DCIT RG 9(1), MUMBAI V. AXIS ELECTRICAL COMPONENTS (I) P. LTD, MUMBAI

ITA 4577/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48730 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 03-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K SAMPATKUMAR
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G BEFORE SHRI D. MANMOHAN (VP) & SHRI PRAMOD KUMAR (A M) I.T.A.NO. 4577/MUM/09 (ASSESSMENT YEAR : 2006-07) DCIT RANGE 9(1) ROOM NO. 223, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. PLOT NO. 25 GOVERNMENT INDUSTRIAL ESTATE KANDIVLI WEST MUMBAI-400 061. APPLICANT RESPONDENT PAN/GIR NO. : AAACA9691C ASSESSEE BY : SHRI PARAS SAVLA DEPARTMENT BY : SHRI K. SAMPATKUMAR ORDER PER D. MANMOHAN VP :- FOLLOWING GROUNDS WERE URGED BY THE REVENUE : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO DELETE THE ADDITION TO THE CLOSING STOCK OF ` 4,69,459/- MADE U/S. 145A ON ACCOUNT OF UNUTILIZED CENVAT CRED IT. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW BAD DEBT OF ` 25,84,994/- BEING MARGIN MONEY DEPOSIT WITH NATIONAL ELECTRICAL POWER AUTHORITY OF NIGERIA EVEN THOUGH THE PRIMARY CONDITION OF THE PROVISIONS OF SECTION 36(2)(I) WAS NOT SATISFIED AS THE ASSESSEE DID NOT ESTABLISH THAT THE SAID AMOUNT WAS TAKEN INTO ACCOU NT IN COMPUTING THE INCOME OF THE PREVIOUS YEAR OR ANY EA RLIER PREVIOUS YEAR. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO DELETE THE ADDITION OF ` 23,34,326/- ON ACCOUNT OF DISALLOWANCE U/S. 40A(2)(B) BEING 25% OF LABOUR CHA RGES PAID TO SISTER CONCERN M/S. PARAMOUNT COMMERCIAL CORPORATION. 4) THE APPELLANT PRAYS THAT THE ORDER OF LEARNED CIT(A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. 2 2. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIV E AS WELL AS LEARNED COUNSEL FOR THE ASSESSEE AND CAREFULLY PERU SED THE RECORD. FACTS OF THE CASE, IN SHORT, ARE THAT THE COMPANY WHICH W AS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DEALING IN ELECTRICAL COMPONENTS FOLLOWED EXCLUSIVE METHOD IN SO FAR AS THE RAW MATERIAL, PAC KING ITEMS ETC. AND ACCORDINGLY UNUTILIZED MODVAT CREDIT WAS NOT TAKEN INTO CONSIDERATION FOR THE PURPOSE OF VALUATION OF CLOSING STOCK. IT IS NO T IN DISPUTE THAT IN TERMS OF SECTION 145A OF THE ACT, UNUTILIZED MODVAT BALANCE HAS TO BE TAKEN INTO CONSIDERATION IN WHICH EVENT VALUE OF TH E CLOSING STOCK WOULD INCREASE TO THAT EXTENT. THE ASSESSING OFFICER SOUG HT TO MAKE AN ADDITION OF ` 4,69,459/- ON THE GROUND THAT THE ASSESSEE HAS WRO NGLY NOT TAKEN INTO ACCOUNT UNUTILIZED MODVAT BALANCE FOR VALUING CLOSING STOCK. 3. THE ASSESSEE CONTENDED THAT IF ADJUSTMENTS HAD T O BE MADE TO THE CLOSING STOCK, IN THE SAME TOKEN VALUE OF PURCHASE/ SALE OF GOODS AND INVENTORY HAD TO BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF TAX, DUTY, CESS ETC. AND EVEN OPENING STOCK HAS TO BE RECOMPUT ED IN TERMS OF SECTION 145A OF THE ACT, IN WHICH EVENT THERE IS NO CHANGE IN THE END RESULT AND NO CASE WAS MADE OUT BY THE ASSESSING OF FICER TO MAKE AN ADDITION. THE ASSESSING OFFICER REJECTED THE EXPLAN ATION OF THE ASSESSEE AND SOUGHT TO MAKE AN ADDITION OF ` 4,69,459/-. 4. AGGRIEVED, THE ASSESSEE CONTENDED BEFORE LEARNED CIT(A) THAT UNDER IDENTICAL CIRCUMSTANCES ADDITION WAS DELETED BY LEARNED CIT(A) IN ASSESSEES OWN CASE FOR A.Y. 2005-06 AND ACCORDINGL Y NO ADDITION IS CALLED FOR. LEARNED CIT(A) EXTRACTED THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR EARLIER YEARS WHEREIN IT WA S STATED THAT PROCEDURE M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. 3 PRESCRIBED IN SECTION 145A IS MANDATORY BUT WHILE A PPLYING PROCEDURE PRESCRIBED THEREIN VALUE OF OPENING STOCK, PURCHASE S, SALES AS WELL AS CLOSING STOCK ARE REQUIRED TO BE ADJUSTED, IN WHICH EVENT THERE IS NO IMPACT ON PROFIT. IT WAS FURTHER STATED THAT EVEN U /S. 43B OF THE ACT SO LONG AS TAXES WERE PAID BEFORE THE DUE DATE OF FILI NG OF RETURN OF INCOME ADDITION CANNOT BE MADE. ACCORDINGLY, LEARNED CIT( A) SET ASIDE THE ADDITION. 5. AT THE TIME OF HEARING, LEARNED DEPARTMENTAL REP RESENTATIVE MERELY RELIED UPON THE ORDER PASSED BY THE ASSESSIN G OFFICER WHEREAS LEARNED COUNSEL FOR THE ASSESSEE MERELY RELIED UPON THE ORDERS PASSED BY THE ITAT IN ASSESSEES OWN CASE IN EARLIER YEARS (S EE PAPER BOOK PAGE 1 TO 21). IT MAY BE NOTICED THAT LEARNED CIT(A) MADE AN OBSERVATION THAT THERE IS NO CHANGE IN THE FACTS OF THE CASE IN COMPARISON WITH THE FACTS OF THE ASSESSMENT YEAR 2005-06. IN THE SAID YEAR LEARNED C IT(A) OBSERVED THAT THERE IS NO IMPACT ON PROFIT ON ACCOUNT OF ADJUSTME NT OF MODVAT CREDIT, ON AN APPLICATION OF SECTION 145A OF THE ACT. THIS FINDING OF LEARNED CIT(A) WAS NOT CONTROVERTED BEFORE US. UNDER THE CI RCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LEARN ED CIT(A) AND THEREFORE REJECT GROUND NO. 1 OF THE REVENUE. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF 45,66,774/- IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD DEBIT/CREDI T BALANCE WRITTEN OFF. IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAD EXPORT ED ELECTRICAL COMPONENTS TO NATIONAL ELECTRIC POWER AUTHORITY, NI GERIA. AS PER THE TERMS OF AGREEMENT 5% OF THE TOTAL SALE PROCEEDS WE RE RETAINED BY NEPA M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. 4 WHICH WAS TO BE UTILISED SUBJECT TO THE ASSESSEE SA TISFYING CERTAIN CONDITIONS. IT WAS FURTHER CONTENDED THAT THE DEBTS ARE MORE THAN 3 YEARS OLD AND IT WAS NOT POSSIBLE TO INITIATE ANY L EGAL PROCEEDINGS AGAINST THE OVERSEAS PARTY. 7. THE ASSESSING OFFICER NOTICED THAT OUT OF THE TO TAL SUM DEBITED TO THE PROFIT AND LOSS ACCOUNT, AN AMOUNT OF RS. 25,84 ,994/- IS REFERABLE TO THE SUM PAYABLE BY NEPA OF NIGERIA WHICH WAS KEPT A S MARGIN MONEY AND THE ASSESSEE HAS NOT ESTABLISHED THAT THE AMOUN T REFERRED AS MARGIN MONEY IS A DEBT AND HAS BECOME ACTUALLY BAD. HE THEREFORE DISALLOWED A SUM OF ` 25,84,994/-. 