DCIT 1(2), MUMBAI V. INDIAN OXIDES & CHEMICALS P.LTD, MUMBAI

ITA 4235/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2120 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 12-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4235/MUM/2013 ASSESSMENT YEAR: 2008-09 DCIT 1(2), R. NO. 535, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 VS. M/S INDIAN OXIDES & CHEMICALS PVT. LTD., LIBERTY BUILDING, SIR VITHALDAS THACKERSAY MARG, MUMBAI-400020 PAN: AAACUO797M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SUNIL KUMAR AGRAWAL (DR) ASSESSEE BY SHRI SANJAY R. PARIKH DATE OF HEARING : 12.08.2015 DATE OF PRONOUNCEMENT : 07.10.2015 O R D E R PER PAWAN SINGH, JM: THE PRESENT APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-7, MUMBAI DATED 20.12.2012 ON THE FOLLOWING GROUNDS: 2 ITA NO. 4235/M/13 M/S INDIAN OXIDES & CHEMICALS PVT. LTD 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O U/S 145A OF ` . 41,32,722/-. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED IS RETURN OF INCOME ON 24.07.2008 IN RESPECT OF AY-2008-09, DECLARING TOTA L INCOME AT RS. 11,74,754/-. THE RETURN WAS SELECTED FOR SCRUTINY A ND THE AO VIDE ORDER DATED 20.12.2010 MADE DISALLOWANCE OF RS. 4,48,230/- U/S 37, RS. 9,00,000/- U/S 40(A)(2B) AND RS. 41,32,722/- U/S 145A AND INITIATE D PENALTY PROCEEDINGS. 3. AGAINST THE ORDER OF AO, THE ASSESSEE FILED AN A PPEAL BEFORE THE CIT(A)- 7, MUMBAI. THE CIT(A) IN THE IMPUGNED ORDER DATED 2 0.12.2012 DELETED ALL THE ADDITION MADE BY AO, AGAINST WHICH THE PRESENT APPEAL IS PREFERRED BY REVENUE ONLY AGAINST THE DELETION MADE U/S 145A OF I.T. ACT. 4. THE LD. CIT(A) WHILE CONFERRING THE ADDITION U/S 145A MADE THE FOLLOWING OBSERVATION: I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS APPEL LANT AR'S SUBMISSIONS. HAVING CONSIDERED BOTH, I FIND THAT TH E APPELLANT HAS REDUCED HIS PROFIT TO THE EXTENT OF RS.41,32,722/- CONSEQUENT TO GIVING EFFECT TO THE STATUTORY PROVISIONS U/S. 145A OF THE ACT AS THE APPELLANT IS REQUIRED TO DO SO. IT IS EVIDENT FROM THE APPELLANT'S SUBMISSION THAT THE APPELLANT IS FOLLOWING EXCLUSIV E METHOD OF ACCOUNTING FOR PREPARATION OF ITS BOOKS OF ACCOUNTS AS PER ACCOUNTING STANDARD PRESCRIBED BY ICAI, BUT HOWEVER, FOR FILIN G THE RETURN OF INCOME, IT HAS TO BE IN ACCORDANCE WITH THE PROVISI ONS OF THE I.T. ACT AND ACCORDINGLY FOR THIS PURPOSE THE APPELLANT PREP ARED ITS PROFIT & LOSS ACCOUNT AND ALSO GAVE EFFECT TO THE VALUATION OF ITS OPENING AND CLOSING STOCK AND SALES AND PURCHASE IN ACCORDANCE WITH PROVISIONS OF SEC.145A OF THE ACT AND THIS HAS BEEN REPORTED B Y THE TAX AUDITOR OF THE APPELLANT COMPANY IN FORM NO. 3-CD AS PER CL AUSE 12(B) OF THE TAX AUDIT REPORT. AFTER TAKING NOTE OF THE DECISION OF THE APEX COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321 (SC) A ND BHARAT SANCHAR NIGAM LTD. AND ANOTHER V. UNION OF INDIA AN D OTHERS REPORTED IN 282 ITR 273, I AM OF THE CONSIDERED VIE W THAT THE AO WAS NOT CORRECT IN HIS ACTION IN MAKING THE AFORESA ID DISALLOWANCE AS THERE IS NO JUSTIFICATION FOR DOING SO. THE AO'S SU CH ACTION VIRTUALLY CONTRAVENES THE PROVISIONS OF SECTION 145A OF THE A CT AND HENCE CAN NOT BE PERMITTED IN