Income Tax Appellate Tribunal - Ahmedabad
Koshambh Multitred Pvt.Ltd.,, Baroda vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D
"D "
BEFORE SHRI N.S. SAINI,
SAINI, ACCOUNTANT MEMBER And
SHRI MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing 26-7-10: Drafted on:26-7-10
ITA No.432/AHD/2008
Assessment Year :2004-05
M/s Koshambh Vs. The Assistant
Multitred Pvt.Ltd., Commissioner of Income-
507,City Plaza, tax, Circle 1(2)
Dandia Bazar, Baroda. Aayakar Bhavan,
Nr.Race Course Circle,
Baroda.
PAN/GIR No. :
(APPELLANT) .. (RESPONDENT)
ITA No.456/AHD/2008
Assessment Year :2004-05
The Assistant Vs. M/s Koshambh Multitred
Commissioner of Pvt.Ltd.,
Income-tax, Circle 507,City Plaza,
1(2) Dandia Bazar, Baroda.
Aayakar Bhavan,
Nr.Race Course Circle,
Baroda.
PAN No:AAACK 7744 A
Appellant by : Shri M. G. Patel.
Respondent by: Shri Sudhanshu S.Jha,D.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
These are the cross appeals filed by the assessee and Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-I, Baroda dated 31-10-2007.
ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -2-
2. Ground No1 of the appeal relates to the addition of `.20,01,095/- made in respect of inclusion of excise duty in closing stock u/s145A of the Act.
3. The brief facts are that the Assessing Officer observed that the assessee had not included the excise duty of `. 20,01,095/- in the value of the closing stock as required under section 145A of the Act where the closing stock was to be shown being inclusive of all duty, cess and taxes. He rejected the assessee's plea that the purchases were debited without including the excise amount charged in the bill and, therefore, it could not affect the profit and loss account. He dismissed the assessee's plea of re-working the opening stock on the basis of the Supreme Court decision in the case of CIT vs. Indo Nippon Chemical Ltd., 261 ITR 275 (SC).
4. In appeal, before the Learned Commissioner of Income Tax (Appeals), the assessee submitted that the excise duty was not debited to the Profit and loss account but was debited to a separate account called 'Central Excise Receivable Account' which was shown on the assets side in the Balance Sheet. Thus, it did not impact the Profit and loss account and, therefore, no addition could be made of such an amount. However, without prejudice to this submission, the assessee explained that if this amount was added to the closing stock, it will have to be allowed as an expenditure in the Profit and loss account or the same would be deductible from the Central Excise Receivable Account without a separate addition being made to the closing stock on this account.
5. After considering the submissions of the assessee the Learned Commissioner of Income Tax (Appeals) observed as under:
"I have considered the rival submissions. It is observed that the amount of excise duty has not been debited to the purchase account/ Profit and loss account but has been debited to the Central Excise Receivable Account. If the ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -3- amount is added to the closing stock under section 145A of the Act, it has to be treated on par with the raw material purchased and allowed under section 37 or to be allowed as excise duty payable under section 43B on actual payment basis. The net result would be that it will not impact the profit of the appellant. In any case, the inclusive method or the exclusive method is ultimately tax neutral as held by Hon'ble Supreme Court in the case of Indo Nippon Oxo Chemicals Co. Ltd., 261 ITR 275. Under the circumstances, the action of the Assessing Officer in including excise duty in closing stock under section 145A is confirmed. However, the Assessing Officer directed to allow it in the year of payment under section 43B."
6. The Learned Authorised Representative of the assessee submitted that the assessee is following exclusive method of accounting for excise duty as the excise duty rate on purchase of raw materials is allowed as CENVET credit to the assessee and therefore, the amount of excise duty is shown as receivable in the Balance Sheet by the assessee. Therefore, the Learned Assessing Officer was not justified in making addition on account of excise duty to the closing stock of the assessee. In the alternative, it was argued that if the stand of the Learned Assessing Officer is to be accepted then the excise duty should be included in opening stock, purchases, closing stock of the assessee. If this is done the net impact of the excise duty on the profit of the assessee would be nil.
7. The Learned Departmental Representative on the other hand argued that in view of provisions of section 145A of the Act the assessee is required to include the amount of excise duty in the closing stock of the assessee. Therefore, the Learned Assessing Officer was justified in his action which was confirmed by the Learned Commissioner of Income Tax (Appeals).
8. We have heard the rival submissions and perused the materials available on record. In the instant case the undisputed facts of the case are that the assessee follows exclusive method of accounting in respect of excise duty. Thus the assessee's closing ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -4- stock also does not include element of excise duty. As per the Balance Sheet of the assessee placed at page Nos.1 to 55 at page 43 schedule 7 the closing stock of the assessee was comprised of the following items :-
SCHEDFULE:7 INVENTORIES:
Particulars. Amount (in `.) as on 31-03-2004.
Raw materials 1,23,53,399/-
Goods for trading 33,91,645/-
Semi finished goods 86,89,184/-
Finished goods 8,08,665/-
Scrap 1,28,213/-
Packing materials 2,81,225/-
Consumable Stores. 0/-
Total. 2,56,52,331/-
According the Learned Assessing Officer the excise duty which was not included in the value of closing stock was `.20,01,095/-.The break up of this amount of ` 20,01,095 as to how much relates to closing stock of finished goods, closing stock of raw material and closing stock of semi finished goods are not available on record nor furnished by either of the parties. According to the Learned Assessing Officer the assessee should have included the element of excise duty in valuation of closing stock as per provisions of section145A of the Act and he therefore, added `.20,01,095/- to the income of the assessee. On appeal, the Learned Commissioner of Income Tax(Appeals) confirmed the action of the Learned Assessing Officer Before us the Learned Authorised Representative of the assessee submitted that the assessee was entitled for Cenvat credit in respect of excise duty paid on purchases of raw material etc., therefore, the lower authorities were not justified in including excise duty in the closing stock of the ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -5- assessee. The alternative submission of the Learned Authorised Representative of the assessee was that if it is held that excise duty is to be included in the closing stock valuation then other item like opening stock purchases and sales should have also been re- valued so as to include excise duty element therein. He contended that on inclusion of such excise duty element in valuation of other items also there will be no effect in the profits which is reflected by the accounts maintained on exclusive system of accounting. He therefore, urged for deletion of entire amount of `.20,01,095/-. The Learned Departmental Representative on the other hand supported the orders of the lower authorities. We find that section 145A was inserted in the Statute w.e.f. 1-4-1999. The said section reads as under :-
[Method of accounting in certain cases--
Notwithstanding anything to the contrary contained in section 145,--
(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be-
(i) in accordance with the method of accounting regularly employed by the assessee; and
(ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
Explanation : For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.
(b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.] ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -6- Thus the submission of the assessee that as it regularly follows exclusive method of accounting and as Cenvat credit is allowable in respect of excise duty paid on purchase and therefore, excise duty should not be included in valuation of closing stock is found to be unacceptable. As per the provisions of Section 145A irrespective of regular system of accounting followed by the assessee and irrespective of the fact Cenvat credit is available to the assessee for computing total income taxable under the provisions of Section 145A of the Act the purchase, sales and inventories of the assessee are to be re-valued for including all the taxes etc. which are incurred on them. However, we find force in the submission of the alternative argument of the assessee to the extent that as per provisions of Section 145A the Learned Assessing Officer ought to have re-valued not only the closing stock but also the opening stock, purchase as well as sales for determining the income of the assessee which is taxable under the I.T. Act. We find that no material was brought before us by the assessee to show that on re- valuation of opening stock, purchase and sales also the effect on the net profit determined by the assessee will be Nil. In the circumstances, in our considered opinion, it shall be in the interest of justice to restore this issue back to the file of the Learned Assessing Officer for re-adjudication afresh in accordance with the provisions of Section 145A of the Act. The assessee is also directed to submit before the Learned Assessing Officer as and when called by the Learned Assessing Officer the re-valued amount of opening stock., purchases and sales by including element of excise duty therein and the Learned Assessing Officer is directed to verify the same and thereafter to compute the income as per provisions of Section 145A of the Act. We also like to observe that in respect of excise duty on closing stock, closing stock of finished goods which is also the expenditure of the year the A.O. shall allow deduction as per provisions of section 43B of the Act after verifying the payment which has been made within the due date under section 139(1) of the Act. We set aside the orders of the lower authorities ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -7- on this issue and allow the ground of appeal of the assessee for statistical purposes.
9. Ground No.2 reads as under :-
"The Learned Commissioner of Income Tax (Appeals)-I, Baroda has erred in law and on facts of the by confirming disallowance of `. 1,33,797/- in respect of Travel Tickets for Foreign Buyers."
10. The brief facts of the case are that the Assessing Officer disallowed expenditure of `.1,33,797/- on travel tickets and hotel accommodation, gift articles like T-Shirts and clothing material and helmets for the buyers being incurred not for business purposes but being personal expenses of the buyers.
11. On the appeal, the assessee has submitted that for its business it had to depend largely on foreign buyers and export turnover for its business it had to depend largely on foreign buyers and export turnover during the relevant previous year was `.422.90 crore. It has explained that the said expenditure has been incurred in the interest of business.
12. After considering the submissions made by the assessee the Learned Commissioner of Income Tax (Appeals) observed as under:
"I have considered the rival submissions. The Learned Assessing Officer has observed in the assessment order that "the matter would have been different had this been incurred by the assessee for the purposes of procuring samples or specimen items which in term would be seen to promote the product of the company for its ultimate sales across border. Expenses which patently and prima facie appeared to be personal cannot constitute expenditure incurred wholly and exclusively for the purpose of business".
It is observed that the appellant has not been able to rebut these facts and this argument. Under the circumstances, the disallowance made by the Assessing Officer is confirmed."
ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -8-
13. The Learned Authorised Representative of the assessee submitted that the Learned Commissioner of Income Tax (Appeals) was not justified in confirming the disallowance of `.1,33,797/- in respect of travel tickets of foreign buyers as the assessee in order to maintain good relation with the customers has paid the said expenses. The said expenses were not incurred on the directors of the assessee-company but on the customers of the assessee and were accordingly expenses incurred wholly and exclusively for the purposes of the assessee and therefore, no disallowance of the same can be made in determining the income of the assessee.
14. The Learned Departmental Representative referred to page 133 of the paper book and pointed out from the details of expenses filed by the assessee it can be seen that the nature of expenses were such as suiting material, hotel bills, CD purchased, Sweets, silver articles, gifts, T-shirts, Helmets tickets etc. Thus, the nature of the expenses shows that they are in the nature of personal expenses and hence were rightly disallowed by the Learned Assessing Officer and confirmed in appeal by the Learned Commissioner of Income Tax (Appeals)
14. We have heard the rival submissions and perused the materials available on record. The assessee claimed to have incurred `.1,33,797/- on travel tickets for foreign buyers. From the details furnished by the assessee the Learned Assessing Officer found that the expenses relates to suiting material, hotel bills, CD purchased, Sweets, silver articles, gifts, T-Shirts, Helmets tickets etc. and therefore, disallowed the same as personal expenses of the buyers. In appeal, the Learned Commissioner of Income Tax (Appeals) confirmed the disallowance. The Learned Authorised Representative of the assessee explained that the expenditure incurred under this head by the assessee relate to the foreign buyer at the time of their visit in India. In our considered opinion the expenses incurred in respect of stay and travel of buyers of the ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05 -9- assessee company were incurred by the assessee-company out of commercial expediency. Such an expenditure cannot be held as personal expenses of the assessee-company. We therefore, set aside the orders of the lower authorities and restore the matter back to the file of the Learned Assessing Officer for necessary verification and thereafter adjudication of the issue afresh in light of the observations made hereinabove. Needless to mention that the Learned Assessing Officer shall allow reasonable opportunity of hearing to the assessee before deciding the issue afresh. Thus, this ground of appeal of the assessee is allowed for statistical purposes.
15. Ground No.3 reads as under:-
"The Learned Commissioner of Income Tax (Appeals)-I, Baroda has erred in law and on facts of the case by not deciding ground regarding disallowance of the claim of deduction under section 80HHC of the Income Tax Act, 1961."
16. At the time of hearing the Learned Authorised Representative of the assessee did not make any submission on this ground of appeal taken by the assessee. Therefore, this ground of appeal is dismissed for want of prosecution.
17. In the Revenue's appeal the sole ground taken by the Revenue is as follows:-
On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in deleting the addition of `.30,52,595/- made on account of disallowance of assessee's claim of provision for foreign exchange fluctuation loss, holding that it is an ascertained liability, going against the decision of Indian Overseas Bank vs. CIT 151 ITR 446 (Mad.).
18. The brief facts of the case are that the Assessing Officer disallowed `. 30,52,595/- on account of foreign exchange fluctuation loss holding it to be a contingent liability on the basis of the decision in the case of Indian Overseas Bank Ltd. vs. CIT, 151 ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05
- 10 -
ITR 446(Mad.). The Learned Assessing Officer rejected the assessee's plea that the same had been claimed as per the Accounting Standards by relying on the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., vs. CIT, 227 ITR 172(SC).
19. The Learned Commissioner of Income Tax (Appeals) deleted the disallowance by observing as under :-
"5. I have considered the rival submissions. It is observed that the foreign exchange fluctuation loss is allowable as held by the Delhi High Court in the case of CIT v. Woodward Governor India P. Ltd. &Others (2007) TIOL 418 (Del) and Lucent Technologies Hindustan Ltd. V. Jt.CIT 106 TTJ 205 (Bang.). The Delhi High Court has clearly held while answering the reference that "increase in liability due to foreign exchange fluctuation as per the exchange rate prevailing on the last date of FY is allowable as a deduction and is not merely notional or contingent". Under the circumstances, the foreign exchange fluctuation loss of `.30,52,595/- is allowed.
20. The Learned Departmental Representative supported the order of the Learned Assessing Officer and the Learned Authorised Representative of the assessee supported the order of the Learned Commissioner of Income Tax (Appeals).
21. We have heard the rival submissions and perused the materials available on record. In the instant case the assessee claimed deduction of `.30,52,595/- on account of foreign exchange fluctuation loss in respect of Revenue liability outstanding at the end of the year which was disallowed by the Learned Assessing Officer by considering the same to be a contingent liability. In appeal, the Learned Commissioner of Income Tax (Appeals) deleted the addition following the decision of Hon'ble Delhi High Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. & Others (2007) 294 ITR 451 (Del) and the order of the Tribunal in ITA No.432-456/Ahd/08 Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05
- 11 -
the case of Lucent Technologies Hindustan P. Ltd., vs. Jt.CIT 106 TTJ 205 (Bang) wherein it has been held that "increase in liability due to foreign exchange fluctuation as per the exchange rate prevailing on the last date of Financial Year is allowable as a deduction and is not merely notional or contingent". We find that the issue is also covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd.(2009) 312 ITR 254(SC) wherein it was held that loss suffered by the assessee in respect of a revenue liability on account of exchange difference as on the date of the Balance Sheet is an item of expenditure allowable under section 37(1) in the year of accrual. Therefore, we do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax (Appeals). It is confirmed and the ground of appeal of the Revenue is dismissed.
22. In the result, the appeal of the assessee is partly allowed for statistical purposes and the appeal of the Revenue is dismissed.
Order signed, dated and pronounced in the Court on 30th July,2010 Sd/- Sd/-
( MAHAVIR SINGH) (N. S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; On this 30th day of July, 2010
Patki
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
ITA No.432-456/Ahd/08
Koshambha Multitred Pvt.Ltd.
Assessment Year 2004-05
- 12 -
Date Initials
1. Draft dictated on 26-7-10 -------------------
2. Draft Placed before authority 27-7-10 -------------------
3. Draft proposed & placed
------------------- JM
Before the Second Member
4. Draft discussed/approved
By Second Member ---------------- ------------------- JM
5. Approved Draft comes to P.S ---------------- --------------------
6. Kept for pronouncement on ---------------- --------------------
7. File sent to the Bench Clerk ---------------- --------------------
8. Date on which file goes to the ---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------