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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No. 146/H/2018 Assessment Year: 2011-12 Sri Abhishek Steel and Vs. Dy. Commissioner of Power Ltd., Hyderabad. Income-tax, Circle – 1(1), PAN – AACCA9140Q Hyderabad. (Appellant) (Respondent) Assessee by: Shri P. Murali Mohana Rao Revenue by Shri Sunil Kumar Pandey Date of hearing: 01/02/2021 Date of pronouncement: 19/04/2021
O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 1, Hyderabad’s order dated 22/09/2017 involving proceedings u/s 143(3) rws 147 of the Income- Tax Act, 1961 ; in short “the Act wherein the assessee has raised the following grounds of appeal: “1. The order of the Ld. Commissioner of Income Tax (Appeals) is erroneous both on facts and in law. 2. The Ld. CIT (A) ought to have allowed the appeal. 3. The Ld. CIT(A) erred in confirming the addition of Rs. 87,70,509/- in respect of excise duty u/s 69C of the Act
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without appreciating that the assessee company has not made any expenditure outside the books of account. 4. The Ld.CIT ought to have appreciated that the Excise Duty debited to P&L AI c on finished goods is as per Accounting Standard-2 and Guidance Note issued by the lCAI, which has already been included in closing stock and that there is no effect in Profit & Loss AI c for the year under consideration. 5~ The Ld. CIT(A) ought to have correctly followed the Excise Duty Rules and also the Accounting Standards with regard to the treatment of Excise duty in the books of account. 6. The Ld. CIT(A),ought not to have considered excise duty on finished goods for the purpose of application of Sec 43B of the Act, Since liability to pay excise duty has not arisen under the governing laws of Excise Duty. 7. The Ld. CIT(A) ought to have appreciated that the liability towards Excise Duty has been discharged in subsequent months when the closing stock was sold. 8. The Ld. CIT(A) ought to have appreciated that all the expenditure relating to the excise duty has been accounted for by including in the closing stock of finished goods and the source of funds for meeting the above said expenditure has been met by way of adjustment from CENV AT Credit available to the company on the purchases. 9. The Ld. CIT(A) ought to have appreciated that there is no unexplained expenditure incurred by the assessee during the year of account and that the addition of Rs.87,70,509 is not warranted. 10. The Ld. CIT(A) erred in confirming the addition of Rs. 22,07,373/- made u/s 69C of the Act in respect of the assessee creditors.
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The Ld. CIT(A) erred in confirming the addition of Rs. 22,07,373/-made u/s 69C of the Act de hors the confirmation along with PANs filed by the appellant. 12 The Ld. CIT(A) has erred in confirming the addition made if Rs. 22,07,373/that has been made on Surmises and Suspicious. 13. The assessee may add, alter or modify any other points to the grounds of appeal at any time before or at the time of hearing of the appeal.”
The assessee has also filed a petition for admission of additional grounds relying on the judgement of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd., Vs. CIT, 229 ITR 383, which are as under: “16. As per the ratio laid down by the Hon'ble Supreme Court of India in the case of National Thermal Power Co. Ltd vs. CIT (1998) 229 ITR 383 (SC) the ITAT has jurisdiction to examine any question of law though not raised before the CIT (A) but is raised before the ITAT for the first time. 17. Before The Hon'ble IT AT , The appellant pleads to accept the Revised Computation of Total Income and Revised Income Tax liability for the AY 2011-12 and allow the claim of Bad debts as an additional evidence filed vide Paper Book - II 18. The appellant pleads before the Hon'ble IT AT to accept the claim of bad debts amounting to Rs. 2,68,78,576/ - as per the Revised Computation annexed in Paper Book - II in the form of additional evidence. 19. The Ld. CIT (A) ought to have appreciated the fact that the liability to pay creditors has not yet squared
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off and thus, Assessee Company is liable to pay to its creditor. Therefore, addition made u/s 69C is not justified as per the provisions of Income Tax Act,1961 20. The Ld. CIT (A) ought to have annulled the addition made u/ s 68 for additions made to fixed assets of Rs. 5,20,482/-, as the assessee has duly produced all the necessary documents evidencing the claim and addition made to fixed assets. 21. The Ld. CIT(A) erred in confirming the addition made by disallowance of ROC fee paid to the tune of Rs. 3,44,340/- u/s 35D of the Income Tax Act,1961 as the same is allowable as expenditure as per the provisions of Income Tax Act,1961. 22. The appellant may add or alter or amend or modify or substitute or delete or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
2.1 As the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited Vs. CIT 229 ITR 383 (SC), we admit the said additional grounds of assessee.
Briefly the facts of the case are that the assessee company engaged in the business of manufacturing and trading if iron and steel products, filed its return of income for the AY 2011-12 on 16/07/2012 admitting total income at Rs. 2,70,97,150/- under normal provisions and at Rs. 3,24,53,596/- under book profit. Subsequently, the case
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was selected for scrutiny under CASS and notices were issued u/s 143(2) and 142(1). The AO completed the assessment u/s 143(3) of the Act on 14/03/2014 by determining the total income at Rs. 3,89,39,854/- by making various additions/disallowances.
3.1 When the assessee preferred an appeal before the CIT(A), the CIT(A) partly allowed the appeal of the assessee.
Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT.
In the original grounds of appeal, the assessee has raised 13 grounds of appeal, out of which 1, 2 & 13 are general in nature, hence, need no adjudication.
As regards ground Nos. 3 to 9 relating to the addition of Rs. 87,70,509/- in respect of excise duty u/s 69C of the Act, during the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited Rs.87,70,509/- towards "Excise duty" in the P&L account, under the head 'Manufacturing and Direct expenses'. It was also noticed that the assessee-company had shown expenses payable towards excise duty on finished goods at Rs. 87,70,509/- under the head 'current liabilities'. The assessee submitted the copies of return of excisable goods
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and availment of CENVAT credit for the year ended on,31.03.2011. The AO observed that the return clearly shows that assessee has already CENVAT credit to the assessee's credit and they had paid the excise duty out of this credit available to them and the assessee company had not paid Rs. 87,70,509/- out of its book for the current year under consideration i.e., FY 2010-11 In view of this, the Assessing Officer disallowed Rs.87,70,509/- u/s.69C of the Act.
6.1 Before the CIT(A), the assessee submitted that when the assessee company submitted the excise returns for the FY 2010-11, it is evident that the expenditure has been genuinely incurred. Further, it was submitted that that the said expenditure incurred in the ordinary course of business, is an allowable business expenditure u/s.37(1) of the Act. It was submitted that in accordance with the prudent business norms, the assessee claimed such expenditure in the P&L A/c for the year under consideration. 6.2 After considering the submissions of the assessee, the CIT(A) observed that the assessee had not submitted whether these CENVAT payments had been during the FY and the same should be allowed as revenue expenditure in the year in which the payment is made. In view of the above observations, he upheld the addition made by the AO.
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6.3 Before us, the ld. AR of the assessee submitted that as per the provisions of section 69C, the expenditure has been incurred, booked and stands explained as to the source of such expenditure, no disallowance is warranted u/s 69C. He contended that there is incorrect application of law by the AO to bring such amount under the disallowance which is against the principles of natural justice. He submitted that the excise duty is paid in the regular course of business on the manufacture of goods and it is an expenditure incurred wholly and exclusively for the purpose of business. He submitted that when the assessee submitted the excise duty returns for the FY 2010-11, it is evident that the expenditure has been genuinely incurred.
6.4 On the other hand, the ld. DR besides relying on the orders of authorities below, submitted that since the assessee has not paid the excise duty out of its books for the year under consideration, the AO has rightly disallowed the same u/s 69 of the Act.
6.5 Considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. As per Section 43B(a) of Income Tax Act, deduction is allowed on “any sum payable by the assessee by way of tax, duty, cess or fee.” The credit of Excise Duty earned by the assessee under MODVAT scheme as per Central Excise Rules, 1944 is not sum payable by the
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assessee by way of tax, duty, cess. The scheme under Section 43B is to allow deduction when a sum is payable by assessee by way of tax, duty and cess and had been actually paid by him. Furthermore, the deductions under Section 43B is allowable only when sum is actually paid by the assessee. In the case on hand, the AO says the assessee had not paid Rs. 87,70,509/- out of its books for the impugned AY whereas the assessee says when the assessee submitted the excise returns for the FY 2010-11, it is evident that the expenditure had been genuinely incurred. In these facts and circumstances of the case, we remit the issue to the file of the AO with a direction to ascertain whether the assessee has paid the said amount or not and decide the issue in accordance with law. The assessee is directed to substantiate its claim by way of filing documentary evidence before the AO. Thus, the grounds raised on this issue are treated as allowed for statistical purposes.
As regards ground No. 10 to 12 & Ground No. 19 raised as additional ground are regarding the addition of Rs. 22,07,373/- made u/s 69C of the Act in respect of the assessee creditors, during the course of assessment proceedings, the AO noticed that the assessee had taken unsecured loans form the following creditors and when the AO called for information from the, he noticed that there were huge differences in amounts payable by the assessee and receivables by the creditors, which are as follows:
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S.No Name of Payable as Receivable Difference creditors per as per amount assessee creditors 1 Sri Ashish M. 18,33,522 23,33,522 5,00,000 Agarwal 2 M/s Magma 23,75,708 23,94,668 18,960 Fincorp Ltd. 3 M/s Steel Hub 16,88,413 - 16,88,413 Total 22,07,373
Observing that the aforesaid amounts as paid its unaccounted money not entered in the books of account and creating bogus creditor in order to show its more liabilities, the AO treated the entire amount of Rs. 22,07,373/- as unexplained expenditure u/s 69C disallowed.
7.1 When the assessee carried the matter in appeal before the CIT(A), the CIT(A) confirmed the action of AO.
7.2 Before us, the ld. AR of the assessee submitted that section 69C pertains to unexplained expenditure which can be invoked only if source of expenditure incurred b y the assessee is not satisfactorily explained and the disallowance would be the income out of the amount covered by such expenditure. He, therefore, contended that the issue in the instant case is completely different from that mentioned u/s 69C of the Act. He prayed for the deletion of disallowance made u/s 69C of the Act.
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7.3 Ld. DR, on the other hand, relied on the orders of revenue authorities.
7.4. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We observe from the table as narrated above that it is not clear as to whether the difference in amounts arisen are related to the current year or carried forward from the previous year. If the difference in amounts are related to the previous year, the addition cannot be made in the current year. If the difference in amounts are arisen during the current year, addition can be after affording proper opportunity of being heard to the assessee to reconcile the difference in amounts for the year under consideration. Therefore, in our considered opinion and in the interest of justice, we restore the matter back to the file of the AO with a direction to reconcile the amounts payable by the assessee and receivable by the creditors for the year under consideration. Thus, this ground of appeal is allowed for statistical purposes.
As regards ground No. 20, which is raised as additional ground regarding addition made u/s 68 on account of additions made to fixed assets of Rs. 5,20,482/-, the AO noted that the assessee had not produced the bills/invoices to the tune of Rs. 5,20,482/- for the addition
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made to fixed assets. He, therefore, disallowed the said amount u/s 68 of the Act.
8.1 Before the CIT(A), the assessee contended that invoking section 68 by the AO is incorrect as it relates to unexplained cash credits wherein the assessee would be required to explain the source of funds, whereas, in the instant case the addition made to fixed assets is being doubted. Hence, the disallowance is wrong. After considering the submissions of the assessee, the CIT(A) remitted the issue to the AO with a direction to verify the bills/invoices/vouchers and bank accounts for payments and then allow to the extent of evidence submitted.
8.2 After considering the submissions of both the parties, since before us also the assessee has not substantiated its case by way of documentary evidence, we remit this issue to the file of AO to decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee in the matter. The assessee is directed to substantiate its claim by way of filing documentary evidence before the AO. This ground is allowed for statistical purposes.
As regards ground No. 21, which is raised as additional ground regarding addition of Rs. 3,44,340/- u/s 35D of the Act on account of ROC fee, the AO noticed that
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the assessee had debited Rs. 3,44,340/- towards ROC filing fee. The AY relying on the decision in the case of Brooke Bond India ltd. Vs. CIT 225 ITR 79, disallowed the said fee treating the same as capital in nature.
9.1. Before the CIT(A), the assessee submitted that the said expenditure is only a revenue expenditure incurred wholly and exclusively for the purpose of business and is to be allowed u/s 37(1) of the Act. However, the CIT(A) upheld the action of AO.
9.2 After considering the submissions of both the parties and perusing the material on record, in the case Brooke Bond India ltd. (supra), the Apex court held that the amount paid in increase of authorized share capital is in nature of capital expenditure which cannot be allowed as deduction u/s 37(1) of the Act. Since the amount paid by the assessee for increasing the authorized share capital, we do not find any infirmity in the order of the CIT(A) in upholding the order of AO for making disallowance of Rs. 3,44,340/- treating it as capital expenditure. Accordingly, we uphold the order of CIT(A) and dismiss the ground raised by the assessee.
As regards ground No. 17 & 18 regarding claim of bad debts amounting to Rs. 2,68,78,576/- as per the revised computation annexed in paper book – II in the form of
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additional evidence, this issue has not been raised before the revenue authorities as it is raised for the first time before us relying on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited Vs. CIT 229 ITR 383 (SC).
10.1. The assessee has raised this ground before us for the first time for claiming bad debts amounting to Rs. 2,68,78,576/- and in support of the same, the assessee has produced some additional evidences vide its letter dated 16/01/2019 as well as relied on some case law, which are placed in the paper book at pages 1 to 38. To meet the ends of justice, we accept the additional evidences and remit the matter back to the file of AO for fresh adjudication. Accordingly, this ground is allowed for statistical purposes.
Ground Nos. 16 & 22 raised as additional grounds are general in nature, hence, need no adjudication.
In the result, appeal of the assessee is treated as partly allowed for statistical purposes in above terms. Pronounced in the open court on 19th April, 2021.
Sd/- Sd/- (S. S. GODARA) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 19th April, 2021.
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kv copy to : 1 Sri Abhishek Steel and Power Ld., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2 DCIT, Circle – 1(1), Hyderabad. 3 CIT(A) - 1, Hyderabad 4 Pr. CIT – 1. Hyderabad. 5 ITAT, DR, Hyderabad 6 Guard File.