Case Law Details
DCIT, Mumbai Vs M/s Axis Electrical Components (I) Pvt Ltd (ITAT Mumbai)– if adjustments had to be made to the closing stock, in the same token value of purchase/sale of goods and inventory had to be further adjusted to include the amount of tax, duty, cess etc. and even opening stock has to be recomputed in terms of section 145A of the Act, in which event there is no change in the end result and no case was made out by the Assessing Officer to make an addition. Even u/s. 43B of the Act so long as taxes were paid before the due date of filing of return of income addition cannot be made.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “G”
I.T.A.No. 4577/Mum/09 (Assessment year: 2006- 07)
DCIT Vs. M/s. Axis Electrical Components (I) P. Ltd.
ORDER
Per D. Manmohan VP:-
Following grounds were urged by the revenue:
1) On the facts and circumstances of the case and in law, learned CIT(A) erred in directing the Assessing Officer to delete the addition to the closing stock of 4,69,459/- made u/s. 145A on account of unutiized cenvat credit.
2) On the facts and circumstances of the case and in law, learned CIT(A) erred in directing the Assessing Officer to allow bad debt of 25,84,994/- being margin money deposit with National Electrical Power Authority of Nigeria even though the primary condition of the provisions of section 36(2)(i) was not satisfied as the assessee did not establish that the said amount was taken into account in computing the income of the previous year or any earlier previous year.
3) On the facts and circumstances of the case and in law, learned CIT(A) erred in directing the Assessing Officer to delete the addition of 23,34,326/- on account of dis allowance u/s. 40A(2)(b) being 25% of labor charges paid to sister concern M/s. Paramount Commercial Corporation.
4) The appellant prays that the order of learned CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
2. We have heard learned Departmental Representative as well as learned counsel for the assessee and carefully perused the record. Facts of the case, in short, are that the company which was engaged in the business of manufacturing and dealing in electrical components followed exclusive method in so far as the raw material, packing items etc. and accordingly unutilized modvat credit was not taken into consideration for the purpose of valuation of closing stock. It is not in dispute that in terms of section 145A of the Act, unutilized modvat balance has to be taken into consideration in which event value of the closing stock would increase to that extent. The Assessing Officer sought to make an addition of 4,69,459/- on the ground that the assessee has wrongly not taken into account unutilized modvat balance for valuing closing stock.
3. The assessee contended that if adjustments had to be made to the closing stock, in the same token value of purchase/sale of goods and inventory had to be further adjusted to include the amount of tax, duty, cess etc. and even opening stock has to be recomputed in terms of section 145A of the Act, in which event there is no change in the end result and no case was made out by the Assessing Officer to make an addition. The Assessing Officer rejected the explanation of the assessee and sought to make an addition of 4,69,459/-.
4. Aggrieved, the assessee contended before learned CIT(A) that under identical circumstances addition was deleted by learned CIT(A) in assessee’s own case for A.Y. 2005-06 and accordingly no addition is called for. Learned CIT(A) extracted the order of his Predecessor in assessee’s own case for earlier years wherein it was stated that procedure prescribed in section 145A is mandatory but while applying procedure prescribed therein value of opening stock, purchases, sales as well as closing stock are required to be adjusted, in which event there is no impact on profit. It was further stated that even u/s. 43B of the Act so long as taxes were paid before the due date of filing of return of income addition cannot be made. Accordingly, learned CIT(A) set aside the addition.
5. At the time of hearing, learned Departmental Representative merely relied upon the order passed by the Assessing Officer whereas learned counsel for the assessee merely relied upon the orders passed by the ITAT in assessee’s own case in earlier years (see paper book page 1 to 21). It may be noticed that learned CIT(A) made an observation that there is no change in the facts of the case in comparison with the facts of the assessment year 2005-06. In the said year learned CIT(A) observed that there is no impact on profit on account of adjustment of modvat credit, on an application of section 145A of the Act. This finding of learned CIT(A) was not controverted before us. Under the circumstances, we do not find any infirmity in the order passed by learned CIT(A) and therefore reject ground No. 1 of the revenue.
6. During the course of assessment proceedings the Assessing Officer noticed that the assessee had debited an amount of 45,66,774/- in the profit and loss account under the head ‘debit/credit balance written off’. It was explained by the assessee that it had exported electrical components to National Electric Power Authority, Nigeria. As per the terms of agreement 5% of the total sale proceeds were retained by NEPA which was to be utilized subject to the assessee satisfying certain conditions. It was further contended that the debts are more than 3 years old and it was not possible to initiate any legal proceedings against the overseas party.
7. The Assessing Officer noticed that out of the total sum debited to the profit and loss account, an amount of Rs. 25,84,994/- is referable to the sum payable by NEPA of Nigeria which was kept as margin money and the assessee has not established that the amount referred as margin money is a ‘debt’ and has become actually ‘bad’. He therefore disallowed a sum of 25,84,994/-.
8. On an appeal filed by the assessee, learned CIT(A) verified the records and gave categorical finding that the assessee has already offered sale proceeds as income in the earlier year and therefore sum written off in this year is allowable as deduction u/s. 36(1)(vii) of the I.T. Act. In this regard he relied upon the decision of ITAT Mumbai Special Bench in the case of Oman International Bank, 100 ITD 285.
9. Aggrieved, the revenue contended before us that the assessee did not establish that the said amount was not taken into account in computing income of the previous or any earlier previous years. Despite making a specific allegation against the findings of learned CIT(A), learned Departmental Representative has not bothered to place on record any material to contradict the findings of learned CIT(A). In the light of the findings of learned CIT(A) that the assessee has already treated it as sale revenue in the year 200 1-02, claim of deduction u/s. 36(1)(vii) of the Act is in accordance with law in the light of the decision of Honorable Apex Court in the case of TRF Ltd., (2010) 323 ITR 397 (SC). Under the circumstances, we do not find any infirmity in the order of learned CIT(A) and thus reject Ground No. 2 of the revenue.
10. Vide ground No. 3 the revenue contends that the dis allowance made by the Assessing Officer u/s. 40A(2)(b) was wrongly deleted by learned CIT(A). It may be noticed that learned CIT(A) has given categorical finding that there is no evidence on record to prove that excess payments were made, so as to invoke provisions of section 40A(2)(b) of the Act. No evidence whatsoever was placed on record by learned DR to contradict the findings of learned CIT(A). Learned counsel for the assessee has also placed on record orders of ITAT, Mumbai Benches in assessee’s own case for the earlier years wherein on identical circumstances dis allowance made by the Assessing Officer by invoking provisions of section 40A(2) (b) of the Act was deleted. Consistent with the view taken therein and also in the light of the fact that no material whatsoever was placed on record to contradict findings of the learned CIT(A), we uphold the order of learned CIT(A) and reject ground No. 3 of the revenue.
11. In the result, appeal filed by the revenue is dismissed. Pronounced in the open court on 3.5.2011.
