ASST CIT 10(3), MUMBAI V. HIND RECTIFIERS LTD, MUMBAI

ITA 784/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79545 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CHARUL TOPRANI
• Keywords: Business income; Depreciation; Question of law
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI VIVEK VARMA, JM ./ I.T.A. NO. 451/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) HIND RECTIFIERS LTD. LAKE ROAD, BHANDUP (W), MUMBAI-400 078 / VS. ADDL. CIT 10(3), ROOM NO. 451, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ./! ./PAN/GIR NO. AAACH 1781 Q ( '# $% /ASSESSEE ) : ( / REVENUE ) & ./ I.T.A. NO. 784/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) ADDL. CIT 10(3), ROOM NO. 451, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 / VS. HIND RECTIFIERS LTD. LAKE ROAD, BHANDUP (W), MUMBAI-400 078 ./! ./PAN/GIR NO. AAACH 1781 Q ( / REVENUE ) : ( '# $% /ASSESSEE ) '# $% & ' / ASSESSEE BY : MS. CHARUL TOPRANI & ' / REVENUE BY : SHRI R. K. SAHU ( ' ) & % * / DATE OF HEARING : 29.05.2014 +,- & % * / DATE OF PRONOUNCEMENT : 31.07.2014 . / O R D E R PER SANJAY ARORA, A. M.: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE REV ENUE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-22, MUM BAI (CIT(A) FOR SHORT) DATED 2 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. 21.11.2012, PARTLY ALLOWING THE ASSESSEES APPEALS CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FO R THE ASSESSMENT YEAR (A.Y.) 2009-10 VIDE ORDER DATED 28.11.2011. 2. WE SHALL TAKE UP THE ASSESSEES APPEAL, BEING SE NIOR, FIRST. ASSESSEES APPEAL (ITA NO. 451/MUM/2013) 3. THE FIRST ISSUE ARISING IN THE ASSESSEES APPEAL , RAISED PER ITS GROUND NO. 1, IS WITH REGARD TO THE ALLOCATION OF CERTAIN EXPENSES TO THE ASSESSEES DEHRADUN UNIT, EXIGIBLE TO DEDUCTION U/.80-IC OF THE ACT, VIZ. ADVERTISEMENT E XPENSES, LEGAL AND PROFESSIONAL EXPENSES, AUDIT EXPENSES. THE ASSESSEE IS IN THE BU SINESS OF MANUFACTURE OF RECTIFIERS, TRANSFORMERS, DEVICES, THYRISTORS, ETC. FOR TELECOM MUNICATION, RAILWAYS AND DEFENCE DEPARTMENTS, OPERATING THROUGH DIFFERENT UNITS, OF WHICH ONLY THE DEHRADUN UNIT IS AN ELIGIBLE UNDERTAKING U/S.80-IC. BESIDES, THE ASSESS EE HAS ITS HEAD OFFICE, CORPORATE OFFICE AND REGISTERED OFFICE AT MUMBAI. WHILE THE ASSESSEE CLAIMED A MEAGER ALLOCATION TO THE DEHRADUN (SECTION 80-IC) UNIT, SO THAT THE BULK OF THE EXPENDITURE UNDER THE SAID HEADS OF ACCOUNT STOOD ALLOCATED TO NON-80-IC UNITS, PURPORT EDLY ON THE BASIS OF ACTUAL, THE ASSESSING OFFICER (A.O.) DID NOT FIND THE SAME ACCE PTABLE IN THE ABSENCE OF PROPER SUBSTANTIATION OF ITS CLAIMS BY THE ASSESSEE AND, A CCORDINGLY, ALLOCATED THE SAME ON THE BASIS OF THE TURNOVER OF THE DIFFERENT UNITS. IN APPEAL, THE LD. CIT(A) FOUND IN RESPECT OF THE A DVERTISEMENT EXPENDITURE, AS INDEED HAD THE A.O. PRIOR THERETO, THAT THE SAID EX PENDITURE STOOD INCURRED FOR THE COMPANYS PRODUCTS AND, THEREFORE, COULD NOT BE SEG REGATED, AND WOULD STAND TO BE ALLOCATED AMONG THE SAID UNITS. WITH REGARD TO THE LEGAL AND PROFESSIONAL EXPENSES, HE DIRECTED THE A.O. TO VERIFY THE ASSESSEES CLAIM OF SOME EXPENDITURE, FORMING PART THEREOF, AS INCURRED ONLY IN RELATION TO AND PERTAI NING TO THE MUMBAI UNIT, SO THAT IT WOULD NOT STAND TO BE ALLOCATED. VIDE ITS GROUND NOS. 2 & 3, THE ASSESSEE IMPUGNS TH E ALLOCATION OF INTEREST AND FINANCE CHARGES, WHICH STOOD ALLOCATED BOTH BY THE ASSESSEE AS WELL AS THE A.O., ALBEIT BY ADOPTING DIFFERENT METHODS, SO THAT THE ISSUE BEFOR E US; THE ALLOCATION BY THE A.O. HAVING 3 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. FOUND CONFIRMATION BY THE LD. CIT(A), WOULD BE ESSE NTIALLY AS TO WHOSE METHOD IS, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, MORE APP ROPRIATE (REFER PARA 6.3 AT PGS. 4 & 5 OF THE IMPUGNED ORDER). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. TO BEGIN WITH, WE ARE UNABLE TO DISCERN ANY CONTROVERSY, MUCH LESS ON E THAT SHOULD WARRANT TRAVELLING TO THE STAGE OF THE SECOND APPELLATE AUTHORITY. THIS IS AS ADMITTEDLY THE ALLOCATION IS TO BE MADE, AND NECESSARILY SO, WHERE THERE IS AN EXPENDITURE W HICH IS INCURRED FOR THE COMPANY AS A WHOLE, WHILE THE EXPENDITURE INCURRED FOR THE PURPO SES OF OR IN RELATION TO A PARTICULAR UNIT WOULD STAND TO BE EXCLUDED FROM ALLOCATION, FORM AS IT DOES, PART OF THE EXPENDITURE OF THE RELEVANT UNIT. THE ASSESSEE HAS UNITS LOCATED AT DE HRADUN, NASIK AND MUMBAI; THE LATTER TWO BEING NON 80-IC UNITS. FURTHER, AS EXPLAINED, T HE PRODUCTS MANUFACTURED BY THE DIFFERENT UNITS ARE NOT THE SAME. THE ASSESSEE HAS ALLOCATED THE ENTIRE EXPENDITURE ON THE BASIS OF THE SAME BEING UNIT SPECIFIC, SO THAT THE SAME IS TOWARD A PARTICULAR UNIT, PRECLUDING ALLOCATION BY ADOPTING SOME METHOD, SEEK ING TO JUSTIFY THE SAME BY LISTING THE PURPOSE OF AND THE UNIT IN RELATION TO WHICH THE EX PENSE/S HAS BEEN INCURRED. WE ALSO OBSERVE NO ENQUIRY BY THE A.O. IN THE MATTER, WITH THE ASSESSEE DULY EXPLAINING THE SAME VIDE ITS LETTERS DATED 10.10.2011 AND 21.11.2011 (P B PGS.43-55). THE REVENUE, TO BE FAIR, HAS IN FACT ACCEPTED THE ASSESSEES ALLOCATION FOR MOST PART, SO THAT THE DISPUTE SURVIVES ONLY IN RESPECT OF THREE ITEMS, BESIDES INTEREST AN D FINANCIAL CHARGES, EACH OF WHICH WE SHALL DEAL SEPARATELY AS UNDER: A) ADVERTISEMENT AND PUBLICITY EXPENSES (RS.25,49,1 28/-) : THE RELEVANT DETAILS ARE AT PB PGS.51-52, LISTING THE PURPOSE FOR WHICH THE EXPENSE HAS BEEN INCURRED. THE ALLOCATION FOR THE DEHRADUN UNIT, AT RS.21,400/-, IS IN RESPECT OF THE ADVERTISEMENT FOR PLACEMENTS. THE SAME IS DECID EDLY IN ORDER IN-AS-MUCH AS THE EXPENDITURE IS UNIT SPECIFIC. IN FACT, WE OBSERVE A NOTHER EXPENSE FOR RS.4,83,018/- (TO MUSYCOM 2K) TOWARD PLACEMENT, WHICH INCLUDES FOR TW O POSITIONS AT DEHRADUN AND MUMBAI UNITS EACH, SO THAT THE EXPENDITURE ON THE S AID INSERTION WOULD STAND TO BE DIVIDED EQUALLY BETWEEN THE DEHRADUN AND MUMBAI UNI TS, WHICH HAS NOT BEEN MADE. 4 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. APART THERE-FROM, THE ADVERTISEMENT EXPENDITURE IS IN RESPECT OF PRODUCTS, IN THE NATIONAL MEDIA; FOR FIXED DEPOSITS; FOR PUBLISHING RESULTS; AND IN COMMERCIAL PUBLICATIONS. WE ARE IN AGREEMENT WITH THE REVENUE AUTHORITIES THAT THE SAME CANNOT BE SEPARATED. WHEN THE COMPANYS NAME AND PRODUCTS ARE BEING ADVERTISED OR PUBLISHED, OR THE EXPENDITURE IS FOR THE PURPOSE OF THE COMPANY AS A WHOLE, AS FOR PUBLI SHING FINANCIAL RESULTS; IN THE REGISTER OF INDIAN MANUFACTURERS, ITEZ, ETC., WE DO NOT SEE ANY RATIONALE FOR SEGREGATING THE SAME UNIT WISE. IN FACT, AS WE OBSERVE, THE COMPANY, TOW ARD THIS, APART FROM MAKING A BALD STATEMENT THAT THE PRODUCT/S ADVERTISED IS NOT MANU FACTURED AT THE 80-IC UNIT, HAS MADE NO SPECIFIC CASE ON THE SAID LINES AT ANY STAGE, INCLU DING BEFORE US. AS SUCH, OTHER THAN THE EXPENDITURE ON PLACEMENT, WHICH WE HAVE CLARIFIED T O BE UNIT SPECIFIC, THE BALANCE IMPUGNED EXPENDITURE WOULD STAND TO BE ALLOCATED ON SOME REASONABLE BASIS, AS TURNOVER. B) LEGAL AND PROFESSIONAL CHARGES (RS.27,08,741/-) : THE RELEVANT DETAILS APPEAR AT PGS.53-54 OF THE PA PER-BOOK. THAT STATED AS INCURRED FOR THE DEHRADUN UNIT IS AT RS.69,119/-. THE ASSESS EE HAS CLEARLY SPECIFIED THE NATURE OF THE EXPENDITURE. THE SAME, AS WE OBSERVE, IS IN RES PECT OF SPECIFIC JOBS, ASSIGNMENTS, I.E., IS UNIT SPECIFIC, SO THAT WE DO NOT CONSIDER ANY RE ASON FOR PROPORTIONING THE SAME ACROSS DIFFERENT UNITS. THOUGH, THEREFORE, WE ARE IN PRINC IPLE IN AGREEMENT WITH THE STAND OF THE ASSESSEE, WE OBSERVE SOME EXPENDITURE TO HAVE BEEN INCURRED AT THE ENTITY LEVEL, THOUGH APPROPRIATED TO THE MUMBAI UNIT, VIZ.: - INCOME TAX (RS.1,08,500/-); - RETAINER FEES FOR LEGAL MATTERS (RS.50,000/-); - CERTIFICATION FOR ROC, BSE, NSE (RS.22,500/-); AND - PROCESSING OF SHARES IN DMAT AND PHYSICAL FORM AND FOR DIVIDEND WARRANTS (RS.67,236/-), WHICH BEING INCURRED IN RELATION TO THE COMPANY AS A WHOLE, WOULD REQUIRE BEING ALLOCATED AMONGST DIFFERENT UNITS. FURTHER, THERE A RE EXPENSES, NATURE OF WHICH WOULD 5 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. REQUIRE BEING CLARIFIED IN FURTHER DETAIL IN-AS-MUC H AS THE SAME COULD ALSO HAVE RELATION TO MORE THAN ONE UNIT, VIZ. - RETAINERSHIP FOR SECRETARIAL MATTERS (RS.40,000/-); - CENTRAL EXCISE AND SERVICE TAX CONSULTANCY (RS.88,0 00/-); - DESIGN AND DRAWING CONSULTANCY (RS.30,325/-); - DGFT MATTERS (RS.11,500/-); - ADVERTISEMENT CONSULTANCY (RS.48,000/-); - ISO AUDIT FEES (RS.55,136/-); - IN RELATION TO WEB MATTERS (RS.47,020/-); AND - EXPENDITURE CLASSIFIED AS OTHERS (RS. 1,30,169/-) . THE NATURE OF THE EXPENDITURE CLASSIFIED AS OTHERS BEING NOT SPECIFIED, THOUGH LISTED UNDER DIFFERENT UNITS, IT IS NOT POSSIBLE FOR US TO EXPRESS ANY OPINION IN ITS RESPECT, SO THAT THE ALLOCABILITY OF THE SAME, AS IN THE CASE OF OTH ER EXPENSES LISTED ABOVE, WOULD STAND TO BE DETERMINED UPON STATING THEIR NATURE AND PURPOSE . THE MATTER WOULD, THEREFORE, REQUIRE RESTORATION FOR THE PURPOSE OF VERIFICATION OF SUCH INDETERMINATE EXPENDITURE, AND ALLOCATION, AS APPROPRIATE, I.E., EITHER TO THE SPE CIFIC UNIT OR ON THE BASIS OF TURNOVER, TO THE FILE OF THE A.O. C) AUDIT EXPENSES (RS.2,70,882/-) : THE DETAILS ARE AT PB PG.55. THE SAME ARE FOR THE ASSESSEE AS A COMPANY AND, THEREFORE, WOULD REQUIRE BEING ALLOCATED AMONGST IT S DIFFERENT OPERATING UNITS. THE ALLOCATION IS ACCORDINGLY UPHELD. THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF CIT VS. HINDUSTAN LIVER LIMITED TC(A) NO. 219 OF 2006. AS A PERUSAL OF THE SAID DEC ISION SHOWS, THE HONBLE COURT UPHELD THE ORDER BY THE TRIBUNAL PRINCIPALLY ON THE GROUND THAT IT HAD ONLY FOLLOWED ITS ORDER FOR THE IMMEDIATELY PRECEDING YEARS (BEING A.YS. 1981-8 2 TO 1991-92) AND WHICH HAD NOT BEEN CHALLENGED BY THE REVENUE. THE ISSUE BEFORE US IS PRIMARILY FACTUAL, WHICH IN OUR VIEW DOES NOT GIVE RISE TO ANY QUESTION OF LAW, MUC H LESS A SUBSTANTIAL QUESTION OF LAW. WHEN THE ASSESSEE OPERATES THROUGH DIFFERENT PRODUC TION UNITS, THE COMMON EXPENDITURE 6 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. AT THE ENTITY OR THE CORPORATE LEVEL IS NECESSARILY REQUIRED TO BE ALLOCATED TO THE DIFFERENT OPERATING UNITS TO DETERMINE THE INCOME ATTRIBUTABL E THERETO, ON SOME REASONABLE BASIS. THE TURNOVER STANDS, IN FACT, REGULARLY FOLLOWED, A CROSS THE LENGTH AND BREADTH OF THE COUNTRY, AS A REASONABLE BASIS FOR ALLOCATION AMONG DIFFERENT FUNCTIONAL UNITS. THE DECISION BY THE APEX COURT IN THE CASE OF CONSOLIDATED COFFEEE LTD. VS. STATE OF KARNATAKA [2001] 248 ITR 432 (SC), ALSO REFERRED IN THE SAID DECISION, IF ANYTHING, ONLY UPHOLDS THE SAME AS A VALID BASIS FOR ALLOCATION. T HE ASSESSEE HAS ALSO NOT SUGGESTED ANY MORE APPROPRIATE PARAMETER FOR ALLOCATING THE COMMO N EXPENDITURE, INCURRED FOR THE PURPOSE OF MORE THAN ONE UNIT OR ALL THE UNITS OR A S A COMPANY AS WHOLE, SO THAT WE FIND NO REASON NOT TO UPHOLD THE ALLOCATION BASED ON THI S PARAMETER, REPRESENTING THE VOLUME OF ACTIVITY AT A PARTICULAR UNIT. WE DECIDE ACCORDI NGLY. D) INTEREST EXPENDITURE (RS.81,95,458/-) : THE SAME, INCURRED AT RS.81.95 LACS, STANDS ALLOCAT ED TO THE DEHRADUN UNIT AT RS.4.14 LACS BY THE ASSESSEE ON THE BASIS OF THE NE T CURRENT ASSETS OF THE DEHRADUN UNIT TO THAT OF THE COMPANY AS A WHOLE (PB PG. 58). WE FIND THE SAME TO BE A VALID BASIS. WE SAY SO AS THE PERUSAL OF THE BALANCE-SHEET (PB PGS.59-7 2) REVEALS SECURED LOANS TO BE PRINCIPALLY TOWARD WORKING CAPITAL. FURTHER, THE CO MPANY HAS ADEQUATE CAPITAL AND RESERVES TO FINANCE THE FIXED ASSETS, IMPLYING THAT THE BORROWED CAPITAL, I.E., UNSECURED LOANS, IS ALSO DEPLOYED TOWARD WORKING CAPITAL. THE SAID ALLOCATION, THUS CONFIRMED IN PRINCIPLE, WOULD HOWEVER BE REQUIRED TO BE VERIFIED BY THE A.O. IN-AS-MUCH AS WE FIND NO FINDING BY THE REVENUE AUTHORITIES IN RELATION THER ETO, AND, TWO, IS ONLY FOR INTEREST EXPENDITURE AT RS.54.26 LACS. THE BALANCE FINANCE C OST OF RS.27.69 LACS (I.E., RS.81.95 LACS RS.54.26 LACS), IS, AS WE OBSERVE, QUA BANK CHARGES (RS.27.55 LACS) AND BROKERAGE AND DEPOSITS AND LOANS (RS.0.15 LAC). THE BROKERAGE EXPENSES WOULD DEFINITELY REQUIRE BEING SIMILARLY ALLOCATED, I.E., AS THE INTEREST EX PENSE. TOWARD THE BANK CHARGES (RS.27.55 LACS), AS EXPLAINED BY THE ASSESSEE DURING HEARING, IS PRINCIPALLY ON OPENING LC AND RETIREMENT OF BILLS, WHICH HAVE NO RELATION TO THE DEHRADUN UNIT BUT ONLY TO THE WORKING OF THE MUMBAI UNIT. IF SO, NO PART THEREOF WOULD RE QUIRE BEING ALLOCATED, WHILE, IF AND TO 7 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. THE EXTENT NOT SO, THE A.O. SHALL, AFTER DETERMININ G THE NATURE THEREOF, ALLOCATE THE SAME ON SOME REASONABLE BASIS. THE MATTER TO THAT EXTENT IS RESTORED BACK TO THE FILE OF THE A.O. FOR PROPER VERIFICATION OF THE ASSESSEES CLAIM AND A D ECISION ON MERITS BY ISSUING DEFINITE FINDINGS OF FACT, AND AFTER ALLOWING REASONABLE OPP ORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 5. ASSESSEES GROUND NO. 4 IS IN RESPECT OF DENIAL OF DEDUCTION U/S.80-IC ON INTEREST INCOME OF THE DEHRADUN UNIT, ON THE BASIS THAT IT I S NOT DERIVED FROM THE ELIGIBLE UNDERTAKING, RELYING ON THE DECISION IN THE CASE OF LIBERTY INDIA VS. CIT [2009] 317 ITR 218 (SC) (REFER PARA 6.3 OF THE ASSESSMENT ORDER). THOUGH THE ASSESSEE WE OBSERVE DID RAISE A GROUND IN ITS RESPECT BEFORE THE LD. CIT(A) (GD. 5.10), WE FIND HE HAS NOT ADJUDICATED THE SAME, ANSWERING THE ASSESSEES GROU ND NO. 5 ON THE BASIS OF THE PRINCIPAL OBJECTIONS LEADING TO THE DIFFERENCE IN THE AMOUNT OF DEDUCTION U/S.80-IC, I.E., AS CLAIMED AND ALLOWED (REFER PARA 6 OF THE APPELLATE ORDER). THE SAID GROUND THUS DOES NOT ARISE OUT OF THE IMPUGNED ORDER, SO THAT IT IS NOT MAINTAINAB LE BEFORE US. THE ASSESSEE THOUGH MAY TAKE SUCH RECOURSE AS IS PERMISSIBLE TO IT UNDER LA W. WE DECIDE ACCORDINGLY, DISMISSING THE ASSESSEES GROUND, AS RAISED, AS NOT MAINTAINAB LE. REVENUES APPEAL (ITA NO. 784/MUM/2013) 6. THE FIRST GROUND OF THE REVENUES APPEAL AGITATE S THE DELETION OF THE DISALLOWANCE IN THE SUM OF RS.2,49,513/- ON ACCOUNT OF INTEREST ATTRIBUTABLE TO CAPITAL WORK-IN-PROGRESS (CWIP). THE DELETION BY THE LD. CIT(A) WAS BY FOLLO WING THE ORDER BY THE TRIBUNAL IN THE ASSESSEES CASE FOR THE IMMEDIATELY PRECEDING YEAR, I.E., A.Y. 2008-09 (IN ITA NO.3364/MUM(H)/2011 DATED 29.06.2012/PB PGS.1-7, PA RA 2.1 OF THE IMPUGNED ORDER). THE REVENUE IS IN APPEAL, CONTENDING THAT THE DECIS ION BY THE TRIBUNAL WOULD NOT APPLY IN-AS-MUCH AS THE FACTS FOR THE CURRENT YEAR ARE DI FFERENT. WE HAVE PERUSED THE ORDER BY THE TRIBUNAL, WHICH IS ESSENTIALLY FACT BASED, FIND ING THE ASSESSEE TO HAVE SUFFICIENT CAPITAL AND RESERVES, BESIDES INTERNAL ACCRUALS, TO FUND TH E CWIP. FOR THE CURRENT YEAR, IN FACT, THE ASSESSEES CASE IS UNIMPEACHABLE IN-AS-MUCH AS, RAT HER THAN WITNESSING AN OUTLAY ON 8 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. CWIP, THERE HAS BEEN, ON THE CONTRARY, A DECLINE TH EREIN, I.E., FROM RS.359.99 LACS (AS ON 31.03.2008) TO RS.100.47 LACS AS AT 31.03.2009, THE RELEVANT YEAR-END, THE ADDITION FOR THE YEAR BEING AT RS.8.98 LACS (SCHEDULE E TO THE BALAN CE-SHEET PB PGS.59-72). THAT APART, THE CAPITAL AND RESERVES HAVE ALSO WITNESSED AN INC REASE DURING THE CURRENT YEAR. WE, IN VIEW OF THE FOREGOING, FIND NO MERIT IN THE REVENUE S CASE AND, ACCORDINGLY, DISMISS ITS GROUND. 7. THE REVENUES SECOND GROUND IS WITH REGARD TO TH E DEPRECIATION ALLOWANCE EXIGIBLE ON UPS. WHILE THE ASSESSEE CLAIMS IT AT 60 % , ON THE BASIS THAT IT FORMS PART OF ITS COMPUTER SYSTEM, WHICH IS ENTITLED TO DEPRECIATION AT THAT RATE, THE STAND OF THE REVENUE IS THAT THE SAME IS ONLY AN ELECTRICAL EQUIPMENT THAT IS ATTACHED TO THE COMPUTER, AND WHICH BY ITSELF WOULD NOT MAKE IT A PART OF THE COMPUTER SYSTEM, TOWARD WHICH ONLY THE ENHANCED RATE OF 60% HAS BEEN SPECIFIED, SO THAT TH E NORMAL RATE OF 15% WOULD HOLD. THE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 2008-09, W HILE APPRECIATING THE CASE OF BOTH THE PARTIES, HAS RESTRAINED FROM RENDERING ANY FINDING OF ITS OWN IN THE MATTER, WHICH IS ESSENTIALLY OF FACT, AND DECIDED THE MATTER FOLLOWI NG THE DECISION BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CERAMICS & INDUSTRIES LTD [2013] 358 ITR 49 (DEL). THE SAID MATTER HAVING BEEN DECIDED BY THE T RIBUNAL FOR AN EARLIER YEAR, FOLLOWING THE DECISION BY A HIGHER FORUM, WE SEE NO REASON TO DISTURB THE SAME; NO CONTRARY DECISION, MUCH LESS BY THE HONBLE JURISDICTIONAL H IGH COURT OR BY THE APEX COURT, HAVING BEEN BROUGHT TO OUR NOTICE FOR US TO CONSIDER REVIS ITING THE ISSUE. WE DECIDE ACCORDINGLY, DISMISSING THE REVENUES GROUND. 8. THE THIRD GROUND BY THE REVENUE RELATES TO AN AD JUSTMENT U/S.145A OF THE ACT IN THE SUM OF RS.26,36,604/- TOWARD MODVAT/VAT BY THE A.O. IN COMPUTING THE ASSESSEES BUSINESS INCOME U/S.28 OF THE ACT. THE BASIS OF THE A.O.S ADDITION IS THE ASSESSEES TAX AUDIT REPORT (TAR/PB PGS.78-87), WHEREIN, IN RESPEC T OF THE QUESTION AT SR. NO. 12(B) OF THE REPORT, THE ASSESSEES AUDITORS HAVE CERTIFIED A DECREASE IN THE PROFIT BY THE IMPUGNED SUM, BEING IN RESPECT OF: 9 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. - MODVAT (EXCISE DUTY) RS.16,43,744/- (ANNEXURE 8 OF TAR/PB PG.86) - VAT (SALES TAX) RS.9,92,860/- (ANNEXURE 8 OF TA R/PB PG. 87) IN APPEAL, IT FOUND FAVOUR WITH THE LD. CIT(A) ON T HE BASIS THAT THE ASSESSEE HAD CONSISTENTLY FOLLOWED A SCIENTIFIC METHOD IN VALUIN G ITS STOCKS FROM YEAR TO YEAR. ACCORDINGLY, IT HAD PAID TAXES ON THE ENHANCED PROF IT DUE TO THE VALUATION OF THE CLOSING STOCK TILL THE IMMEDIATELY PRECEDING YEAR. HOWEVER, FOR THIS YEAR, ON ACCOUNT OF A DECREASE IN THE CLOSING STOCK, THERE HAS BEEN A DEC LINE IN THE VALUATION OF THE CLOSING STOCK AND, ACCORDINGLY, A DECREASE IN THE PROFIT RE CKONED WITH REFERENCE TO SECTION 145A, AND WHICH THEREFORE COULD NOT BE IGNORED MERELY BEC AUSE THERE WAS A DECREASE IN PROFIT. THE SAME WAS, ACCORDINGLY, DELETED. REFERENCE IN T HIS REGARD MAY BE MADE TO PARAS 5.1 AND 5.2 OF THE IMPUGNED ORDER. AGGRIEVED, THE REVEN UE IS IN APPEAL. 9. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEE ADMITTEDLY FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING. IT IS, THEREFORE, REQUIRED TO FURNISH PER ITS AUDIT REPORT (VIDE PARA 12 THEREOF) THE EFF ECT OF THE DEVIATION ON THE PROFIT OR LOSS WITH REFERENCE TO SECTION 145A OF THE ACT, AND WHIC H IT PROVIDES PER ANNEXURE 8 TO THE TAR (PB PGS.78-87). THE SAME, AS STATED, RESULTS IN A DECREASE IN PROFIT AT RS.26.37 LACS, DETAILED AT ANNEXURE 8 TO TAR (PB PGS. 87-89), BEIN G IN RESPECT OF MODVAT (RS.16.44 LACS) AND VAT (RS.9.93 LACS). WE FAIL TO OBSERVE AN Y CONTROVERSY HERE; SECTION 145A BEING MANDATORY IN ITS APPLICATION. AS SUCH, IRRESP ECTIVE AND NOTWITHSTANDING THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED BY THE ASSES SEE IN COMPUTING THE BUSINESS INCOME ASSESSABLE TO TAX U/S.28, SECTION 145A, TO THE EXTE NT APPLICABLE, WOULD HAVE TO BE GIVEN EFFECT TO. WHETHER THE SAME RESULTS IN AN INCREASE IN THE PROFIT FOR A PARTICULAR YEAR OR A DECREASE, IS ANOTHER MATTER ALTOGETHER, AND TOWARD WHICH WE OBSERVE NO ADVERSE FINDING BY THE A.O. IN THE ABSENCE OF ANY INFIRMITY OR ERRO R HAVING BEEN FOUND BY THE REVENUE, WE FIND NO REASON TO DISTURB THE SAME, WHICH IS IN FACT UNEXCEPTIONAL AND HAS FOUND FAVOUR WITH THE LD. CIT(A) ON THE SAME BASIS. THE S AME IS ACCORDINGLY CONFIRMED. WE DECIDE ACCORDINGLY. 10 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. 10. THE FOURTH AND LAST GROUND OF THE REVENUES APP EAL RELATES TO THE DISALLOWANCE OF PRIOR PERIOD EXPENSES, IN THE SUM OF RS.6,24,247/-. THE SAME AGAIN FINDS REFLECTION PER THE ASSESSEES TAR, EVEN AS THERE WAS A NET GAIN IN -AS-MUCH AS THE ASSESSEE HAD BOOKED BOTH, THE INCOME AS WELL AS THE EXPENSES, RELATING TO THE PRIOR PERIOD/S. IN APPEAL, IT WAS CONTENDED THAT THE EXPENDITURE, T HOUGH PERTAINING TO A PRIOR PERIOD, WOULD STAND TO BE ALLOWED FOR THE CURRENT Y EAR IN-AS-MUCH AS THE EXPENDITURE STOOD CRYSTALLIZED ONLY DURING THE CURRENT YEAR. TH E SAME STOOD ALLOWED ON THAT BASIS (REFER PARA 6.3 OF THE IMPUGNED ORDER), SO THAT THE REVENUE IS IN APPEAL. 11. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. WE FIND NO SUBSTANCE IN THE ASSESSEES CASE, WHICH HAS SINCE F OUND ACCEPTANCE BY THE LD. CIT(A). THERE IS, FIRSTLY, NO CORRELATION WHATSOEVER BETWEE N THE INCOME (FOR THE PRIOR PERIOD) BOOKED BY THE ASSESSEE, WHICH STANDS TO BE ASSESSED U/S.28 R/W S.5, AND THE EXPENDITURE, SIMILARLY CLAIMED. THE EXPENDITURE WOULD, ON THE OT HER HAND, STAND TO BE ALLOWED U/S. 37(1) OF THE ACT. THE ASSESSEE ADMITTEDLY MAINTAINI NG ITS ACCOUNTS ON MERCANTILE BASIS, THE CLAIM FOR EXPENDITURE COULD BE ALLOWED TO IT ON LY ON THE BASIS OF ITS ACCRUAL. NO MATERIAL OR EVIDENCE IN THIS RESPECT STANDS LED BY THE ASSESSEE AT ANY STAGE, INCLUDING BEFORE US. THAT IS, THE ISSUE IS LEGAL, AND DIFFERE NT CONSIDERATIONS, BASED ON THE RELEVANT PROVISIONS OF LAW, COUPLED WITH FACTS, WOULD APPLY, AND NO GENERAL PLEA, BY NETTING INCOME AND EXPENDITURE, WHICH IS WITHOUT ANY BASIS IN LAW, WOULD HOLD. NO DOUBT, WHERE THE EXPENDITURE IS IN DISPUTE, IT WOULD STAND TO AR ISE OR INURE ONLY ON THE RESOLUTION OF THE DISPUTE. HOWEVER, AS AFORE-STATED, THERE IS NO WHIS PER OR AN IOTA OF EVIDENCE TOWARD ANY SUBSISTING DISPUTE, SO THAT THE SAME IS ONLY A BALD PLEA. THERE IS, ACCORDINGLY, NO BASIS TO HOLD THAT THE SAID EXPENSES HAD CRYSTALLIZED DURING THE CURRENT YEAR. IN FACT, THERE IS NOTHING TO EVIDENCE EVEN THE DELAYED RECEIPT OF CLA IM BY THE CREDITOR, I.E., DURING THE CURRENT YEAR, WHICH THOUGH WOULD BE OF LITTLE MOMEN T IN-AS-MUCH AS THE EXPENDITURE WOULD STAND INCURRED ONLY ON THE BASIS OF THE UNDER LYING CONTRACTS AND, IN ANY CASE, COULD BE PROVIDED FOR ON THE BASIS OF THE BEST ASSESSMENT AS ON THE DATE OF FINALIZATION OF THE ACCOUNTS FOR THE RELEVANT YEAR. NEEDLESS TO ADD, NO CASE IN THIS REGARD HAS BEEN MADE OUT 11 ITA NOS. 451 & 784/MUM/2013 (A.Y. 2009-10) HIND RECTIFIERS LTD. BEFORE ANY AUTHORITY, INCLUDING BEFORE US. WE DECID E ACCORDINGLY, AND THE REVENUE SUCCEEDS. 12. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND THE REVENUES APPEAL IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 31, 2014 SD/- SD/- (VIVEK VARMA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( /) MUMBAI; 0' DATED : 31.07.2014 .'../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. 1 / THE APPELLANT 2. 23 1 / THE RESPONDENT 3. ( 4% ( ) / THE CIT(A) 4. ( 4% / CIT CONCERNED 5. 7 8 2%'9# , * 9#- , ( /) / DR, ITAT, MUMBAI 6. 8 : ; ) / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ( /) / ITAT, MUMBAI