THE DCIT, CIRCLE-1(1)(2),, AHMEDABAD vs. M/S. CORRTECH ENERGY LTD ( FORMERLY KNOWN AS MJB GAS TURBINE SERVICES LTD.), AHMEDABAD

First we take Revenue’s appeal:

Brief facts of the case are that the assessee is engaged in the business of manufacturing gas turbine blades, engineering services, contract of gas turbine and trading of spare parts. It has filed its return of income on 30.9.2011 declaring income at Rs.8,05,20,440/-. The assessee has shown total turnover of Rs.47,02,24,803/- on which net profit of Rs.7,82,70,094/- has been declared. After processing the return under section 143(1), the case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the

During the assessment proceedings, the AO noticed that assessee has debited a sum of Rs.37,27,034/- as bad debts and other balances as written off in the profit & loss account, out of which, an amount of Rs.10,14,810/- has been doubted by the AO. According to the AO, this amount represented advance and deposits made by the assessee to its customers viz. Indian Petrochemicals Corporation Ltd., Rajasthan Rajya Vidyut Utpada, and Indian Oil Corporation Ltd., which were not reflected in the books, while computing income of the assessee in the previous year. The AO proposed disallowance of the same. The assessee explained that these deposits represented earnest money deposits and was to be returned to the assessee on completion of the work contract. However, some of the EMD was deducted against sales bills by the customers due to delay in completion of contract as per agreement. These were reflected in the books. The ld.AO did not accept this explanation of the assessee and disallowed a sum of Rs.10,14,810/-. Assessee contested this issue before the ld.CIT(A), who after considering the submissions of the assessee directed the AO to verify the claim of the assessee, and if the same found to be part of income assessed in the previous year, then allow the claim of the assessee. Against this direction of the ld.CIT(A), Revenue is now in appeal before the Tribunal, whereas the assessee by way of cross objection agitated order of the ld.CIT(A) in not considering alternative contention of the assessee that if the impugned sum was not allowable as bad debts, then the same would be allowed as trading loss under section 28 of the Act.

We have duly considered rival submissions and gone through the record carefully. Assessee has debited 37,27,034/- as bad debts. Out of the above, a sum of Rs.10,14,810/- was not allowed by the AO on the ground that this amount did not suffer income-tax in earlier assessment years. In other words, it was not part of the assessee’s income. The ld.CIT(A) remitted this issued to the file of the AO for verification and observation that if it was found to be part of assessee’s income of earlier years, then it be allowed as deduction. On the other hand, alternative contention of the assessee is that, if it is not allowed as bad debts, then it be allowed as business loss. This pleading has been taken in the CO. After taking into consideration both the submissions of the assessee, we deem it appropriate to modify the direction of the ld.CIT(A). We uphold the remittance of the issue of bad debts to the file of the ld.CIT(A). The ld.AO shall decide the issue in both angles. He first decide whether sum of Rs.10,14,810/- has suffered tax in earlier years, and can be allowed as bad debts as claimed by the assessee. If not, he shall verify whether it can be allowed as business loss under section 37 of the Income Tax Act.

Second ground of appeal of the Revenue relates to deletion of addition of Rs.13,61,057/- made under section 145A of the Act.

Short facts in this regard are that during the assessment proceedings, the AO noticed that the assessee has adopted exclusive method of accounting while determining value of closing stock of Rs.14,83,82,926/- as on 31.3.2011. In other words, the assessee has not included proportionate amount of VAT/excise duty in the value of the closing as stipulated in section 145A of the Act. Assessee explained that assessee-company was following exclusive method of accounting consistently for valuation of purchase and sales of goods and inventory while determining its income. Whether it is inclusive or exclusive method, ultimately, entire exercise would be revenue neutral because higher profits resulting from higher valuation of closing stock due to inclusion of taxes etc. will be adjusted by the higher value in the opening stock, purchases and sales of next year. Therefore, the assessee submitted that no change in the calculation of closing stock on account of CENVAT would be made. This explanation of the assessee was not accepted by the AO, and added proportionate value of VAT to the value of closing stock by invoking provisions of section 145A of the Act. Assessee went in appeal before the ld.First Appellate Authority, who after detailed discussion in the light of various judicial pronouncement on this issue, allowed the claim of the assessee. Now, Revenue is before the Tribunal

We have considered submissions of both the parties and also gone through the record carefully. It is not disputed by the Revenue that the assessee has been following consistently the method of valuation of closing stock i.e. exclusive method of accounting for valuation of purchase and sale of goods and inventory. Assessee is maintaining separate books for CENVAT. We find that the position of law on this issue is clear. CENVAT will form part of closing stock only when the same is debited to the profit and loss account i.e. at the time of actual payment. Addition and/or deduction of CENVAT to the value of closing stock has no impact on financial position of the assessee, as the same is revenue neutral. The ld.CIT(A) has accepted the method adopted by the assessee in the light of various judgments. Therefore, we do not find any merit in this ground of appeal of the Revenue. It is dismissed.

In ground No.3 of the Revenue’s appeal and ground no.4 of CO of the assessee, common issue is raised, which relate to addition of Rs.14,56,331/- on account of interest paid on capital work-in-progress.

Before us, ld.DR relied upon the order of the AO. The ld.counsel for the assessee submitted that investment in capital work-in-progress has been made out of sufficient interest free funds available with the assessee and internal accruals, and no borrowed funds were utilized, and therefore, disallowance of interest paid is unjustified.

We have considered rival submissions and gone through the record carefully. We find that the ld.CIT(A) has noticed that assessee company was having interest free funds to the tune of Rs.24.31 crores and at the end of financial year, the same was

In ground no.4, Revenue is aggrieved by the action of the ld.CIT(A) in deleting addition made by the AO under section 2(22)(3) of Rs.6,46,30,742/-.

Brief fact of the matter is that during the assessment proceedings, the ld.AO noticed that the assessee has received an amount of Rs.6,09,98,428/- from Control Plus Oil & Gas Solutions P.Ltd., and also received an amount of Rs.36,32,314/- from Correct International Pvt.Ltd. during the year. Assessee was show caused as to why advance received from two companies should not be considered as a deemed dividend. Assessee submitted that

We have heard both the parties and gone through the record carefully. We find that the ld.CIT(A) has recorded a finding that the assessee is not a shareholder of the lender company within the meaning of section 2(22)(e) of the Act, and therefore, there is no question of treating the loan to be deemed dividend in this case. The ld.CIT(A) has based his finding on the ground that similar addition was deleted in the assessee’s own case for the assessment year 2009-10, which was upheld by the Tribunal also. Since there is no disparity on facts in the present assessment year also, applicability of section 2(22)(e) does not arise. There is

Now only issue left in the CO for adjudication is, with regard to addition of Rs.1,65,297/- made by the AO on account of disallowance of late payment of employees contribution to PF.

At the outset, the ld.counsel for the assessee conceded that this issue is to decided against the assessee in view of Hon’ble jurisdictional High Court decision in the case of CIT Vs. Gujarat State Road Transport corporation Ltd., 41 taxmann.com 100 (Guj). In view of this submission of the assessee, we reject this ground of CO.

In the result, appeal of the Revenue and CO of the assessee both are partly allowed for statistical purpose.