VIEW OF THE EXPLICIT PROVISIONS OF LAW. EVEN, THE 3 ITA NO. 4235/M/13 M/S INDIAN OXIDES & CHEMICALS PVT. LTD APPELLANT'S AR ALSO SUBMITTED THAT IN THE SUBSEQUEN T YEAR AND IN EARLIER YEAR ALSO SUCH ADJUSTMENT WHICH HAS BEEN SH OWN BY THE APPELLANT COMPANY ON THIS ACCOUNT HAS BEEN CONSISTE NTLY ACCEPTED BY THE DEPARTMENT. TAKING NOTE OF ALL THE FACTS AVA ILABLE ON RECORD, I AM OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTI FIED IN HIS ACTION AND ACCORDINGLY THE ADDITION SO MADE BY THE AO IS D ELETED. THUS, APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED. 4. WE HAVE HEARD THE LD. REPRESENTATIVE OF DR AND A SSESSEE AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. 5. DR ARGUED THAT CIT(A) ERRED IN DELETING THE ADDI TION MADE U/S 145A OF THE ACT AS THE ASSESSEE HAS CHANGED THE METHOD OF A CCOUNTING AND THE ASSESSEE HAS MERELY MADE THE STATEMENT OF ACCOUNT W ITHOUT PLACING ANY MATERIAL ON RECORD AS TO HOW THE ADJUSTMENTS U/S 14 5A RESULTED INTO DECREASE OF PROFIT OF RS. 41,32,722/-. 6. THE LD. AR ARGUED THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING, PREPARED ITS BOOKS OF ACCOUNTS AND MAI NTAINED THE ACCOUNT AS PER ACCOUNTING STANDARD PRESCRIBED ICAI, AND THE SA ME IS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSESSEE HAS PLACED ON RECORD THE COMPUTATION OF TOTAL INCOME WHICH IS AVAILABLE ON PAGE 1, 2 & 3 OF PAPER BOOK ALONG WITH THE ANNUAL ACCOUNT FOR THE YEAR ENDING ON 31.03.200 8 WITH COPY OF TAX AUDIT REPORT (TAR). THE ASSESSEE ALSO PLACED ON RECORD TH E COPY OF ASSESSMENT ORDERS FOR THE YEAR 2006-07 AND 2009-10. IN BOTH OF THE ASSESSMENT YEAR THE REVENUE HAS ACCEPTED THE SAME METHOD OF ACCOUNTING BY THE ASSESSEE. 7. WE HAVE GONE THROUGH THE ASSESSMENT ORDERS PRIOR AND SUBSEQUENT TO THE ASSESSMENT ORDER, IMPUGNED IN THE PRESENT APPEA L, WHEREIN NO ADDITION IS MADE U/S 145A OF THE ACT IN BOTH THE YEARS AND THE REVENUE HAS ACCEPTED THE METHOD OF ACCOUNTING. THE AO HAS NOT DISPUTED T HE METHOD OF ACCOUNTING IN HIS ORDER. 4 ITA NO. 4235/M/13 M/S INDIAN OXIDES & CHEMICALS PVT. LTD 8. THE ASSESSEE RELIED UPON THE JUDGMENT OF CO-ORDI NATE BENCH OF MUMBAI TRIBUNAL IN ITA NO. 271/12 TITLED AS HERCULE S PIGMENT INDUSTRY VS. ITO REPORTED IN [2013] 35 TAXMANN.COM 650: , WHEREI N IT HAS BEEN OBSERVED THE PROPER MANNER IN WHICH THE CORRECT PROFIT IN TE RMS OF SECTION 145A COULD BE DETERMINED IS BY SCRUPULOUSLY FOLLOWI NG THE MANDATE OF THE SAID SECTION. ALL THE CONSTITUENTS OF THE MA NUFACTURING ACCOUNT THAT ARE SUBJECT TO LEVY/INCIDENCE OF EXCISE (OR AN Y OTHER TAX FOR THAT MATTER) ARE TO BE LOADED THEREWITH. THAT THE PROVIS ION IS TAX NEUTRAL IS NO ARGUMENT FOR NOT OBSERVING THE SAME, AS THE S AME (TAX NEUTRALITY) WOULD HAVE TO BE ESTABLISHED IN EACH CA SE WITH REFERENCE TO THE ACCOUNTS AS BEING MAINTAINED. THIS IS AS IN PRACTICAL SITUATIONS, A ONE-TO-ONE CORRESPONDENCE BETWEEN INPUT/S AND OUT PUT/S, IS DIFFICULT TO ESTABLISH IN REAL LIFE MANUFACTURING C ASES, WHERE A VARIETY OF INPUTS, IF NOT ALSO OUTPUTS, OBTAIN. SECONDLY, THE CLOSING INVENTORY, LOADED WITH ALL IN PUT DUTIES/LEVIES, WOULD ONLY STATE THE SAME AT ACTUAL COST, EVEN AS A DVOCATED BY AS-2 BY ICAI. AGAIN, THIS ONLY WOULD STATE THE CURRENT A SSET, WHICH IT REPRESENTS, AT ITS PROPER VALUE, I.E., IN THE BALAN CE SHEET, AND AT WHICH THE SAME IS TO BE CARRIED FORWARD TO THE FOLL OWING YEAR. EVEN WHERE ACCOUNTED FOR SEPARATELY, THE SAME IS TO BE C ARRIED FORWARD AS A COST WHICH IS RECOVERABLE. ONLY A CORRECT STATEME NT OF THE CURRENT ASSETS AND LIABILITIES, I.E., WHICH ARE NOT ON CAPI TAL ACCOUNT, IN THE BALANCE SHEET, WOULD ENABLE REFLECTION OF THE CORRE CT OPERATING RESULTS FOR THE RELEVANT ACCOUNTING PERIOD. TOWARD THIS, ONLY THE BOOKING OF PROFIT (AGAINST EXCESS RECOVERY OF EXCIS E DUTY) WOULD ENABLE AN AGREEMENT OF THE OUTSTANDING BALANCE IN T HE UCC ACCOUNT WITH THE EXCISE COMPONENT IN THE CLOSING INVENTORIE S, SO THAT THE ACCOUNTS WHETHER MAINTAINED ON GROSS OR NET BASIS, REFLECT THE CURRENT ASSET IN RESPECT OF EXCISE PAID THEREON AT THE SAME, CORRECT VALUE. FURTHER, IT IS ONLY THIS, RECKONING THE PROF IT ON EXCESS RECOVERY AS THE DIFFERENCE BETWEEN THE PROFIT PER THE TWO ST ATEMENTS PREPARED ON NET AND GROSS BASIS, THAT WOULD STATE T HE UCC ACCOUNT AT THE CORRECT VALUE OF THE CURRENT ASSETS REPRESEN TED BY IT, WHERE THE ACCOUNTS ARE MAINTAINED ON NET BASIS, BRINGING THE PROFIT PER THE TWO METHODS AT PAR. THIRDLY, THE PROVISION BECOMES TAX NEUTRAL ONLY WHE N DUTY IS PAID ON VALUE ADDITION, ELSE NOT, IN VIEW OF THE NON OBSTAN TE PROVISION OF SECTION 43B, WHICH HAS TO BE GIVEN EFFECT TO. THAT, HOWEVER, IN ANY CASE, CANNOT BE A GROUND FOR NOT OBSERVING THE METH OD OF ACCOUNTING THAT YIELDS CORRECT PROFITS OR OPERATING RESULTS. FURTHER, EVEN WHERE THE ACCOUNTING TREATMENT PROVIDES CORREC T RESULTS, THE PROVISION OF SECTION 43B WOULD HAVE TO BE GIVEN DUE EFFECT. THE SAME CANNOT BE DEFEATED BY NON-BOOKING THE STATUTOR Y LIABILITY IN RESPECT OF EXCISE IN ACCOUNTS, EVEN IF PAYABLE IN D UE COURSE, UNDER 5 ITA NO. 4235/M/13 M/S INDIAN OXIDES & CHEMICALS PVT. LTD STATING SIMULTANEOUSLY THE CORRESPONDING ASSET/S, T O CONTEND NON- DIFFERENCE IN OPERATING RESULTS. THE TRIBUNAL, IN R AJ PETRO SPECIALITIES (P.) LTD. V. ASSTT. CIT [IT APPEAL NOS. 7260 & 7261 (MUM) OF 2010], DATED 15-3-2013] HAS CLARIFIED THAT SECTIONS 43B AN D 145A, BOTH NON OBSTANTE PROVISIONS, ARE TO BE READ IN HARMONY AND, FURTHER, EXPLAINED THAT THERE WAS IN FACT NO CONFLICT OR INC ONSISTENCY BETWEEN THE TWO SECTIONS. IN FINAL ANALYSIS, THE TAX NEUTRA LITY OF THE NET METHOD IS SUBJECT TO IT BEING ESTABLISHED, WITH THE NON OBTSTANTE PROVISION OF SECTION 43B, WHICH IN FACT OBTAINS IRR ESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED, ASSUMING A CRUCIAL S IGNIFICANCE WHEN THE LIABILITY IN RESPECT OF ALL THE LEVIES AS ACCRU ED ARE BOOKED OR ACCOUNTED FOR. 9. THE ABOVE NARRATED DISCUSSION, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF CIT(A), THE ORDER OF THE CIT(A) IS BASED UPON TH E REASONING AND DOES NOT CALL ANY INTERFERENCE IN DELETING THE ADDITION U/S 145A OF THE ACT. AS A RESULT, APPEAL FILED BY THE REVENUE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 7 TH OF OCTOBER, 2015. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.10.2015 SHARWAN P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT.REGISTRAR, ITAT, MUMBAI.