2018 (12) TMI 1132 - AT - Income Tax

Disallowance u/s 14A - Held that - Delhi High Court in the case of Cheminvest Ltd. v. CIT 2015 (9) TMI 238 - DELHI HIGH COURT , no expenses can be disallowed u/s 14A as the assessee has not earned any exempt income. Same view has been taken by the Hon ble Bombay High Court in the case of Pr. CIT v. Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT . We, therefore, deleted the disallowance sustained by the Ld. CIT(A).- Decided in favour of assessee Addition on account of cenvat credit in valuation of Stock - Held that - Similar issue arose before the ITAT E Bench, Mumbai in assessee s own case for AY 2008-09 2017 (9) TMI 726 - ITAT MUMBAI held since the issue involved related to the valuation of the closing stock in respect of raw material, the question of any disallowance u/s 43 B will also not arise. We have already held that the profit of the assessee cannot be effected if the assessee followed the inclusive method of accounting or the exclusive method of accounting because in any case the stock is increased to that extent the debit side in the P & L account which will be increased by the increase in value of opening stock as well as the cost of the purchase due to the inclusion of the excise duty incurred by the assessee at the time of the purchase of the raw materials - decided in favour of assessee

Summary

Issues:
1. Disallowance u/s 14A
2. Addition on account of CENVAT credit in valuation of Stock

Issue 1: Disallowance u/s 14A

The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-12, Mumbai, concerning the disallowance under section 14A of the Income Tax Act, 1961. The assessee had not earned any exempt income during the assessment year. The Assessing Officer had initially estimated the disallowance at ?55,09,038, but the CIT(A) restricted it to ?7,70,160. The ITAT referred to relevant case laws and held that no expenses can be disallowed under section 14A if no exempt income is earned. Relying on the decisions of the Delhi High Court and the Bombay High Court, the ITAT deleted the disallowance of ?7,70,160 sustained by the CIT(A). The 1st ground of appeal was allowed.

Issue 2: Addition on account of CENVAT credit in valuation of Stock

The second issue revolved around the adjustment made under section 145A of the Act regarding the CENVAT credit in the valuation of stock. The Assessing Officer had added the value of CENVAT credit availed to the closing stock, resulting in increased profits. The CIT(A) directed the AO to make necessary adjustments in line with the ITAT's order in the appellant's own case for a previous assessment year. The ITAT, citing relevant precedents and circulars, held that if the value of closing stock is adjusted due to CENVAT credit, the value of opening stock should also be adjusted accordingly. The ITAT allowed the 2nd ground of appeal, following a similar decision in the assessee's own case for another assessment year.

In conclusion, the ITAT allowed the appeal, ruling in favor of the assessee on both issues related to disallowance under section 14A and the addition on account of CENVAT credit in the valuation of stock. The judgments were based on legal interpretations, precedents, and circulars, ensuring a fair and just outcome for the assessee.