RR KABEL LTD, MUMBAI V. ADDL CIT RG 7(2), MUMBAI

ITA 4789/MUM/2009

• Counselvise Citation: 478919914 RSA 2009
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 04-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: RAJAN VORA; NIKHIL TIWARI
• Keywords: Business income; Depreciation; Capital expenditure
• Section: 145; 43B; 139; 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND PRAMOD KUMAR (A M ) ITA NO.4789/MUM/2009 (ASSESSMENT YEAR: 2005-06 ) M/S R R KABEL LTD., RAM RATNA HOUSE, VICTORIA MILL COMPOUND, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013. PAN: AABCR3352C ADDL. COMMISSIONER OF INCOME TAX, RANGE 7(2), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT ITA NO.5103/MUM/2009 (ASSESSMENT YEAR: 2005-06) ADDL. COMMISSIONER OF INCOME TAX, RANGE 7(2), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S R R KABEL LTD., RAM RATNA HOUSE, VICTORIA MILL COMPOUND, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013. PAN: AABCR3352C APPELLANT V/S RESPONDENT ITA NO.4790/MUM/2009 (ASSESSMENT YEAR: 2006-07 ) M/S R R KABEL LTD., RAM RATNA HOUSE, VICTORIA MILL COMPOUND, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013. PAN: AABCR3352C DY. COMMISSIONER OF INCOME TAX, 7(2), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 2 ITA NO.5104/MUM/2009 (ASSESSMENT YEAR: 2006-07) DY. COMMISSIONER OF INCOME TAX, 7(2), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S R R KABEL LTD., RAM RATNA HOUSE, VICTORIA MILL COMPOUND, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013. PAN: AABCR3352C APPELLANT V/S RESPONDENT DATE OF HEARING : 4.1.2012 DATE OF PRONOUNCEMENT : .1.2012 ASSESSEE BY : S/SHRI RAJAN VORA AND NIKHIL T IWARI REVENUE BY : SHRI C.G.K.NAIR O R D E R PER D.K.AGARWAL (JM) THESE TWO CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE TWO SEPARATE ORDER S DATED 16.6.2009 PASSED BY THE LD.CIT(A) FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. SINCE FACTS ARE IDENTICAL AND ISSUES INVOLVED ARE COMMON, ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.4789/MUM/2009(AY:2005-06) (BY ASSESSEE) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 3 MANUFACTURING AND SALE OF ELECTRICAL CABLES, FILED RETURN DECLARING TOTAL INCOME AT RS.NIL. HOWEVER, THE ASSESSMENT WAS ALSO COMPLETED AT RS.NIL AFTER MAKIN G AN ADDITION U/S 145 OF RS.11,08,904/-, TREATING THE INTEREST INCOME OF RS.4,08,096/- AS AN INCOME FROM OTHER SOURCES AND AFTER SET OFF OF BROUGHT FORWARD LOSSES FOR ASSESSMENT YEARS 2000-01 AND 2002-03 OF RS.2,22,48,968/-, VIDE ORDER DATED 1.12.2007 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3. ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 5. GROUND NOS.1 TO 1.3 ARE AGAINST THE CONFIRMATIO N OF TREATMENT OF INTEREST INCOME OF RS.4,08,096/- A S INCOME FROM OTHER SOURCES AND IN NOT ALLOWING DEDUCTION U/S 80IB OF THE ACT. 6. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS INCLUDED RS.4,08,096/- OF ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 4 INTEREST EARNED ON MARGIN MONEY AND BANK GUARANTEE RECEIVED FROM STATE BANK OF INDIA UNDER THE HEAD INCOME FROM BUSINESS ONLY. ON EXAMINATION OF DETAI LS, HE OBSERVED THAT THIS INCOME IS EARNED BY THE ASSESSEE NOT CARRYING OUT ANY BUSINESS ACTIVITY BU T BY KEEPING THE MONEY IN THE BANK. ACCORDING TO THE A O, THE NATURE OF INCOME NEEDS TO BE SEEN AT THE POINT OF ITS GENERATION. IN THE INSTANT CASE, THE INTEREST H AS BEEN GENERATED NOT BECAUSE OF ANY BUSINESS ACTIVITY BUT BECAUSE THE MONEY WAS KEPT IN BANK. THEREFORE, SUCH INTEREST INCOME CANNOT BE A PART OF THE BUSINE SS. HE FURTHER OBSERVED THAT THE ASSESSEE IS ALSO NOT IN THE BUSINESS OF MONEY LENDING ACTIVITY. THEREFORE, THE ASSESSEE WAS ASKED TO GIVE EXPLANATION AS TO WHY IT SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT THE INCOME HAS BEEN EARNED FROM THEIR INDUSTRIAL UNDERTAKING AND IS INEXTRICABLY LINKED WITH AND HA S DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND HE NCE THE INCOME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. THE AO AFTER RELYING ON CER TAIN DECISIONS HELD THAT SINCE THE FUNDS HAVE BEEN ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 5 BORROWED FOR THE PURPOSE OF CARRYING OUT THE BUSINE SS ACTIVITIES OF THE ASSESSEE VIZ MANUFACTURING OF CAB LES, IT CANNOT BE CONSIDERED THAT THE BORROWINGS WAS FOR THE PURPOSE OF EARNING INTEREST INCOME AND ACCORDINGLY HE ASSESSED THE INTEREST INCOME OF RS.4,08,096/- UNDER THE HEAD INCOME FROM OTHER SOURCES. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO UPHELD THE ACTION OF THE A O. 7. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE WHILE NOT PRESSING THE INTEREST INCOME AS BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S 80 IB FURTHER SUBMITS SINCE THE INTEREST INCOME HAS BEEN EARNED FROM THE FDRS WHICH WERE MADE OUT OF BORROWED FUNDS, THEREFORE, EARNING OF INTEREST IS INEXTRICABLY LINKED WITH AND HAS DIRECT NEXUS, THEREFORE, THE INTEREST ON BORROWED FUNDS BE REDUC ED FROM THE INTEREST INCOME WHILE DETERMINING THE INCOME, THE INCOME FROM OTHER SOURCES. 8. ON THE OTHER HAND, THE LD. DR WHILE RELYING ON THE ORDERS OF THE AO AND THE LD. CIT(A) ALSO RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT V/S DRESSER RAND INDIA (P.) ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 6 LTD.(2011) 330 ITR 453 (BOM) FOR THE PROPOSITION TH AT THE INTEREST ON DEPOSIT IS NOT ELIGIBLE FOR DEDUCTI ON U/S 80IB OF THE ACT. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE FD RS WERE MADE OUT OF BORROWED FUNDS. ACCORDING TO THE AO SINCE BORROWAL IS FOR THE PURPOSE OF ASSESSEES MANUFACTURING ACTIVITY, THEREFORE, THERE IS NO NEX US BETWEEN THE BORROWING ACTIVITY AND THE INTEREST GENERATION. PER CONTRA, THE CLAIM OF THE ASSESSEE I S THAT THE SINCE THE FDRS WERE MADE OUT OF BORROWED FUNDS, INTEREST ON BORROWED FUNDS BE REDUCED FROM THE INTEREST INCOME WHILE DETERMINING THE INCOME FR OM OTHER SOURCES. SINCE THERE IS NO DISPUTE THAT THE FDRS WERE MADE OUT OF BORROWED FUNDS, THERE IS A DIRECT NEXUS BETWEEN THE BORROWINGS AND THE INTER EST GENERATION. THIS BEING SO AND KEEPING IN VIEW THE PROVISIONS OF SECTION 57(III) OF THE ACT WHICH PR OVIDES THAT IN COMPUTING THE INCOME UNDER THE HEAD INCOM E FROM OTHER SOURCES ANY OTHER EXPENDITURE (NOT BEING ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 7 IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF INTEREST PAID ON BORROWED FUNDS AND ACCORDINGLY, TH E AO IS DIRECTED TO ALLOW THE SAME. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, PARTLY ALLOWED. 10. GROUND NO.2 IS AGAINST THE DIRECTION OF THE LD. CIT(A) TO RESTRICT THE RELIEF ALLOWED TO THE EXTENT OF ADDITION OF RS.11,08,904/- MADE BY THE AO U/S 145A OF THE ACT. 11. AT THE TIME OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. DR. 12. THAT BEING SO, THE GROUND TAKEN BY THE ASSESSEE , IS, THEREFORE, REJECTED BEING NOT PRESSED. ITA NO.5103/MUM/2009(AY: 2005-06) (BY REVENUE) 13. ALL THE GROUNDS TAKEN BY THE REVENUE ARE AGAINS T THE DELETION OF ADDITION OF RS.11,08,904/- MADE BY THE AO U/S 145A OF THE ACT. ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 8 14. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT AS PER THE PROVISIONS OF SECTION L45A , ALL THE TAXES AND DUTIES PAID ARE TO BE INCLUDED FOR TH E PURPOSE OF VALUATION U/S 145A. THE AO HAS DISCUSSED THIS ISSUE IN DETAIL FROM PAGES 3 TO 8 OF THE ASSESSMENT ORDER. THE AO NOTED THAT PROFIT AND GAI NS OF THE BUSINESS HAD TO BE INCREASED OR DECREASED AS UNDER: (I) INCREASE DUE TO INCLUSION OF EXCISE DUTY/VAT ON SALES (II) INCREASE DUE TO INCLUSION OF EXCISE DUTY/VAT ON CLOSING STOCK (III) DECREASE DUE TO INCLUSION OF EXCISE DUTY/VAT ON PURCHASES (IV) DECREASE DUE TO INCLUSION OF EXCISE DUTY/VAT ON OPENING STOCK (V) DECREASE DUE TO EXCISE DUTY LIABILITY OF THE CURRENT ASSESSMENT YEAR IN CASH OVER AND ABOVE THE MODVAT CREDIT AVAILED PERTAINING TO THE CURRENT YEAR. HE FURTHER OBSERVED THAT THIS EXERCISE HAS BEEN MA DE AND THE ADJUSTMENT ON ACCOUNT OF INCLUSION OF EXCIS E ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 9 DUTY PAID ON (ONLY THE EXCISE DUTY COMPONENT), WORKED OUT AS UNDER: SALES RS. 13,21,27,703/- ADD: CLOSING STOCK OF I) RAW MATERIALS RS.16,47,383/- II) WORK IN PROGRESS RS.36,50,663/- III)FINISHED GOODS RS. 56,29,701/- RS. 1,09, 27,747/- TOTAL RS.14,30,55,450/ - LESS: OPENING STOCK (I) RAW MATERIAL RS.7,23,259/- (II) WORK IN PROGRESS RS.20,54,813/- II) FINISHED GOODS RS. 60,33,055/- RS. 88,11,127/- RS.13,42,44,323/- LESS: PURCHASES I) RAW MATERIALS RS.13,31,35,419/- RS.11,08,904 /- ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 10 THE AO ALLOWED AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN AS TO WHY SUCH SUM OF RS.11,08,904/-BE NOT ADDED TO THE PROFITS OF THE BUSINESS. THE ASSESSEE FURNISHED A WRITTEN EXPLANATION WHICH THE AO HAS INCORPORATED AT PAGES 5 TO 7 OF THE ASSESSMENT ORD ER. IN THE WRITTEN EXPLANATION IT WAS INTERALIA STATED THAT THE EXCISE DUTY PAYABLE COMES TO RS.56,29,702/- WHICH HAS BEEN PAID BY THE ASSESSEE BEFORE THE DU E DATE OF THE FILING OF THE RETURN U/S 139(1) OF THE ACT, THEREFORE, NO ADDITION IS CALLED FOR. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. ACCORDI NG TO THE AO THE ADJUSTMENT CAN BE MADE ONLY WITH REGARD TO THE VALUES OF PURCHASES, SALES AND INVENTORY. THERE WAS NO SCOPE FOR FURTHER DEBITING ANY EXCISE DUTY ON CLOSING STOCK BECAUSE THE EXCISE DUTY IN THE CLOSING STOCK HAD ALREADY BEEN PAID AT THE TIME OF PURCHASE OF GOODS. THEREFORE, THE AO NOTED THAT THE EXCISE DUTY COLLECTED ON EFFECTING SALES O VER AND ABOVE THE EXCISE DUTY ALREADY DEBITED TO P&L A/ C BY WAY OF ADJUSTMENTS TO THE OPENING STOCK AND PURCHASES OF COURSE, IS THE ONLY LIABILITY WHICH TH E ASSESSEE HAD TO INCUR DURING THE YEAR. HENCE THE ASSESSEE COULD NOT HAVE FURTHER DEBITED ANY EXCISE ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 11 DUTY PAID IN CASH OVER AND ABOVE THE EXCISE DUTY ELEMENT AVAILABLE IN THE OPENING STOCK AND PURCHASE S INCLUDED BY WAY OF ADJUSTMENTS CARRIED OUT AS ABOV E. IN THE INSTANT CASE IT MAY BE NOTED THAT THE ASSES SEE HAD COLLECTED RS.13.21 CRORES OF EXCISE DUTY ON SAL ES WHICH ALONE WAS PAYABLE BY IT AND HENCE DEBITABLE T O THE P&L A/C. HOWEVER, IT HAS MADE USE OF MODVAT CREDIT RECEIVED ON PURCHASE OF GOODS AND ALSO AVAILABLE IN THE OPENING STOCK. THUS THE EXCISE DUT Y ELEMENT ALREADY AVAILABLE ON THE DEBIT SIDE OF P&L A/C (BY WAY OF ABOVE ADJUSTMENTS) WAS MUCH MORE THAN THE EXCISE DUTY LIABILITY FOR THE YEAR ARISING ON S ALES. THEREFORE NO FURTHER AMOUNT CAN BE DEDUCTIBLE FROM THE P&L A/C BY WAY OF EXCISE DUTY PAYABLE ON CLOSIN G STOCK AS CLAIMED BY THE ASSESSEE AND ACCORDINGLY, H E ADDED RS.11,08,904/- U/S 145A TO THE INCOME OF THE ASSESSEE. 15. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECIS ION OF THE TRIBUNAL IN THE CASE OF HAWKINS COOKERS LT D. V/S ITO SINCE REPORTED IN (2008) 14 DTR (MUMBAI) (TRIB) 206 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT V/S KOLSITE MASCHINE FABRIK LTD , ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 12 DATED 20.4.2009, HOWEVER, DELETED THE ADDITION OF RS.11,08,904/- MADE BY THE AO U/S 145A OF THE ACT . 16. AT THE TIME OF HEARING, THE LD. DR WHILE RELYIN G ON THE ORDER OF THE AO SUBMITS THAT SINCE THE EXCIS E DUTY ELEMENT HAS ALREADY BEEN DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT BY WAY OF ADJUSTMENT, THEREFORE, NO FURTHER AMOUNT CAN BE DEDUCTIBLE FROM THE PROFIT AND LOSS ACCOUNT BY WAY OF EXCISE DUTY PAYABLE ON CLOSING STOCK AS CLAIMED BY THE ASSESSEE AND THEREFORE, THE ORDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT BE REVERSED AND THAT OF THE AO BE RESTORED. 17. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS A S SUBMITTED BEFORE THE AO AND THE LD. CIT(A) REFERS TO ITEM (VII) OF SCHEDULE-P OF NOTES TO ACCOUNTS OF AUDIT REPORT APPEARING AT PAGE 41 OF THE ASSESSEES PAPER BOOK WHICH READS AS UNDER : (VII) EXCISE DUTY A) COMPANY IS NOT PROVIDING FOR EXCISE DUTY ON UNCLEARED EXCISABLE STOCK OF FINISHED GOODS AT THE END OF THE YEAR. ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 13 (B) EXCISE DUTY PAID ON ELIGIBLE CAPITAL GOODS HAS BEEN INCLUDED IN THE COST. CENVAT CREDIT AVAILED ON SUCH ELIGIBLE CAPITAL GOODS IS CREDITED TO A SEPARATE RESERVE CALLED CENVAT CREDIT RESERVE (ON CAPITAL GOODS). DEPRECIATION RELATING TO EXCISE DUTY COMPONENT OF THE COST OF CAPITAL GOODS IS RECOUPED FROM THE CENVAT CREDIT RESERVE (ON CAPITAL GOODS). HE FURTHER SUBMITS THAT THE ASSESSEE IS CONSISTENTL Y FOLLOWING THE SAME SYSTEM OF ACCOUNTING AND THERE IS NO CHANGE IN THE SYSTEM OF ACCOUNTING IN THIS YEAR. HE, FURTHER SUBMITS THAT IN THE ASSESSMENT YEAR 200 1- 02, THE AO ON THE SIMILAR FACTS HAS ALLOWED THE DEDUCTION OF EXCISE DUTY U/S 43B VIDE INTERNAL PAGE 4 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02 APPEARING AT PAGES 64-67 OF THE ASSESSEES PAPER BOOK. HE FURTHER SUBMITS THAT IN THE SUBSEQUE NT ASSESSMENT YEARS ALSO THE ASSESSEE IS FOLLOWING THE SAME SYSTEM OF ACCOUNTING AND NO SUCH ADDITION WAS MADE BY THE AO. HE FURTHER SUBMITS THAT THE AO WHILE GIVING EFFECT TO THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AFTER EXAMINING THE ISSUE HAS ALLOWED THE RELIEF OF RS.11,08,904/- WHICH WAS ADDED IN THE ASSESSMENT ORDER AS ADJUSTMENT U/S 145 OF THE ACT VIDE ORDER DATED 20.7.2009. HE ALSO PLACED RELIANCE ON THE ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 14 DECISIONS OF THE TRIBUNAL IN (A) HAWKINS COOKERS LTD.(SUPRA), (B) M/S K.V.AROCHEM P.LTD V/S DCIT IN ITA NO.129/MUM/2010 (AY:2006-07) DATED 27.4.2011 AND (C) ACIT V/S KAISER INDUSTRIES LTD. IN ITA NO.555(DEL)/2010 (AY:2006-07) DATED 18.2.2011. HE FURTHER SUBMITS THAT THE ORDER PASSED BY HE LD. CIT (A) BE UPHELD. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED WORKING OF ADJUSTMENT REQUIRED U /S 145A OF THE ACT WHICH IS REPRODUCED AS UNDER : ADJUSTMENTS REQUIRED U/S 145A ADD: 1. EXCISE DUTY ON SALES :RS.13,21,27,703/- 2. EXCISE DUTY ON CLOSING STOCK OF RAW MATERIALS :RS. 16,47,383 /- 3. EXCISE DUTY ON CLOSING STOCK OF WIP :RS. 36,50,663/- 4. EXCISE DUTY ON CLOSING STOCK OF FINISHED GOODS :RS. 56,2 9,701/- 5. MODVAT CREDIT UTILIZED ON CONSUMPTION OF RAW MATERIALS :RS.13,06,15,446/- (A) RS.27,36,70,896/- ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 15 LESS: 1. EXCISE DUTY ON OPENING STOCK OF RAW MATERIALS :RS. 7,23,25 9/- 2. EXCISE DUTY ON OPENING STOCK OF WIP :RS. 20,54,813/- 3. EXCISE DUTY ON PURCHASE OF RAW MATERIALS :RS.13,31,35,419/- 4. EXCISE DUTY ON SALES : RS.13,21,27,703 /- (B) RS.26,80,41,194 /- TOTAL (A-B) RS.56,29,702/- LESS. DEDUCTION U/S 43B SINCE THE EXCISE DUTY PAYABLE ON FINISHED GOODS PAID BEFORE DUE DATE OF FILING RETURN OF INCOME (TO THE EXTENT REQUIRED) RS.56,29,7 02/- NIL WE FURTHER FIND THAT THE LD. CIT(A) AFTER EXAMININ G THE SAID ADJUSTMENTS DID NOT FIND ANY FAULT AND EVE N AT THIS STAGE THE LD. DR HAS NOT POINTED OUT ANY MISTAKE IN THE SAID ADJUSTMENTS MADE BY THE ASSESSEE. THE LD. CIT(A) AFTER CONSIDERING THE SAM E HELD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION U/S 43B FOR RS.56,29,702/- PROVIDED THE AO IS SATISFIED ON THE PRODUCTION OF THE EVIDENCE BY THE APPELLANT. WE FURTHER FIND THAT THE AO IN THE ORDE R ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 16 GIVING EFFECT TO THE ORDER OF THE LD. CIT(A) AFTER VERIFICATION HAS ALLOWED THE SAME VIDE ORDER DATED 20.7.2009. 19. IN HAWKINS COOKERS LTD.(SUPRA) IT HAS BEEN HEL D VIDE PARAGRAPHS 5.6 OF THE ORDER AS UNDER : 5.6 IN THE CASE UNDER CONSIDERATION, THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS GIVEN EFFECT TO THE S. 145A IN ACCORDANCE WITH ABOVE DISCUSSION. THE LEARNED AUTHORIZED REPRESENTATIVE IN SUPPORT OF THAT FILED A CHART AN D DEMONSTRATED ACCORDINGLY. SUCH DETAILED WORKING IS ALSO GIVEN IN TAX AUDIT REPORT AS REQUIRED IN CL . 12(B) OF FORM 3CD. BUT ABOVE SUBMISSIONS OF LEARNED AUTHORIZED REPRESENTATIVE AND DEDUCTION UNDER S. 43B IN ACCORDANCE WITH ABOVE DISCUSSION ARE SUBJECT TO VERIFICATION THEREFORE, WE SEND THE MATTER BACK TO THE FILE OF THE AO FOR LIMITED PURPOSE TO VERIFY THE FACTS OF THE CASE OF ASSESSEE IN THE LIGHT OF ABOVE DISCUSSION. IF THE AO FINDS THAT THE ASSESSEE HAS GIVEN EFFECT TO S. 145A AND ALSO DEDUCTION UNDER S. 43B IS MADE AS PER ABOVE DISCUSSION, THE ADDITION OF RS. 29,39,872/- MADE BY HIM UNDER S. 145A MAY BE DELETED THUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THIS REGARD ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 20. IN M/S K.V.AROCHEM P.LTD (SUPRA) IT HAS BEEN HELD IN PARAGRAPH 6 OF THE ORDER AS UNDER : 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECORD. THE ASSESSEE IN THE ANNUAL REPORT ITSELF STATED THAT THEY ARE FOLLOWING CONSISTENT METHOD OF ACCOUNTING OF ACCEPTING THE LIABILITY AT THE TIME OF CLEARANCE OF GOODS. ACCORDINGLY A NOTE WAS LEFT CLEARLY INDICATING THAT THERE IS NO EFFECT ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 17 ON THE PROFIT. WHETHER THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING OR INCLUSIVE METHOD OF ACCOUNTING, NECESSARY ADJUSTMENTS ARE TO BE MADE UNDER SECTION 145A. THE A.O. IGNORING THE SUBMISSIONS MADE BY THE ASSESSEE MADE THE ADDITION JUST BECAUSE THERE WAS A NOTE TO THE ACCOUNTS. BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED ALL THE EVIDENCES WHICH WERE PLACED BEFORE THE A.O. INCLUDING FURTHER EVIDENCES AS SOUGHT BY THE CIT(A) TO JUSTIFY THAT NO ADDITION CAN BE MADE ON THIS ISSUE. THE CIT(A) IN HIS BRIEF ORDER HAS GIVEN PARTIAL CREDIT OF AN AMOUNT OF RS.26,30,059/- STATED TO BE ADJUSTMENT MADE IN FORM ER-I DATED 10.04.2006 FILED IN THE PAPER BOOK AT PAGE NO. 52 AND HAD GIVEN CREDIT TO THE CENVAT CREDIT AVAILED UPTO 10.04.2006. HE, HOWEVER, NOT CONSIDERED THE CENVAT CREDIT AVAILED SUBSEQUENTLY BEFORE FILING THE RETURN AND AS CAN BE SEEN FROM THE RECORD THE ASSESSEE HAS PAID MORE THAN RS.`3.30 CRORES UPTO 30.11.2006 WHICH INCLUDES CENVAT CREDIT AS WELL AS PAYMENT UNDER PLA ACCOUNT OF RS.73,50,000/-. COMING TO THE MERITS OF THE ADDITION, ON THE FACT THAT ASSESSEE HAS DISCHARGED THE LIABILITY UNDER SECTION 43B, THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE SAME AMOUNT WHICH WAS ADDED BY THE A.O. UNDER THE PROVISIONS OF SECTION 145A. AS PER THE FIRST PROVIS O TO SEC.43B, IF ANY SUM IS DISCHARGED ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN, THE AMOUNT HAS TO BE ALLOWED. SINCE ASSESSEE FULFILLED ALL THE CONDITIONS, EVEN IF AN AMOUNT IS TO BE CONSIDERED AS ADDITION TO THE CLOSING STOCK, THE SAME IS ALLOWABLE AS DEDUCTION UNDER SECTION 43B. THE CIT(A) ALLOWED ONLY PARTIAL CENVAT CREDIT WHEREAS THE ASSESSEE HAS DISCHARGED THE FULL AMOUNT BOTH BY CENVAT AS WELL AS BY WAY OF PLA ACCOUNT. WE ARE NOT SURE WHY THE CIT(A) GAVE PARTIAL CREDIT AS THE ORDER IS NOT A SPEAKING ORDER . SINCE THE A.O. AND THE CIT(A) HAD IGNORED THE SUBMISSIONS PLACED ON RECORD ABOUT THE DISCHARGE ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 18 OF TAX LIABILITY AND THE ALLOWANCE THEREON UNDER THE PROVISIONS OF SECTION 43B, WE ARE OF THE VIEW THAT THERE IS NO NEED TO RESTORE THE MATTER TO THE FILE OF THE A.O. AS SUGGESTED BY THE LEARNED D.R. THEREFORE, ON THE BASIS OF THE EVIDENCE PLACED ON RECORD, WE HAVE EXAMINED THE ISSUE AND FOUND THAT ASSESSEE SATISFIES THE CONDITIONS. ACCORDINGLY THE A.O. IS DIRECTED TO ALLOW THE BALANCE AMOUNT OF RS.8,09.935/- SUSTAINED BY THE CIT(A). 21. IN KAISER INDUSTRIES LTD. (SUPRA) IT HAS BEEN H ELD BY THE TRIBUNAL IN PARAGRAPH 5.3 OF THE ORDER AS UNDER : 5.3 THE QUESTION IS-WHETHER, ADJUSTMENT OF MODVAT CREDIT TOWARDS CENTRAL EXCISE LIABILITY AMOUNTS TO ACTUAL PAYMENT? THE SPECIAL BENCH OF THE TRIBUNAL, WHILE DEALING WITH THIS ISSUE, CONSIDERED THE DECISION IN THE CASE OF EICHER MOTORS LTD. VS. UNION OF INDIA, (1999) 106 ELT 3 (SC). ON THE BASIS OF THIS DECISION, THE ARGUMENT OF THE LD. COUNSEL WAS THAT MODVAT CREDIT IS AS GOOD AS TAX PAID. THE TRIBUNAL MENTIONED THAT THE OBSERVATIONS OF THE SUPREME COURT HAD BEEN MADE IN A CASE WHERE THE ASSESSEE HAD SET OFF THE MODVAT CREDIT AGAINST THE DEMAND OF EXCISE DUTY. WHEN THE UNEXPIRED MODVAT CREDIT IS SET OFF AGAINST THE EXCISE DUTY PAYABLE AND THEREBY THE LIABILITY HAS BEEN EXTINGUISHED OR REDUCED, THE SUPREME COURT HELD THAT SETTING OFF OF MODVAT CREDIT IS AS GOOD AS DUTY PAID. THE ABOVE OBSERVATION BECOMES OPERATIVE ONLY WHEN THE UNEXPIRED MODVAT CREDIT HAS ACTUALLY BEEN SET OFF AGAINST THE CENTRAL EXCISE DUTY PAYABLE BY THE ASSESSEE. HOWEVER, UNEXPIRED MODVAT CREDIT AVAILABLE IN THE HANDS OF THE ASSESSEE ON THE LAST DATE OF THE PREVIOUS YEAR HAS NOT BEEN SO SET OFF. THE TWO SITUATIONS ARE DISTINGUISHABLE. THE TIME LAG BETWEEN TWO POINTS CANNOT BE IGNORED. THEREFORE, IT WAS HELD THAT UNEXPIRED MODVAT CREDIT CANNOT BE TREATED AS TAX PAID BEFORE IT IS S ET ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 19 OFF AGAINST THE DUTY PAYABLE. COMING TO THE FACTS OF THIS CASE, THE CREDIT REMAINED UNEXPIRED FOR THE SIMPLE REASON THAT IT WAS ACTUALLY ADJUSTED IN APRIL-MAY, 2005. FURTHER, IT WAS ADJUSTED IN THESE MONTHS. THEREFORE, IT CAN BE SAID THAT THE ADJUSTMENT WAS AS GOOD AS THE DUTY PAID AND IT AMOUNTS TO ACTUAL PAYMENT. THE PAYMENT HAS BEEN MADE BEFORE THE DUE DATE OF FILING THE RETURN U/S 139(1). THE FIRST PROVISO CONTAINS A PROVISION TO THE EFFECT THAT NOTHING CONTAINED IN THIS SECTION SHALL BE APPLICABLE IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUBSECTION (1) OF SECTION 139. IN VIEW THEREOF, THE PROVISION CONTAINED IN SECTION 43B(A) BECOMES INAPPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 22. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL AND KEEPING IN VIEW THAT THE ASSESSEE IS FOLLOWING CONSISTENT METHOD OF ACCOUNTING AND THERE IS NO CHANGE IN ACCOUNTING SYSTEM FOLLOWED BY THE ASSESS EE IN THE YEAR UNDER CONSIDERATION, WE HOLD THAT THE LD.CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDIT ION OF RS.11,08,904/- MADE BY THE AO U/S 145A OF THE ACT. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 20 ITA NO.4790/MUM/2009(AY: 2006-07 ) (BY ASSESSEE) 23. GROUND NOS.1 TO 1.3 ARE AGAINST THE CONFIRMATI ON OF TREATMENT OF INTEREST INCOME OF RS.4,30,717/-AS INCOME FROM OTHER SOURCES AND IN NOT ALLOWING THE DEDUCTION U/S 80IB OF THE ACT. 24. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE FACTS OF THE PRESENT ISSUE ARE SIMI LAR TO THE FACTS OF THE GROUND NOS.1 TO 1.3 RAISED IN THE APPEAL FOR THE ASSESSMENT YEAR 2005-06, THEREFORE, PLEA TAKEN BY THEM IN THAT APPEAL MAY BE CONSIDER ED WHILE DECIDING THE GROUNDS TAKEN BY THE ASSESSEE. 25. AFTER HEARING THE RIVAL PARTIES AND PERUSING T HE MATERIAL AVAILABLE ON RECORD AND KEEPING IN VIEW OF OUR FINDINGS RECORDED IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005-06 IN THE PARAGRAPH 9 OF THIS ORDER, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF INTEREST PAID BY THE ASSESSEE AGAINST THE INTEREST INCOME ASSESSED BY THE AO U/S 57 OF THE A CT. WE HOLD AND ORDER ACCORDINGLY. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, PARTLY ALLOWED. ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 21 26. GROUND NO.2 IS AGAINST THE DIRECTION OF THE LD. CIT(A) TO RESTRICT THE RELIEF ALLOWED TO THE EXTENT OF ADDITION OF RS.88,45,996/- MADE BY THE AO U/S 145A OF THE ACT. 27. AT THE TIME OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. DR. 28. THAT BEING SO, THE GROUND TAKEN BY THE ASSESSEE , IS, THEREFORE, REJECTED BEING NOT PRESSED. ITA NO.5104/MUM/2009 (AY: 2006-07) (BY REVENUE) 29. ALL THE GROUNDS TAKEN BY THE REVENUE ARE AGAINS T THE DELETION OF ADDITION OF RS.88,45,996/- MADE BY THE AO U/S 145A OF THE ACT. 30. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THE FACTS OF THE PRESENT ISSUE ARE SIMI LAR TO THE FACTS OF THE GROUNDS RAISED IN THE APPEA L FOR THE ASSESSMENT YEAR 2005-06, THEREFORE, PLEA TAKEN BY THEM IN THAT APPEAL MAY BE CONSIDERED WHILE DECIDING THE GROUNDS TAKEN BY THE REVENUE. ITA NOS.4789/ 5103/ 4790/ 5104/MUM/2009 (AYS: 2005-06-2006-07) 22 31. AFTER HEARING THE RIVAL PARTIES AND PERUSING T HE MATERIAL AVAILABLE ON RECORD AND KEEPING IN VIEW OF OUR FINDINGS RECORDED IN THE REVENUES APPEAL FOR T HE ASSESSMENT YEAR 2005-06 IN THE PARAGRAPHS 18 TO 22 OF THIS ORDER, WE WHILE UPHOLDING THE ORDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT REJECT THE GROUNDS TAKEN BY THE REVENUE. 32. IN THE RESULT, THE ASSESSEES APPEALS ARE PARTL Y ALLOWED AND REVENUES APPEALS STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JAN.,2012. SD SD (PRAMOD KUMAR ) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 11TH JANUARY,2012 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI