RUCHI ACRONI INDUSTRIES LTD, MUMBAI V. DCIT CC 40, MUMBAI

ITA 5108/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8479 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 23-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NIGGSHEN
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

, , H, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5108/MUM/2015 ASSESSMENT YEAR: 2011-12 RUCHI ACRONI INDUSTRIES LTD. 611, TULSIANI CHAMBERS, NARIMAN POINT MUMBAI-400021 / VS. DEPUTY CIT CC 40 AAYAKAR BHAVAN MUMBAI 40020 (APPELLANT) (RESPONDENT ) P.A. NO.AAACR6534R APPELLANT BY SHRI BHUPENDRA SHAH, (AR) REVENUE BY SHRI M.C. OMI NIGGSHEN (DR) / DATE OF HEARING: 19/01/2017 / DATE OF ORDER: 31/01/2017 / O R D E R PER ASHWANI TANEJA, A.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI-49 (IN SHORT CIT(A)}, DATED 05.08.2015 PASSED AGAINST ASSESSMENT ORDER U/S 143(3) OF THE ACT, DATED 31.01.2014 FOR ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS: 1. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND ALSO IN LAW, THE LEARNED A.O. ERRED IN DISALLOWING DEDUCTION OF RS 895450/- FROM THE VALUATION OF IMPORTED CLOSING STOCK ON ACCOUNT OF RUCHI ACRONI INDUSTRIES 2 CHANGE IN FOREIGN EXCHANGE RATES AS ON 3 1 -3-201 1 AND THEREBY ALSO OVERLOOKING THE FACT THAT THE SAME IS TAKEN AS OPENING STOCK OF NEXT YEAR AND THEREFORE TAX NEUTRAL. 2. IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND ALSO IN LAW, THE LEARNED A.O. ERRED IN DISALLOWING DEDUCTION OF RS 518120/- U/S 14A READ WITH RULE 8D WITHOUT RECORDING PROPER SATISFACTION FOR THE SAME AND BY OVERLOOKING THE FACT THAT NO EXPENSES ARE INVOLVED IN EARNING OF DIVIDEND. 3.IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING ABOVE ADDITIONS. 2. GROUND NO.1: IN THIS GROUND THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN MAKING ADDITION OF RS.8,95,450/- ON ACCOUNT OF VALUATION OF IMPORTED CLOSING STOCK. 2.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD MADE IMPORT OF H.R. COIL AND SOME PORTION IT WAS LEFT IN THE CLOSING STOCK AT THE END OF THE YEAR. WHILE MAKING VALUATION OF CLOSING STOCK OF H.R. COILS, THE ASSESSEE COMPANY REDUCED A SUM OF RS.8,95,450/- BEING AN AMOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN THAT ACCRUED AS AT THE END OF THE YEAR. IT WAS EXPLAINED BY THE ASSESSEE THAT SINCE LESSER AMOUNT WAS PAYABLE TO THE CREDITOR OF THE ASSESSEE (I.E. EXPORTER OF THE SAID MATERIAL), THEREFORE IT CAN BE SAID THAT THE PURCHASE COST WAS REDUCED AND SINCE CLOSING STOCK WAS REQUIRED TO BE VALUED AS PER ACCOUNTING STANDARD (AS) 11 OF ICAI AT COST OF OR MARKET PRICE WHICHEVER IS LOWER THEREFORE, CORRESPONDING ADJUSTMENT WAS MADE. HOWEVER, AO DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE, THEREFORE, RUCHI ACRONI INDUSTRIES 3 HE INCREASED THE AMOUNT OF CLOSING STOCK BY THIS AMOUNT, LD. CIT(A) ENDORSED THE ACTION OF THE AO. 2.2. DURING THE COURSE OF HEARING BEFORE US, EXHAUSTIVE SUBMISSIONS WERE MADE BY THE COUNSEL OF THE ASSESSEE. IT WAS INTER-ALIA SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE AFORESAID METHOD OF ACCOUNTING CONSISTENTLY. FURTHER, THE SAME AMOUNT OF CLOSING STOCK HAS BEEN SHOWN AS OPENING STOCK IN THE SUBSEQUENT YEARS WHICH HAS BEEN ACCEPTED BY THE AO. THEREFORE, THERE IS NO REVENUE LEAKAGE. 2.3. PER CONTRA, LD. DR FAIRLY SUBMITTED THAT THIS FACT MAY BE VERIFIED THAT IN SUBSEQUENT YEARS THIS SAME AMOUNT HAS BEEN CARRIED FORWARD AS OPENING STOCK AND WHETHER IT IS ACCEPTED BY THE AO. 2.4. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR VIEW THIS ISSUE SHOULD GO BACK TO THE FILE OF THE AO WHO SHALL EXAMINE THE REQUISITE FACTS WHETHER THE ASSESSEE IS CONSISTENTLY FOLLOWING ITS METHOD OF ACCOUNTING OR NOT. IF SAME AMOUNT OF CLOSING STOCK HAS BEEN CARRIED FORWARD AS OPENING STOCK OF THE NEXT YEAR AND THIS METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE AND HAS BEEN ACCEPTED BY THE REVENUE IN ALL THE SUBSEQUENT YEARS, THEN CLAIM OF THE ASSESSEE SHOULD BE ACCEPTED IN THIS YEAR ALSO. THE AO IS ALSO DIRECTED TO TAKE INTO CONSIDERATION THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF V.K.J BUILDERS AND CONTRACTORS PVT. LTD. V. CIT. 318 ITR 204(SC) WHILE DECIDING THIS ISSUE. WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FILE OF RUCHI ACRONI INDUSTRIES 4 THE AO. THUS, THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 3. GROUND NO.2: THIS GROUND DEALS WITH THE DISALLOWANCE U/S 14A FOR RS.518120/-. 3.1. DURING THE COURSE OF HEARING, IT WAS STATED THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT RECORDING AS TO HOW ANY EXPENSE WAS RELATED TO EXEMPT INCOME. THE DISALLOWANCE HAS BEEN MADE IN BLIND FOLDED MANNER WITHOUT VERIFYING CONTENTION OF THE ASSESSEE AND THE SAME WAS CONFIRMED BY THE LD. CIT(A) ALSO IN THE SIMILAR MANNER. 3.2. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS BALANCE SHEET AND OTHER DOCUMENTARY EVIDENCES SHOWN BEFORE US. LD. COUNSEL HAS VEHEMENTLY STATED NONE OF THE EXPENSE DEBITED IN THE P & L ACCOUNT OF THE ASSESSEE WAS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. 3.3. WE HAVE CAREFULLY GONE THROUGH THE ORDERS PASSED BY THE AO AS WELL AS LD. CIT(A). WE FIND THAT IN THE PECULIAR FACTS OF THIS BROUGHT AS WERE BEFORE US, THIS ISSUE NEEDS RE- EXAMINATION BY THE AO. THEREFORE, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO, WHERE THE ASSESSEE WILL FURNISH REQUISITE DETAILS AND DOCUMENTARY EVIDENCES TO SHOW THAT NO EXPENSES OR ANY PART THEREOF HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. THE AO SHALL MAKE DISALLOWANCE AFTER VERIFYING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THUS, THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. RUCHI ACRONI INDUSTRIES 5 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCLUSION OF HEARING. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :31/01/2017 PATEL, P.S/. . . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI