Forge & Forge Private Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Cen. Circle-1, RAJKOT-GUJARAT

ITA 448/RJT/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8904 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DM RINDANI
• Keywords: Earning of tax free income; Source of fund
• Section: 43B; 40A(3); 143(3); 153A; 14A; 145; 148; 6; 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH , ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] FORGE & FORGE PVT. LTD. AHMEDABAD HIGHWAY, RAJKOT PAN: AAACF3979L (APPELLANT) VS THE ACIT, CENTRAL CIRCLE - 1, RAJKOT (RESPONDENT) REVENUE BY: SHRI JITENDRA KUMAR, CIT - D.R. ASSESSEE BY: SHRI D.M. RINDANI , A.R. DATE OF HEARING : 05 - 12 - 2 017 DATE OF PRONOUNCEMENT : 16 - 01 - 2 018 / ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER: - THESE THREE APPEALS FILED BY ASSESSEE FOR A.Y. 2010 - 11 TO 2012 - 13, AR ISE FROM ORDER OF THE CIT(A) - 11, AHMEDABAD DATED 25 - 06 - 2015 & 26 - 06 - 2015 , IN PROCEEDINGS UNDER SECTION 153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . ITA NO S . 448 TO 450 / RJT /20 15 A . Y . 2010 - 11 TO 2012 - 13 I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 2 2. THE COMMON GROUNDS OF APPEAL ON IDENTICAL FACTS OF DIFFERENT ASSESSMENT YEARS ARE ADJUDICATED ON THE BASIS OF ADJUDICATION OF SIMILAR GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 AS A LEAD CASE. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2010 - 11 : - 1. THAT THE LEARNED CIT(APPEALS) HAS GRIEVOUSLY ERRED BOTH ON FACTS AND IN LAW IN REJ ECTING THE CONTENTIONS OF THE APPELLANT THAT THE PROCEEDINGS INITIATED U/S 153A AND THE ORDER PASSED BY THE A.O. U/S 153A/143(3) IS WITHOUT JURISDICTION. 2. THAT THE LEARNED CIT(APPEALS) HAS GRIEVOUSLY ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE APPELLANT THAT THE PROCEEDINGS INITIATED U/S 153A ARE BAD IN LAW IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BELONGING TO THE APPELLANT BEING FOUND DURING THE COURSE OF THE SEARCH. 3. THAT THE LEARNED CIT (APPEALS) HAS GRIEVOUSLY ERRED BOTH ON FACTS AND IN LAW IN IGNORING THE FACTS THAT THE ADDITIONS MADE BY THE A.O. ARE LEGALLY NOT TENABLE SINCE THE SAME DO NOT ARISE FROM ANY INCRIMINATING MATERIAL FOUND/SEIZED DURING THE COURSE OF THE SEARCH. 4. THAT THE LEARNED CIT(APPEA LS) HAS GRIEVOUSLY ERRED IN FAILING TO APPRECIATE THE TRUE IMPORT OF THE SUBMISSIONS MADE BY THE APPELLANT WITH REGARD TO THE ABOVE. 5. THAT THE LEARNED CIT(APPEALS) HAS GRIEVOUSLY ERRED IN CONFIRMING \ THE DISALLOWANCE OF RS. 674155/ - MADE BY THE A. O. U/S 14A OF THE ACT. 6. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.84,39,017 MADE BY THE AO. 7. THAT THE LEARNED CIT(APPEALS) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2 ,00,000/ - MADE BY THE A.O. OUT OF THE FOREIGN TRAVEL EXPENSES CONSIDERING THE SAME AS HAVING BEEN INCURRED FOR NON - BUSINESS PURPOSES. 3. IN THIS CASE, SEARCH ACTION 132 OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 8 TH SEPTEMBER, 2011. THEREAFTER, IN RESPONSE TO NOTICE, THE ASSESSEE HAS FILED ITS RETURN OF INCOME U/S. 153A OF THE ACT ON 10 TH OCTOBER, 2012 SHOWING TOTAL INCOME OF RS. 10,34,97,300/ - . THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FORGING STEEL ITEMS ACCORDING TO THE SPECIFICATION OF CUSTOMER. THE BRIEF FACT OF THE CASE IS DISCUSSED UNDER THE DIFFERENT GROUND OF APPEAL AS UNDER: - I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 3 GROUNDS OF APPEAL 1 TO 4 4. THE ASSESSEE HAS RAISED THE ISSUE THAT ONLY THE PENDING ASSESSMENT SHOULD ABATE AND THE ASSESSMENT ALREADY COMPLETED WOULD REMAIN OUT OF THE PURVIEW OF SECTION 153A OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL HAS REJECTED THE APPEAL OF THE ASSESSEE ON THIS ISSUE. THE LEARNED COUNSEL HAS CONTENDED THAT THE NOTICE UNDER SECTIO N 153A WAS INVALID MERELY BECAUSE ASSESSEE WAS SEARCH IT CANNOT BE THE BASIS FOR ASSESSMENT NOT BASED ON SEIZED MATERIAL FOR THE YEAR UNDER CONSIDERATION. IN RESPECT OF ASSESSMENT YEARS FROM 2010 - 11 THE LEARNED DR STATED IN THE WRITTEN SUBMISSION THAT THE DATE OF SEARCH WAS 8TH SEPTEMBER 2011 AND THE TIME TO ISSUE NOTICE UNDER SECTION 143(2) HAD NOT EXPIRED BECAUSE THE NOTICE UNDER SECTION 143 ( 2) COULD BE ISSUED UP TO 30 SEPTEMBER 2011. IT COULD NOT BE SAID THAT THERE WAS ANY PROCEEDING CONCLUDED/ COMPLETED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF ANY PROCEEDING, THE QUESTION OF THE SAME BECOMING CONCLUDED ALSO DID NOT ARISE. THUS, THE QUESTION OF ABATEMENT OR OTHERWISE OF THE PROCEEDINGS RELATING TO ASSESSMENT YE AR 2010 11 ALSO DID NOT ARISE. THUS THE ASSESSING OFFICER WAS ENTITLED TO SCRUTINIZE THE RETURN OF INCOME FILED IN PURSUANCE TO THE NOTICE ISSUED UNDER SECTION 153A OF THE ACT. HE HAS ALSO PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENT: - I. SHEE TAL ABHINANDAN LODHA & OTHER V. DCIT ITA NOS. 3266 AND 3267/MUM/ 2015, 21ST OF AUGUST 2015. IN THE ABSENCE OF RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION AND ALSO IN THE ABSENCE I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 4 OF ANY OTHER PROCEEDINGS LEADING TO THE PASSING OF THE ASSESSMENT ORDER, IT COULD NOT BE SAID THAT THERE WAS ANY PROCEEDING CONCLUDED/ COMPLETED BY THE REVENUE FOR THE YEAR UNDER CONSIDERATION. II. GURINDER SINGH BAWA V.DCIT (2014) 150 ITD 40 (MUM) WHEREIN THE TRIBUNAL HAS OBSERVED THAT ONLY AFTER THE EXPIRY OF TIME LI MIT PRESCRIBED FOR THE ISSUE NOTICE UNDER SECTION 143 (2) OF THE ACT, THE ASSESSMENT CANNOT BE CONSIDERED TO BE PENDING IF NO NOTICE UNDER THAT SECTION WAS ISSUED. THE LEARNED DR HAS ALSO STATED IN THE WRITTEN SUBMISSION THAT ABOVE TWO SCENARIO ARE DISC USSED IN PARA 41 OF THE DECISION OF HON'BLE SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LIMITED VS DCIT (2012) 23 TAXMANN.COM 103(MUMBAI)(SB). THE LD. DEPARTMENTAL REPRESENTATIVE ALSO SUPPORTED THE ORDER OF LD. CIT(A). 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. A SEARCH ACTION U/S. 132A OF THE ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 08 - 09 - 2011. THE ASSESSMENT PROCEEDINGS U/S. 153A WAS INITIATED ON 12/06/2012 BY ISSUING OF NOTICE U/S. 153A OF THE ACT. WE OBSERVED THAT IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAD FILED ITS RETURN OF INCOME OF RS. 103497300/ - ON 14/10/2010 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. NO NOTICE U/S. 143(2) OF THE ACT WAS SERVED IN THE CASE OF THE A SSESSEE. WE HAVE NOTICED THAT NO REGULAR ASSESSMENT HAVE BEEN FINALIZED U/S. 143(3) OF THE ACT IN THE CASE