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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI J. SUDHAKAR REDDY & SMT. BEENA PILLAI
Per J. Sudhakar Reddy, Accountant Member This appeal is filed by the assessee directed against the order of CIT(Appeals)-III, Bangalore dated 08.01.2014 for the assessment year 2010-11.
There is a delay of 226 days in filing of the appeal. When the matter came up before the ‘A’ Bench of the Tribunal, vide its order dated 29.04.2016, the Tribunal refused to condone the delay as the assessee has not revealed the ill-advice nor produced any material in support of the averments made in the affidavit that the delay was on account of wrong advice given by its counsel. The assessee carried the matter to the
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Hon’ble High Court of Karnataka. The Hon’ble jurisdictional High Court in ITA No.425/2016, judgment dated 10.01.2018 passed the following order:- “3. Having regard to the facts of the case and in the interest of justice, we accept the submission made by the learned counsel for the parties and accordingly make the following order: Impugned order dated 29.04.2016 passed in ITA No.1629/Bang/2014 is set aside. The matter is remitted to the Appellate Tribunal for reconsideration in accordance with law. The appellant is at liberty to file a better affidavit in support of the application for condonation of delay in filing the appeal in ITA No.1629/Bang/2014.” Thus, the matter is listed again before this Bench.
The assessee filed an affidavit from its counsel in support of the fact that the delay in question had occurred in view of the wrong advice given by the earlier counsel that the addition made by the AO on account of inclusion of excise duty component in the closing stock of raw material would only result in additional income tax liability for the impugned assessment year and would be available as a deduction in the following assessment year. The assessee filed a fresh affidavit seeking condonation of delay. In this fresh affidavit dated 20.04.2018, it has given the name of the earlier counsel along with his address. The ld. counsel for the assessee, Sri G. Venkatesh, also filed an affidavit dated 36.2.2019, narrating the sequence of events in support of reason given by the assessee.
We have gone through these affidavits filed by the assessee as well as that filed by the ld. counsel of the assessee. This is a case where the assessee had acted in accordance with the advice of the counsel. The
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Hon’ble Supreme Court in the case of Concorde of India Insurance Co. Ltd. v. Smt. Nirmala Devi & Ors, 118 ITR 508 (SC) held as follows:- “6. We are not able to agree with this reasoning. A company relies on its legal adviser and the manager's expertise is in company management and not in law. There is no particular reason why when a company or other person retains a lawyer to advise it or him on legal affairs reliance should not be placed on such counsel. Of course, if there is gross delay too patent even for laymen or if there is incomprehensible indifference the shield of legal opinion may still be vulnerable. The correct legal position has been explained with reference to the Supreme Court decision in a judgment of one of us in State of Kerala vs. Krishna Kurup Madhava Kurup, AIR 1971 Ker 211: "'The law is settled that mistake of counsel may in certain circumstances be taken into account in condoning delay although there is no general proposition that mistake of counsel by itself is always a sufficient ground. It is always a question whether the mistake was bona fide or was merely a device to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in an underhand way. The High Court unfortunately never considered the matter from this angle. If it had, it would have seen quite clearly that there was no attempt to avoid the Limitation Act but rather to follow it albeit on a wrong reading of the situation.' 7. The High Court took the view that Mr. Raizada being an Advocate of 34 years' standing could not possibly make the mistake in view of the clear provisions on the subject of appeals existing under s. 39(1) of the Punjab Courts Act and, therefore, his advice to file the appeal before the District Court would not come to the rescue of the appellant under s. 5 of the Limitation Act. The Supreme Court upset this approach. I am of the view that legal advice given by the members of the legal profession may sometimes be wrong even as pronouncement on questions of law by Courts are sometimes wrong. An amount of latitude is expected in such cases for, to err is human and laymen, as litigants are, may legitimately lean on expert counsel in legal as in other Departments, without probing the professional competence
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of the advice. The Court must, of course, see whether, in such cases there is any taint of mala fides or element of recklessness or ruse. If neither is present, legal advice honestly sought and actually given, must be treated as sufficient cause when an application under s. 5 of the Limitation Act is being considered. The State has not acted improperly in relying on its legal advisers." 5. The ‘B’ Bench of Bangalore Tribunal in the case of M/s. Sartorioius Mechatronics India (P) Ltd. v. ACIT in ITA No.982 to 986/Bang/2013, order dated 27.3.2018 held as follows:-
“9. We have given a very careful consideration to the rival submissions. As far as the delay in filing the appeals is concerned, it is seen that the impugned order of CIT(Appeals) was passed on 28.3.2008 and was served on 3.4.2008. On 21.4.2008, there is an inter-office memo in which the advice of GM(Finance) not to file the appeal against the impugned order of CIT(Appeals) has been recorded. The law with regard to allowing depreciation on goodwill crystallised with the decision of Hon’ble Supreme Court in the case of Smifs Securities Ltd. (supra) rendered on 22.8.2012. The appeal before the Tribunal had been filed by the assessee on 18.6.2013. It is therefore probable that the claim of assessee that appeal was not filed due to an earlier advice and later on filed because of the professional advice given by the present counsel is correct. By the decision rendered by the Hon’ble Supreme Court in Smifs Securities Ltd. (supra), allowance of depreciation on goodwill is no longer a matter of debate. In such circumstances, we are of the view that the assessee should not be denied benefit which it is entitled to in law purely on technicalities. We are also satisfied that the delay in filing the appeals has occasioned on account of reasonable cause. In this regard, we find that in Raghavendra Constructions (supra), this Tribunal on identical issue held that subsequent professional advice and delay on account of earlier improper professional advice was sufficient cause to condone the delay in filing he appeal. Following were the relevant observations of the Tribunal:-
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“13. We have considered the rival submissions. At the outset, we observe that the Hon’ble Supreme Court, in the case of Mst. Katiji (supra), has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon’ble Apex Court has emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day’s delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner. In the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, ITA No.2785/Bang/2004 for the A.Y. 1993-94, the Hon’ble Tribunal condoned the delay of about 1331 days in filing the appeal wherein the plea of delay in filing appeal due to advice given by a new counsel was accepted as sufficient. The Hon’ble Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 has condoned the delay of five years in filing appeal before them which was explained due to delay in getting legal advice from its legal advisors and getting approval from Department of Science and PMO. In the aforesaid decision, the Hon’ble Court found that the very liability of the assessee was non-existent and therefore condoned the delay in filing appeal. 14. Keeping in mind the aforesaid principles, we shall consider the claim of the assessee in the present case. Admittedly the advice was given by the counsel who appeared on behalf of the Assessee before the Hon’ble High Court. The decision of the Hon’ble High Court was rendered on 28.2.2012. The appeal has been filed by the Assessee before the Tribunal on 26.3.2012. Hence, we find that there has been no willful neglect on the part of the Assessee. In such matters the advice of the professional would be the point of time at which the Assessee would begin to explore the option of exhausting all legal remedies. We are also of the view that by condonation of delay there is no loss to the revenue as legitimate taxes payable in accordance with law alone would be collected. We therefore accept the reason given for condonation of
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delay in filing the appeal. The delay in filing the appeal is accordingly condoned.” 6. Applying the propositions of law laid down in these case laws to the facts of the case, we find that the case on hand is not tainted by any mala fide nor with an element of recklessness or ruse is present. Under the circumstances, the legal advice honestly sought and actually given being the cause of delay in this case is treated as a sufficient cause for delay in filing the appeal. In view of the above discussion, we are of the considered view that the assessee was prevented by sufficient cause from filing the appeal in time. Thus, we condone the delay and admit the appeal.
On merits of the case, the ld. counsel for the assessee’s submission was that the opening stock, purchases as well as sales have to be valued on the same basis as the closing stock is valued in the inclusive method of accounting. For this purpose, he relied on the following case laws:-
CIT v Indo Nippon Chemical Co. Ltd [2000] 245 ITR 384 (Bom.) 2. CIT v Mahavir Aluminum Ltd [2008] 297 ITR 77 (Del.) 3. ACIT v Kunkel Wagner (I) (P.) Ltd., [2011] 11 taxmann.com 405 (Mum.) 4. Clariant (India) Ltd. V ITO-6(2)(2) [2011] 9 taxmann.com 221 (Mum.) 5. R.R. Kabel Ltd., v ACIT, 7(2), Mumbai [2012] 25 taxmann.com 559 (Mum.) 6. Ciba India Ltd., v DCIT, [2015] 59 taxmann.com 29 (Mum. - Trib.) 7. Sunshield Chemicals (P.) Ltd v ITO 7(2)(3) [2015] 64 taxmann.com 161 (Mum. - Trib.)
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The ld. DR, on the other hand, relies on the order of the ld. CIT(Appeals) and submits that the assessee is not entitled to deduction u/s. 43B of the Act as it has not produced any evidence of actual payment of excise duty. He further argues that section 145A clearly mandates that the value of all inventory is required to be adjusted by the value of duty payable. He prayed that the order of AO be upheld.
After hearing the rival contentions, considering the papers on record and orders of authorities below as well as case laws cited, we hold as follows.
The Mumbai ‘M’ Bench of the Tribunal in the case of ACIT, 9(2) v. Kunkel Wagner (I) (P.) Ltd, 46 SOT 120 (Mumbai) had considered this issue and at para 2.3 held as follows:-
“2.3 We have perused the records and considered the matter carefully. The dispute is regarding addition of unutilised modvat credit in the closing stock under the provisions of section 145A. The said section provides for adjustment on account of tax duty to cess, fee actually paid by the assessee in the valuation of inventory on the date of valuation. The assessee had been following exclusive method of accounting as per which the modvat debits/credits were not rooted through trading account. The Assessing Officer worked out the adjustment on account of excise duty by following inclusive method and thus came to the conclusion that addition of Rs. 1,97,310 was required to be made to total income. The difference found by Assessing Officer was on account of modvat adjustment to opening stock which has not been made by the Assessing Officer. In view of the judgment of Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd. (supra) which has also been affirmed by the Hon'ble Bombay High Court in Mahalaxmi Glass Works Ltd. (supra), adjustment on account of unutilized modvat credit under the provisions of section 145A is also required to be made in opening stock. In this case after making adjustment to opening stock, there is no addition required
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to be made. In view of this position we see no infirmity in the order of the CIT(A) in deleting the addition and the same is, therefore, upheld.” 11. The Tribunal applied the judgment of Hon’ble Delhi High Court in the case of Mahavir Aluminium Ltd., 297 ITR 77 (Del) and the Hon’ble Bombay High Court judgment of CIT v. Mahalaxmi Glass Works (P.) Ltd., 318 ITR 116 (Bom).
The Mumbai ‘C’ Bench of the Tribunal in the case of Clariant (India) Ltd. v. ITO, 6(2)(2), 9 taxmann.com 221 (Mum.) at para 10 held as follows:-
“10. We, however, find merit in the contention of the learned counsel for the assessee that as per the provisions of section 145A, adjustment on account of excise duty is required to be made not only to the value of closing stock alone but the same is required to be made to the value of purchases, sales and opening stock of the year under consideration. In this regard, the ld. Counsel for the assessee has furnished a working showing therein that if such adjustments are made to the value of purchases, sales as well as inventory as per the provisions of section 145A, there will be no effect on the profit of the assessee for the year under consideration. He has also made an attempt to substantiate the case of the assessee on this issue by relying on the guidance note issued by the ICAI wherein hypothetical working is given to show that in the case of an assessee following "exclusive method", adjustments made by including the excise duty in the value of purchases, sales and inventory will not have any effect on the profit. However, as rightly submitted by the ld. D.R., this working made by the assessee needs verification and since the same has not been done either by the Assessing Officer or by the ld. CIT(A), we restore this issue to the file of the Assessing Officer with a direction to verify the same from the relevant record and accordingly quantity the addition, if any, that is required to be made in accordance with the provisions of section 145A. Ground No. 1 of the assessee's appeal is accordingly treated as allowed for statistical purposes.”
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Similar are decisions in many other Tribunal orders.
Applying the propositions of law laid down in these case laws to the facts of the case, we direct the AO to carry out the adjustments made in question of including the excise duty in the value of closing stock also to the value of purchases, sales and also to the value of opening stock. The assessee is directed to submit the required calculations and co-operate in the proceedings.
In the result, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 7th day of June, 2019.
Sd/- Sd/-
( BEENA PILLAI ) ( J. SUDHAKAR REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 7th June, 2019. / Desai Smurthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.