SUNRAJ PLASTICS, MUMBAI V. DCIT RG 22(2), NAVI MUMBAI

ITA 8211/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9552 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 22-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV
• Assessee Lawyers: LALCHAND CHOUDARY
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (MZ) AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 8211/M/2011 ASSESSMENT YEAR: 2008-209 M/S. SUNRAJ PLASTICS, 326, BHAVESHWAR ARCADE, LBS MARG, GHATKOPER (W), MUMBAI 400 0086. PAN: AAAFS7122D VS. THE DY. CIT, RANAGE 22(2), 4 TH FLOOR, TOWER NO.6, VASHI RLY. STATION COMPLEX, NAVI MUMBAI 400 730. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI LALCHAND CHOUDARY RESPONDENT BY : SHRI RAJIV PANT, CIT-DR DATE OF HEARING: 22.11.2012 DATE OF ORDER : 30.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 7.12.2011 IS A GAINST THE ORDER OF CIT (A)- 33, MUMBAI DATED 9.9.2011 FOR THE ASSESSMENT YEAR 2 008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS. 1. THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 35,83,080/- MADE BY THE AO U/S 145A IN THE VALUE OF CLOSING STOCK OF RAW MATERIALS AND WORK IN PROGRESS BY HOLDING A VIEW THAT THE ACCOUNT ING SYSTEM FOLLOWED BY THE ASSESSEE FIRM IS NOT CORRECT. HE FAILED TO APPRECI ATE THE FACT THAT THE APPELLANT HAS BEEN FOLLOWING THE ACCOUNTING SYSTEM FOR DECADES AND NO PREJUDICED WOULD BE CAUSED TO THE INTEREST OF REVEN UE IF THE SAME IS FOLLOWED CONSISTENTLY. 2. THE CIT (A) ERRED IN DIRECTING THE AO TO ADJUST THE VALUE OF ONLY OPENING STOCKS OF RAW MATERIALS AND STOCK IN PROGRES S. THE CIT (A) OUGHT TO HAVE HELD AND DIRECTED THE AO TO APPLY THE PROVISIONS OF SECTION 145A IN RESPECT OF ALL INVENTORIES AND ADJUST THE INVENT ORIES INCLUDING OPENING STOCKS, PURCHASES, SALES AND CLOSING STOCKS . 3. THE CIT (A) ERRED IN CONFIRMING AD-HOC DISALLOWA NCES OF RS. 90,660/- OUT OF LOADING & UNLOADING EXPENSES AND AD-HOC DISALLOWANCE OF RS. 54,041 OUT OF MATERIAL STRAIGHTENING CHARGES . HE FAILED TO APPRECIATE THAT THE ASSESSEE HAS GENUINELY INCURRED THESE EXPE NDITURES IN THE NORMAL COURSE OF BUSINESS. 4. THE CIT (A) ERRED IN CONFIRMING AD-HOC DISALLOWA NCES OF RS. 41,896 OUT OF MOTOR CAR EXPENSES ; AND AD-HOC DISALLOWANCE OF RS. 55,099/- OUT OF 2 TELEPHONE EXPENSES . HE FAILED TO APPRECIATE THE FACT OF THESE EXPEND ITURES HAVING ALREADY BEEN CONSIDERED BY THE ASSESSEE U/S 115WB(2) IN ITS RETURN OF INCOME FOR PAYMENT OF FRINGE BENEFIT TAX (FBT) AND MAKING FURTHER DISALLOWANCE OUT OF THESE EXPENDITURES HAS RESULTED INTO DOUBLE TAXATION. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE INCOME OF RS 29,49,783/-. A O DETERMINED THE ASSESSED INCOME AT RS. 67,74,559/- IN THE SCRUTINY ASSESSMEN T MADE U/S 143(3) OF THE ACT AND MADE ADDITIONS, WHICH ARE NOW CONTESTED IN THE GROUNDS ABOVE. SHRI LALCHAND CHOUDARY, LD COUNSEL FOR THE ASSESSEE FILED WRITTEN NOTE AND ENCLOSED THE COPIES OF THE JUDGMENTS THAT WOULD HELP THE ASSESSEE IN CONNE CTION WITH THE GROUNDS 1 AND 2 EXTRACTED ABOVE. THE GROUND WISE ADJUDICATION IS GI VEN IN THE FOLLOWING PARAGRAPHS. 4. GROUND NOS. 1 & 2 RELATION TO THE ADDITION OF RS . 35,83,080/- MADE BY AO INVOKING THE PROVISIONS OF SECTION 145A OF THE ACT, WHICH WAS INSERTED BY THE FINANCE (NO.2) ACT, 2009. IN THIS REGARD, LD COUNSE L MENTIONED THAT THE AO MADE THE SAID ADDITION ON ACCOUNT OF CENVAT CREDIT RELAT ABLE TO THE CLOSING STOCK OF RAW MATERIALS INSTEAD OF ADJUSTING ALL THE INVENTORIES. IN SUPPORT OF THE SAID REQUEST, LD COUNSEL RELIED ON VARIOUS DECISIONS. IN THAT SENSE, AS PER THE COUNSEL, THE SAID ISSUE IS COVERED BY SERIES OF DECISIONS AND ASSESSEE IS E NTITLED TO MAKE ADJUSTMENTS TO ALL THE RELEVANT INVENTORIES QUO THE CENVAT CREDIT. SO ME OF THE JUDGMENTS RELIED ON BY THE LD COUNSEL ARE AS UNDER: 1. DCIT VS. GANDHAR OIL REFINERY (I) LTD. [2006] 9 SOT 608 (MUM) 2. DCIT VS. BECK INDIA LTD. [2008] 26 SOT 141 (MUM) 3. CLARIANT (INDIA) LTD VS. ITO [2011] 9 TAXMANN.COM 221 (MUM) 4. ACIT VS. GIVAUDAN FLAVOURS (INDIA) (P) LTD. [2011 ] 45 SOT 5. R.R. KABEL LTD VS. ACIT [2012] 25 TAXMANN.COM 55 9 (MUM) 5. THE PROVISIONS OF SECTION 145A MANDATES THAT THE VALUATION OF PURCHASES AND SALE OF GOODS AND INVENTORY SHALL BE ADJUSTED TO IN CLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESS EE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VA LUATION. THE GIST OF THE ABOVE MENTIONED DECISIONS IS ALSO THE SAME. THEREFORE, TH E AO CANNOT MERELY ADJUST QUA 3 THE CENVAT CREDIT THE CLOSING STOCK OF RAW MATERIAL S LEAVING THE OPENING STOCK. OTHERWISE, IT WILL BE ONE-SIDED ADJUSTMENT LEADING TO ERRONEOUS COMPUTATION OF PROFITS. IT IS THE CLAIM OF THE ASSESSEE THAT THE RE VENUE MUST ADJUST ALL THE INVENTORIES I.E. OPENING STOCK, CLOSING STOCK, PURC HASES, SALES TO BE TUNE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THEREFORE, I N PRINCIPLE, WE APPROVE THE GROUNDS RAISED BY THE ASSESSEE. FOR COMPUTATIONAL R EASONS, WE SET ASIDE THESE GROUNDS TO THE FILES OF THE AO FOR DECIDING THIS IS SUE AFRESH AFTER CONSIDERING STRICTLY THE DECISIONS CITED ABOVE. ACCORDINGLY, GROUND NOS . 1 & 2 IS ALLOWED PRO-TANTO . 6. GROUND NO.3 RELATES TO AD-HOC DISALLOWANCE OF RS . 90,660/- ON ACCOUNT OF LOADING AND UNLOADING EXPENSES AND AD-HOC DISALLOWA NCE OF RS. 54,041/- OUT OF MATERIAL STRAIGHTENING CHARGES. IN THIS REGARD, LD C OUNSEL INFORMED THAT AO DISALLOWED THE ABOVE AMOUNTS APPLYING FLAT RATE OF 10% OUT OF THE AMOUNTS DEBITED TO THE P & L ACCOUNT OF THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION. WHILE MAKING DISALLOWANCE, AO REASONED THAT THE ASSESSEE INCURRE D THE ABOVE EXPENDITURE IN CASH AND THE SELF-MADE VOUCHERS ARE THE EVIDENCES, WHICH WILL NOT STAND THE SCRUTINY OF THE AUTHORITIES. IN THIS REGARD, LD COU NSEL MENTIONED THAT THE SAID EXPENDITURE WAS PAID TO THE LABOUR, WHICH ARE POOR AND UNEDUCATED AND THEY DO NOT MAINTAIN BANK ACCOUNTS. CASH PAYMENT IS INEVITABLE IN SUCH CASES AND IT IS IMPOSSIBLE FOR GETTING THE NAME AND ADDRESS OF THE PERSONS WHO RECEIVED THE ABOVE CLAIMED EXPENDITURE. LD COUNSEL PRAYED TO THE BENCH FOR APPRECIATING THE BUSINESS REALITIES AND ALLOW THE CLAIMS OF THE ASSESSEE IN F ULL. 7. ON THE OTHER HAND, LD DR MENTIONED THAT THE ASSE SSEE WHO MADE THE CLAIM OF DEDUCTION IN THE RETURN OF INCOME HAS THE RESPON SIBILITY TO FILE THE EVIDENCES AND HIS FAILURE TO DO SO, THE AO IS JUSTIFIED IN MAKING THE DISALLOWANCE APPLYING THE FLAT RATE OF 10% OF THE CLAIM IN THE P & L ACCOUNT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE. THERE IS NO DISPUTE ON THE FACTS THAT MOST OF THE E XPENDITURE WAS INCURRED IN CASH AND EVIDENCES FURNISHED IN SUPPORT OF THE MOST OF T HE EXPENDITURE ARE SELF MADE 4 VOUCHERS. IN PRINCIPLE, BASED ON THE ONUS RELATED A RGUMENTS, WE AGREE WITH THE DISALLOWANCE MADE BY THE AO. HOWEVER, REGARDING TH E FLAT RATE OF 10% ADOPTED BY THE REVENUE AUTHORITIES, AO/CIT (A) HAS NOT PROVIDE D ANY REASONING ON WHY HE ADOPTED 10% FOR QUANTIFYING THE DISALLOWABLE EXPEND ITURE. GENERALLY, SUCH FLAT RATE DISALLOWANCE HAVE THE IMPLICATIONS OF MISLEADING RE SULTS AS IT DEPENDS ON THE QUANTITY OF THE AMOUNTS ORIGINALLY DEBITED TO THE P & L ACCOUNT. FURTHER, IT IS A FACT THAT THE PAYMENT IN CASH TO THE UNSKILLED OR SEMI-S KILLED LABOUR IS NOT NEW TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. IT IS AN UNDIS PUTED FACT THAT THE AO HAS NOT MADE SIMILAR DISALLOWANCES IN SUBSEQUENT AS WELL AS EARLIER ASSESSMENT YEARS AS STATED BY LD COUNSEL AT BAR. FURTHER, IT IS ALSO A FACT THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC CASES OF BOGUS VOUCHERS/PAYMENT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DISALLOWANCE AT THE FLAT RA TE IS NOT APPROPRIATE. HOWEVER, CONSIDERING THE FACT, THE EVIDENCES FURNISHED BY TH E ASSESSEE IS UNLIKELY TO STAND THE TEST OF SCRUTINY, IN OUR OPINION, A LUMP SUM DISALL OWANCE OF RS. 50,000/- ON ALL THESE ACCOUNTS WOULD MEET THE ENDS OF JUSTICE. ACCORDING LY, GROUND NO.3 IS PARTLY ALLOWED. 9. GROUND NO.4 RELATES TO AD-HOC DISALLOWANCE OF RS . 41,896/- ON ACCOUNT OF MOTOR CAR EXPENSES AND ANOTHER AD-HOC DISALLOWANCE OF RS. 55,099/- ON ACCOUNT OF TELEPHONE EXPENSES. THE SAID DISALLOWANCES WERE MA DE AGAIN APPLYING THE FLAT RATE OF 5% ON THE CLAIMS MADE BY THE ASSESSEE. DURING T HE PROCEEDINGS BEFORE US, LD COUNSEL MENTIONED THAT THE SAID AMOUNTS WERE OFFERE D TO TAX UNDER THE PROVISIONS RELATING TO FRINGE BENEFIT TAX (FBT) U/S 115-WB (2) OF THE ACT. IN SUCH CIRCUMSTANCES, MAKING DISALLOWANCE UNDER THE INCOME TAX PROVISIONS OR U/S 37, WILL AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. IT IS NOT DISPUTED THAT THE SAID AMOUNTS WERE NOT OFFERED UNDER THE PROVISIONS RELAT ING TO FBT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DISAL LOWANCE MADE BY THE AO WILL AMOUNT TO DOUBLE TAXATION AND THEREFORE, ASSESSEE I S ENTITLED TO RELIEF. ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED . 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 5 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2012. SD/- SD/- (D. MANMOHAN) (D. KARUNAKARA R AO) VICE PRESIDENT ACCOUNTANT MEMBER DATE : 30.11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR E, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI