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TMI Blog2013 (10) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure – Decided in favor of Assessee. CENVAT Credit to be included in the closing stock u/s 145A of the Act – Held that:- As per Apex Court judgment in the case of ACIT vs. Torrent Cables Ltd.[ 2012 (11) TMI 190 - SUPREME COURT], wherein it was held that assessee had been following the net method of valuing the closing stock – Following the judgment, CENVAT not to be included in the closing stock. Allowability of excise duty as deduction u/s 43B of the Act in the year under consideration – Held that:- Assessee had paid excise duty on closing stock at the time of removal of goods from the factory before due date of filing of return. Accordingly, such excise duty is allowable as deduction u/s. 43B of the IT Act. - ITA Nos. 2158-2160/Ahd/2011 & 230/Ahd/2013, ITA No. 2079/Ahd/2011 & 734/Ahd/2013 - - - Dated:- 25-9-2013 - Shri G. C. Gupta And Shri T. R. Meena,JJ. For the Petitioner : Shri P. S. Kalyan, CIT D.R. For the Respondent : Sri Gaurav Nahata, A.R. ORDER Per : Shri T.R.Meena, Accountant Member Out of six appeals, four appeals filed by the assessee and two by Revenue which have emanated from the orders of ld. Commissioner of Income-Tax (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.87,09,674/-. It was stated that the A.O. has made a calculation mistake in making the disallowance of interest u/s 40A(2)(b) as stated in ground no.1. 3. The Ld. CIT Appeals VI, Ahmedabad has erred in law and or fact in confirming disallowance of Rs.6,77,828/- on account of excess depreciation on storage tank." REVENUE'S APPEALS ITA No. 2079/Ahd/2011 (A.Y. 05-06) "1. The Ld. CIT (A) erred in law and on facts in directing the A.O. to allow claim of excise duty of Rs.33,83,950/- if paid before due date of filing return, since the addition was made as per section 145A instead of section 43B as held by Ld. CIT(A)." ITA No. 734/Ahd/2013 (A.Y. 09-10) "1. That the CIT (A) has erred in law and on facts in deleting the addition of Rs.2,08,94,571/- being un-utilized CENVET credit not included in closing stock." 2. The first and second grounds in A.Y. 2003-04 the first ground in A.Y. 05-06 are against reopening the case u/s. 148 of the IT Act by A.O. The A.O. observed in A.Y. 03-04 that in this case return of income was filed on 30.11.2003 declaring total income at Rs.4,20,85,720/- subsequently the assessment u/s. 143(3) of the IT Act, 1961, was completed on 30.01.2005 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1961 provides that the valuation of inventories for the purpose of determining the income chargeable under the head 'Profit and gains of business' shall include any tax, duty or fee incurred by the assessee. It has been held in the case of CIT Vs British Paints India Ltd (1991) 188 ITR 44 (SC) as under: 'In the valuation of closing stock of goods-in-process or finished goods, all overhead expenses, besides the cost of raw material, had to be added. If any system of accounting excluded these expenses, it will result in distorted picture of profits, as the profit of one year was likely to be shifted to another year. Each year being a self-contained unit under the Income Tax Act, 1961, it was not only the right but the duty of the assessing authority to determine what would be the correct income of the relevant year' Excise duty, being an overhead expenditure, deserves to be included in the valuation of closing stock of finished goods. It is well settled that the liability of excise duty arises on the manufacture or production of goods, even though it may be collected later on as a measure of administrative convenience or expediency. The excise duty on these goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant's submission. It is not in dispute that assessment is reopened within four years and therefore the condition of nondisclosure of material facts on the part of assessee is not required. What is to be considered is whether any income has escaped assessment and whether the same issue was considered in the scrutiny assessment earlier and was decided in favour of the appellant. Appellant did not value closing stock by including excise duty despite the specific provision of section 145A and therefore to the extent of excise duty on finished goods quantified by the AO has escaped assessment. After introduction of this section, appellant does not have any choice as far as valuing closing stock is concerned. By not following the provisions of the act, appellant has understated the value of closing stock and therefore taxable income has escaped assessment which requires reopening of assessment. As regards appellant's argument that the issue was examined and it is mere change of opinion, I have gone through the assessment order, submissions given by the appellant and I do not find any indication that this issue was even touched upon. Neither assessing officer called any detail in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not submitted to the A.O. at the time of scrutiny assessment in both the years. For A.Y. 05-06, the assessee had not added CENVAT credit in the closing stock as per Section 145 of the Act. Therefore, reopening in both years were justified. 5. We have heard the rival contentions and perused the material on record. The case had been reopened after four years from the end of the assessment year in A.Y. 03-04. The ld. A.O. raised query on this issue vide his letter dated 20.12.2004 at item no. 3, 4, 20 24 which was replied by the assessee and this aspect had been considered by the ld. A.O. There is no failure on part of assessee. Thus, reopening is bad in law. Accordingly, we reverse the order of CIT(A) and allow the assessee's appeal on ground nos. 1 2 in A.Y. 03-04. 5(i). In A.Y. 05-06, the notice u/s.148 was issued within four years. The ld. A.O. vide letter dated 12.09.2006 raised the query for the rate of interest received and paid. The assessee has not replied in response to the query before the A.O., he simply filed the copy of interest account received and paid. Thus, it is failure on the part of the assessee to disclose material facts fully and truly. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest paid to the related party. Thus, he made addition u/s. 40A(2)(b) of the IT Act in all the years. Same arguments were given in other years by the appellant before the A.O. 8. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A), in all the years, who has confirmed the addition made by the A.O. in all the years. The operative portion of the order of CIT(A) in A.Y. 03-04 is reproduced as under: "3.3 I have considered the facts of the case; assessment order and appellant's submission. It is not in dispute that the parties to whom interest was paid are related and covered within the provisions of section 40 A (2) of IT act. If any excess payment is made to the related parties, such excess payment is not allowable as an expense. Assessing officer brought out the details of interest payment to related parties and unrelated parties and it is established that related parties were paid more interest than unrelated parties on the similar loans received by appellant. The argument of the appellant that loans received from related parties are permanent and more stable is found to be incorrect by the assessing officer since there were regular inflow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant is sure that they would not ask to return money at a short notice. Therefore, the appellant is certain about availability of the fund for business purposes. He has drawn our attention on page no.11 of paper book for A.Y 09-10 to demonstrate that recipients are assessed to tax at highest rate. The loan account of the relative parties are running account but had credit balance. The total loan taken from the relative parties in A.Y. 08-09 was Rs.10.98 crore and from other parties, was Rs. 2.94 crore which is not comparable. The turn over of the appellant has gone up in A.Y. 09-10 at Rs. 208.83 crore compared to Rs.153.75 crore in preceding year due to surety of the loan. All the funds were used for business purposes as admitted by the A.O., in his assessment order, for purchasing goods. It is assessee's decision to use the borrowed fund what manner stated to it and revenue cannot sit on the chair of businessman to direct how to use borrowed fund. He further relied upon in case of Ram Avtar Garg vs. ITO, ITAT , Jaipur Bench,(2010) 4 ITR (Trib) 245 (Jp), wherein interest payment @ 24% held reasonable. In case of ACIT vs. Saumya Construction Pvt. Ltd. in ITA No. 1129/Ahd/2008 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. found that the appellant had not paid employees contribution of Rs. 6,775/- for the month of May, 2007 which were due on 15th June 2007 but had been paid on 25.06.2007. Thus, he made addition u/s. 2(24)(x) r.w.s. 36(1)(va) of the IT Act. Ld. CIT(A) has directed the A.O. to verify the appellant's claim in the light of Clause 1 of para-38 PF Act. If the payment is within due dates as per this Clause, no addition will be made. If still the payment is found to be after due date, addition is confirmed. The appellant's argument is that the assessee had paid this amount on 25.06.2007 relevant to month of May, 2007 before due date of return file on 30.09.2008. As various Courts held if the payment is made before due date of return filed, is allowable expenditure. Thus, we delete the addition and reverse the order of the CIT(A). This ground of assessee's appeal is allowed. 12. Ground no. 3 for A.Y. 09-10 is against confirming disallowance of Rs.6,77,828/- on account of excess depreciation on storage tank. The A.O. observed that the assessee had claimed depreciation of Rs.7,53,142/- @ 100% as pollution plant. The assessee also claimed depreciation on storage tank @ 100% which is rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty has to be included in the value of closing stock. Assessing Officer's action of including excise duty in the value of closing stock is therefore confirmed. However appellant submitted that appellant paid excise duty on closing stock at the time of removal from the factory before due date of filing return and accordingly such excise duty is allowable as deduction under section 43B. Appellant relied upon several decisions on this issue. Appellant submitted details of payments including copy of challan of excise duty on closing stock and claimed that if the addition of excise duty is made, the same should be allowed under section 43B on payment basis. Respectfully following the decisions of various courts relied upon by the appellant, assessing officer is directed to verify whether excise duty added by him to the value of closing stock is paid before due date of filing return or not. If entire excise duty added is paid before due date of filing return, the addition will not survive since the same is allowable under section 43B. In nutshell, assessing officer is directed to allow claim of excise duty added by him if the same is paid before due date of filing return." Simil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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