THE DCIT, 1(1), INDORE vs. M/S MITTAL CORP. LTD., MUMBAI

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE Before Shri Kul Bharat, Hon’ble Judicial Member and Shri Manish Borad, Hon’ble Accountant Member

ITA No. 480/Ind/2013 & 660/Ind/2013 A.Ys. 2008-09 & 2009-10

DCIT 1(1) Indore ::: Appellant Vs M/s Mittal Corporation Limited Mumbai ::: Respondent Appellant by Shri K.G. Goyal Respondent by Shri Ajay Tulsiyan Date of hearing 7.6.2018 Date of pronouncement 27.6.2018

O R D E R PER SHRI MANISH BORAD, AM

These appeals of the revenue relating to the

assessment years 2008-09 & 2009-10 are directed against

different orders dated 18.9.2013 of the Commissioner of

Income Tax (Appeals)-7, Mumbai, having concurrent

jurisdiction over CIT(A)-I, Indore, which are arising out of

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 the orders u/s 143(3) r.w.s. 254 of the Act dated

30.12.2010 and 28.12.2011 framed by Additional CIT,

Range-I, Indore.

following grounds :-

“(i)On the facts and in the circumstances of the case, the

ld. CIT(A) erred in directing to delete the addition of

Rs.29,81,971/- of excise duty in the valuation of closing

stock mainly on the ground that the assessee had

followed exclusive method without appreciating the

facts that as per the provisions of section 145A of the IT

Act aforesaid element of excise duty was to considered

in the valuation of closing stock.

(ii) While holding so, the ld. CIT(A) failed to appreciate

that on the identical issue in the A.Y. 2006-07 the aeal of

the assessee was dismissed.”

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 In ITA No. 660/Ind/2013 the revenue has taken the

following grounds :-

(i) On the facts and in the circumstances of the case,

the learned CIT(A) erred in deleting the addition of

Rs.5,85,584/- made by the A.O. on account of

valuation of closing stock because the department

is already in appeal before the Hon'ble ITAT on this

point in A.Y. 2008-09.

(ii) On the facts and in the circumstances of the case,

the learned CIT(A) erred in deleting the addition of

Rs.14,60,194/- made by the A.O. on account of

interest payment because the assessee had kept

huge portion of the interest bearing borrowed funds

idle.

(iii) On the facts and in the circumstances of the case,

the learned CIT(A) erred in deleting the addition of

Rs.14,60,194/- holding that the loans were

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 obtained as per commercial expediency because

the provisions of section 36(1)(iii) envisages that the

borrowed funds should wholly and exclusively be

utilised for business purpose.

(iv) It is, therefore, prayed that the order of the CIT(A)

may be set aside and the order of the A.O. may

please be restored.”

that the first common issue relates to deletion of addition

made on account of valuation of closing stock of

Rs.29,81,971/- for the assessment years 2008-09 and

2009-10. The second issue for the assessment year 2009-

10 relates to deletion of disallowance of interest

expenditure made by the Assessing Officer.

facts from the assessment year 2008-09. Briefly state, the

facts are that the assessee is a limited company engaged in

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 the manufacturing of MS/SS steel. The income of

Rs.2,37,54,910/- declared in the return of income filed on

27.2.2009. Case selected for scrutiny. Necessary notices

u/s 143(2) and 142(1) of the Act were served. After

examining the record, the Assessing Officer completed the

assessment assessing the income at Rs. 26,80,088/- after

making addition towards undervaluation of closing stock of

Rs. 29,81,971/- and disallowance u/s 40A(IA) of

Rs.64,000/-.

Commissioner of Income Tax (Appeals) and succeeded on

both the grounds. Now the revenue is in appeal against

deletion of addition towards under-valuation of closing

stock.

Assessing Officer and the learned counsel for the assessee

relied upon the findings of the learned Commissioner of

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 Income Tax (Appeals) and also relied upon the judgment of

the Hon'ble Supreme Court in the case of CIT vs. Indo

Nippon Chemicals Limited; 261 ITR 275.

material available on record. The issue before us relates to

addition towards undervaluation of closing stock. The

learned Assessing Officer observing that the assessee has

not included the excise duty while valuing the stock of

scrap, applied provisions of section 145A of the Act and

calculated the undervaluation of closing stock at

Rs.29,81,971/-. Before the Assessing Officer the assessee

contended that it has duly followed the accounting

standard (AS-2) issued by the ICAI which refers to

valuation of inventories and it has been provided that the

cost of purchase of inventories shall be reduced by any

rebates, draw-backs and other similar items and the

assessee has been valuing its inventory adopting exclusive

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 method thereby not including excise duty element in

purchases as well as closing stock.

Commissioner of Income Tax (Appeals) following the

judgment of the Hon'ble Supreme Court in the case of

Nippon Chemicals Limited (supra) deleted the addition

observing as follows :-

“4.5 I find that the Assessing Officer has only stated

that the appellant’s contentions are not acceptable in

view of the provisions of section 145A. The A.O. opined

that as per specific provisions of section 145A of the Act,

the appellant should have included excise duty element

for the purposes of valuation of its closing stock which

has not been done. Therefore, the appellant has

undervalued its stock to this extent. But I find that the

appellant has applied and followed ‘exclusive’ method of

accounting duly recognized by the Institute of Chartered

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 Accountant where the excise duty paid on the purchase

of raw material is not charged to the profit and loss

account and is kept in a separate account which is

grouped under the head of current assets and was

ultimately adjusted against the liability of excise duty

collected and payable on sales. Any such amount of

expenses which is not claimed by the appellant while

computing the profit of business cannot be added to the

closing stock by relying on the bare reading of section

145A. It is also accepted rule that whether the assessee

follows ‘exclusive’ method or ‘inclusive method’, the

same shall be tax neutral. If the A.O. wanted to apply

the provisions of section 145A, the same should have

been applied to all the items of trading account such as

opening stock, purchases, sales and closing stock,

without doing so the correct profits for any year cannot

be ascertained by simply increasing the valuation of the

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 closing stock. It is also settled that the profitability of any

year will remain the same whether ‘inclusive method’ or

‘exclusive method’ is followed. Addition of excise duty

only to the valuation of closing stock would always give

a distorted figure. In this respect, I keep reliance on

following judicial pronouncements :

4.6 In the aforestated facts of the appellant’s case, I

have considered the A.O.’s order as well as the

appellant’s submission. Having considered both, I find

sufficient force in the submissions made by the

appellant’s AR. It is also a fact on record that the

appellant has been following the exclusive method

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 consistently for the past many years and there is no

deviation from the same. The said method is also in

consonance with the guidance note prescribed by the

ICAI and the generally accepted accounting principles.

Whatever method may it be ‘exclusive’ or ‘inclusive’ is

followed by the appellant, the same is tax neutral.

Moreover the Assessing Officer cannot give the treatment

of adding excise duty to the closing stock only in isolation

and the same treatment has to be given to other items

also of the Trading account. If such an isolated treatment

is given to the closing stock alone that would not only

distort the correct profit position but would also be

against the principles of accountancy. In this perspective

of the appellant’s case I am not in agreement with my

Predecessors decisions in A.Y. 2006-07 wherein he

confirmed the similar addition which is disputed by the

appellant before Hon'ble ITAT, Indore. Thus, taking note

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 of the decision of APEX Court in the case of M/s (2003)

261 ITR 275 (S.C.) in the case of CIT vs. Indo Nippon

Chemicals Limited wherein the Hon'ble Apex Court and

decision of Mumbai ITAT in the case of Hawkins Cookers

Ltd. vs. ITO (2008) reported in 14 DTR 206 (Mumbai A

Bench) And also after taking note of all the decisions as

detailed in para 4.5, I am of the considered view that the

A.O. was not justified in his action while making the

aforesaid addition. Accordingly, the addition so made by

the A.O. is deleted.”

Commissioner of Income Tax (Appeals) and also carefully

going through the judgment of the Hon'ble Supreme Court

in the case of Nippon Chemicals Limited (supra), we find

that in the given facts it is well settled that if the assessee

follows exclusive method of accounting i.e. when the

assessee accounts for the excise duty and taxes

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 paid/charges under the head “current asset” and records

purchases on net of taxes then as per the accounting

method the assessee is not required to add the excise duty

and other taxes while valuing the closing stock else the

figures of trading/manufacturing account will stand

distorted. In the instant case, the assessee follows

exclusive method of accounting for many years and,

therefore, the action taken by the Assessing Officer was not

justified and the learned Commissioner of Income Tax

(Appeals) has rightly deleted the impugned addition. We,

therefore, respectfully following the judgment of the Hon'ble

Apex Court in the case of CIT v. Indo Nippon Chemicals

Ltd. (supra) find no reason to interfere with the conclusion

derived by the learned Commissioner of Income Tax

(Appeals). This common issue raised by the revenue for

assessment years 2008-09 and 2009-10 in ground no. 1 is

dismissed.

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 10. Now we are left with ground no. 2 for the

assessment year 2009-10 through which the revenue is

aggrieved with the finding of the learned Commissioner of

Income Tax (Appeals) deleting the addition of

Rs.14,60,194/- on account of interest payment because

the assessee had kept huge portion of interest bearing

borrowed funds idle. Brief facts relating to this issue are

that the Assessing Officer observing that the assessee on

the one hand has claimed interest of Rs.401.31 lacs paid

on the working capital loan from bank and on the other it

kept huge cash in hand which was kept idle throughout

the year. The Assessing Officer brushed aside the

submission of the assessee that huge cash fund was

required to control the business operated from multiple

branches and sites and, therefore, concluded the

assessment by making disallowance of interest expenditure

of 14,60,194/-. The assessee succeeded in appeal before

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 the learned Commissioner of Income Tax (Appeals). Now

the revenue is in appeal before the Tribunal.

the Assessing Officer whereas the learned counsel for the

assessee referred to and relied upon the submissions made

before the learned Commissioner of Income Tax (Appeals)

and findings of the learned Commissioner of Income Tax

(Appeals).

material available on record. The issue before us is whether

the learned Commissioner of Income Tax (Appeals) was

justified in deleting the disallowance of interest of

Rs.14,60,194/-. The Assessing Officer made the impugned

disallowance observing that the assessee is paying heavy

interest expenditure of Rs. 401.30 lacs but failed to utilise

the funds expeditiously as it possessed huge cash in hand

throughout the year. We find that the learned 14

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 Commissioner of Income Tax (Appeals) appreciated the

contention of the assessee that the business of the

assessee is scattered over multiple branches and sites and

each site operated independently requiring cash balance.

At the year end the separate accounts of the units are

merged which shows high cash balance. The cash has been

maintained as per business requirements and it is not in

the domain of the Assessing Officer to suggest the method

and manner in which the assessee should conduct its

business and unless and until any wrong doing is noticed,

the department cannot step in the shoes of the

businessman because it is only the businessman who

knows how to run his business properly. The learned

Commissioner of Income Tax (Appeals) after appreciating

the contentions of the assessee deleted the addition of

Rs.14,60,194/- finding no merit in the contention putforth

by the Assessing Officer in invoking provisions of section

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013 36(1)(iii) of the Act. Even before us the learned DR failed to

controvert the findings of the learned Commissioner of

Income Tax (Appeals). We find that the Assessing Officer

has given no plausible reason nor has he pointed out any

fact to show that the alleged idle funds were utilised

otherwise than for business purposes and merely for

maintaining cash in hand to conduct the business

expeditiously, such disallowance was not justified. We,

therefore, uphold the findings of the learned Commissioner

of Income Tax (Appeals) and dismiss revenue’s ground no.

2 raised for the assessment year 2009-10.

dismissed.

Pronounced in open Court on 27June, 2018. Sd/- sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

27 June, 2018 16

DCIT vs. M/s Mittal Corporation ITA Nos.480 660/Ind/2013

Dn/- Copy to – Appellant/Respodent/Pr.CIT/CIT(A)/DR/Guard File By order Private Secretary