OF THE ASSSESSEE. PROVISO TO SECTION 153A OF THE ACT STATE THAT ASSESSMENT OR RE - ASSESSMENT IF ANY RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 5 THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS SUB - SECTION PENDING ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR MAKING OF REQUISITION UNDER SECTION 132A AS THE CASE MAY BE SHALL ABATE. WE OBSERVED THAT ASSESSMENT IN THE CASE OF T HE ASESESSEE WAS NOT COMPLETED FOR THE YEAR UNDER CONSIDERATION WHEN THE SEARCH ACTION 132A OF THE ACT WAS CARRIED ON 08 - 09 - 2011. THE SCOPE OF PROCEEDINGS U/S. 153A IN RESPECT OF ASSESSMENT WHICH HAVE ALREADY COMPLETED UNDER SECTION 143(3) BEFORE INITIAT ION OF SEARCH UNDER SECTION 132 AND WHICH DO NOT ABATE UNDER SECTION 153A HAVE TO BE CONFINED ONLY TO INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THE NEXT ASPECT TO BE CONSIDERED IS AS TO WHEN RETURNS OF INCOME FILED UNDER SECTION 139 AND WHEN NO NOTICE UNDER SECTION 143(2) HAS BEEN ISSUED WITHIN THE TIME LIMIT CONTEMPLATED BY THE PROVISO THERETO CAN BE SAID TO BE ASSESSMENT PROCEEDING CONCLUDED THAT HAVE NOT ABATED UNDER SECTION 153A OF THE ACT. IN THE PRESENT CASE OF THE AS SESSEE, THE RETURN OF INCOME WAS FILED ON 14.10.2010 AND THE TIME LIMIT FOR ISSUING THE NOTICE U/S. 143(2) OF THE ACT WAS 30.9.2011 AND THE SEARCH ACTION U/S. 132 OF TH E ACT WAS CONDUCTED ON 8/9/2011 BEFORE THE EXPIRY OF TIME LIMIT FOR ISSUING THE NOTICE U/S. 143(2) OF THE AC T. IN THE PRESENT CASE, THE PERIOD OF ISSUING OF NOTICE U/S. 143(2) HAS NOT BEEN ELAPSED ON THE DATE OF SEARCH THEREFORE IT CANNOT BE SAID THAT THE ASSESSMENT U/S. 143(3) HAS ATTAINED FINALITY WHICH CAN ONLY BE RE - ASSESSED U/S. 148 OR 263 OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUSSION IN THE PRESENT CASE IT CANNOT BE CONCLUDED THAT SCOPE OF PROCEEDINGS U/S. 153A HAS TO BE CONFINED ONLY TO MATERIAL FOUND IN THE COURSE OF SEARCH. SINCE TIME LIMIT FOR NOTICE UNDER I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 6 SECTION 143 (2) HAS NOT EXPIRED IT WIL L B E A CASE WHERE RETURN HAS NOT ATTAINED FINALITY. CONSEQUENTLY THE ASSESSING OFFICER WOULD HAVE THE AUTHORITY/ JURISDICTION TO ASSESS THE ENTIRE INCOME SIMILAR TO JURISDICTION IN REGULAR ASSESSMENT UNDER SECTION 143( 3) OF THE ACT FOR THAT YEAR UNDER CONSID ERATION. CONSEQUENTLY, THE GROUNDS OF APPEAL 1 TO 4 OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. GROUND OF APPEAL NO.5 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF RETURN OF INCOME, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS SHO WN EXEMPT INCOME TO THE TUNE OF RS. 12,07,013/ - WITHOUT SHOWING ANY EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME. ON VERIFICATION THE ASSESSING OFFICER OBSERVED THAT ASESSEE HAD DEBITED AN INTEREST OF RS. 69,05,8413/ - IN THE P&L A/C WITHOUT ALLOCATING ANY SUCH EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. CONSEQUENTLY , THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE RELATING TO THE EXEMPT INCOME IN ACCORDANCE WITH THE PROVISION OF SECTION 14 R.W. RULE 8D TO THE AMOUNT RS. 6,74,155/ - . 7. AGGRI EVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 10. THE ASSESSEE WAS REQUIRED TO ESTABLISH CLEAR NEXUS BETWEEN SOURCE OF INVESTMENT AND OTHER RELATED EXPENS ES TO CARRY OUT THE ACTIVITIES FOR EARNING EXEMPT INCOME THE SUBMISSION OF THE APPELLANT WAS PURELY NARRATIVE IN NATURE AND DID NOT HAVE ANY SUPPORT IN THE FORM OF FACTS AND FIGURES SUCH AS SOURCE OF FUNDS INCLUDING RESERVES ETC. AND THEIR NEXUS WITH APPLI CATION IN THE BUSINESS OF THE ASSESSEE. THERE WAS NO EVIDENCE IN THE SUBMISSION OF THE ASSESSEE WHICH COULD REBUT THE FINDINGS OF THE AO. IN VIEW OF THE ABOVE THE FACTS OF THE CASE THE DECISION CITED BY THE ASSESSEE WAS NOT APPLICABLE. THEREFORE, IN MY CON SIDERED OPINION, THE ACTION OF THE AO DOES I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 7 NOT WARRANT ANY INTERFERENCE. 8. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING ACKNOWLEDGEMENT OF RETURN OF INCOME, SUBMISSION MADE BEFORE THE LD. CIT(A) AND ASSESSING OFFICER, ETC. LD. COUNSEL HAS CONTENDED THAT ASSESSEE WAS HA VING INTEREST FREE FUND OF RS. 24,62,80,666/ - MUCH HIGHER THAN INVESTMENT OF RS. 2,25,21,875/ - , THEREFORE, THE DISALLOWANCE U/S. 145A OF THE ACT WAS NOT CORRECT. ON THE OTHER HAND THE LEARNED DR HAS SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TA X APPEAL. 9. WE HAVE NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPT INCOME OF RS. 1207013/ - WITHOUT SHOWING ANY EXPENDITURE TOWARDS EARNING THIS EXEMPT INCOME ON THE GROUND THAT INTEREST FREE FUNDS WERE MORE THAN THE INVESTMENT. WE OBSERVED THAT THE ASSE SSEE HAS MADE LOANS AND ADVANCES TO THE OTHER PARTIES TO THE AMOUNT OF RS. 145373172/ - AND ALSO OBTAINED UNSECURED LOAN OF RS. 82084255/ - AS ON 01/04/2009 WHICH WAS REDUCED TO RS. 44,88,023/ - AS ON 31 - 03 - 2010 AS REFLECTED IN THE BALANCE SHEET OF THE ASS ESSEE COMPANY. THE ASSESSEE COMPANY HAS DEBITED INTEREST EXPENSES TO THE AMOUNT OF RS. 69,05,816/ - WHICH INCLUDED BANK INTEREST ONLY TO THE AMOUNT OF RS. 301491/ - . THE ASSESSING OFFICER HAS ALLOCATED AN AMOUNT OF RS. 6,74,155/ - AS EXPENDITURE FOR EARN ING AFORESAID EXEMPT INCOME AS PER THE PROVISION OF SECTION 14 R.W. RULE 8 OF THE I.T. RULE. THE FACTS OF THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LD. COUNSEL IN THE SYNOPSIS SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE OF THE ASSESSEE. THE I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 8 ASSESSEE HAS NOT DEMONSTRATED EITHER BEFORE THE LD. CIT(A) OR BEFORE US THAT THE INVESTMENT WAS MADE OUT OF THE INTEREST FREE FUNDS. AFTER CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY REAS ON TO INTERFERE IN THE DECISION OF THE LD. CIT(A). THEREFORE, THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. GROUND OF APPEAL NO.6 10. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DEDU CTED A SUM OF RS. 84,39,017/ - OUT OF THE TOTAL INCOME IN THE COMPUTATION OF INCOME ON ACCOUNT OF EXCISE DUTY U/S. 43B OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS FOLLOWING INCLUSIVE ACCOUNTING, THEREFORE, THE ASSESSEE WAS ASKED WHY T HIS AMOUNT WAS REDUCED IN THE COMPUTATION OF INCOME STATEMENT AND WHAT MANNER IT WAS REFLECTED IN ITS REGULAR BOOKS OF ACCOUNTS. THE ASSESSEE HAS CLAIMED THAT IT HAS REDUCED THE SAID VALUE OF EXCISE DUTY ON PAYMENT BASIS. THE ASSESSEE ALSO SUBMITTED THAT INCLUSION OF EXCISE DUTY IN THE CLOSING STOCK WOULD BE TAX NEUTRAL SINCE EXCISE DUTY INCLUDED IN THE CLOSING STOCK AS ON 31ST OF MARCH WOULD BE EXCISE DUTY PAYABLE AND THE SAME WOULD HAVE TO BE ALLOWED UNDER SECTION 40 3B OF THE ACT, IF THE SAME HAS BEEN P AID BEFORE THE DUE DATE OF THE FILING OF THE TERM BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE BECAUSE ON VERIFICATION OF THE DETAILS OF THE PURCHASE IT WAS NOTICED THAT THE PURCHASE INCLUDES THE EXCISE COMPONENT. THE PROFIT AND LOSS ACCOUNT SHOWED SALES INCLUSIVE OF EXCISE DUTY. THE CLOSING STOCK ALSO INCLUDES THE EXCISE COMPONENT THEREFORE IT WAS UNDISPUTED FACT THAT THE ASSESSEE WAS FOLLOWING I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 9 INCLUSIVE METHOD OF ACCOUNTING. THE ASSESSING OFFICER HAS FURTHER STAT ED THAT THE ASSESSEE HAS ALREADY DEBITED AND CLAIMED THE EXCISE DUTY PAID BY IT ON THE PURCHASES. BY AGAIN REDUCING THE EXCISE ELEMENT THE ASSESSEE IS CLAIMING DOUBLE DEDUCTION WHICH IS NOT ACCEPTABLE. THE ASSESSING OFFICER HAS ALSO STATED THAT AS PER SECT ION 43B OF THE ACT THE LIABILITY SHOULD BE OUTSTANDING IN THE BALANCE SHEET AS ON 31ST MARCH AND SUCH LIABILITY SHOULD BE PAID BY THE ASSESSEE BEFORE FILING ITS RETURN OF INCOME IN ORDER TO BE ELIGIBLE FOR THE ACTUAL DEDUCTION OF SUCH OUTSTANDING LIABILITY . HOWEVER AS PER ASSESSEE'S BOOKS OF ACCOUNT THERE WAS NO SUCH OUTSTANDING LIABILITY AS ON 31ST MARCH AND NO ACTUAL PAYMENT HAS BEEN MADE TILL THE FILING OF RETURN OF INCOME TO QUALIFY FOR A DEDUCTION UNDER SECTION 43B OF THE ACT. THE ASSESSING OFFICER HAS ALSO MENTIONED THAT THIS AMOUNT OF RS.84,39,017 WAS NOWHERE REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE ASSESSEE COULD NOT EXPLAIN THE SAME IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER'S HAS ALSO STATED BIFURCATION OF EXCISE DUTY AMOUNT OF RS.84,39,017 ON BASIS OF ASSESSEE'S WRITTEN SUBMISSION CONSISTING OF AN AMOUNT OF RS.1 18956 AS EXCISE DUTY ON THE FINISHED GOODS AND BALANCE AMOUNT OF RS.83,20,061 WAS THE EXCISE DUTY ON RAW MATERIALS. THE ASSESSING OFFICER STATED THAT THE REDUCTION OF RS. 84,39,017/ - FROM THE TOTAL TAXABLE INCOME IN ITS COMPUTATION OF INCOME BY THE ASSESSEE VIOLATES THE PROVISION OF SECTION 145A AND SECTION 43B. THEREFORE, THE SAME WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 10 11. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 12. THE FACTS OF THE CASE, SUBMISSION OF THE APPELLANT AND FINDINGS OF THE AO HAVE BEEN EXAMINED. THE FACT IS THAT THE AMOUNT OF EXCISE DUTY CLAIMED AS REDUCTION FROM THE COMPUTATION OF INCOME REPRESENTED THE EXCISE DUTY PAID ON PURCHASE OF RAW MATERIAL AND SEMI - FINISHED GOODS WHICH WAS DEBITED IN THE P & L ACCOUNT. NO SUCH LIABILITY WAS SHOWN AS OUTSTANDING AND PAYABLE IN THE BALANCE - SHEET AND ALSO IT WAS A FACT THAT NO SUCH ACTUAL PAYMENT WAS MADE IN THE SUBSEQUENT FINANCIAL YEAR AS CONFIRMED BY THE AUDITOR IN THE AUDIT REPORT. THEREFORE, THE SUBMISSION OF THE APPELLANT THAT THE CLAIM WAS ALLOWABLE U/S.43B OF THE I.T. ACT WAS IN CONTRAVENTION TO THE PROVISIONS OF SECTION 145A OF THE I.T. ACT. ACCORDINGLY, THE GROUND OF APPEAL IS DISMISSED. 12. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE FOLLOWING REASONS: - (I) THE EXCISE DUTY WAS INCLUDED IN THE PURCHASE COMPONENT AND THE P & L A/C SHOWED SALES INCLUSIVE OF EXCISE DUTY. (II) THE ASSESSE WAS FOLLOWING THE INCLUSIVE METHOD OF ACCOUNTING AS PER PROVISO OF SECTION 145A OF THE ACT BY I NCLUDING THE EXCISE COMPONENT BOTH IN THE PURCHASES AND SALES. (III) THE ASSESSEE HAS ALREADY DEBITED AND CLAIMED THE EXCISE DUTY PAID IT ON THE PURCHASE. THEREFORE, THE ASSESSEE HAS CLAIMED DOUBLE DEDUCTION AT THE TIME OF COMPUTATION OF INCOME. (IV) THERE WAS NO OU TSTANDING LIABILITY IN THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31 - 03 - 2010. I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 11 (V) NO ACTUAL PAYMENT HAS BEEN MADE TILL THE DATE OF FILING RETURN OF INCOME FOR QUALIFYING DEDUCTION U/S. 43B OF THE ACT. (VI) THE INCLUSIVE EXCISE DUTY, CANNOT BE DEDUCTED FROM THE CLOSING STOCK IN VIEW OF SECTION 145A AND SECTION 43B OF THE ACT. (VII) AS PER THE BIFURCATION OF EXCISE AMOUNT OF RS. 84,39,017/ - AN AMOUNT OF RS. 118956/ - IS THE EXCISE DUTY ON FINISHED GOODS AND BALANCE AMOUNT OF RS. 83,20,061/ - IS THE EXCISE DUTY ON RAW MATERIAL AND SEMI - FINISHED GOODS. THIS ENTIRE EXCISE DUTY HAS ALREADY BEEN CLAIMED BY THE ASSESSE IN THE P & L A/C. 13. WE HAVE ALSO PERUSED THE WRITTEN FOLLOWING SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE DATED 10/8/2017.THE LD. CIT(A) APPEAL IN HIS WRITTEN SUBMISSION HAS SUBMITTED THAT THE FINANCIAL ACCOUNTS OF THE ASSESSEE AND THE AUDIT REPORT OF THE AUDITOR SHOW THAT THE ASSESSEE HAS MAINTAINED THE INVENTORIES(BOTH OPENING STOCK AS WELL AS CLOSING STOCK AS PER SECTION 145A OF THE ACT. HOWEVER, IN THE COMPUTA TION OF INCOME THE ASSESSEE HAS REDUCED THE CLOSING STOCK BY RS.8 ,4,39,017 WITHOUT REDUCING THE ENING ST OCK. THIS IS NEITHER A REGULAR METHOD OF ACCOUNTING NOR CORRECT METHOD OF ACCOUNTING UNDER SECTION 145 A OF THE ACT. THE LEARNED DR HAS ALSO POINTED OUT IN THE WRITTEN SUBMISSION THAT ASSESSEE HAS REDUCED ERRONEOUSLY THE VALUE OF CLOSING STOCK BY CLAIMING THE MODVAT EARNED IN NEXT FINANCIAL YEAR 2010 - 11. WE HAVE OBSERVED THAT THE FACTS OF THE FOLLOWING JUDI CIAL PRONOUNCEMENTS REFERRED BY THE LD. I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 12 COUNSEL MENTIONED IN THE SYNOPSIS DATED 08 - 09 - 2011 ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE OF THE ASSESSEE. I. ASIAN TUBES LTD. VS. DCIT (2013) 37 CCH 369 II. CIT VS. NCR CORPORATION (INDIA) PVT. LTD. (2016) 96 CCH ( KAR. H.C.) III. ACIT VS. PARAGBHAI RAMANBHAI PATEL (2015) 43 CCH 64 (AHD) IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS CLAIMED RS. 8439017/ - AS EXCISE DUTY U/S. 43B OF THE ACT STATING THAT IT WAS ADDED TO THE CLOSING STOCK. WE HAVE NOTICED THAT THE ASSESSEE WAS FOLLOWING INCLUSIVE METHOD OF ACCOUNTING. THE CLAIM OF EXCISE DUTY OF RS. 84,39,017/ - RELATED TO AN AMOUNT OF RS.118956/ - AS EXCISE DUTY ON FINISHED GOODS AND RS.83,2006/ - AS EXCISE DUTY ON RAW MATERIAL AND SEMI - FINISHED GOODS. THIS ENTIRE DUTY HAS ALREADY BEN DEBITED BY THE ASSESSEE IN THE P & L A/C. WE HAVE FURTHER NOTICED THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT THERE WAS ACTUAL REMOVAL OF GOODS ON WHICH THE EXCISE DUTY WAS CLAIMED U/S. 43B OF THE ACT. THE ASSESSEE ALSO FAILED TO SU BSTANTIATE THAT THERE WAS ANY EXCISE DUTY AS OUTSTANDING AND PAYABLE IN THE BALANCE SHEET AS ON 31 - 03 - 2010. THE ASSESSEE HAS CLAIMED DEDUCTION OF THE EXCISE DUTY OUT OF THE CLAIM OF MODVAT OF NEXT FINANCIAL YEAR 2010 - 11 WITHOUT CONTROVERTED THE FACT THAT THE SAME HAS ALREADY DEBITED IN THE P & L A/C. THE ASSESSEE HAD ADOPTED THIS METHOD OF REDUCTION IN THE VALUE OF INVENTORY FOR CLOSING STOCK ONLY IN RESPECT TO ASSESSMENT YEAR 2010 - 11 AND ASSESSMENT YEAR 2011 - 12. TILL ASSESSMENT YEAR 2009 - 10 AND FROM ASS ESSMENT YEAR 2012 - 13, THE ASSESSEE HAS NOT ADOPTED SUCH KIND I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 13 OF METHOD OF ADJUSTMENT IN THE COMPUTATION OF INCOME. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES, WE ARE NOT INCLINED TO INTERFERE IN THE DECISION OF THE LD. CIT(A). THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED. GROUND OF APPEAL NO.7 14. ON VERIFICATION OF PROFIT AND LOSS ACCOUNT THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DEBITED TRAVELLING EXPENSES TO THE TUNE OF RS . 4,59,456 WHICH INCLUDED EXPENDITURE INCURRED BY THE DIRECTOR OF THE ASSESSEE COMPANY ON FOREIGN TRAVELLING. THE ASSESSING OFFICER ASKED THE JUSTIFICATION FOR INCURRING THESE EXPENDITURES. THE ASSESSEE EXPLAINED THAT THESE EXPENSES WERE INCURRED FOR BUSI NESS PURPOSES AND DIRECTOR HAD CARRIED OUT FOREIGN TOUR TO DEVELOP THE EXPORT MARKET. ON VERIFICATION OF THE TOUR CARRIED OUT BY THE DIRECTORS THE ASSESSING OFFICER HAS NOTICED THAT INTERNATIONAL TOUR PROGRAM WERE FREQUENT AND FOR PROLONGED TO U.S.A. THE ASSESSING OFFICER STATED THAT NO EVIDENCE OF BUSINESS EXPEDIENCY WAS FURNISHED BY THE ASSESSEE AND IN ABSENCE OF JUSTIFICATION THAT THE TOURS WERE ACTUALLY CARRIED OUT FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE A SUM OF RS. 2 LACS WAS TREATED BY THE ASS ESSEE FOR NON - BUSINESS IN NATURE PERTAINING TO THE FOREIGN TRAVELLING EXPENSES INCURRED BY THE DIRECTOR. 15. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS U NDER: - 13. THE 8 TH GROUND OF APPEAL WAS RELATED TO DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED FOREIGN TRAVEL EXPENSES INCURRED BY THE DIRECTOR TO THE TUNE OF RS.4,59,456/ - . THE AO AFTER CALLING FOR EXPLA NATION WITH EVIDENCE FROM THE ASSESSEE RESTRICTED CLAIM TO RS.2,00,000/ - ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 14 JUSTIFY THAT TOURS WERE CONDUCTED FOR BUSINESS PURPOSE. DURING APPEAL PROCEEDINGS ALSO, THE APPELLANT DID NOT FURNISH A NYTHING TO REBUT THE FINDINGS OF THE AO, THEREFORE, THE ACTION OF THE AO WAS JUSTIFIED. ACCORDINGLY, THE GROUND OF APPEAL IS REJECTED. 16. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING ACKNOWLEDGEMENT OF RETURN OF INCOME, SUBMISSION MADE BEFORE THE LD. CIT(A) AND ASSESSING OFFICER, ETC. IT WAS CONTENDED THAT ADHOC DISALLOWANCE OF RS . 2 LACS OUT OF FOREIGN EXPENSES OF RS. 4,96,085/ - WAS NOT PROPER AS ASSESSEE HAS MADE EXPORT BUSINESS OF RS. 30,65,040/ - . AFTER ONSIDERING THE SUBMISSION OF BOTH SIDES WE ARE OF THE VIEW THAT IT WILL BE APPROPRIATE TO RESTRICT THE DISALLOWANCE TO THE AM OUNT OF RS.1,00000/ AS AGAINST RS.2,00000 ON ACCOUNT OF FOREIGN EXPENSES. THEREFORE , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON THIS ISSUE . GROUND NO.1 TO 4 OF ASSESSMENT YEAR 2011 - 12 17. THESE GROUNDS OF APPEAL ARE SIMILAR TO ASSESSMENT YEAR 2010 - 1 1. THE SEARCH ACTION WAS TAKEN PLACE ON 08/09/2011 BEFORE THE DATE OF FILING OF RETURN OF INCOME U/S 139(1) ON 30/09/2011. THEREFORE, IT CANNOT BE SAID THAT THERE WAS ANY PROCEEDING CONCLUDED OR COMPLETED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSID ERATION. THE ASSESSING OFFICER WAS ENTITLED TO SCRUTINIZE THE RETURN OF INCOME FILED FOR THE FIRST TIME IN PURSUANCE TO THE NOTICE ISSUED UNDER SECTION 153AOF THE ACT. THEREFORE, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY , THE SAME ARE DISMISSED. GROUND NO.5 OF ASSESSMENT YEAR 2011 - 12 AND GROUND NO.1 OF ASSESSMENT YEAR 2012 - 13 18. THE FACTS OF THESE GROUNDS OF APPEAL ARE IDENTICAL TO THE GROUND OF APPEAL NO. 5 OF THE ASSESSMENT YEAR 2010.11 AS ADJUDICATED SUPRA I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 15 IN THIS ORD ER. THEREFORE, THESE GROUNDS OF APPEAL S OF THE ASSESSEE ARE DISMISSED ON THE BASIS OF FINDINGS OF GROUND NO. 5 OF ASSESSMENT YEAR 2010 - 11 AS ELABORATED CITED SUPRA IN THIS ORDER. GROUND NO. 6 OF ASSESSMENT Y EAR 2011 - 12 19. THE ISSUE PERTAINING TO CLAIM OF EXCISE DUTY HAS BEEN ADJUDICATED AS PER GROUND OF APPEAL NO. 6 FOR THE ASSESSMENT YEAR 2010 - 11 AS ELABORATED SUPRA IN THIS ORDER. THIS IDENTICAL ISSUE FOR THE YEAR UNDER CONSIDERATION IS BASED ON SIMILAR FACTS AS ADJUDICAT ED FOR ASSESSMENT YEAR 2010 - 11. THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED ON THE BASIS OF DETAILED FINDINGS GIVEN IN ADJUDICATING THE GROUND NO. 6 FOR ASSESSMENT YEAR 2010 - 11 AS ELABORATED SUPRA IN THIS ORDER. GROUND NO.7 OF ASSESSMENT YEAR 20 11 - 12 AND GROUND NO.3 OF ASSESSMENT YEAR 2012 - 13 20. AS PER THE DETAILED FINDINGS ON IDENTICAL FACTS ELABORATED ABOVE WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 IN THIS ORDER THE DISALLOWANCE IN RESPECT OF FOREIGN TRAVELL ING EXPENSES IS RESTRICTED TO RS.1,00000/ - AGAINST DISALLOWANCE OF RS.2,0000/. THEREFORE , THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR ABOVE ASSESSMENT YEAR BY RES TRICTING THE DISALLOWANCE TO RS. 1,00000/ FOR BOTH THE YEARS. AS A RESULT , THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED ON THE ABOVE GROUNDS. GROUND NO.2 ASSESSMENT YEAR 2012 - 13 THAT THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 36520 MADE BY THE A.O. U/S. 40A(3) OF THE ACT. I.T.A NO. 448 TO 450/RJT /20 15 A.Y. 2004 - 05 PAGE NO FORGE & FORGE PVT. LTD. VS. ACIT 16 21. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE SIDES ON THIS ISSUE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS MADE EXPENSES IN CASH EXCEEDING RS.20,000 ON A SINGLE DATE TO A SINGLE PERSON TO THE AMOUNT OF RS.36,520 WHICH WAS IN CONTRAVENTION OF PROVISION OF SECTION 40A(3) OF THE ACT. THE ASSESSEE FAILED TO DEMONSTRATE THAT THE AFORESAID PAYMENT WAS COVERED UN DER THE EXCEPTION PROVIDED VIDE 6DD OF THE IT RULES. IN VIEW OF THE ABOVE FACTS WOULD WE CONSIDER THAT THE LEARNED CIT(A) IS JUSTIFIED IN SUSTAINING THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE, THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 22. IN THE COM BINED RESULT, THE ALL THE THREE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 1 6 - 01 - 201 8 SD/ - SD/ - (RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 16 /01/2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT