DCIT 17(1), MUMBAI V. PARAMOUNT FORGE, MUMBAI

ITA 6341/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100552 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: SONALEE GODBOLE
• Section: 143(3); 194C

Judgement Text

M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , J UDICIAL MEMBER ITA NO. : 6341 /MUM/20 1 3 ( ASSESSMENT YEAR: 20 1 0 - 11 ) DY COMMISSIONER OF INCOME TAX - 17 (1), 1 ST FLOOR, R. NO.113, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI VS M / S PARAMOUNT FORGE , 3 - GURU HIMMAT, 140, MOUNT ROAD, MAZGAON, MUMBAI - 400 0 10 .: PAN: AAA FP 8254 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PREMANAND J RESPONDENT BY : MS SONALEE GODBOLE /DATE OF HEARING : 25 - 06 - 201 5 / DA TE OF PRONOUNCEMENT : 07 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL HA S BEEN FILED BY THE REVENUE A GAINST THE IMPUGNED ORDER DATED 3 0 . 08 .20 1 3 , PASSED BY CIT (A) - 29 , MUMBAI FOR QUANTUM OF ASSESSMENT P ASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2010 - 11 , ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11,67,336/ - MADE BY AO ON ACCOUNT OF SUPPRESSION OF STOCK WITHOUT TAKING INTO CONSIDERATION THAT SINCE THE ASSESSEE HAD FOLLOWED THE FIFO METHOD AND THE WEIGHTED AVERAGE METHOD FOR VALUATION OF CLOSING STOCK, THE VALUE OF CLOSING STOCK WOULD BE ROUGHLY THE AVERAGE PURCHASE VALUE OF STOCK IN THE MONTH OF MARCH SPE CIALLY WHEN SUBSTANTIAL PURCHASES HAD BEEN MADE IN THE MONTH OF MARCH.' M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONSIDERING THAT SINCE SUBSTANTIAL PURCHASES HAD BEEN MADE IN THE MONTH OF MARCH, IT WAS NOT ACCEPTABLE THAT THE VALUE OF CLOSING STOCK WOULD BE LESS THAN THE PURCHASE PRICE OF SUCH STOCK.' 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE TO THE EXTENT OF RS.29,62,428/ - MADE BY AO U/S. 40(A)(IA) BY HOLDING THAT ELEMENT OF INCOME IS NOT EMBEDDED IN REIMBURSEMENT OF EXPENSES, BUT WITHOUT CONSIDERING THE HON'BLC SUPREME COURT'S DECISION IN THE CASE OF ASSOCIATED CEMENT CO. LTD. VS. CIT REPORTED IN 201 ITR 435 AND THE ITAT, MUMBAIS DECISION IN THE CASE OF SATELLITE TELEVISION ASIA REGION LTD. VS. DCIT REPORTED IN 99 ITD 91. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT AS PER PROVISION UNDER CHAPTER XVII - B OF TH E ACT ,TAX IS DEDUCTIBLE ON SUCH PAYMENTS FALLS UNDER CATEGORY OF AMOUNTS PAYABLE TO A CONTRACTOR OR SUB CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK.' 2. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT THE AFORESAID ISSUE RAISED BY THE DEPARTMENT HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE EARLIER YEARS WHEREIN THE DEPARTMENTAL APPEAL S HA VE BEEN DISMISSED. THE COPY OF ITAT ORDER FOR A Y S 2008 - 09 & 2009 - 10 HAVE BEEN FILED BEFORE US. THE LD DR ALSO ADMITTED THAT BOTH THE GROUNDS RAISED BY THE REVENUE STANDS COVERED IN FAVOUR OF THE ASSESSEE VIDE TRIBUNALS ORDER IN ASSESSEES OWN CASE. 3. AFTER CONSIDERING THE AFORESAID CONTENTION AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT SO FAR AS THE ISSUE RELATING TO SUPPRESSION OF STOCK, TH E ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS NOTED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD SHOWN CLOSING STOCK OF MATERIALS AT RS. M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 3 2,39,20,840/ - . IN RESPONSE TO THE SHOW CAUSE NOTICE TO EXPLAIN THE VALUATION OF THE CLOS ING STOCK, THE ASSESSEE SUBMITTED THAT IT HAS BEEN FOLLOWING CONSISTENTLY FIRST - IN - FIRST - OUT (FIFO) METHOD FOR VALUATION OF CLOSING STOCK FOR PAST SEVERAL YEARS AND FOR THE PURPOSE OF DETERMINING THE RATE OF VALUATION OF CLOSING STOCK, PURCHASES MADE IN LA ST THREE MONTHS ARE TAKEN INTO CONSIDERATION. FURTHER, IT HAS CONSIDERED PURCHASE RATE NET OF SALES TAX/VAT AS THE ASSESSEE IS OBTAINING SET OFF OF SUCH EXCISE AND VAT. THIS METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY THE DEPARTMENT ALSO. HOWEVER, THE ASSESS ING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND HELD THAT VALUATION OF SALES - TAX/VAT AND THE OPENING STOCK SHOULD ALSO BE VALUED BY THE SAME METHOD. RELYING UPON THE ASSESSMENT ORDERS OF THE EARLIER YEARS, HE REWORKED THE VALUATION OF THE STOCK AN D THEREBY MADE AN ADDITION OF R S. 11,67,336/ - . 4. LD. CIT(A) HAS DELETED THE SAID ADDITION ON THE GROUND THAT SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE CIT(A) IN AY 2008 - 09 WHEREIN, AFTER DETAILED DISCUSSION, THE LD. CIT(A) HAS DELETED THE S AID ADDITION. 5. WE FIND THAT IN AY 2008 - 09, THE TRIBUNAL HAS DECIDED THE ISSUE AFTER OBSERVING AND HOLDING AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSEE CONSISTENTLY VALUING CLOSI NG STOCK BASED ON THE WEIGHTED AVERAGE PURCHASE OF LAST THREE MONTHS FOR THE LAST SEVERAL YEARS. SAME METHOD WAS FOLLOWED FOR THIS ASSESSMENT YEAR . CONTRARY TO THIS THE AO HAS TAKEN THE PURCHASE VALUE ONLY FOR THE MONTH OF MARCH 2008. HE HAS DISREGARDED/D ISTURBED THE METHOD FOLLOWED BY THE ASSESSEE CONSISTENTLY WHICH IS NOT PROPER WITH THE METHOD FOLLOWED BY THE AO TO VALUE THE CLOSING STOCK GIVING THE DISTORTED PICTURE OF ASSESSEES FINANCIAL POSITION WHICH IS TO BE AVOIDED. SECTION 145A STIPULATES THAT V ALUATION OF INVENTORY SHOULD BE DONE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. AS SUCH, THE AO IS PRECLUDED FROM DISTURBING THE METHOD OF M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 4 VALUATION FOLLOWED BY THE ASSESSEE CONSISTENTLY. IN OUR OPINION CIT(A) HAS TAKEN AN APPROPRIATE VIEW IN THIS CASE AND HAS DELETED THE ADDITION AND THE SAME IS UPHELD. 8. ANOTHER ASPECT IS THAT THE ASSESSEE HAS DEALT WITH 50 DIFFERENT ITEMS OF STAINLESS STEEL AND CARBON STEEL EACH OF WHICH HAD DIFFERENT DIMENSIONS AND DIFFERENT MARKETA BILITY AND THE VALUATION SHOULD HAVE BEEN ACCORDING TO THE SIZES WHICH THE AO HAD NOT DONE. IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE AO INCLUDED GROSS BILL AMOUNT VAT AND CENTRAL EXCISE WHILE ARRIVING AT THE VALUATION OF CLOSING STOCK BUT THE ASSESSE E HAS NOT ADDED THE SAME TO THE INVENTORY. IF THIS ASPECT IS CONSIDERED THEN THERE WILL NOT BE MUCH DIFFERENCE. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS GIVEN THE WORKING IN RESPECT OF THE VALUATION OF CLOSING STOCK WHICH WAS APPEARING IN ANNEXURE B & C OF ITS SUBMISSIONS. WHEN THE AO HAD ADDED VAT AND ED TO THE CLOSING STOCK, THEN HE SHOULD HAVE DONE A SIMILAR ADJUSTMENT TO THE OPENING STOCK ALSO. BUT THIS WAS NOT DONE BY THE AO. THE AO WITHOUT APPRECIATING THIS FACT HAD ARRIVED AT A WRONG CONCLUSIO N. 9. WE HAVE CAREFULLY GONE THROUGH THE ABOVE FINDING OF LD. CIT(A) . WE FIND THAT THE FINDING OF LD. CIT(A) IS IN CONFORMITY WITH THE JUDGMENT IN THE CASE OF ACIT VS. TORRENT CABLES LTD. (354 ITR 163)(SC), WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE IS F OLLOWING NET METHOD OF VALUATION OF CLOSING STOCK, AND INCLUDED EXCISE DUTY AT THE TIME OF REMOVAL OF GOODS. THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL STATING THAT TRIBUNAL WAS RIGHT TO EXCLUDE THE EXCISE DUTY AT THE TIME OF VALUING CLOSING S TOCK AT THE END OF THE ACCOUNTING PERIOD. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE GROUND OF THE REVENUE IS TO BE DISMISSED. 6. IN AY 2009 - 10, THE SAME DECISION WAS R E LIED UPON. ACCORDINGLY, CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEARS, WE A FFIRMED THE ORDER OF THE CIT(A) AND DISMISS THE GROUND NO. 1 & 2 AS RAISED BY THE DEPARTMENT. 7. REGARDING GROUND NO. 3 & 4, RELEVANT FACTS ARE THAT THE ASSESSEE HAD PAID A SUM OF RS. 30,80,216/ - T O M/S VISHAL SHIPPING CONTAINERS PVT LTD HAS FURTHER PAID RS. 5,92,732/ - TO ENCO SHIPPING AGENCY TOWARDS EXPORT FREIGHT. THE ASSESSING M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 5 OFFICER HELD THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS ON SUCH PAYMENTS , THEREFORE , HE MADE DISALLOWANCE U/S 40(A)(IA). THE ASSESSEES CASE BEFORE THE ASSESSING OFFICER WAS THAT THE PAYMENTS MADE TO THE SHIPPING AGENTS WERE ON ACCOUNT OF EXPENSES INCURRED BY THEM ON BEHALF OF THE ASSESSEE , SUCH AS TERMINAL HANDLING CHARGES, TRANSPORT CHARGES, OCEANIC FREIGHT DOCUMENTATION CHARGES, INSURANCE CHARGES ETC., WHICH ARE PAID BY THESE AG ENCIES ON BEHALF ASSESSEE AND LATER ON REIMBURSE D BY THE ASSES S EE TO THEM. THESE WERE CONTENDED TO BE OUT OF POCKET EXPENSES PAID ON BEHALF OF THE ASSESSEE, FOR WHICH INVOICES FOR REIMBURSEMENT ARE ISSUED BY THESE AGENCIES. THE AGENCY CHARGES CHARGED BY TH EM ARE SEPARATELY SHOWN IN THE BILLS ISSUED BY THESE AGENCIES FOR WHICH TDS IS DEDUCTED. T HE EXPENSES INCURRED ON BEHALF OF THE ASSESSEE ARE REIMBURSED TO THOSE AGENCIES FOR WHICH NO TDS IS REQUIRED. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ASSESSEE W AS LIABLE TO DEDUCT TDS U/S 194C ON THESE PAYMENTS ALSO AND THEREFORE HE MADE DISALLOWANCE U/S 40(A)(IA). 8. THE LD. CIT(A) HELD THAT IN THE EARLIER YEARS, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CIT(A). 9. WE FIND THAT THIS ISSUE HA D ALSO COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL , WHEREIN THE TRIBUNAL HAS DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE. THERE IS A CATEGORICAL FINDING O F FACT THAT IN THE BILLS RAISED BY THE AGENCIES, THE EXPENSES INCURRED AND THE AGENCY COMMISSION HA VE BEEN SEPARATELY MENTIONED AND SO FAR AS THE AGENCY COMMISSION IS CONCERNED, THE SAME HAS BEEN PAID AFTER DEDUCTING TDS. SO FAR AS PAYMENTS OF EXPENSES ARE CONCERNED , THE SAME ARE MERELY REIMBURSEMENT OF EXPENSES AND THEREFORE NO TDS IS REQUIRED TO BE PA ID. THE TRIBUNAL IN AY 2008 - 09 HAS DECIDED THIS ISSUE AFTER OBSERVING AND HOLDING AS UNDER: 10.3 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THE MATERIAL AVAILABLE ON RECORD. SIMILAR ISSUE WAS CONSIDERED IN THE CASE OF CIT VS. GUJARAT NAR MADA VALLEY FERTILIZER CO. LTD. (361 ITR 192), WHEREIN IT WAS HELD THAT THE EXPENSES WERE INCURRED BY THE AGENT ON BEHALF OF THE ASSESSEE FOR TRANSPORTATION M/S PARAMOUNT FORGE ITA NO. 6341 /MUM/20 1 3 6 AND OTHER CHARGES, WHICH HAS BEEN SPELT OUT IN THE BILL ITSELF INCLUDING THE COMMISSION TO THE AGEN T. THE RELATION BETWEEN THE ASSESSEE AND THE AGENT WAS PRINCIPAL. THE OBLIGATION TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF TRANSPORT CHARGES AND OTHER CHARGES WAS COMPLIED WITH BY THE AGENT, WHO HAD MADE PAYMENT ON ITS BEHALF. IN SUCH CIRCUMSTANCES NO DI SALLOWANCE CAN BE MADE U/S. 40(A)(IA) OF THE ACT, ON THE AMOUNT REIMBURSED WHERE OBLIGATION TO DEDUCT TAX AT SOURCE FOR PAYMENT WAS COMPLIED WITH BY THE AGENT. THE SLP FILED AGAINST THIS WAS DISMISSED BY THE HON'BLE SUPREME COURT IN CC 175/2014 DATED 17/01 /2014 . 10. FURTHER , IN AY 2009 - 10 ALSO THE TRIBUNAL HAS DELETED THE SAID ADDITION . THUS RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT NO TDS REQUIRED TO BE DEDUCTED BY THE ASSESSEE ON SUCH KIND OF PAYMENTS AND ACCORDINGLY NO DISALLOWANCE U/S 40(A)(IA) C AN BE MADE. 11. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH AUGUST , 2015. SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 7 TH AUGUST , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 29 , MUMBAI. 4 ) THE CIT 17 , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS