M/s. ESAB Inida Limited, CHENNAI V. ACIT, CHENNAI

ITA 76/CHNY/2014

• Counselvise Citation: 7621714 RSA 2014
• Duration Of Justice: 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C V PAVANA KUMAR IRS
• Assessee Lawyers: MRS JHARNA B HARILAL
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI. . . . , . . !' , # '$ % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO.76/MDS/2014 & S.P. NO.191/MDS/2014 (IN ITA NO.76/MDS/2014 ) ASSESSMENT YEAR : 2008-09 SHRI. ESAB INDIA LIMITED, BLOCK NO.13, 3 RD MAIN ROAD, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. [PAN :AAACG8998G] ( &' /APPELLANT/PETITIONER) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3) CHENNAI. ( ()&' /RESPONDENT) / APPELLANT BY : MRS. JHARNA B. HARILAL, CA. / RESPONDENT BY : SHRI. C.V. PAVANA KUMAR, IRS, JCIT. /DATE OF HEARING : 21.08.2014. /DATE OF PRONOUNCEMENT : 08.09.2014. '* / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSME NT YEAR 2008-09; EMANATES FROM ORDER DATED 17.09.2013 PASSED BY THE COMMISSIONER OF S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 2 -: INCOME TAX (APPEALS)-II, CHENNAI IN ITA NO.497/2013 -14 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. THE ASSESSEE HAD ALSO FILED SP N O.191/MDS/2014 FOR STAYING RECOVERY OF THE IMPUGNED DEMAND. 2. THE ASSESSEES GROUNDS CHALLENGE THE CIT(A) ORDER U PHOLDING AN ADDITION OF F 2,16,65,000/- RELATING TO UNUTILIZED CENVAT CREDITS AS ON 31.03.2008 AND DISALLOWANCE OF F15,42,225/- U/S. 14 A READ WITH RULE 8D OF THE INCOME TAX RULES, MADE IN THE ASSESSMENT ORDER DATED 08.12.2011. 3. THE ASSESSEE/ COMPANY MANUFACTURES, TRADES AND SELL S WELDING ELECTRODES, FLUXES AND EQUIPMENT. IT HAD FILED ITS RETURN ON 29.09.2008 ADMITTING INCOME OF F.84,98,50,740/-. T HE SAME WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING O FFICER FRAMED REGULAR ASSESSMENT; INTERALIA, MAKING AFORESAID A DDITION AND DISALLOWANCE. THE COMMISSIONER OF INCOME TAX (APPE ALS) HAS ALSO UPHELD THE SAME. 4. WE COME TO THE FIRST ISSUE OF CENVAT CREDITS. IN SCRUTINY, THE ASSESSING OFFICER FOUND THE ASSESSEE NOT TO HAVE U TILIZED ITS CENVAT CREDITS OF F.2,16,65,000/- AS ON 31.03.2008. IT HA D FOLLOWED S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 3 -: EXCLUSIVE METHOD FOR EVALUATING CLOSING STOCK AS PER RULE 4 OF THE CENVAT CREDIT RULES. THE ASSESSING OFFICER HELD TH AT INSTEAD OF EXCLUSIVE METHOD, THE ASSESSEE OUGHT TO FOLLOWED INCLUSIVE METHOD FOR VALUATION OF THE CLOSING STOCK IN VIEW OF SECTI ON 145A INSERTED IN THE ACT FROM 01.04.1999. THE CIT(A) HAS AFFIRMED T HE IMPUGNED ADDITION AND OBSERVED THAT THESE CENVAT CREDITS AD DED IN THE CLOSING STOCK WOULD NOT HAVE ANY EFFECT IN THE OPENING STOC K. 5. WE HAVE HEARD BOTH SIDES AND PERUSED THE CASE FILE. THE ASSESSEES SUBMISSIONS, INTER-ALIA ARE THAT IF THE SE CENVAT CREDITS ARE ADDED IN THE CLOSING STOCK AS ON 31.03.2008, NECES SARY EFFECT HAS TO BE GIVEN TO THE OPENING STOCK AS WELL AS PER DECISI ON OF THE MUMBAI BENCH OF THE TRIBUNAL IN ITS OWN CASE FOR ASSESSM ENT YEAR 1999-2000 DATED 10.06.2008. THE REVENUE SUBMITS THAT SECTION 145A BARS SUCH A RELIEF AND QUOTES CASE LAW OF (2006) 10SOT 652 ( MUMBAI) ACIT VS. SP FABRICATORS P. LTD. THERE IS NO ISSUE THAT SEC. 145A WAS INSERTED BY THE FINANCE ACT 1998 WITH EFFECT FROM 01.04.1999. THE VERY ISSUE HAD ALSO ARISEN EARLIER BETWEEN THE PARTIES. A CO-ORDI NATE BENCH (SUPRA) HAD FOLLOWED THE CIT VS. MAHAVIR ALLUMINUM LTD 297 ITR 77(DELHI) AND HELD THAT THE VALUATION OF THE OPENING STOCK HAS TO BE CONSIDERED IN CASE OF A CORRESPONDING CHANGE AS PER MODVAT CREDI TS AFFECTED IN S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 4 -: THE CLOSING STOCK. THE VERY MODVAT SCHEME HAS BEEN RESTRUCTURED AS CENVAT FROM THE YEAR 2004. WE ALSO DEEM IT APPROPR IATE TO REPRODUCE THE OPERATIVE PART OF THE HONBLE DELHI H IGH COURT DECISION HOLDING AS UNDER:- 15. WE ARE OF THE OPINION THAT IN THE PRESENT CAS E, THERE IS NO QUESTION OF ANY DOUBLE BENEFIT BEING GIVEN TO THE A SSESSEE. PARA 23.13 OF THE GUIDANCE NOTE ITSELF MAKES IT CLE AR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, THIS WILL AFFECT BOTH THE OPENING AS WEL L AS THE CLOSING STOCK. IT IS ALSO TO BE NOTED THAT IF ANY ADJUSTMENT IS REQUIRED TO BE MADE BY A STATUTE, (AS FOR EXAMPLE S ECTION 145A OF THE ACT), EFFECT TO THE SAME SHOULD BE GIVE N IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A OF THE ACT B EGINS WITH A NON OBSTANTE CLAUSE, AND THEREFORE, TO GIVE EFFEC T TO SECTION 145A OF THE ACT, IF THERE IS A CHANGE IN THE CLOSI NG STOCK AS ON 31.03.1999, THERE MUST BE NECESSARILY BE A CORRESPO NDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON 1.4.1998 . THE REVENUES CASE LAW (SUPRA) HOLDING OTHERWISE DO ES NOT HOLD THE GROUND BEING CONTRARY TO THE HIGH COURT DECISION. WE ACCEPT THE ASSESSEE LEGAL ARGUMENT ITSELF AND DIRECT THE ASSES SING OFFICER TO MAKE NECESSARY COMPUTATION AS PER LAW. THE ASSESSEE IS DIRECTED TO FURNISH ALL NECESSARY PARTICULARS. 6. THIS LEAVES US WITH THE SECOND ISSUE OF DISALLOWAN CE/ADDITION OF F.15,42,225/- MADE U/S.14A RULE 8D OF THE ACT. THE ASSESSING OFFICER CAME ACROSS EXEMPT INCOME U/S.10(23D) FRO M DIVIDENDS OF S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 5 -: F.1,33,84,668/-. THE ASSESSEE HAD NOT ATTRIBUTED A NY SPECIFIC EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT SOME ROUTINE EXPENDITURE TO MAINTAIN ESTABLISHMENT, ADMINISTRATI ON AND MANAGERIAL FUNCTIONS IS ALWAYS INCURRED TO EARN SUCH INCOME. HE EVOKED RULE 8D, QUOTED HONBLE BOMBAY HIGH COURT DECISION IN GODRE J BOYCE MFG CO. LTD VS. DCIT 328 ITR 81 (BOM) AND COMPUTED IMPUGNE D DISALLOWANCE OF F.15,42,225/-. THE LOWER APPELLATE ORDER HAS UP HELD THIS DISALLOWANCE. 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH TH E RELEVANT FINDINGS IN THE ASSESSMENT AS WELL AS LOWER APPELL ATE ORDER. THE IMPUGNED ASSESSMENT YEAR IS 2008-09. UNDISPUTEDLY, RULE 8D HAS COME INTO EFFECT W.E.F. 24 TH MARCH, 2008. THE ASSESSEE REFERS TO TVS INVESTMENTS LIMITED VS. ACIT IN ITA NO.1609/MDS/201 2 DECIDED ON 29.01.2013 HOLDING RULE 8D TO BE ONLY PROSPECTIVELY APPLICABLE I.E FROM 24 TH MARCH TO 31 ST MARCH, 2008 AND NOT FOR THE ACCOUNTING PERIOD 01.04.2007 TO 23.03.2008 AS PER MAXOPP INVESTMENT L TD. VS. CIT (2012) 347 ITR 272 (DEL). THE CO-ORDINATE BENCH OB SERVES THAT THIS DISALLOWANCE HAS TO BE COMPUTED ON A REASONABLE BAS IS UPTO 23 RD MARCH, 2008 AND AS PER THE RULE 8D FROM 24 TH MARCH 2008 ONWARDS. IN VIEW THEREOF, WE HOLD THAT THE AUTHORITIES BELOW HAVE WRONGLY S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 6 -: INVOKED RULE 8D FOR MAKING THE IMPUGNED DISALLOWANC E. SO, WE INFER THAT SOME REASONABLE EXPENDITURE IS ALWAYS INVOLVED TOWARDS HUGE EXEMPT INCOME OF F.1,33,84,668/- FROM INVESTMENTS OF F.5,84,11,000/- AS ON 31.03.2007. WE APPLY REASON ABLE METHOD IN THESE CIRCUMSTANCES AND RESTRICT THE IMPUGNED DISAL LOWANCE OF F.15,42,225/- TO F.7,50,000/- ONLY. THE ASSESSEES GROUND IS PARTLY ACCEPTED. 8. THE ASSESSEES APPEAL IS PARTLY ALLOWED AND ITS STA Y PETITION IS RENDERED INFRUCTUOUS. ORDER PRONOUNCED ON MONDAY, THE 8TH OF SEPTEMBER, 2014, AT CHENNAI. SD/- SD/- ( . . . ) (DR. O.K. NARAYANAN) / VICE PRESIDENT . . !' ) (S.S. GODARA) # '$ / JUDICIAL MEMBER /CHENNAI, !' /DATED:08.09.2014. KV #!$ %&' (' /COPY TO: 1. ) APPELLANT /2. / RESPONDENT 3. # # * ( )/CIT(A) 4. # # * /CIT 5. '+, %%-. /DR 6. ,/0 1 /GF. S.P.NO. 191/MDS/2014 (IN ITA NO.76/MDS/2 014) AND I.T.A.NO.76/MDS/2014. :- 7 -: