CRYSTAL QUINONE PVT. LTD.,,AHMEDABAD vs. THE DY. CIT, CIRCLE-1(1)(2),, AHMEDABAD

आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘B’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & M/s. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 1420/Ahd/2016 (�नधा�रण वष� / Assessment Year : 2011-12) बनाम/ Crystal Quinone Pvt. Ltd. DCIT, Cir-1(1)(2), Opp. Old Excise Chawky, Vs. Ahmedabad S.M. Road, Ahmedabad

�थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAB CC1 413 H (अपीलाथ� /Appellant) (��यथ� / Respondent) .. अपीलाथ� ओर से /Appellant by : Bandish Soparkar, AR ��यथ� क� ओर से / Respondent by: Santosh Karnani, Sr. DR सुनवाई क� तार�ख / Date of Hearing 13/02/2019 घोषणा क� तार�ख /Date of pronouncement 29/03/2019 आदेश/O R D E R PER WASEEM AHMED - AM:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)- 3, Ahmedabad[Ld.CIT(A) in short] vide appeal no.CIT(A)-3/Cir.1(1)/312/15-16, dated 21/03/2016 arising in the matter of assessment order passed under s.143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 21/02/2014 relevant to Assessment Year (AY) 2011-12.

“1.1 That the learned CIT (Appeal) has erred in confirming disallowance of Rs. 14,59, 857/- out of total disallowance of Rs. 49, 38, 340/- u/s 40(a) (ia) of the Act. 1.2 The appellant respectfully submits that on the fact of the case , the provision of TDS are not applicable in respect of payment of Rs. 14, 59, 857/- and therefore the same should not be disallowed u/s 40(a)(ia) of the Act. 1.3 The appellant therefore submits that the disallowance of Rs. 14, 59, 857/- made u/s 40(a)(ia) of, the Act made by Assessing Officer be deleted. 2.1 That the learned CIT( Appeal) has erred in confirming addition of Rs. 1,56,498/- u/s 14A of the Act. 2.2 The appellant respectfully submits that on the fact of the case and evidence on the record, addition of Rs. 1,56,498/- u/s 14A of the Act be deleted. 3.1 That the learned CIT(Appeal) has erred in confirming disallowance of building repairing expenditure of Rs.13,65,683/- as capital expenditure. 3.2 The appellant respectfully submits that building repairing expenditure is in the nature of current repairs only. No new assets is created and therefore the disallowance of Rs.13,56,683/- be deleted. 4.1 That the learned CIT(Appeal) has erred in confirming addition of Rs. 18,91,764/- u/s 145A of the Act. 4.2 The appellant respectfully submits that the closing stock is valued without excise duty and VAT. Therefore every year Excise Duty and VAT on closing stock is added and same on opening stock is deducted as provided u/s 145A of the Act. As per the working duly certified by tax auditor, Rs. 17,09,894/- was required to be deducted from profit. The appellant therefore submits that Rs. 17,09,894/- be deducted u/s 145A of the Act. 4.3 The Ld. CIT(A) has further erred in confirming addition of Rs. 1,81,870/- made by Assessing Officer being difference in cenvat receivable. The appellant respectfully submits that the cenvat receivable is an item of asset and difference there in cannot be added in income. 4.4 The appellant therefore submits that total disallowance of Rs. 18,91,764/- (Rs. 17,09,894/- and Rs. 1,81,870/-) be deleted.

The 1st issue raised by the assessee is that Ld. CIT (A) erred in 3. confirming the disallowance of Rs. 14,59,857/- on account of non-deduction of TDS under section 194C read with section 40(a)(ia) of the Act. 4. The facts of the case are that the assessee in the present case is a private Ltd company and engaged in the business of manufacturing and trading of chemicals. The assessee during the year has claimed freight expenses amounting to Rs. 14,59,857/- which were paid to various parties without deducting TDS under the provisions of section 194C of the Act. Therefore the AO disallowed the same and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that the transporters had furnished their PAN Nos. Therefore the TDS was not deducted due to the fact that the provisions of TDS were not applicable in respect of the payments made to the transporters who have furnished PAN. 6. The assessee also claimed that the payment to the transporters does not exceed the limit of Rs. 75,000/- in the year under consideration. Therefore, the assessee was outside the purview of the TDS provisions. 7. However, the Ld. CIT (A) disagreed with the contention of the assessee by observing that it has not filed any evidence to prove that the payment was made to the transport contractors. 8. The assessee has also claimed freight expenses exceeding Rs. 75,000/- in the year. Therefore it cannot be concluded that the provisions of TDS do not apply to the assessee.

verified from the submission of the assessee before the Ld. CIT (A) which is recorded on pages 6 and 7 of the order. Thus we are of the view that there is sufficient compliance of sub-section 6 of the section 194C of the Act. 14.2 However, in our considered view, the assessee does not get absolved from its responsibility from the deduction of TDS merely on the collection of PAN from the transport contractors. As such the assessee after the collection of PAN from the transport contractors was to furnish the necessary details of such transport contractors to the prescribed Income-Tax-Authority within the prescribed time as per the provision of sub section 7 of the section 194C of the Act. 14.3 However, we note that the ITAT Ahmedabad has held that the non- furnishing of the PAN to the prescribed income tax authority within the prescribed time as per the provision of sub section 7 of the section 194C of the Act does not require to make the disallowance of the expenses in the case of ITO v/s Andhra Roadways reported in 61 taxmann.com 203 wherein it was held as under: “From this, it follows that third proviso to section 194C(3)(i) which requires assessee to submit Form No. 15-J is only procedural formality and what has been done by second proviso. Non-submission of Form No. 15-J to the Commissioner within the time prescribed in rule 29D cannot have any effect on deciding as to whether tax was deductible or not deductible from the payments made by assessee to the sub- contractors. For invoking provisions of section 40(a)(ia) it is to be decided whether tax was deductible or not, if any, whether deducted/paid or not. When one looks into section 194C(3)(i) for the purposes of invoking section 40(a)(ia), it is found that only second proviso to it is sufficient to decide whether tax was deductible or not. Time factors involved for compliance of the conditions mentioned in two provisions are different. Second proviso is to be complied with at the time of making payment to the sub-contractor, whereas compliance of third proviso can be deferred till 30th June of next financial year. In other words, the contractor can wait to comply with third proviso till 30th June of next financial year after complying with second proviso. However, the decision on deductibility of tax from the payment made to

the sub-contractor cannot be deferred till 30th June of next financial year. He has to take this decision (about deductibility of tax from payments being made by it to the sub-contractors) just at the time when he is releasing the payments to the sub-contractors. It is at this point of time that second proviso would come into play and when Form No. 15-I are submitted by the sub-contractors to the contractor, then contractor was not required to deduct tax from such payments. Once deductibility of tax depends upon submission or non-submission of Form No. 15-I from the sub-contractor to the assessee, then non-compliance of third proviso becomes merely technical without affecting in substance the deductibility or non-deductibility of tax on payments made by the assessee to the sub-contractors. In view of above, non-compliance of third proviso becomes merely a technical default which would not affect the provision of section 40(a)(ia). In view of above, the Commissioner (Appeals) was justified in restricting the disallowance.”

14.4 Thus after considering the facts in totality, we are of the view that the assessee complied with the provisions of the sections 194(C) of the Act. 15. Regarding the allegation of the learned CIT (A) that the assessee has not furnished the necessary details suggesting that the impugned freight expenses were in the nature of payment to the transporters, we note that the assessee has discharged his onus by furnishing the PAN of all the parties. In the case of any doubt, the ld. CIT (A) should have verified the facts whether the payees are the transport contractors. But we find that the learned CIT (A) has not done so. Therefore we are of the view that the observation of the Ld. CIT (A) in the given facts and circumstances is not tenable. 16. Regarding the argument of the learned DR that the assessee has not furnished the copies of the PAN of the transport contractors to the AO during the assessment proceedings, we note that the Revenue has not challenged this fact/issue by filing an appeal to the tribunal. Thus it appears that the Revenue is not aggrieved on account of non-furnishing of PAN to the AO during the assessment proceedings. Therefore, we are not inclined to entertain the argument of the Ld. DR as discussed above.

In view of the above, we are not impressed with the finding of the ld. CIT-A. Accordingly, we reverse the same and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 17. The 2nd issue raised by the assessee is that Ld. CIT (A) erred in confirming the addition made by the AO for Rs. 1,56,498/- under section 14A of the Act. 18. The assessee during the year earned dividend income of Rs. 84,256/- only which was claimed exempted under section 10(34) of the Act. The assessee against such income has not made any disallowance under the provisions of section 14A of the Act. Therefore the AO invoked the provisions of section 14A read with rule 8D of income tax rule and made the disallowance of Rs. 1,56,498/-. Thus the amount disallowed was added to the total income of the assessee. 19. Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that there could not be any disallowance on account of interest as its fund exceeds the amount of investment in the shares. 20. The assessee also submitted that the disallowance had been made under section 14A read with rule 8D without recording the satisfaction as required under the provisions of law. 21. However the Ld. CIT (A) disregarded the contention of the assessee by observing that it was the duty of the assessee to demonstrate that borrowed fund has not been invested in such shares. 22. Being aggrieved by the order of Ld. CIT (A) the assessee is in appeal before us. The Ld. AR before us reiterated the submissions as made before the Ld. CIT (A).

In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him. 25. Regarding the administrative expenses, we note that the AO has derived his satisfaction for making the disallowance under the provisions of section 14A read with rule 8D by recording the following: “During the course of assessment proceedings, the assessee has furnished working of disallowance u/s. 14A of the Act by which disallowance u/s. 14A of the Act works out to Rs. 1,56,498/-”. 25.1 Moreover, we also note that the assessee has not furnished any details suggesting that it has not incurred any expense in relation to such income. Thus in the absence of any working from the side of the assessee, the AO had no alternative except to resort to the provisions of section 14A read with rule 8D of Income Tax Rules. Thus we confirm the disallowance of the administrative expenses made by the authorities below. Hence the ground of appeal of the assessee is partly allowed. 26. The next issue raised by the assessee is that Ld. CIT (A) erred in confirming the disallowance made by the AO for Rs. 14,37,772/- by treating the repairing expenses as capital in nature. 27. The assessee during the year has claimed repair expenses on the factory building amounting to Rs. 14,37,772/- only. These repairing expenses were incurred for the purchase of bricks, kapachi, steel, stone, cement, etc. 28. The AO treated the expenses above as capital in nature. Accordingly, the AO disallowed the same after allowing the depreciation on such expenses. 29. Aggrieved assessee preferred an appeal to the Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that there had not come any fixed assets out of

such repairing expenses. As such the factory building is quite old, therefore these expenses were incurred for its repair and maintenance. 30. However the Ld. CIT (A) disregarded the contention of the assessee and confirmed the order of the AO by observing that trucks and tractors have been used to bring above said items. Similary the names of the suppliers also indicate that major repairs have been undertaken and this expenditure would be yielding long term benefits to the appellant. 31. Being aggrieved by the order of the Ld. CIT (A) assessee is in appeal before us. The Ld. AR before us submitted that there have not come any new assets out of such expenses. The factory building is very old and therefore it requires lot of repairing and maintenance. 32. On the other hand the Ld. DR submitted that these repairing and maintenance expenses have been incurred in every year. Thus the same cannot be treated as routine expenses. Moreover, the assessee has not furnished any photograph of the factory building suggesting that there was no extension of the existing building. The Ld. DR vehemently supported the order of authorities below. 33. We have heard the rival contentions and perused the materials available on record. From the preceding discussion, the genuineness of the expenses has not been doubted by any of the authorities below. The only dispute relates whether repair expenses revenue in nature or capital in nature. The authorities below have not brought anything on record suggesting that there were some new assets formed out of such expenses or the assessee derived some benefit of enduring nature. 33.1 Thus, we are of the view that such expenditure cannot be termed as capital in nature merely on the ground that it will generate enduring benefit to the assessee. Regarding this we find support and guidance from the judgment of

Hon’ble Calcutta High Court in the case of CIT Vs. Cominco Binani Zinc Limited reported in 204 ITR 56 wherein it was held as under: “If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.”

33.2 Regarding this we also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Bharat Suryodaya Mills Co. Ltd. reported in 202 ITR 942 wherein it was held as under: “An old wall was required to be rebuilt because of demolition. Thus, the expenditure which was incurred was more in the nature of repairs rather than creation of a new capital asset. A wall was required to be built by the assessee as a necessity for running his business. The Tribunal was, therefore, right in holding that the expenditure was allowable as revenue expenditure.”

In view of the above, we disagree with the finding of the learned CIT-A. Accordingly we direct the AO to delete the addition made by him by treating the repairing expenses as capital in nature. Hence the ground of appeal of the assessee is allowed. 34. The next issue raised by the assessee is that Ld. CIT (A) erred in confirming the addition of Rs. 18,91,764/- u/s 145A of the Act by increasing the closing stock and addition of CENVAT receivable.

Act. According, the assessee, makes the adjustment in the statement of income as detailed under:

Particulars Amount Profit as per Profit & Loss Account 1,37,61,825/- Add: Excise duty on Closing stock of finished Goods 1,03,065/- Add: Excise duty on Closing stock of Raw Material 16,46,238/- Add: VAT on closing stock of Finished Goods 55,185/- Add: VAT on Closing stock of Raw Material 8,81,457/- Total 1,64,47,770/- Less: Excise duty on Opening stock of finished Goods 75,832/- Less: Excise duty on Opening stock of Raw Material 20,70,684/- Less: VAT on Opening stock of Finished Goods 40,603/- Less: VAT on Opening stock of Raw material 22,08,720/- Revised Profit u/s. 145A 1,20,51,931/-

Assessment Year Amt. Of addition/deduction Remark 2011-12 -17,09,894/- 2010-11 +21,59,393/- 2009-10 +21,30,195 2008-09 -28,64,214 Accepted in scrutiny assessment u/s 143(3) of the Act. 2007-08 +25,96,019/-

The assessee regarding the addition of CENVAT credit of ₹ 1,81,870.00 40. submitted that the Revenue did not make such kind of addition in the earlier years including the year where assessment was framed under section 143(3) of the Act.

7.2 Decision: I have gone through the facts mentioned in the assessment order of the AO and the submission filed by the appellant. The appellant itself is submitting information in such a way so as to confuse the matter. On the other hand, AO 's stand is consistent and tries to bring true taxable income in the tax net. Also it is noted that the book results relevant to A.Y.2011-12 can only be considered in the present appeal. AO has rightly highlighted the postponement of liability by undervaluation of closing stock. For instance, the cenvat receivables has to be added to the closing stock as the appellant company has to adopt the mercantile system of accounting. In view of these comments, the addition made by AO of Rs.1,81,8707- [instead of claim (-) Rs.17,09,894/-] is hereby confirmed. The ground No.4.1 to 4.4 are hereby dismissed.

Credit & the VAT as discussed above has been duly accepted by the Revenue in the earlier years. Therefore we hold that the assessee has duly complied with the provision of section 145A of the Act. 44.3 Regarding the amount of opening and closing balance of CENVAT Credit shown in the balance sheet, we note that such amount has already considered while valuing the closing stock of the assessee as on 31-3-2010 and 31-3-2011. Therefore, there is no need to make any further adjustment in the statement of income. 44.5 In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. in Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:- “3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of Rs. 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal.” 44.6 There is no ambiguity that the assessee has been following the exclusive method of accounting. However, the assessee to comply the provisions of section 145A of the Act has given the effect of CENVAT/VAT in the opening stock, and closing stock in the statement of income. Thus, we can safely conclude that though the assessee is following the exclusive method of accounting which is contrary to the provisions of section 145A of the Act, but the effect of the same has been duly considered by the assessee in its computation of income.

In view of the above, we do not concur with the view of the Ld. CIT(A) and accordingly direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 29 /03/2019 at Ahmedabad. -Sd- -Sd- (MS MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 29/03/2019 Manish