAYMENTS ARE NOT ALLOWED AS PER SEC. 40A(9) OF THE ACT:- OFFICERS CLUB RS 2,00,000/- STAFF CLUB RS 2,00,000/- RS 4,00,000/- 6. THE ASSESSEE EXPLAINED TO THE A.O. THAT THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE CELEBRATION OF SPORTS AND CULTURAL ACTIVITIES ON THE OCCASION ON THE INDEPENDENCE DAY AND SEVERAL OTHER OCCASIONS. THE A.O. DID NOT A CCEPT THE EXPLANATION OF THE ASSESSEE AND DISALLOWED THE ENTIRE CLAIM OF RS 4 LA KH U/S.40A(9) OF THE ACT. THE ASSESSEE CARRIED THE SAID ISSUE BEFORE THE LD. CIT (A) WHO FOLLOWING THE ORDER FOR THE A.Y. 2004-05 ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. CIT DR FAIRLY CONCEDED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE A.Y. 2004-05. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) AND ACCORDINGLY SAME IS CONFIRMED ITA NO.3875/MUM/2009 (A.Y.1999-2000) ITA NO.3876/MUM/2009 (A.Y.2003-04) ITA NO.3877/MUM/2009 (A.Y.2004-05) 11 8.1 THE SAID ORDER WAS FOLLOWED BY THE TRIBUNAL IN RESPECT OF A.Y 2007-08 VIDE ORDER DATED 13/1/2012 IN ITA NO.2201/MUM/2010 AND C OPY OF THE ORDER IS PLACED AT PAGES 7 TO 12 OF THE PAPER BOOK. 8.2 IN THIS VIEW OF THE SITUATION, AFTER HEARING BOTH THE PARTIES, RESPECTFULLY FOLLOWING THE AFOREMENTIONED ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DECLINE TO INTERFERE IN THE DELETION OF DISALLOWANC ES AND THESE GROUNDS OF REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL FOR A.Y 1999-2000 IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES AND OTHER TWO APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH AUG., 2014. 1 * ./0 2'3 25.08.2014 / * : SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 25 TH AUG. 2014. VM. 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. =() / THE CIT, MUMBAI. 4. = / CIT(A)-13, MUMBAI 5. ;@: (,' , , / DR, ITAT, MUMBAI 6. :A B / GUARD FILE. 1' 1' 1' 1' / BY ORDER, );, (, //TRUE COPY// C CC C/ // /D D D D (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI