Income Tax Appellate Tribunal - Ahmedabad
Dy.Commissioner Of Income Tax, ... vs M/S. Prima Automation (India) P.Ltd.,, ... on 10 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 478 & 805/AHD/2015
(Assessment Year: 2011-12)
Prima Automation (India) V/S The Asstt. Commissioner of
Pvt. Ltd. Plot No. 793, Income Tax, Cirle-5,
Rakanpur, Post: Santej, Ahmedabad
Tal. Kalol, Dist.
Gandinagar-382721,
Ahmedabad
DCIT, Circle-3(1)(1), Prima Automation (India)
Ahmedabad Pvt. Ltd. Plot No. 793,
Rakanpur, Post: Santej,
Tal. Kalol, Dist.
Gandinagar-382721,
Ahmedabad
(Appellant) (Respondent)
PAN: AABCP6889L
Appellant by : Shri G.C. Pipra, AR
Respondent by : Shri V.K. Singh, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 04 -01-2018
Date of Pronouncement : 10 -01-2018
2 ITA No805 & 478/Ahd/2015
. A.Y.2011-12
PER N.K. BILLAIYA, ACCOUNTANT MEMBER
1. ITA Nos. 805/Ahd/2015 & 478/Ahd/2015 are cross appeals by the Revenue and the Assessee preferred against the order of the Ld. CIT(A)-9, Ahmedabad dated 08.01.2015 pertaining to A.Y. 2011-12.
2. Both these appeals were heard together and are disposed of by this common order for the sake of convenience.
3. We will first take up Revenue's appeal in ITA No. 805/Ahd/2015
4. The only grievance of the revenue is that the ld. CIT(A) erred in deleting the addition of Rs. 34,15,182/- made u/s. 145A of the act on account of adjustment to the value of closing stock.
5. On perusal of the details submitted by the assessee, the A.O. noticed that the assessee has not included the value of CENVAT of Rs. 34,15,182/- paid on raw material lying in the closing stock. The A.O. was of the opinion that the assessee has violated the provisions of Section 145A of the Act. Assessee was asked to justify why addition should not be made. Assessee strongly objected to the proposed addition and pointed out that since it is following exclusive method of accounting, any addition on account of unutilized CENVAT is unwarranted and uncalled for. The contention of the assessee did not find any favour with the A.O. who proceeded by making the addition of Rs. 34,15,182/- .
3 ITA No805 & 478/Ahd/2015
. A.Y.2011-12
6. Assessee carried the matter before the ld. CIT(A) and reiterated its contention. It was brought to the notice of the ld. CIT(A) that similar additions were made in earlier years i.e. 2008-09 & 2009-10 which have been deleted by the ld. CIT(A).
7. After considering the facts and the submissions, the ld. CIT(A) was convinced that since the assessee is following exclusive method of accounting, therefore amount of Rs. 34,15,182/- being CENVAT paid on raw material is revenue neutral. The ld. CIT(A) directed the A.O. to delete the addition of Rs. 34,15,182/-.
8. Before us, the ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
9. We have carefully perused the orders of the authorities below. There is no dispute that the assessee is making accounting entries following exclusive method of accounting. We also find that the assessee has been following this method since past many years. Even, if the accounting entries are made according to inclusive method of accounting, the net effect would be revenue neutral. Therefore, we do not find any merit in the additions made u/s. 145A of the Act and therefore we do not find any error or infirmity in the findings of the ld. CIT(A). Appeal filed by the Revenue is dismissed.
10. Coming to the appeal of the assessee in ITA No. 478/Ahd/2015.
4 ITA No805 & 478/Ahd/2015
. A.Y.2011-12
11. The assessee has raised five substantive grounds of appeal. At the very outset, the ld. counsel stated that he is not pressing ground nos. 2, 3 & 4 and the same is dismissed as not pressed. This leaves with only two grounds of appeal. First being related to the addition of Rs. 68,652/- made by the A.O. u/s 14A r.w. Rule 8D of the Act. We find that the assessee has not earned any exempt income during the year under consideration. Therefore, in our considered opinion, no disallowance needs to be made u/s. 14A read with Rule 8D of the Act.
12. For this proposition, we draw support from the decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of Corrtech Energy Pvt. Ltd. 372 ITR 97.
13. Respectfully following the same, we direct the A.O. to delete the addition of Rs. 68,652/-. This ground is allowed.
14. The next ground relates to the addition of Rs. 18,28,850/-.
15. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has debited an amount of Rs. 18,81,970/-. As training expenses. The A.O. further noticed that in the immediately preceding assessment year, the same expenditure was Rs. 1,93,452/-. The assessee was asked to justify its claim of expenditure. In its reply, the assessee stated that the assessee has agreed to pay for the technical education of its two employees namely Sh. Harshvardhan M Patel and Sh. Kartik V. Patel and in return, these two employees have agreed to receive 55% lesser salary after the completion of their technical education to reimburse the company for the cost borne thereof.
5 ITA No805 & 478/Ahd/2015
. A.Y.2011-12
16. The submissions of the assessee did not find any favour with the A.O. who observed that the said employees are sons of the directors of the company and secondly, the MOU relied upon by the assessee is not a legally binding document. The A.O. further observed that the assessee has not furnished any documentary evidence to explain that the said expenditure have been incurred for business purpose of the assessee. The A.O. accordingly disallowed Rs. 18,28,850/-.
17. Assessee carried the matter before the ld. CIT(A) but without any success.
18. Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. The ld. counsel once again placed reliance on the Memorandum of Understanding signed by the assessee and the two employees. It is the say of the ld. counsel that these two employees are now engaged in the business of the assessee at 55% lesser salary as agreed upon by them as per the MOU. The ld. counsel concluded by saying that the assessee has successfully explained the business need of the said expenditure and the same should be allowed. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities.
19. We have carefully perused the orders of the authorities below. It is true that the assessee company has entered into a Memorandum of Understanding with these two employees by which it is agreed that after completion of their technical education, the assessee would be paying 55% lesser salary when they will re-join the company. It is equally true that the said MOU is not a legally binding agreement since it is not a registered document. Further, there is no 6 ITA No805 & 478/Ahd/2015 . A.Y.2011-12 guarantee whether the said employees would re-join the company and there is no provision for any liquidated damages on the breach of the agreement. The company and the employees have merely agreed on charging 55% less salary but it is not known for how long such salary is payable by the assessee to the employees. There is also nothing on record to show that similar scholarship/training policy is available for other employees of the assessee. It appears that this special benefit/privilege given to these two persons because they happen to be sons of the directors of the company.
20. Considering the facts in totality, in our considered opinion, the assessee could not justify the business expediency of this expenditure and failing which the disallowance is justified. This ground is accordingly dismissed.
Order pronounced in Open Court on 10 - 01- 2018
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 10 /01/2018
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad