INDIAN RRE EARTHS LTD, MUMBAI V. ADDL CIT (1)(2), MUMBAI

ITA 854/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7805 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR SR
• Assessee Lawyers: V MOHAN
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI R.V.EASWAR (PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.854/MUM/2010 A.Y 2006-07 INDIAN RARE EARTHS LTD., ECIL BLDG. PLOT NO.1207, VEER SAVARKAR MARG, PRABHADEVI, MUMBAI 400 028. PAN: AAAC I2799 F VS. ASST. COMMISSIONER OF I.T. 1(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V. MOHAN. RESPONDENT BY : SHRI SANJAY KUMAR SR. AR. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT[A] ERRED IN CONFIRMING DISALLOWANCE OF ` `` ` .1,59,65,396 BEING ADJUSTMENT ON ACCOUNT OF SECTION 145A OF THE INCOME TAX ACT,1961. 2. THE ASSESSEE A GOVERNMENT OF INDIA UNDERTAKING B ELONGING TO THE DEPARTMENT OF AUTOMATIC ENERGY, IS ENGAGED IN T HE BUSINESS OF MINING OF SANDS FROM BEACHES TO EXTRACT CERTAIN MIN ERALS. THE EXCISE AUTHORITIES WERE OF THE VIEW THAT SUCH MINING OPERA TIONS WERE SUBJECT TO EXCISE, BUT ASSESSEE DID NOT ACCEPT THIS PROPOSI TION AND WENT IN APPEAL. IN THE MEANTIME, ASSESSEE ADDED THE NOTIONA L EXCISE DUTY TO THE VALUE OF CLOSING STOCK AND CREATED A PROVISION FOR THE CORRESPONDING AMOUNT AS LIABILITY. HOWEVER, THIS LI ABILITY WAS DISALLOWED BY THE ASSESSEE ITSELF BECAUSE NO PAYMENTS WERE MAD E U/S.43B. AT THE SAME TIME, ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF NOTIONAL VALUE 2 ADDED TO THE CLOSING STOCK AFTER ADJUSTING THE SAME WITH THE OPENING STOCK. THE ASSESSING OFFICER DID NOT ACCEPT THIS C LAIM AND OBSERVED THAT SAME WAS AGAINST THE PROVISIONS OF SEC.145A OF THE ACT. 3. ON APPEAL, THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT[A]. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT LATER ON THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE CUSTOMS EXCISE & GOLD (CONTROL) APPELLATE TRIBUNAL IN APPEAL NO.E/ R-144/98 [A COPY OF THE SAID ORDER HAS BEEN PLACED AT PAGES 6 TO 13 OF THE PAPER BOOK]. THEN LATER ON THE MATTER WAS TAKEN UP BY THE EXCISE DEPARTMENT BEFORE THE COORDINATE COMMITTEE OF THE CABINET SECR ETARIAT AND THE COD DECLINED TO GIVE PERMISSION TO CUSTOMS EXCISE D EPARTMENT TO FILE FURTHER APPEAL BEFORE THE HON'BLE SUPREME COURT. A COPY OF THE MINUTES OF THE COD PROCEEDINGS HAS BEEN FILED AT PA GES 14 TO 17 OF THE PAPER BOOK. IN VIEW OF THIS, NO APPEAL HAS BEEN FILED. SINCE THIS MINING ACTIVITY NOW IS NOT EXCISABLE IN VIEW OF THE ORDER OF THE CUSTOMS EXCISE & GOLD (CONTROL) APPELLATE TRIBUNAL, THEREFO RE, THIS DEDUCTION HAS TO BE ALLOWED IN ANY CASE. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT SEC.145 A CLEARLY MANDATES ADJUSTMENT TO SALE, PURCHASE AND STOCK IN RESPECT OF THE GOVERNMENT LEVIES. THEREFORE, ASSESSEE WAS REQUIRED TO ADD THE VALUE TO THE CLOSING STOCK. SINCE THE AMOUNT WAS NOT PAID IT WAS CLEARLY NOT ALLOWABLE EXPENDITURE AND ASSESSEE HAD ITSELF REDUC ED THE CLAIM IN THE COMPUTATION. THEREFORE, THERE WAS NO FURTHER NEED T O REDUCE THE 3 BALANCE AMOUNT FROM THE CLOSING STOCK IN VIEW OF PR OVISIONS OF SEC.145A OF THE ACT. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT SEC.145A READS AS UNDER: 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , ( A ) THE VALUATION OF PURCHASE AND SALE OF GOODS AND I NVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE ( I ) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGUL ARLY EMPLOYED BY THE ASSESSEE; AND ( II ) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX , DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, C ESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDI NG ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. ( B ) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATION OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED T O BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED . THE ABOVE PROVISION CLEARLY SHOWS THAT WHAT IS REQU IRED TO BE ADJUSTED AND INCLUDED IN THE INVENTORY IS AMOUNT OF ANY TAX DUE OR CESS OR FEE ACTUALLY PAID. SINCE THE AMOUNT WAS DISPUTED, THE A SSESSEE COMPANY JUST TO PROTECT ITS INTEREST INCLUDED THE SAME IN T HE CLOSING STOCK AND AS THE AMOUNT WAS NOT PAYABLE THE PROVISION MADE IN RE SPECT OF THIS EXCISE LIABILITY WAS REDUCED FROM THE INCOME. SINC E THE AMOUNT WAS NOT INCLUDIBLE IN THE CLOSING STOCK EVEN IN TERMS O F SECTION 145A, THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF NET ADJUST MENT BECAUSE OF INCLUSION OF EXCISE IN THE CLOSING STOCK AFTER CONS IDERING THE ADJUSTMENT IN OPENING STOCK ALSO. IN ANY CASE, NOW BECAUSE OF THE ORDER OF 4 CUSTOMS EXCISE & GOLD (CONTROL) APPELLATE TRIBUNAL THE ASSESSEE HAS BEEN HELD TO BE NOT LIABLE TO EXCISE DUTY, SUCH EXC ISE WAS NOT TO BE INCLUDED IN THE CLOSING STOCK WHICH MEANS DEDUCTION HAS TO BE ALLOWED BECAUSE AMOUNT OF EXCISE DUTY HAS ALREADY BEEN INCL UDED IN THE STOCK. THEREFORE, WE ACCEPT THAT PRINCIPALLY ASSESSEE IS E NTITLED TO SUCH DEDUCTION ON ACCOUNT OF EXCISE INCLUDED IN THE STOC K, BUT AT THE SAME TIME THIS REQUIRES VERIFICATION BY THE AO WHETHER N ET DEDUCTION AFTER CONSIDERING THE EFFECT OF OPENING STOCK HAS BEEN CL AIMED CORRECTLY. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT[ A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO FOR VERIFICATION OF THE AMOUNT OF CLAIM AND THEN ALLOW THE SAME ACCORDINGLY. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8 TH DAY OF MARCH, 2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI:28/3/2011. P/-* 5