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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
आदेश / O R D E R
PER KUL BHARAT, J.M: These two appeals by the Revenue pertaining to the A.Ys. 2006-07 & 2011-12 directed against different orders of Ld. Commissioner of Income Tax-(Appeals)-I, Indore dated 16.08.2016 & 21.09.2016 respectively. Both the appeals were taken up together and are being disposed of by way of consolidated order for the sake of convenience.
Bridgestone India Pvt. Ltd.
First we take ITA No.1311/Ind/2016 for A.Y. 2006-07 The Revenue has raised following grounds of appeal: 1. Whether in the facts and in the circumstances of the case the Ld. CIT(A) erred in law by allowing the appeal of the assessee without appreciating the finding of the AO. 2. Whether in the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs.1,93,48,000/- as treating the premium paid to hedge against exchange fluctuation risk as service fees, when”
Ground Nos. 1 & 3 are general in nature needs no separate adjudication and 3. Ground No.2 is against the deleting the addition of Rs.1,93,48,000/- as treating the premium paid to hedge against exchange fluctuation risk as service fees. 4. Briefly stated facts giving rise to the present appeal are that the assessment was reopened and assessment u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961(hereinafter called as ‘the Act’) was framed thereby, the assessing officer made addition of Rs.1,93,48,000/- in respect of disallowance of the expenditure claimed by the assessee as premium paid on swap paid. 5. Aggrieved by this assessee filed an appeal before the Ld. CIT(A) who after considering the submissions deleted the disallowance. Now Revenue is in appeal. The Only effective ground is against deletion of addition of Rs.1,93,48,000/- made on account of disallowance of expenditure premium paid for swap of prepayment of loan.
Bridgestone India Pvt. Ltd.
Ld. DR supported the order of the AO and Ld. counsel for the assessee supported the order of Ld. CIT(A) and submitted that the issue is covered in favour of the assessee. Similar addition was made in earlier year and the Hon'ble Tribunal was pleased to deleted the same. 7. We have heard the rival contentions and perused material on record. The Ld. CIT(A) has decided this issue in para 5.1 to 5.2 while giving finding on facts as under: “5.1 Briefly stated the facts of the case are that the appellant had taken ECB loan from Bridgestone Corporation Japan of JPY 1401660000 equivalent to Rs.60 crores in January 2004 which was repayable in one installment on final maturity in January 2007. The loan was taken for general corporate purposes and refinance of existing loans as explained by the appellant in its submission. The appellant in order to guard against exchange rate fluctuation entered into an agreement with the Citi Bank Mumbai that the principal amount of the ECB loan i.e. Rs.59,89,99,401/- will be paid back to Bridgestone Corporation Japan on the maturity date i.e. January 2007 by Citi Bank at the prevailing rate of exchange and for this the premium of Rs.1,93,48,000/- pertaining to the year under consideration was paid to Citi Bank. This amount was claimed as a deduction by the appellant under the head interest. In the alternative the appellant contended that the amount was otherwise allowable u/s 37 of the Act. The AO disallowed the claim holding that the amount of Rs.1,93,48,000/- did not constitute interest allowable u/s 36(1)(iii) and was not allowable u/s 37 as it was in the nature of capital expenditure. The appellant has contended that the amount was allowable u/s 36(1)(ii) in view of the definition of interest u/s 2(28A) of the Act and was not covered by the proviso to section 36(1)(iii) as it was not for acquisition of capital asset. And otherwise also it was claimed by the appellant that the amount was not capital in nature and hence was allowable u/s 37 also as the expenditure was incurred for the purposes of business. 3
Bridgestone India Pvt. Ltd.
The provisions of section 2(28A) of the Act are reproduced hereunder: “Interest means interest payable in any manner in respect of any money borrowed or debt incurred (Including a deposit, claim or other similar right or obligation) and includes any service fee for other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilized.” 5.2 Seen in the light of the above definition the amount of Rs.1,93,48,000/- would amount to interest as it is nothing but the service fee charged by Citi Bank on taking over the repayment of loan to Bridgestone Corporation Japan on the agreed date in JPY on payment of Rs.59,89,99,401/- by the appellant to Citi Bank. The appellant has drawn attention to the fact that the similar amounts claimed in the preceding years have ben allowed and has also explained in detail that the loan from Bridgestone Corporation Japan was utilized for working capital needs and repayment of existing loans and hence has to be treated as on revenue account and not on capital account and hence as the expenditure was incurred for the purposes of business it was also allowable u/s 37 of the Act. In view of the above the claim of the appellant is found to be eligible for allowance in the year under consideration. These grounds of the appellant are therefore allowed.
The above finding on fact is not controverted by the Revenue, we, therefore, do not see any reason to interfere with the finding of the Ld. CIT(A), same is hereby affirmed. Thus, grounds raised by the revenue are dismissed. Now coming to ITA No.1539/Ind/2016 pertaining to A.Y. 2011- 12. The Revenue has raised following grounds of appeal: “Whether on the facts and in the circumstances of the case the Ld. CIT(A) has erred in Law in deleting the addition of
Bridgestone India Pvt. Ltd.
Rs.2,50,79,009/- made by the AO on account of under valuation of closing stock. 2. Whether on the facts and circumstances of the case, the Learned CIT(A) has erred in not considering i) That as per section 145A, the valuation of closing stock is required to be done in accordance with the method of accounting regularly employed by the assessee and further adjusted to include in it any tax, duty, cess or fee actually paid or incurred by the assessee; ii) That the provision of section 145A has overriding effect on section 145; iii) That whatever may be accounting standard, the same cannot over ride the statue.”
Ground No.1 & 2 are interconnected and ground no.3 is general in nature needs no separate adjudication. 9. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and assessment u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 11.03.2015. The Assessing Officer while framing the assessment made addition on account of under valuation of closing stock by observing that taking into account of the fact that the assessee’s method of valuation in the earlier assessment years adopted by the department on the basis of enhancing the value by incorporating of the excise duty hence same method is also being adopted in the assessment year under consideration. 10. Aggrieved by this the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) following the decision of the Tribunal in earlier year directed the assessee to adopt the working as per
Bridgestone India Pvt. Ltd.
direction given by the I.T.A.T. in earlier years. Now Revenue is in appeal. 11. The Ld. DR supported the order of the Assessing Officer. On the contrary Ld. counsel for the assessee supported the order of ld. CIT(A) and submitted that the issue is covered in favour of the assessee. 12. We have heard rival contentions and perusal material on record. We find that the Ld. CIT(A) has decided the issue following earlier order of the Tribunal by observing as under: “Ground no.2 this ground of the appellant is directed against the addition of Rs.25079009/- being undervaluation of closing stock by invoking the provisions of section 145 of the Act. The AO added the difference of excise duty on the closing and opening stock of raw material consumption. The details facts of the case as per the assessment order are reproduced at para no.2 above and the detailed submissions of the appellant are reproduced at para no.3 above. The crux of the appellant’s contention is that the adjustments are only made to the opening and closing stock whereas as per the provisions of section 145A of the Act such adjustment should have been also made to the purchases and consumption. Appellant also highlighted the fact that additions made to the closing stock on identical facts for the earlier years were deleted in appeal by CIT(A) as well as I.T.A.T. for the A.Y. 2009-10 the CIT(A)-1 Indore in his order in Appeal NO.IT-74/13-14/332 dated 21.8.2014 has observed as under:- “The AO added the excise component in closing stock of raw material & spares and increased the closing stock by Rs.68,10,565/- by invoking the provisions of section 145A I.T. Act by observing that such provisions required that the closing stock should be worked out in accordance with method of accounting regularly employed by the assessee and further adjusted to include the amount of any cess, duty or tax actually
Bridgestone India Pvt. Ltd.
paid or incurred, as above provision has overriding impact on section 145. The appellant’s contention is that in Annexure 5 of tax audit report clause 12(b) in A.Y. 2008-09 is that assessee accounted its purchases of raw material & incidental goods, on which CENVAT credit is available, net of input duty and accordingly that valuation of inventory of raw material and incidental goods does not include excise duty to the extent it is refundable. Therefore, appellant has argued that if excise duty is added back in closing stock of raw material & incidental goods, than that will result in distorted picture of profits unless sales, purchases and opening stock are also increased by component of excise duty. The appellant’s contention is found correct even form the wordings of section 145 of the I.T. Act wherein method of valuation will be applicable not only on closing stock but on “inventory” i.e. on opening & closing stock as well as on both purchases & sales. Therefore, AO was not correct in adding excise duty only in the closing stock of raw material & incidental goods. AO is directed to redraw the profit & loss account by adding cess, duty or tax paid or incurred in purchases, opening stock and sales, wherever such excise duty is not already added by the appellant. For doing so, the appellant’s computation submitted u/s 145A of I.T. Act submitted in this office, as well as their contention that such adjustment in all the constituents will not change their profit, may also be taken into consideration. For arriving at this decision reliance is placed on the decisions on same issue in the cases of M/s Mahavir Aluminum Ltd. (2008) 214 CTR(Del.) 45, M/s. Mahalaxmi Glass works Pvt. Ltd. (2009) 318 ITR 116 (Bom), Indo Nippon Chemicals Co. Ltd. (2000) 164 CTR (Bom) 78 and Rajratan Gustav Wolf Ltd. (ITA No.768/In/2006) I.T.A.T., Indore. As a result this ground of appeal is allowed in principle for statistical purposes.” The decision of the CIT(A) on the issue has been upheld by the I.T.A.T. Indore in its order in Appeal Nos. TPA No.615/Ind/2010 (A.Y. 2006-07) & TPA Nos. 547,548 & 738/In/2014 (A.Ys.
Bridgestone India Pvt. Ltd.
2005-06, 2008-09 & 2009-10). The relevant para(s) from the order of I.T.A.T. are reproduced as under:- We have heard the rival contentions of both the parties. The assessee’s contention that regarding addition of value of closing stock in respect of excise duty, the excise component in closing stock of raw materials and spares in accordance with closing stock by invoking the provisions of section 145A the Act by observing that such provisions require that closing stock has been worked out in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any cess, duty or tax actually paid or incurred. The above provision has overriding effect on section 145. The assessee’s contention that as per the audit report, the assessee has accounted these purchases of raw materials and incidental goods net of excise duty as Cenvet is available. Therefore, the assessee submitted that if the excise duty is added only to the closing stock of raw material and incidental goods, then it will result to distortion of profit unless purchases and opening stock are increased by component of excise duty. We are of the view that as per section 145A of the Income Tax Act, 1961, wherein method of valuation will be applicable not only in closing stock, but on inventory i.e. opening and closing stock as well as on both purchases and sales. Therefore, the AC is not justified in adding the excise duty in closing stock of raw materials and incidental goods. We, therefore, direct the AO to compute the total income by adding cess, duty or tax paid incurred not only in closing stock but also in purchases, opening stock, sales, wherever such excise duty is already added. The AO is directed to verify the working given by the assessee on pages 3,4,5,6,7,8,9 and 10 for the assessment year 2002-03 to assessment year 2009-10. The AO is directed to verify the same and pass the order accordingly. We also get support from the decision of Hon'ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Limited, (2008) 297 0077--- and CIT vs. Mahalaxmi Glass Works (P.) Limited (2009) 318 ITR 0116--- We, respectfully, following the same, allow the appeal in ITANO.615/Ind/2010 for assessment year 2006-07.---- In respect of assessment years 2005-06, 2008-09, and 2009- 10, the Ld. CIT(A) has already allowed the claim of the assessee 8
Bridgestone India Pvt. Ltd.
as we have held above. Therefore, on the same reasoning, Departmental appeals for all the three years are dismissed. 6.1 In view of the above and as the facts for the year are identical above ground of the appellant is allowed and the addition of Rs.25079009/- is directed to be deleted. The AO is directed to adopt the working as per the directions given by the I.T.A.T. in earlier years.
The above finding of the Ld. CIT(A) is not rebutted by the Revenue. As in earlier Assessment year the issue has been examined by the Tribunal and decided in favour of the assessee, therefore, taking a consistent view as no other contradictory binding precedent is brought to our notice, do not see any reason to interfere in the order of the Ld. CIT(A).
In the result, Both the Appeals of the Revenue in ITA No.1311 & 1539/In/2016 are dismissed. Order was pronounced in the open court on 31 .01.2018.
Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) CCOUNTANT MEMBER JUDICIALMEMBER Indore; �दनांक Dated : 31/ 01/2018 ctàxÄ? P.S/.�न.स.
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore