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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the revenue is against the order dated 26.04.2016 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad arising out of the assessment order dated 10.03.2015 for the Assessment Year 2012-13 passed by the DCIT, Cir-1(1)(1), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘The Act’) with the following grounds: (1) That the Ld CIT(A) erred in law and on facts in deleting the addition of Rs.22,62,174/- made u/s 14A of the Act. (2) That the Ld CIT(A) erred in law and on facts in deleting the addition of Rs.18,34,715/- made on account of disallowance of depreciation on Car. (3) That the Ld CIT(A) erred in law and on facts in deleting the addition of Rs.50,13,577/- made u/s 145A of the Act on account of unutilized CENVAT Credit.”
- 2 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 2. The assessee filed its original return of income on 30.09.2012 declaring total income of Rs.77,10,590/- which was processed u/s 143(1) of the Income Tax Act, 1961. Subsequently, the case was selected for scrutiny; notice u/s 143(2) of the Act was issued on 08.08.2013 followed by another notice u/s 143(2) r.w.s. 129 due to change of incumbent and notice u/s 142(1) of the Act along with questionnaire on 01.08.2014. The same procedure was repeated by issuance of notice u/s 143(2) r.w.s. 129 & 142(1) of the Act along with questionnaire dated 17.11.2014.
It appears from the records that assessee has earned dividend income to the tune of Rs.3,34,502/- and also made investment in Mutual Funds and Shares of various Companies. Investment to the tune of Rs. 6,77,22,655/- on 31.03.2012 was made by the assessee upon which a notice u/s 142(1) of the Act dated 17.11.2014 was issued directing him to furnish the list of investments that yield tax free income. In reply to that notice, the assessee submitted that it had not incurred any expenditure for the purpose of investment that yielded tax free income. However, the assessee suomoto made disallowance of Rs. 29,20,159/- u/s 14A r.w.r. 8D of the I.T. Rules. Since the explanation given by the assessee was not found acceptable by the Learned Assessing Officer show- cause notice dated 27.02.2015 was issued upon the assessee as to why disallowance u/s 14A r.w.r. 8D of the I.T. Rules should not be made apart from the disallowances already considered in the statement of computation of income. The assessee’s case is this that the assessee has not earned any exempt income during the year under consideration therefore the assessee is not having income exempt from tax and as such there is no question of disallowance u/s 14A of the Act. It is an admitted position that the assessee did not claim any claim for exemption. In such situation, Section 14A could not have any application. The assessee relied upon the judgment passed by the Hon’ble High Court of Punjab and Haryana in the case of CIT vs. Winsome Textile Industries Ltd. along with other decisions passed by different Benches of ITAT as well as Hon’ble High Court. However,
- 3 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 the plea of the assessee was not accepted by the Learned Assessing Officer. The disallowance u/s 14A Provision r.w. Rule 8D is computed at Rs.51,82,333/-, since the assessee suo moto disallowed Rs.29,20,159/- in the computation of income, the expenses of Rs.22,62,174/- incurred for earning exempt income has been disallowed by the Learned AO and added back to the total income of the assessee against which appeal was preferred before the Learned CIT(A) who in turn allowed the said appeal by deleting the addition made by the Learned AO. Hence, the instant appeal before us by Revenue.
At the time of hearing of the matter, The Learned DR relied upon the order passed by the Learned Assessing Officer. He further argued that the contention made by the assessee that the interest expenses are not fully attributable to the investment was rightly taken into consideration by the Learned AO and accordingly the interest income incurred by the assessee on account of car loan, tractor loan and stamp charges, bank commission charges has been incurred in as investment charges. Further that the contention of the Assessee that it has not utilized its interest bearing funds for making investment is not tenable since the assessee company has not shown it by any flow of funds. Reliance was placed by the Learned DR on the judgment passed by the Hon’ble High Court of Calcutta in the case of Dhanuka & Sons Vs. CIT, 339 ITR 319 (2011) where it was held that it was for the assessee to show by production of materials on records that, the shares were acquired from funds available in its hand at relevant point of time without taking benefit of any loans. It is a fact that the assessee as suo moto disallowed Rs.29,20,159/- in the computation of income and therefore the expenses of Rs.22,62,174/- as incurred for exempt income has been rightly disallowed and added to the total income of the assessee as submitted by the Learned DR before us. The Learned Representative appearing for the assessee submitted before us that while making addition the Learned Assessing Officer has not recorded any such satisfaction. He further added that the process of disallowances u/s 14A by applying the Provision of Rule 8D is factually incorrect and consequential
- 4 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 disallowance made by the Ld Assessing Officer is to be deleted. Further that the Learned AR submitted before us that the Assessing Officer has made disallowance u/s 14A simply applied Rule 8D. However, by doing so, the Learned AR failed to establish pre requisite nexus between the expenditure, disallowance and investment made from which income derived is exempted from tax. He further relied upon the Tax Audit Report which specifically clarified that disallowance u/s 14A is required to be made only at Rs.29,20,159/- as per Rule 8D. According to him no proportionate disallowance u/s 14A is warranted when the assessee has sufficient interest free funds available for making investments resulting into tax free income. The Learned AR relied upon the judgment passed in the matter of CIT vs. Corrtech Energy Ltd., ITA No.239 of 2014 by the Jurisdictional High Court in support of his case.
We have heard the respective parties. We have perused the relevant materials available on record. We find from the orders impugned that the Learned CIT(A) while considering the entire aspect of disallowance made by the Learned Assessing Officer u/s 14A of the Act r.w.r. 8D of the I.T. Rule, duly considered the issue which was already settled by him for A.Y. 2011-12 in assessee’s own case by and under its own order dated 15.07.2015 in appeal No.CIT(A)-VI/DCIT.Cir.1/93/2014-15 (now 466/CIT(A)-1).
The Learned CIT(A) came to a conclusion that since the assessee has not earned any exempt income during the year under consideration relying upon the order passed by the Hon’ble Jurisdictional High Court in the case of Corrtech Energy Ltd. deleted the addition to the tune of Rs.22,62,174/- as made u/s 14A of the Act with the following observations: “3.4. On carefully consideration of observation of Assessing Officer and contention of appellant, I observe that during the year under consideration, appellant has not earned any exempt income from investments made by it which is apparent from audited annual accounts as well as computation of total income as
- 5 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 submitted before Assessing Officer as well as in appellate proceedings. The Hon'ble Gujarat High court in the case of CIT V/s Corrtech Energy Pvt Limited (Supra), on identical issue of disallowance u/s 14A when no dividend income is earned by assessee has held as under:
“..4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that sub-section(l) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made.”
Admittedly the assessee has not claimed any exempt income in the instant case. Therefore the ratio laid down in the judgment relied upon by the Learned CIT(A) passed by the Hon’ble Jurisdictional High Court in the case of Corrtech Energy Ltd. where the assessee has not made any claim for exemption of any income payment of tax, no disallowance could be made u/s 14A of the Act has rightly been applied by the Learned CIT(A). In the absence of any infirmity in the order passed by the Learned CIT(A), the same is confirmed by us. In the result, revenue’s ground of appeal is dismissed.
The revenue has challenged the deletion of addition of Rs.18,34,715/- made on account of disallowance of depreciation of Car.
During the course of assessment proceedings, the assessee claimed depreciation of Rs.18,34,715/- on motor Cars. The assessee was issued a notice dated 27.02.2015 to explain as to why depreciation of such claim should not be disallowed since the Car was
- 6 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 not registered in the name of the assessee company. The assessee’s case is this that the Car was registered in the name of the Directors of the company and funds for such purchase of the assets was provided by the assessee company. Further that the value of the said vehicle was shown as part of fixed assets in the annual accounts of the assessee and the benefits including users of the Cars are also enjoyed by the assessee company. However, such contention made by the assessee was not accepted by the Learned AO. The entire claim of depreciation was disallowed on the pretext that the assessee is not a registered owner of the Car and the vehicle was not used for business purposes. In appeal, the Learned CIT(A) deleted such addition inter alia relying upon the judgment passed by the Hon’ble Delhi High Court in the case of CIT-vs-Basti Sugar Mills Co. Ltd. (257 ITR 88) Hence, instant appeal filed by the Revenue before us.
At the time of hearing of the appeal, the Learned Representative of the Department relied upon the order passed by the Learned AO particularly on the finding that the vehicle was not registered in the name of the Company when the Company has paid the funds as well as claiming depreciation thereon. It was further argued that had the vehicle been registered in the name of the company the Transport Department of the State Government could have earned higher tax. The company having not done so caused losses to the Revenue of the state. On the other hand, Learned Representative of the assessee submitted before us that the Learned AO in the assessment order itself has accepted funds for the purpose of the assets been provided by the Company and the value of the vehicle was shown as part of the fixed assets. More so, the same was utilized by the company which is why depreciation was claimed. He relied upon the judgment passed by the Hon’ble Delhi High Court in the case of CIT-vs-Basti Sugar Mills Co. Ltd. (257 ITR 88) and DCIT vs. M/s. Axel Ploymers Ltd. (ITA No.3488/Ahd/2010). He ultimately relied upon the order passed by the Learned CIT(A) on the finding that the
- 7 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 said vehicle was used for the business purpose and the same was duly reflected in the books of accounts of the assessee company.
We have heard the respective parties, perused the relevant materials available on record. We find from the order passed by the Learned AO that the fact of funds provided by the appellant company for purchase of the assets was accepted by him and the same was shown in the annual accounts of the assessee company was also recorded in his order. Since, the vehicle was not registered in the name of the assessee but in the name of the Directors on the sole motive of evading tax for such registration with the State Government, the depreciation has mainly been disallowed by the Learned Assessing Officer. This is a settled principle of law that when the evidence have established that vehicles in question where in use for the purpose of business of the assessee company and when the same duly reflected in the Books of accounts of the assessee company the claim of depreciation cannot be disallowed. This view has already been confirmed by the Judgment passed in the matter of DCIT vs. M/s. Axel Ploymers Ltd. (ITA No.3488/Ahd/2010). Further that the judgment passed by the Apex court in the matter of Mysore Minerals-vs-CIT (239 ITR 775) also confirms that merely because the vehicles are not registered in the name of the company but in the name of the Directors the assessee cannot be denied of the claim of depreciation. It is not necessary that the vehicle ought to have been registered in the name of the assessee claiming depreciation. Further that it was also pointed out by the Learned CIT(A) that in the assessee’s own case for A.Y. 2010-11 by and under order dated 05.08.2013 such addition made by the Learned Assessing Officer was deleted. We, therefore, do not find any infirmity in the order passed by the Learned CIT(A). The same is thus confirmed. This ground of appeal of Revenue is dismissed.
- 8 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 12. Revenue has challenged the deletion of addition of Rs.50,13,577/- made u/s 145A of the Act on account of unutilized CENVAT Credit.
During the assessment proceedings, upon examination of Column No.22(a) of 3CD Report, following unutilized CENVAT Credit at the end of the year was found:
Particulars Input Available CENVAT Credit 10223806 Utilized CENVAT Credit 5210229 Unutilized CENVAT Credit 5013577
The assessee thereafter was issued a show cause notice on 27.02.2015 to explain as to why unutilized CENVAT credit of Rs.50,13,577/- will not be added in closing stock on the premise that the assessee has followed the exclusive method of accounting against inclusive method as mandated under section 145A of the Act. In response to the show- cause the assessee by and under the reply dated 09.03.2015 submitted before the Learned AO there is no effect on the profit of the assessee company and it has prepared its account as per AS II, neither there is any understatement of profit and therefore the addition has proposed to be made in respect of unused CENVAT Credit is not justifiable. It is further contended by the assessee company before the Learned AO that unutilized CENVAT Credit added to the total income in case of appellant has already been utilized by the assessee before the due date of filing of return of income and hence even in terms of the Provision of Section 43B of the Act no addition is called for. However, such submission made by the assessee was not found tenable by the Learned AO. He then made addition of the entire amount of Rs.50,13,577/- being the net unutilized CENVAT Credit on the ground that had the inclusive method of accounting been followed the assessee would have earned higher profit then profit shown as per exclusive method of accounting. In appeal, the Learned CIT(A) deleted the said addition. Hence, the appeal.
- 9 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 14. At the time of hearing of the instant appeal the Learned Representative of the assessee submitted before us that the purpose of CENVAT Credit is to avoid cascading effect of incidence of indirect taxes in the hands of various persons engaged in the chain of supply of raw material for processing the raw materials and manufacturing the finished goods in order to distribute the finished goods to the ends user. The Learned Assessing officer erred in example referred in the order for adjusting the excise duty to give effect Section 145A, if the excise duty paid at the time of purchase of raw material is included in the closing stock, the value of stock can never exceed the actual purchase price including the excise duty. In the said example the value of raw material as per the exclusive method shall be Rs.1000/- and as per inclusive method the same will be Rs.1100/-. He, further relied upon the judgment passed by the Co-ordinate Bench in the case of Alpanil Industries-vs-ACIT (ITA Nos. 169/Ahd/2005 and 170/Ahd/2005 for Asst. Years 1999-00, 2000-01) The Learned AR further submitted before us that in assessee’s own case for A.Y. 2010-11, the Learned CIT(A) duly accepted the aforesaid contention made by the assessee that no addition can be made on account of unutilized CENVAT Credit. Therefore, the addition on account of utilized CENVAT Credit is liable to be deleted as submitted by the Learned AR. He, further relied upon the judgment of Co- ordinate Bench in the matter of ITO-vs-Gujarat Paraffins Pvt. Ltd. in support of his argument. On the other hand, Learned DR relied upon the order passed by the Learned Assessing Officer.
We have heard the respective parties, perused the relevant records. It appears from the order passed by the Learned Assessing Officer that the addition made on ground that if inclusive method of accounting was followed the assessee would have earned higher profit then profit shown as per exclusive method of accounting. The Assessing Officer has also given example showing implication of profit when inclusive method is adopted as against the exclusive method of accounting as adopted by the assessee company. He
- 10 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 further observed that unused CENVAT credit is required in the closing stock of raw material but the case of the assessee is this since the company is following exclusive method of accounting it has recognized explanation in the Profit and Loss account in all CENVAT Credit received by it hence to that extent expenditure is already adopted by the lower amount. The Learned CIT(A) relying upon the judgment passed by the Co-ordinate Bench deleted such addition. Relevant portion of the said judgment is narrated herein below: “The appellant also pointed out that Hon'ble ITAT, Ahmedabad vide ITA No.13587/Ahd/soog has also concurred with a view that excise duty and/or customs duty Should not be included in the closing stock. The operative part indicating observation of the Hon'ble ITAT is reproduced herein as under:
''At the time of hearing, both the parties agreed that the issue is now squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals Ltd. 327ITR 369 (Guj.), wherein following was held:
"Held, dismissing the appeal, that Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because:
(a) No deduct ion for the liability had been claimed by the assessee. The excise duty payable on the finished goods lying in the closing stock at the end of the relevant, accounting period had been paid in the subsequent year before the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting year;
A.Y. 2005-06
(b) The Assessing Office had not had recourse to sub-section (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the
- 11 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April 1, 1997. So the next year's profits would get depressed accordingly, over a period of Lime the whole exercise would even out, in other words, be revenue natural. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed.
(c) The assessment year being 1997-98 the provisions of section I45A of the Act inserted by the Finance (No. 2) Act, 1998 with effect from April be invoked".
[4.4] I have perused the assessment order and the written submissions made in this regard. Since the issue is squarely covered by the Jurisdictional ITAT, I am of the view that no addition should be made on account of excise and customs duty in the valuation of closing stock. The addition made by the AO is thus directed to be deleted. The grounds raised by the appellant are thus allowed.
Aggrieved by the order of the Assessing Officer Revenue is now in appeal before us.
Before us, learned D.R. relied on the order of the Assessing Officer.
We have heard the learned D.R. and perused the material on record. CIT(A) while deleting the addition has held that the issue is squarely covered by the decision of jurisdictional Tribunal and accordingly relying on the aforesaid decision deleted the addition. Nothing has been brought on record to controvert the findings of CIT(A) and thus we find no reason to interfere in his order and this the appeal of Revenue is dismissed.”
Since the issue in the present appeal is similar to the issues in the appeals cited hereinabove, we respectfully following the decisions of co-ordinate Bench of Tribunal cited hereinabove, we are of the view that no addition on account of MODVAT and VAT as made by the A.O needs to be made in the present case. We therefore direct its deletion. Thus this ground of Assessee is allowed.
We further find that on the issue of Guidance Notes and Accounting Standards issued by the" Institute of Chartered Accountant of India, the High Court of Telengana and Andhra Pradesh High Court in the case of CIT vs. Pacts Securities and Financial Services Ltd. (2015) 374 ITR 681 (T & A.P) at para 13
- 12 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 has noted that the merely because the Central Government has not. A.Y. 2005-06 notified in the Official Gazette "accounting standards" to be followed by any class of assessees or in respect of any class of income, It cannot be stated that the Accounting Standards prescribed by the Institute of Chartered Accountants of India or the Accounting Standards reflected in the "guidance note" cannot be adopted as an accounting method by an Assessee. It further held that notwithstanding the fact that the opinion of the Chartered Accountants of India was expressed in the 'guidance note", which had not attend a mandatory status, would not be a ground to discard the books of accounts of the Assessee or the method of accounting followed.
In view of the aforesaid facts and following the decisions of the Co-ordinate Bench cited and the decision of Hon'ble High Court hereinabove, we are of view that no addition on account of unutilized CENVAT Credit was called for in the present case. We thus dismiss the appeal of Revenue and allow the C.O. of assessee.”
We find the ratio of the Judgment cited above has rightly been applied by the Learned CIT(A). More so, when such addition on unutilized CENVAT credit was made u/s 145A of the Act by the Learned AO in assessee’s own case for A.Y. 2010-11 the same was deleted by the first appellate authority holding the said credit cannot be a subject matter of addition u/s 145A of the Act being tax neutral. We find no merit in the case made out by the Revenue neither any infirmity in the order impugned before us. Hence, the appeal is dismissed.
In the result, revenue’s appeal is dismissed. This Order pronounced in Open Court on 24/01/2019
Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 24/01/2019
- 13 - ITA No.1770/Ahd/2016 DCIT vs. Arcoy Industries (Ind) Pvt. Ltd. Asst.Year – 2012-13 Priti Yadav, Sr.PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 06/12/2018 (dictation pages 19) 2. Date on which the typed draft is placed before the Dictating Member 10/12/2018 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S 09/01/2019 & 21/01/2019 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………