8. ON AN APPEAL FILED BY THE ASSESSEE, LEARNED CIT( A) VERIFIED THE RECORDS AND GAVE CATEGORICAL FINDING THAT THE ASSES SEE HAS ALREADY OFFERED SALE PROCEEDS AS INCOME IN THE EARLIER YEAR AND THE REFORE SUM WRITTEN OFF IN THIS YEAR IS ALLOWABLE AS DEDUCTION U/S. 36(1)(V II) OF THE I.T. ACT. IN THIS REGARD HE RELIED UPON THE DECISION OF ITAT MUM BAI SPECIAL BENCH IN THE CASE OF OMAN INTERNATIONAL BANK, 100 ITD 285. 9. AGGRIEVED, THE REVENUE CONTENDED BEFORE US THAT THE ASSESSEE DID NOT ESTABLISH THAT THE SAID AMOUNT WAS NOT TAKEN IN TO ACCOUNT IN COMPUTING INCOME OF THE PREVIOUS OR ANY EARLIER PRE VIOUS YEARS. DESPITE MAKING A SPECIFIC ALLEGATION AGAINST THE FINDINGS O F LEARNED CIT(A), LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BOTHERE D TO PLACE ON RECORD ANY MATERIAL TO CONTRADICT THE FINDINGS OF LEARNED CIT(A). IN THE LIGHT OF THE FINDINGS OF LEARNED CIT(A) THAT THE ASSESSEE HA S ALREADY TREATED IT AS SALE REVENUE IN THE YEAR 2001-02, CLAIM OF DEDUCTIO N U/S. 36(1)(VII) OF THE ACT IS IN ACCORDANCE WITH LAW IN THE LIGHT OF THE D ECISION OF HON'BLE APEX M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. 5 COURT IN THE CASE OF TRF LTD., (2010) 323 ITR 397 ( SC). UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A) AND THUS REJECT GROUND NO. 2 OF THE REVENUE. 10. VIDE GROUND NO. 3 THE REVENUE CONTENDS THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40A(2)(B) WAS WR ONGLY DELETED BY LEARNED CIT(A). IT MAY BE NOTICED THAT LEARNED CIT( A) HAS GIVEN CATEGORICAL FINDING THAT THERE IS NO EVIDENCE ON RE CORD TO PROVE THAT EXCESS PAYMENTS WERE MADE, SO AS TO INVOKE PROVISIO NS OF SECTION 40A(2)(B) OF THE ACT. NO EVIDENCE WHATSOEVER WAS P LACED ON RECORD BY LEARNED DR TO CONTRADICT THE FINDINGS OF LEARNED CI T(A). LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED ON RECORD ORDERS O F ITAT, MUMBAI BENCHES IN ASSESSEES OWN CASE FOR THE EARLIER YEAR S WHEREIN ON IDENTICAL CIRCUMSTANCES DISALLOWANCE MADE BY THE ASSESSING OF FICER BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WAS DELE TED. CONSISTENT WITH THE VIEW TAKEN THEREIN AND ALSO IN THE LIGHT OF THE FAC T THAT NO MATERIAL WHATSOEVER WAS PLACED ON RECORD TO CONTRADICT FINDI NGS OF THE LEARNED CIT(A), WE UPHOLD THE ORDER OF LEARNED CIT(A) AND R EJECT GROUND NO. 3 OF THE REVENUE. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON 3.5.2011. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (D. MANMOHAN) VICE-PRESIDENT DATED : 3 RD MAY,2011. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. M/S. AXIS ELECTRICAL COMPONENTS (I) P. LTD. 6 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS