CIT vs. M/S AUTOPAL INDUSTRIES LTD

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and partly allowed the appeal of the assessee.

This court while admitting the appeal on 28.02.2012 has framed the following substantial question of law: “Whether the claim of deduction on account of non realization of export proceeds is allowable in the subsequent assessment year, when already the said bad debts is claimed as deduction under Chapter 6A of the Income Tax in the preceding Assessment Years, resulting in unjust enrichment in the hands of assessee and loss to revenue?”

The brief facts of this case are that the assessee filed return declaring a loss of Rs.4,29,72,704/- on 30.11.2000 which was processed u/s 143 on 30-01-2002. Thereafter the case of the assessee was re-opened by issue of notice u/s 148 of the I.T. Act, 1961 on 28-01-03 by duly recording reasons on the order sheet. In compliance to the above notice no return was filed by the assessee till 18-2-2003 when vide his letter received on 26-03- 2003 he has informed that return fled by the assessee 30-11- 2000 maybe treated to have been filed in response to the above mentioned notice under section 148 dated 28-01-2003 received by the company on 14-02-2004. Thereafter, notice u/s 143 (2) was issued to the assessee on 18.01.2003 fixing the case for hearing 1-13-2003. In response to the above assessee and subsequent notices under section 143 (2) issued time to Shree Deepak Kalani CA & A/R of the assessee appeared alongwith Shree Arvind Kumar Tiwari, Accountant and produced the books of accounts, comprising of computerized cash book, ledger, purchase register, sales register, vouchers of purchase/expenses, bill books, bank book, journal etc which were examined by test check and case was discussed with them. The assessee continuous to derive income by manufacturing of Halogen Bulb, CFL (Compact Fluorescent Lamp) and General Lighting and sale thereof at his plant as RIICO Industrial Area, Sanganer, Jaipur. During the year under consideration on the total turnover of Rs.3,19,88,996/- the assessee declared GP of Rs. 42,90,827/- giving a GP rate of 13.41%. The purchase and sales are vouched and stock register is being maintained by the assessee, as such no interference is (3 of 6) [ITA-18/2011] called for in the same. However, while examining the closing stock of the assessee it is found that he has declared a closing stock of Rs. 1,01,78,153/- (Work in progress Rs. 243063 + Financial goods Rs.99,35,090), which includes the closing stock of Rs.13,892/- peaces of Halogen Lamps 1,19,703 peaces of CFL (Compact Fluorescent Lamp)and 32491 of fixtures (General Lighting) , which are finished goods and the excise duty on the same is worked out at Rs.10,17,636/-. Accordingly to the Schedule S of accounting policies of annual report of the company the excise duty payable on finished good is accounted for on clearance of goods from factory. The amount of excise duty payable on finished goods of stock lying in factory as on 31.3.2000 is estimated at Rs. 10,17,636/-. According to the provisions of Sec. 145A of the I.T. Act , 1961 the excise duty to value of finished goods is required to be taken at the time of valuation of the finished goods of a manufacturing unit. The assessee was asked to explain why the excise duty payable on the finished goods of closing stock be not added back to his income by considering the same in the valuation of the closing stock. In a written reply filed by the assessee on 3- 2-2003 it is stated that; As per the provisions of Sec. 145A the value of purchase and sale of goods for the purpose of determining the income chargeable under the head "profits and gains of business" is to be taken in accordance with the method of accounting regularly employed by the assessee and is further to be adjusted to include the amount of any taxes, duties, cases or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on date of valuation.

The Bombay High Court was dealing with a similar issue and it was held that a re-assessment proceeding taken to include the more particularly in para 18 & 19, which reads as under, requires to be upheld: “On this issue, the AO has observed as (5 of 6) [ITA-18/2011] under :- "Further, the assessee has claimed expenses under the head Research & Development at Rs. 12,42,856/-. On enquiry, it is found that Rs. 10 lacs were paid to the sister concern M/s. Auto light India Ltd, Jaipur as per copy of the written agreement entered into in March,1998 for providing the technical consultancy and technical support etc. During the year under consideration, the turnover of the assessee has been increased substantially and for a part of the year the factory is also not working. In such circumstances, payment of such huge amount to a sister concern is not justifiable. I therefore, disallow a sum of Rs. 5 lacs u/s 40 A(2)(b) and added back to the income of the assessee.

The 1d. CIT (A) has deleted the dis allowance after considering the submissions of the assessee. The submissions of the assessee as placed before the ld. CIT (A) are as under :- "6.2 Disputing the disallowance, ld. AR submitted that there was an agreement between the appellant and M/s. Autolite (India) Ltd. dated 25-03-1998. That agreement was for the rendition of technical consultancy for different items. It was a composite agreement for a total amount of Rs. 14 lacs and it was under that agreement that the payment of Rs. 10 lacs was made to M/s Autolite (India) Ltd. The ld. AR pointed out that the ld. AO was not correct in mentioning that M/s Autolite (India) ltd. Was a sister concern and the provisions of Section 40A(2)(b) were applicable. Ld. AR clarified that the said observation of ld. AO was incorrect because M/s Autolite (India) Ltd was a listed company and therefore, provisions of Sec. 40A(2)(b) were not applicable. Ld. AR also argued that the ld. AO had also not arrived at a finding as to how the expenditure claimed was excessive or unreasonable having regard to the fair market value of the goods/services in question. It was pleaded that hence, the disallowance be deleted."

Taking into consideration, we are of the opinion that the view taken by the Tribunal is just and proper and no case for (6 of 6) [ITA-18/2011] interference is made out.

In that view of the matter, the issue is answered in favour of the assessee and against the department.

The appeal stands dismissed.