Income Tax Appellate Tribunal - Ahmedabad
Seal For Life India Pvt. Ltd., (Formerly ... vs The Pr. Cit,, Vadodara on 14 September, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ ।
IN THE INCOME TAX APPELLATE TRIBUNAL,
"B" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.1543/Ahd/2015
नधा रण वष / Asstt. Year: 2009-2010
Seal for Life India P.Ltd. Pr.Commissioner of Income Tax
(Formerly Known as Berry Vs Vadodara.
Plastics Pvt. Ltd.)
Plot No.17
GIDC Savli, Manjusar
Vadodara 391 775
PAN : AACCT 3009 K
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Shri Saumya Sheth, AR
Revenue by : Shri Surendra Kumar, CIT-DR
सन
ु वाई क तार ख/ Dateof Hearing : 11/09/2017
घोषणा क तार ख / Date of Pronouncement: 14/09/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Present appeal is directed at the instance of the assessee against order passed by the ld.Pr.Commissioner of Income Tax, under section 263 ("263 Order" for short) of the Income Tax Act, 1961 in the Asstt.Year 2009-10.
2. Brief acts of the case are that the assessee-company at the relevant time was engaged in the business of manufacturing of joint coating systems comprising of heat shrinkable sleeves and accessories. It has filed its return of income electronically on 30.9.2009 declaring total income at Rs.11,56,74,030/-. The case of the assessee was selected for scrutiny ITA No.1543/Ahd/2015 2 assessment, and assessment order under section 143(3) r.w.s Section 144C of the Income Tax Act was passed on 14.3.2013 whereby the ld.AO has determined the taxable income of the assessee at Rs.11,63,17,900/-. On scrutiny of the assessment record, the ld.Pr.Commissioner has formed opinion that the assessee had unutilized MODVAT credit amounting to Rs.52,31,918/- As per section 145A of the Act, this unutilized CENVAT credit should form part of closing stock. Omission at the end of the AO not to treat this unutilized CENVAT credit as a part of closing stock rendered his order erroneous which is prejudicial to the interest of the Revenue.
3. Similarly, he observed that the assessee had made payment to PF, EPF and superannuation gratuity fund amounting to Rs.15,58,850/-. According to the CIT this contribution was not made towards an approved gratuity fund created by the assessee, and therefore, it ought to have been disallowed. Omission on the part of the AO not to conduct an inquiry and allowing these amount has resulted his order as erroneous, which is prejudicial to the interest of the Revenue. Armed with these two reasons, the ld.Commissioner had issued a show cause notice under section 263 of the Income Tax Act. In response to the show cause notice, the assessee has made an elaborate submissions which has been reproduced by the ld.Commisioner on page nos.2 to 10 of the impugned order. The ld.CIT formed an opinion that since inquiries were not conducted by the AO, therefore, his order deserves to be set aside to this extent. He relegated these issues to the file of the AO for fresh adjudication.
4. While impugning order of the ld.CIT, the ld.counsel for the assessee has raised two fold of submissions. He pointed out that action under section 263 should be taken if an order passed by the AO is erroneous as well as it ITA No.1543/Ahd/2015 3 caused some prejudice to the Revenue. He conceded that as far as first contention is concerned, there may not be much dispute, because the AO has not issued show cause notice under section 142(1) for inquiring these two issues. But the second contention is not available. There is no prejudice to the Revenue for non-consideration of this issue. Highlighting his proposition, he submitted that as far as issue regarding CENVAT credit is concerned, the ld.Commisisoner sought explanation of the assessee qua a sum of Rs.52,31,918/-. The Assessee has made elaborate explanation about this issue which has been reproduced by the ld.CIT. He took us through para 18 to 22, which reads as under:
"18. Further with respect to closing balance of CENVAT of Rs. 52,31,918/- [ Rs. 35,59,038/- + Rs.16,72,880/-. We submit that the sum of Rs. 16,72,88Q/-is with respect to Service Tax credit charged on various input expenditures. The some can be used on payment of excise duty as well as service tax liability if any. The assesses has therefore debited such expenditure net of service tax i.e. after reducing amount of service tax. Such service tax is therefore not claimed as deduction under the Act. Accordingly unutilized service tax credit was already taxed under the Act. The assesses has already paid tax on Rs 16,72.880/ on such amount. We therefore submit that the same is therefore not required to he added hack to the credit side of dosing stock. Further service tax is not relating to goods and therefore not required to be added to value of closing stock. Since service tax credit is not debited profit and loss account the same is not required to be added back to the credit side of closing stock, in case your office proposed to add the same to the credit side, your office is also required to debit such amount to the profit and loss account (by increase the value of expenditure.) having no impact on the net profit of the assessee company.
19. With respect to unutilized CENVAT credit of Rs. 35,59,038/-, we submit that the Assesses Company is following the exclusive method of accounting for accounting of CENVAT credit in its books of accounts. The CENVAT duty paid on purchases of Raw material is debited to CENVAT credit receivable (Inputs) Account, as and when the CENVAT ITA No.1543/Ahd/2015 4 Credit is actually utilized against the payment of excise duty account and CENVAT credit receivable account is credited. The purchase cost of inputs is net of specified duty on Inputs. Therefore Inputs consumed and the inventories of Inputs are valued on the basis of purchase cost net of specified duly on inputs. The debit balance in CENVAT Credit receivable (Inputs) Account is shown on the asset side under the head "Advances".
20. Further we submit that the assesses has already offered the unutilized CENVAT credit of Rs. 35,59,038/- to tax by reducing the said amount from the cost of total purchase and services debited to profit and loss account. Accordingly the unutilized CENVAT credit of Rs.35,59,038/- was already taxed under the Act. Your office may note that purchases and services are accounted net of CBNVAT credit in the hooks of accounts. White debited the cost of purchase the assesses has only debited the cost net of CENVAT credit of profit and loss account and CENVAT credit is separately debited to Asset account. We therefore submit that the cost of purchase was debited to profit and loss account after reducing the CENVAT credit available on such purchase, 2 1 , Based upon the above- we submit that the assessee follows exclusive method of accounting the CENVAT. Accordingly, when the material is purchased the same is debited to profit and loss account without including ' therein the amount of CENVAT available as credit. This amount is therefore not claimed as deduction as part of the purchase prices it is separately debited to the CENVAT credit receivable account (Part of the current Assets). As your office will appreciate that the function of closing stock is to nullify the: effect of debit made 1o the profit and loss account on account of purchases of raw material by crediting the amount of the closing stock, to the extent the material is not utilized during the year Therefore if material worth of Rs. 100 is purchased. Rs. 100 is debited to profit and to.ss account. Out of the said, sum of Rs30 is not sold/ utilised at the end of the year, then Rs.30 is credited to profit and loss account so that the net effect of debiting Rs.70 being the cost of material sold/ consumed during the year. Therefore, if the amount of CENVAT is not included in Rs. 100 debited to profit and loss account, the question of including the same in the closing stock does not arise. Section 145A prescribes that the assessee ought to follow the inclusive method of accounting for CENVAT wherein the amount debited to the profit and loss account and consequently the stock etc. should he inclusive of CENVAT.
ITA No.1543/Ahd/2015 522. We further submit that the valuation of stock of Raw Materials is made excluding the value of CENVAT Credit in view of the Accounting Standard 2 issued by Institute of Charted Accountants of India. Purchases are accounted net of CENVAT since the credit of the CENVAT is available against the payment of excise duty on sales."
5. He further contended that in pursuance of order under section 263, the assessment framed by the AO, wherein he made addition. The assessee carried the matter in appeal before the ld.CIT(A) who has decided the appeal vide order dated 29.12.2016. He placed on record copy of the CIT(A)'s order. He pointed out that the ld.CIT(A) has followed order passed by his predecessor in the Asstt.Year 2010-11, and directed the AO to carry out same exercise as was directed in the Asstt.Year 2010-11. He pointed out that the appeal for the Asstt.Year 2010-11 was decided vide order dated 1.12.2014 i.e. much prior to the action taken by the ld.Commissioner under section 263. This order was also brought to the notice of the ld.Commissioner and he was appraised that there was no prejudice to the Revenue on this issue. Similarly, he pointed out that as far as second point is concerned, the assessee has pointed out to the ld.Commssioner that out of total sum of Rs.15,58,850/- only Rs.1,88,670.0 was contributed towards gratuity fund. Direction has been issued by the ld.Commissioner for reconsideration of the issues qua this amount. Similar issue arose in the Asstt.Year 2010-11 wherein a sum of Rs.1,56,612/- was disallowed by the ld. AO on account of payment made by the assessee towards unapproved gratuity funds. The ld.Commisisoner has held that the contribution given to LIC which was a recognized gratuity fund, and it could not be disallowed. This order of the ld.CIT(A) has become final on both these issues, because none has challenged it. In spite of appraising this decision, the ld.Commsisoiner did not consider both the issue on merit, and set aside the assessment for further inquiry. The ld.Commissioner ought ITA No.1543/Ahd/2015 6 to have considered these issues, and therefore, ought to have dropped 263 proceedings.
6. On the other hand, the ld.DR submitted that admittedly, the AO has not carried out any investigation. He has not touched both these issues. This order passed by the AO is an erroneous order. Unless somebody carried out an exercise, then how it could be said that prejudice has been caused to the Revenue or not. In other words, according to the ld.CIT for determining the escapment of income from tax, net an inquiry is a must. In the absence of any inquiry, it is not practically possible to find the prejudice caused to the Revenue.
7. We have duly considered rival contentions and gone through the record. Before adverting to the facts of the present case, we deem it pertinent to take note of fundamental tests propounded in various judgments relevant for judging the action of the CIT taken under section 263 of the Act. It is also pertinent to observe that the ld.counsel for the assessee has filed a paper book containing 20 judgments. The ITAT in the case of Mrs.Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095 analysed in details various authoritative pronouncements including decision of the Hon'ble Supreme Court in the case of Malabar Industries, 243 ITR 83 and has propounded the following broader proposition to judge action of CIT taken under section 263:
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.ITA No.1543/Ahd/2015 7
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s.
263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
8. Apart from the above, we would like to take note of observation of the Hon'ble Delhi High Court I the case of ITO Vs. D.G. Housing Projects Ltd., 343 ITR 329 (Del). The relevant part of the judgment read as under:
ITA No.1543/Ahd/2015 8"18. This distinction must be kept in mind by the Commissioner of Income-tax while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous."
9. In the light of the above, let us examine facts of the present case. The assessee has demonstrated before the ld.Commissioner that in the alleged amount of unutilised CENVAT credit of Rs.52,31,918/- a sum of Rs.16,72,880/- representing service tax credit charged on various input expenditure. This amount was not claimed as deduction. The assessee already paid tax on this amount. The ld.Commissioner did not dispute it. With regard to the balance Rs.35,59,038/-, it was contended by the assessee that when it had purchased raw-material, the same is debited to profit & loss account without including therein the amount CENVAT available as credit.
ITA No.1543/Ahd/2015 9Thus, according to the assessee, it has not claimed as deduction as a part of purchases. It is separately debited to CENVAT credit receivable account. If that was the situation, which has been verified in the Asstt.Year 2010-11 by the ld.CIT(A) vide order dated 1.12.2014 what was the occasion for the ld.Commissioner to relegate this issue to the AO without verifying the details on merit. The AO has passed the assessment order in pursuance of 263 order which was challenged in appeal before the ld.CIT(A) and the ld.CIT(A) has followed order of the predecessor in the Asstt.Year 2010-11 dated 1.12.2014. Had the ld.Commissioner applied his mind and looked into the issue on merit, atleast this unnecessary exercise should have been avoided. As far as second issue is concerned, a conclusive finding have been recorded by the ld.CIT(A) in the Asstt.Year 2010-11 before the order passed under section 263 that payment of alleged gratuity was towards a approved fund. This order was not challenged. The finding recorded by the ld.CIT(A) in the Asstt.Year 2010-11 on this issue reads as under:
"4.2 The reasons as mentioned by the AO for making disallowance of contribution of Rs.1,56,612/- as mentioned by the AO in the assessment order as well as above submission of AR of the appellant have been considered. On this issue, the submission of AR of the appellant as reproduced above is found to be tenable. The appellant has made payment to UC's Recognized Group Gratuity Fund based on the actuarial valuation done by the UC. Further the scheme is formulated in compliance with Part C of the Schedule - IV of the Act and tax benefits are available as provided in Income Tax Rules.' The Appellant has duly disclosed in "Schedule 20 Significant Accounting Policies and Note's Forming Part of Accounts" that in respect of Gratuity, contributions are made to LIC's Recognized Group Gratuity Scheme based on amount demanded by LIC of India. Thus, the appellant has made payment to an approved gratuity fund and therefore payment made is allowable as deduction u/s.36(1)(v) of the Act. In view of these facts, the above addition of Rs.1,56,612/- is hereby deleted. Thus, the ground of appeal no.4 of the appellant is allowed."ITA No.1543/Ahd/2015 10
10. After taking into all these factors, we are of the view that no case is made out for taking action under section 263 of the Income Tax Act, 1961. We allow the appeal of the assessee and quash the order passed under section 263 of the Act by the ld.Pr.Commissioner.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 14th September, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER