M/s. Tripti Menthol Ind., Surat V. The Dy.CIT.,Cent.Circle-1, Surat

ITA 998/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1815 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Unexplained cash credit; Depreciation; Additional evidence; Capital receipt
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 998 & 1050/AHD/2012 (ASSESSMENT YEAR: 2009-10) TRIPTI MENTHOL IND. PHASE- 1, LANE-2, SIDCO INDUSTRIAL COMPLEX, JAMMU ( J & K ) 602, TRIVIDH CHAMBERS, OPP. FIRE BRIGADE, RING ROAD, SURAT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE- 1, SURAT (APPELLANT) (RESPONDENT) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1, SURAT V/S TRIPTI MENTHOL IND. PHASE- 1, LANE-2, SIDCO INDUSTRIAL COMPLEX, JAMMU ( J & K ) 602, TRIVIDH CHAMBERS, OPP. FIRE BRIGADE, RING ROAD, SURAT (APPELLANT) (RESPONDENT) PAN: AAEFT6198E APPELLANT BY : SHRI RAMESH MALPANI, AR RESPONDENT BY : SMT. VIBHA BHALLA, CIT/ D.R. ( )/ ORDER DATE OF HEARING : 07 -04-20 16 DATE OF PRONOUNCEMENT : 13 -04-2016 ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 2 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 998 & 1050/AHD/2012 ARE CROSS APPEALS BY T HE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-II, AHMEDABAD DATED 16.03.2012 PERTAINING TO A.Y. 2009- 10. 2. AS GRIEVANCE OF THE ASSESSEE AND THE REVENUE RELAT E TO THE SAME SET OF FACTS, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. ITA NO. 1050/AHD/2012 REVENUES APPEAL IN A.Y. 2009-10 3. THE GRIEVANCE OF THE REVENUE READ AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS. 5,58,22,466/- MADE U/S.68 OF THE ACT EVEN THOUGH TH E ASSESSEE HAD FAILED TO EXPLAIN THE NATURE OF SOURCE OF CREDIT OF SUCH PROFITS. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLD ING THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S.80IB(4) EVEN THOUGH IT HAS BEEN CA TEGORICALLY ANALYZED IN THE BODY OF ASSESSMENT ORDER THAT THE ASSESSEE HAD NOT EMPLOYED 10 OR MORE WORKERS IN THE YEAR UNDER CONSIDERATION. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION MADE OF RS.3,48,77,602/- MADE BY INVOKING PROVISIONS OF SEC TION 80IB(3) R.W.S.80IA(8) & 80IA(10) OF THE ACT EVEN THOUGH THE ASSESSING OFFIC ER HAD CALCULATED REASONABLE PROFIT AND GAIN OF THE ELIGIBLE BUSINESS OF THE ASS ESSEE FROM THE SO ARRANGED BUSINESS OF THE ASSESSEE THAT THE PROFITS ARISEN IS MORE THA N THE ORDINARY PROFITS. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION MADE OF RS.3,48,77,602/- MADE BY INVOKING PROVISIONS OF SEC TION 80IB(13) R.W.S.80IA(8) & 80IA(10) OF THE ACT EVEN THOUGH THE ASSESSING OFFIC ER HAD CATEGORICALLY ANALYZED IN THE BODY OF ASSESSMENT ORDER THAT THAT THE BENEFITS OF SECTION 80IA COULD BE AVAILED ONLY OF NATURAL PROFITS AND NOT FOR UNNATURAL, ARTI FICIAL OR EXAGGERATED PROFITS. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 3 5. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLO WING THE DEDUCTION U/S.80IB(4) ON EXCISE DUTY REFUND OF RS.4,44,289/- EVEN THOUGH EXC ISE DUTY REFUND DOES NOT CONSTITUTE TO BE A PART OF MANUFACTURING ACTIVITY OF THE BUSIN ESS. 6. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ADMI TTING THE ADDITIONAL EVIDENCES UNDER RULE 46A IN RESPECT OF VALUATION OF CLOSING S TOCK WITHOUT CALLING THE COMMENTS OF THE ASSESSING OFFICER ON THE ISSUE. 4. THE ISSUES RAISED WHILE GROUND NOS. 1 TO 4 ARE INTE RLINKED. 5. ASSESSEE IS ENGAGED IN THE MANUFACTURING OF MENTHOL FLAKES, MENTHOL CRYSTAL AND DMO BY USING RAW MATERIAL AS MENTHOL OI L. THE FACTORY OF THE ASSESSEE IS SITUATED IN JAMMU. THE A.O FOUND TH AT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB(4) OF THE ACT. 6. ON SCRUTINIZING THE STATEMENT OF ACCOUNTS OF THE AS SESSEE, THE A.O NOTICED THAT THE ASSESSEE HAS SHOWN CLOSING STOCK A T RS. 11.26 CRORES. ASSESSEE WAS ASKED TO FURNISH THE WORKING FOR THE C ALCULATION OF CLOSING STOCK VALUED AT RS. 11,26,21,568/-. VIDE LE TTER DATED 26.12.2011, THE ASSESSEE STATED THAT THE FINISHED G OODS AND WIP HAVE BEEN VALUED AT NET REALIZABLE VALUE WHICH IS AT RS. 7.78 CRORES AND AFTER CONSIDERING THE COST OF DEPRECIATION AND INTE REST THE SAME IS VALUED AT RS. 11.26 CRORES. THE A.O DID NOT ACCEPT THE WORKING OF THE ASSESSEE STATING THAT THE ASSESSEE ITSELF HAS VALUE D THE CLOSING STOCK AT RS. 7.78 CRORES WHICH INCLUDED COST OF DEPRECIAT ION AND INTEREST. THE A.O PROCEEDED BY COMPUTING THE CORRECT VALUE OF CLOSING STOCK AND COMPUTED THE MAXIMUM VALUE AT RS. 6,08,36,126/- AND SINCE THE ASSESSEE HAD SHOWN THE VALUATION OF CLOSING STOCK A T RS. 11,66,58,592/-. THE A.O WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS MADE OVERVALUATION OF CLOSING STOCK BY RS. 5,58,22, 466/-. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 4 7. THE A.O FURTHER FOUND THAT THE ASSESSEE HAS SHOWN NET PROFIT AT RS. 3,48,77,602/- BY TAKING THE VALUE OF CLOSING ST OCK AT RS. 11,66,58,592/-. THE A.O WAS OF THE OPINION THAT IF THE CLOSING STOCK VALUE IS TAKEN AT RS. 6,08,36,126/- AS COMPUTED BY HIM, THE ASSESSEE WOULD INCUR A LOSS OF RS. 2,09,44,864/-. THE A.O OB SERVED THAT SINCE ASSESSEES BOOKS OF ACCOUNT DO NOT REFLECT THE TRUE PICTURE, THEREFORE, THE BOOKS ARE REJECTED. THE A.O FURTHER INVOKED T HE PROVISIONS OF SECTION 80IA(13) READ WITH SECTION 80IA(10) AND OB SERVED THAT THE ASSESSEE HAS ARRANGED ITS BUSINESS IN SUCH A WAY TH AT THE PROFIT IS MORE THAN THE ORDINARY PROFIT. 8. THE A.O TREATED THE LOSS OF RS. 2,09,44,864 /- AS THE NET LOSS FROM MANUFACTURING ACTIVITY AND TAXED THE PROFIT OF FERED AT RS. 3,48,77,602/- AT NORMAL RATE. THE A.O FURTHER FOUND THAT THE ASSESSEE HAS CLAIMED 100% DEDUCTION OF PROFIT SHOWN AT RS. 3 ,48,77,602. HOWEVER, THE A.O COMPUTED THE NET LOSS AT RS. 2,09, 44,864/- AND CONCLUDED BY HOLDING THAT THE ASSESSEE HAS INFLATED THE PROFIT BY OVERVALUATION OF CLOSING STOCK AND DENIED THE CLAIM OF DEDUCTION U/S. 80IB(4) OF THE ACT. 9. THE A.O FURTHER TREATED THE DIFFERENCE BETW EEN THE TOTAL INCOME SHOWN IN THE PROFIT AND LOSS ACCOUNT AT RS. 5,58,22 ,466/- AND THE TOTAL LOSS COMPUTED BY HIM FROM THE MANUFACTURING ACTIVIT Y AT RS. 2,09,44,864/-, AND TREATED THE DIFFERENCE OF RS. 3, 48,77,602/- AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. 10. THE A.O FURTHER WITHDREW THE DEDUCTION OF 80IB(4) O N THE AMOUNT OF EXCISE DUTY REFUND FOLLOWING THE ASSESSME NT OF PRECEDING ASSESSMENT YEAR. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 5 11. AGGRIEVED BY THIS ASSESSMENT ORDER, THE ASSESSEE CA RRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLA IM OF DEDUCTION U/S. 80IB(4) OF THE ACT. IN SO FAR AS THE VALUATION OF C LOSING STOCK IS CONCERNED, AFTER CONSIDERING THE FACTS AND THE SUBM ISSIONS, THE LD. CIT(A) OBSERVED THAT THE A.O HAS ERRONEOUSLY TAKEN THE FIGURE OF CLOSING STOCK AT RS. 11,66,58,592/- INSTEAD OF ACTU AL FIGURE OF RS. 11,26,21,568/- WHICH MISTAKE HAS RESULTED INTO OVER VALUATION OF THE STOCK BY THE A.O BY RS. 4037024/-. IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE METHOD OF VALUATION OF CLOS ING STOCK ADOPTED BY THE ASSESSEE IS CORRECT AND IS AS PER WELL RECOGNIZ ED METHOD. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THA T IF THE VALUATION OF CLOSING STOCK IS ALTERED THEN THE NET PROFIT OF THE ASSESSEE IS ALSO ALTERED WHICH MEANS THAT THE ENTIRE EXERCISE OF COM PUTING THE TOTAL INCOME HAS TO BE DONE AFRESH ON THE BASIS OF ALTERE D FIGURES. IN SO FAR AS THE CLAIM OF DEDUCTION U/S. 80IB(4) IS CONCERNED , IT WAS VEHEMENTLY SUBMITTED THAT THE ASSESSEE HAS FULFILLED ALL THE M ANDATORY CONDITIONS INCLUDING EMPLOYING OF 10 OR MORE WORKERS. THE ASSE SSEE FURTHER STRONGLY AGITATED THE ADDITION MADE U/S. 68 BEING T HE DIFFERENCE IN THE PROFIT SHOWN BY THE ASSESSEE AND THE LOSS COMPUTED BY THE A.O. AFTER GIVING A THOUGHTFUL CONSIDERATION, THE LD. CIT(A) R ECOMPUTED THE VALUE OF CLOSING STOCK AND TOOK THE CORRECT VALUE AT RS. 6,31,36,656/- AND RECOMPUTED THE CORRECT NET PROFIT OF THE ASSESSEE W HICH IS LOSS OF RS. 1,46,07,310/- AND DIRECTED THE A.O TO MAKE THE ASSE SSMENT ACCORDINGLY. 12. IN RESPECT OF ELIGIBILITY OF THE ASSESSEE FOR DEDUC TION U/S. 80IB(4) OF THE ACT, THE LD. CIT(A) WAS CONVINCED THAT THE A SSESSEE HAS FULFILLED ALL THE MANDATORY CONDITIONS MENTIONED U/S. 80IB(4) OF THE ACT. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 6 HOWEVER, THE LD. CIT(A) MADE A CATEGORICAL REMARK T HAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IB(4), IF THERE WER E ANY POSITIVE PROFITS AND GAINS FROM THE INDUSTRIAL UNDERTAKING. SINCE TH ERE IS A NET LOSS, THERE IS NO QUESTION OF GRANTING DEDUCTION U/S. 80I B(4) OF THE ACT. 13. IN SO FAR AS THE APPLICABILITY OF THE PROVISIONS OF SECTION 80IA(8), 80IA(10) READ WITH SECTION 80IB(13) ARE CONCERNED, THE LD. CIT(A) OBSERVED THAT THESE PROVISIONS ARE NOT APPLICABLE T O THE FACTS AND ISSUE INVOLVED IN THE PRESENT CASE. 14. THE LD. CIT(A) OBSERVED THAT EVEN IF IT IS ACCEPTED THAT THE ASSESSEE HAS INFLATED ITS PROFIT BY OVERVALUING THE CLOSING STOCK BUT THIS IN ITSELF DOES NOT DISENTITLE, THE ASSESSEE TO CLAI M THE DEDUCTION U/S. 80IB(4) OF THE ACT. THEREFORE, THE ADDITIONS MADE B Y THE A.O ON THE BASIS OF THE OVERVALUATION OF CLOSING STOCK DOES NO T HOLD ANY WATER AND ACCORDINGLY DIRECTED THE A.O TO DELETE THE ADDITION OF RS. 3,48,77,602/-. 15. IN SO FAR AS THE CLAIM OF DEDUCTION OF 80IB(4) ON A CCOUNT OF EXCISE DUTY REFUND IS CONCERNED, THE LD. CIT(A) FOL LOWED THE ORDER OF THE TRIBUNAL AMRITSAR BENCH IN ASSESSEES OWN CASE WHEREIN THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HONBLE J & K HIGH COURT IN CASE OF M/S. BALAJI ALLOYAS 333 ITR 335 AND DIRECTED THE A.O TO TREAT THE SAME AS CAPITAL RECEIPT. 16. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) REVENUE A ND THE ASSESSEE ARE IN APPEAL BEFORE US. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 7 17. AT THE VERY OUTSET, THE LD. COUNSEL FAIRLY CONCEDED THAT IF THE VALUATION OF CLOSING STOCK MADE BY THE LD. CIT(A) I S ACCEPTED, THERE IS A NET LOSS AS COMPUTED BY THE LD. CIT(A) AND, THERE FORE, THE CLAIM OF DEDUCTION U/S. 80IB(4) WOULD BE ONLY OF ACADEMIC IN TEREST. THE LD. D.R. STRONGLY RELIED UPON THE FINDINGS OF THE A.O. 18. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALREADY DISCUSSED THE SP ECIFIC OBSERVATIONS OF THE FIRST APPELLATE AUTHORITY ON THE ISSUES UNDE R CONSIDERATION. AS POINTED OUT BY THE LD. COUNSEL, IF THE WORKING OF T HE LD. CIT(A) IS ACCEPTED THE CLAIM OF DEDUCTION U/S. 80IB(4) FOR TH E YEAR UNDER CONSIDERATION WOULD ONLY BE OF ACADEMIC INTEREST. 19. WE FURTHER FIND THAT THE ADDITIONS MADE BY THE A.O, BEING DIFFERENCE BETWEEN THE PROFIT CREDITED BY THE ASSES SEE AND THE LOSS DETERMINED BY THE A.O AS PER HIS OWN VALUATION OF C LOSING STOCK IS ILLOGICAL AND WITHOUT ANY REASONING. MERELY BECAUSE AS PER THE COMPUTATION OF THE A.O, THERE IS A LOSS AND THE ASS ESSEE HAS SHOWN PROFITS IN ITS STATEMENT OF ACCOUNT, THE DIFFERENCE WOULD NOT BECOME UNEXPLAINED CASH CREDIT WHICH CAN BE ADDED U/S. 68 OF THE ACT. THE LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITION, W E DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A ). 20. IN SO FAR AS THE ISSUE RELATING TO THE EXCISE DUTY REFUND IS CONCERNED, WE FIND THAT IN EARLIER YEARS, THE EXCIS E DUTY REFUND HAS BEEN TREATED AS A CAPITAL RECEIPT WHICH HAS BEEN CO NFIRMED BY THE HONBLE HIGH COURT OF J & K WHICH HAS BEEN FOLLOWED BY THE FIRST APPELLATE AUTHORITY; THEREFORE, NO INTERFERENCE IS CALLED FOR. ITA NOS. 998 & 1050/AHD/2012 . A.Y. 2009-1 0 8 21. AS MENTIONED ELSEWHERE, SINCE THERE IS A NET LOSS, THEREFORE, THE CLAIM OF DEDUCTION U/S. 80IB(4) IS ONLY OF ACADEMIC INTEREST FOR THE YEAR UNDER CONSIDERATION. WE, THEREFORE, LEAVE OPEN THE ISSUES RELATING TO THE CLAIM OF DEDUCTION U/S. 80IB(4) IN SUBSEQUEN T YEARS TO BE DECIDED AS PER THE FACTS OF THOSE YEARS. 22. IN THE RESULT, THE APPEALS BY THE REVENUE AND THE A SSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13- 04 - 2016. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD