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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI B. RAMAKOTAIAH
THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “B”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA No.172/Hyd/2014 Assessment Year: 2010-11 M/s Visaka Industries vs. Addl. Commissioner of Limited, Secunderabad. Income Tax, Range-3, Hyderabad. PAN- AAACV7263K (Appellant) (Respondent) Assessee by : Shri M.V. Anil Kumar Revenue by : Smt. Mini Chandran
Date of hearing : 02-04-2018 Date of pronouncement : 06-04-2018 ORDER PER SHRI B. RAMAKOTAIAH, AM: This is an appeal by Assessee against the order of Ld. CIT(A)-IV, Hyderabad dated 28-11-2013.
Condonation: The appeal was filed with one day delay. Considering the Affidavit filed, the delay of one day is condoned.
Assessee has raised the following grounds:
“1. Your Appellant submits that the CIT(A) ought to have allowed Rs. 49,59,201/- being the amount written off towards obsolete stock, incurred in the course of business and exclusively for the purpose of business I the year they have become obsolete and not fit for production. 2. The CIT(A) and A.O have not disputed the fact that the obsolete stock have been identified, written off and reduced from the closing stock ought to have allowed the same.
2 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. 3. Your Appellant submits that alternatively the same amount has been offered to tax in the next year and disallowance in this year would amount to double taxation of the same, this fact is evident from computation produced before the CIT(A) and A.O, ought to have deleted the addition in this year or given direction to reduce the same from income in the next assessment year. 4. Your Appellant submits that other receipts include an amount of Rs. 4,23,753/- comprised of sundry balance written back which are trade creditors, ought to have allowed deducted under section 80IB on same, as these receipts are derived from the eligible business.”
Briefly stated, Assessee is engaged in the business of manufacture of asbestos sheets, synthetic blended yarn and garments. It filed its return of income on 26.09.2010 declaring a total income of Rs. 82,01,87,797/-. The Assessing Officer disallowed the deduction u/s 80IB of the IT Act to the extent of Rs. 9,69,669/- and the provision for non-moving raw material for Rs. 49,59,201/- and assessed the total income at Rs. 82,50,88,670/-.
We have heard Ld. Counsel for Assessee and Ld. DR and perused the paper book placed on record.
The first issue for consideration is the addition on account of disallowance of provision for non-moving raw material. The first three grounds of appeal relate to the disallowance of a sum of Rs. 49,59,201/- debited by Assessee under the head ‘other expenses’ towards provision for non-moving raw material. Assessee had submitted before the A.O that it had identified old raw material in its Textile Division (Dyed Polyester, Dyed Viscose, Raw White
3 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. Cottonised Flax, Scoured Wool White, Dyed Wool Tops, Raw White Acrylic, Raw White Polyester Cationic) which was not in good condition for processing the finished products, that there was no provision in the accounting system to write off stocks, that it had therefore made provision for this old stock by reducing the closing stock to this extent, that it had not added this provision to the taxable income since the provision had been reversed in the next year and offered to tax and that it had not claimed any deduction of income tax against that reversal or provision. Assessee submitted that since there was no impact on the tax on these entries as a whole, the expenditure should be allowed. Assessing Officer held that as per the provision of Income Tax Act, each assessment year was separate and the income for each assessment year was to be assessed separately.
5.1 Before Ld. CIT(A) it was submitted that the raw material concerned was not in good condition and not usable for production had not been disputed by the Assessing Officer. Assessee also submitted that the fact that the stock had been written off was evident from the profit & loss account to which the sum had been debited and reduced from the closing stock. Further it was submitted that this stock did not have any realizable value in the market and therefore the disallowance was not warranted. Assessee also submitted that this stock had been written off in the books of the current year, it had been reversed and admitted to tax in the subsequent year
4 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. and that alternately, in case of disallowance in this year, it would amount to double taxation of the same item.
5.2 Ld. CIT(A) after considering the submissions held as under:
“4.4 I have considered the facts on record and the submissions of the AR. The appellant has not disputed the merits of the disallowance; it has merely pleaded about the equity of disallowing an amount which had been reversed by it in the subsequent year. However, the mere fact that the appellant has reversed this entry in the succeeding hear is of no consequence since each assessment year stands on its own footing for the purpose of income tax assessment. While there is merit in the plea of the AR that the disallowance of the provision may lead to doubt disallowance (in view of its reversal in the following year), that is a situation for which the appellant must explore alternate remedies. The disallowance of the provision for non- moving raw material for Rs. 49,59,201 is therefore, upheld and the first three grounds are dismissed.”
5.3 Referring the paper book filed, it was the submission that Assessee is consistently following the method of accounting and there is no loss of revenue as the same amount was offered to tax in the later year and on the principle of consistency the same should be allowed.
5.4 After considering the rival submissions we are of the opinion that there is no need to interfere with the order of Ld. CIT(A). Assessee has furnished the following details of provision in various years:
5 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. VISAKA INDUSTIES LIMITED PROVISION FOR NON MOVING RAW MATERIAL GROUPED INOTHER EXPENSES OF P&L ACCOUNT F.Y Date Debit Credit 2009-10 As on 31.03.2010 49,59,201 2010-11 As on 31.03.2011 19,20,000 49,59,201 Net Provision 30,39,201 2011-12 0 2012-13 As on 31.03.2013 86,34,000 19,20,000 Net Provision 67,14,000 2013-14 As on 31.03.2014 0 0
5.5 As can be seen from the above the provision was made for the first time in this year and the same was written back in later year. Thus, the obsolescence of stock was not established. Moreover, ‘consistency principle’ does not apply as the claim was made for the first time, which Assessing Officer has not allowed. Since Assessee failed to satisfy the condition for making a genuine claim u/s 37(1) of the IT Act, the provision as such cannot be allowed because no liability was actually existing at the time of making provision. Considering the facts and circumstances of the case, we do not find any reason to interfere from the order of the Ld. CIT(A). As far as the direction for reducing the same in next year, Ld. CIT(A) already gave a direction to Assessee to make necessary claims in later year. Assessee is free to make the claim before Assessing Officer for appropriate relief. We cannot give any specific direction as that year is not before us and Assessee has not furnished any evidence of making a claim
6 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. even. The grounds 1 & 2 raised are dismissed and ground 3 is partly allowed.
The issue in ground 4 is with reference to the claim of 80IB of the IT Act on ‘other income’. Assessing Officer has not considered various incomes shown as ‘other income’ in profit & loss account while computing the deduction u/s 80IB of the IT Act. Ld. CIT(A) has considered them in detail and allowed major amounts and rejected two items. One such amount rejected was claim on insurance on raw material to an extent of Rs. 4.72,244/-. Ld. CIT(A) rejected the claim stating as under: “5.5 Similarly, it was held in the case of Khemka Container P Ltd V CiT 275 ITR 559 (P&H) that insurance claim received on account of loss of raw material in fire is not income ‘derived from’ industrial undertaking for 80IA. Applying the ration of this decision, deduction u/s 80IB cannot be allowed on the receipt of Rs. 4,72,244 as insurance claim on raw materials. 6.1 Ld. Counsel referred to the claim and submitted that the insurance claim is on raw material which directly effect the profit & loss account and the amount was ‘derived’ for the purpose of claim u/s 80IB of the IT Act. He relied on the decision of the Hon’ble Gujarat High Court decision in the case of CIT Vs. Sree Rama Multi Tech Ltd., reported in 33 taxman.com 194(Guj).
6.2 We have considered the rival contentions and perused the case law relied. Even though Ld. CIT(A) relied on the decision of Hon’ble Punjab and Haryana High Court, the judgment of Hon’ble Delhi High Court in the case of CIT Vs Sportking India Pvt Ltd., 324 ITR 283 (Del) and the
7 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. decision of Hon’ble Gujarat High Court in the case of CIT Vs. Sri Rama Multi Tech (supra) are in favour of Assessee. In the case of CIT Vs. Sri Rama Multi Tech (supra) it was held as under:
“If Assessee had either consumed the raw material in its industrial activity or sold the finished good but for the unfortunate fire, surely Assessee would have earned income. Such income would have been eligible for deduction under section 80-IA of the Act. If this much is undisputed, merely because of the fire and destruction of such goods before sale would hardly make any significant difference insofar as deduction under section 80-IA of the Act is concerned. What Assessee achieved through passing of the insurance claim was reduction of the loss arising out of the industrial undertaking. Such recouping or reduction of the loss cannot be kept out of consideration while computing Assessee’s income eligible for reduction under section 80-IA of the Act”.
6.3 Respectfully following the above, since these two decisions are in favour of assessee, we are of the opinion that the insurance claim on raw materials would be income eligible for deduction u/s 80IB of the IT Act. Assessing Officer is directed to allow the same. The ground is allowed.
In the result, appeal of Assessee is partly allowed.
Pronounced in the open court on 06th April, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 06th April, 2018.
8 ITA No. 172/Hyd/2014 M/s Visaka Industries Ltd., Secunderabad.. KRK 1) M/s Visaka Industries Ltd, C/o M. Anandam & Co., CAs 7A, Surya Towers, S.P. Road, Secunderabad. 2) Addl. CIT, Range-3, Hyderabad. 3) CIT(A) -IV, Hyderabad. 4) The CIT-III, Hyderabad. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File