Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit, Circle-1,, Ahmedabad vs Arcoy Industries (India) Pvt. Ltd.,, ... on 7 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' C " BENCH - AHMEDABAD
Before Shri Rajpal Yadav, JM, & Shri Manish Borad, AM.
ITA No.2546/Ahd/2013
Along with CO No.71/Ahd/2014
Asst. Year: 2010-11
DCIT, Circle-1, Ahmedabad. Vs. M/s Arcoy Industries
(India) (P) Ltd., 606,
Abhijeet Building, Nr.
Mithakhali Six Roads,
Ellisbridge, Ahmedabad.
Appellant Respondent
PAN AABCA 2785J
Appellant by Shri Prasoon Kabra, Sr. DR
Respondent by Shri P. M. Mehta & G. M. Thakor,
AR
Date of hearing: 29/9/2016
Date of pronouncement: 07/11/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal by Revenue and Cross Objection by assessee for Asst. Year 2010-11 are directed against the order of ld. CIT(A) -VI, Ahmedabad, dated 5.8.2013 vide appeal No.CIT(A)-VI/182/DCIT- Cir1/12-13 arising out of the order u/s 143(3) of the IT Act, 1961 (in short the Act) framed on 22.01.2013 by DCIT, Circle.1, Ahmedabad.
ITA No. 2546/Ahd/13 & CO 71/A/14 2Asst. Year 2010-11
2. Briefly stated facts of the case are that the assessee is a private limited company engaged in the business of manufacturing and trading of anti corrosive materials and undertaking job works on turnkey basis. Return of income was filed on12/10/2010 declaring total income of Rs.51,02,170/-. Case was selected for scrutiny. Notice u/s 143(2) of the Act followed by notice u/s 142(1) of the Act along with questionnaire were issued and duly served on the assessee. Necessary details as called for were supplied by the assessee. Income was assessed at Rs.87,07,761/- after making addition of Rs.16,69,270/- towards disallowance u/s 14A r.w.r. 8D, disallowance of Rs.14,47,108/- for unutilized Cenvat Credit, disallowance at Rs.23,502/- u/s 41(1) of the Act for unclaimed liability, disallowance of Rs.4,51,838/- for depreciation and car repair expenses being car owned by director and disallowance of Rs.13,873/- towards employees contribution to provident fund paid after the due date. Also book profit of the assessee shown at Rs.49,04,175/- was assessed at Rs.99,09,557/- after making disallowance of Rs.50,05,382/- u/s 14A of the Act.
3. Aggrieved, assessee went in appeal before ld. CIT(A) and succeeded partly and now Revenue is in appeal before the Tribunal raising following grounds :-
1. The CIT(A) has erred in law and on facts in deleting the disallowance u/s 14A to the extent of Rs14.71 lacs despite the fact that the disallowance was worked out as per the provisions of section 14A read with Rule 8D. The AO had not treated any expenditure as directly related to earning exempt income and had only made proportionate disallowance of interest as per Rule 8D(2)(ii)"ITA No. 2546/Ahd/13 & CO 71/A/14 3
Asst. Year 2010-11
2. The CIT(A) has erred in law and on facts in deleting the addition ofRs.14.47 lacs despite the fact that the assessee had followed exclusive method for valuation of inventory instead of inclusive method mandated u/s 145A.
3. The CIT(A) has erred in law and on facts in allowing epreciation/expenses related to motor cars which were not owned by the assessee. The assessee was unable to establish that the cars were used for the purpose of business. The provisions of section 32 were therefore, not satisfied.
4. The CIT(A) has erred in law and on fact by deleting the addition of Rs.13,873/- being late payment of employees contribution to PF. Such late (Ty payment is not deductible u/s 36(l)(va) and is required to be treated as income $\/ u/s2(24)(x).
On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit.
The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
3.1 Whereas assessee has filed Cross Objection on the following grounds :-
1. In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred, even while partly allowing Ground No.2 of the respondent's appeal before him, in not ordering for the deletion of the disallowance of Rs.16,69,270 made u/s. 14A read with Rule 8D in its entirety.
2. The respondent craves leave to add, amend and/or alter the ground or grounds of Cross-objections either before or at the time of hearing.ITA No. 2546/Ahd/13 & CO 71/A/14 4
Asst. Year 2010-11 3.2 Further assessee placed following additional grounds of Cross Objection :-
1. In law and on the facts and circumstances of the respondent's case, no disallowance u/s. 14A r.w.r. 8D can be made in case of assessee, as the assessee has not claimed any income exempt from payment of tax.
2. Without prejudice to the above, the Ld. CIT(A) has erred in working out the disallowance u/s. 14A r.w.r. 8D at Rs. 52,37,391 which was worked out on the basis of gross interest expenditure and without making adjustment of interest income of Rs. 45,51,912.
3. The respondent craves leave of your Honours to add, amend, alter, vary, rescind and/or modify any of the grounds above, in the interest of justice.
4. First we take up Revenue's appeal
5. Ground no.1 and the cross objection by assessee are in relation to disallowance u/s 14A r.w.r. 8D of the IT Rules, 1962 (in short the Rules). At the outset ld. AR submitted that the issue relating to disallowance u/s 14A of the Act in this appeal is squarely covered in favour of assessee by the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Corrtech Energy (P) Ltd. 45 taxmann.com 116 (Gujarat) wherein it has been held that if assessee has not claimed any income exempt from payment of tax then no disallowance is called for u/s 14A of the Act.
6. On the other hand ld. DR supported the orders of lower authorities but could not controvert the submissions made by ld. AR.
7. We have heard the rival contentions and perused the material on record. The issue raised by the Revenue and by assessee in the ITA No. 2546/Ahd/13 & CO 71/A/14 5 Asst. Year 2010-11 C.O. are in relation to disallowance u/s 14A of the Act r.w.r.8D of the Rules. We observe that assessee has made suo motu disallowance u/s 14A in its income-tax return at Rs.33,36,112/-. Ld. Assessing Officer calculated it at Rs.50,05,382/- and made addition of the difference at Rs.16,69,270/-. When the issue came up before ld. CIT(A), the same was remitted back to ld. Assessing Officer for making fresh calculation with regard to the interest expenditure which was adopted by Assessing Officer at Rs.2,18,77,746/- whereas ld. CIT(A) worked out the interest expenditure to be considered under rule 8D at Rs.1,50,08,332/-. We further observe that assessee has filed additional grounds in its Cross Objection claiming that no disallowance u/s 14A of the Act at all can be made in the case of assessee as no exempt income has been claimed during the year under appeal in view of the judgment of the Hon. Jurisdictional High Court in the case of CIT vs. Corrtech Energy (P) Ltd.(supra), which squarely applies to the facts of assessee.
8. In order to appreciate the facts, we have gone through the computation of income placed at pages 51 to 55 of the paper book and find that assessee has made suo motu disallowance of Rs.33,36,112/- and also shown dividend income at Rs.2,09,842/-, which has not been claimed as exempt but offered to tax. In all assessee has not claimed any income as exempt from tax. We therefore, find the contentions of assessee to be correct that no income has been claimed exempt by the assessee for the year under appeal. Further we observe that Hon. Gujarat High Court in the ITA No. 2546/Ahd/13 & CO 71/A/14 6 Asst. Year 2010-11 case of CIT vs. Corrtech Energy (P) Ltd.(supra) has observed as under :-
Section 14A(1) provides that for the purpose of computing total income under chapter IV. no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.
9. Applying the facts of the case to the judgment of Hon. Jurisdictional High Court in the above case, we find that the facts are squarely covered by the judgment. Respectfully following the same, we are of the view that no disallowance u/s 14A of the Act is called for in the case of assessee during the year under appeal. Accordingly, this ground No.1 of Revenue is dismissed and additional ground no.1 of the Cross Objection is allowed. Other grounds of Cross Objection are academic/general in nature and the same are dismissed.
10. Ground no.2 of Revenue's appeal is against the action of ld. CIT(A) deleting the addition towards unutilized CENVAT Credit of Rs.14,47,108/-.ITA No. 2546/Ahd/13 & CO 71/A/14 7
Asst. Year 2010-11
11. Ld. DR vehemently argued and supported the order of Assessing Officer whereas the ld. AR reiterated the submissions made before ld. CIT(A) and further submitted that the issue of CENVAT credit is well settled in favour of assessee by the decision of the Tribunal in the case of Jalaram Ceramic Ltd. vs. DCIT in ITA No.2187/Ahd/2009 for Asst. Year 2005-06.
12. We have heard the rival contentions and perused the material placed before us. Through this ground Revenue has challenged the action of ld. CIT(A) deleting the addition of Rs.14,47,108/- towards unutilized CENVAT Credit. We observe that ld. Assessing Officer while passing the assessment order came across the fact that the assessee has availed CENVAT credit of Rs.6209174/- and has unutilized CENVAT credit of Rs.47,62,066/- and accordingly added Rs.14,47,108 to the income of assessee. We further observe that ld. CIT(A) has deleted the impugned addition by observing as under :-
6.2. I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. It is worthwhile to refer to some case-laws on the issue. In the case of ACIT vs. S.P. Fabricators (P) Ltd. (10 SOT 652 (Mumbai) the year under consideration was assessment year 1999-2000. Section 145A was inserted with effect from 1.4.99. In other words assessment year 1999-2000 was the first year of assessment to which section 145A is applicable. In the case it was held that "When the legislature has imposed a new system of valuing the closing stock it is bound to have an impact in that year, but becomes neutral in nature in the subsequent year. While applying Sec. 145A for valuing closing stock in the first year, the assessee cannot be permitted to adjust the opening stock of the year". Thus the ratio laid down is that for the A.Y. 1999-2000 there was no need to adjust the opening stock in compliance with section 145A in the case of Croydon Chemical Works Ltd. Ltd. Vs. ITA No. 2546/Ahd/13 & CO 71/A/14 8 Asst. Year 2010-11 ACIT (11 SOY 295) (Mumbai) the year under consideration was A.Y. 1999- 2000. It was held that "in view of S.145A, A.O. was justified in adding the debit balance in Modvat account as on 31st March 1999, to the value of closing stock". The said decision has no application as to whether the opening stock is also to be adjusted by taking into account the element of Modvat. Moreover, in this case also the year under consideration was the first year after insertion of section 145 A. •* V .-"•''-(."'" L ' 6.3. In the case of DCIT vs. Beck India Ltd., 26 SOT 141 (Mumbai) relied on by the learned A.R., it was held that "CIT(A) was justified in directing the A.O. to make corresponding adjustments in the opening inventory also where A.O. added back CENVAT credit to closing stock only". The assessment year involved was 2001-02. in the case of L & T Demag Plastics Machinery (p) Ltd. Vs. ITO 124 TTJ (Mumbai) 490 it was held that "in view of mandatory provision of sec. 145A, is bound to make adjustments for any Cenvat actually paid or incurred by the assessee in relation to purchases and sale of goods and inventory; matter remitted back to the A.O. for computing assessee's income after making adjustment such". The assessment year involved was 2001-02. in the case of DCIT vs. Hitech Plast Containers (I) Ltd. 31 SOT 112 (Mumbai), it was held that "for making adjustment of unutilized Modvat credit in the closing stock the AO cannot simply rely on the comments in the auditor's report but has to make the adjustment after considering the effect of duty payments on purchase, sale of goods and closing stock as well as opening inventory and only thereafter the actual amount which is required to be added under s. 145A, if any should be ascertained". The assessment year involved was 2004-05. In the case of CIT vs. Mahavir Aluminium Ltd. 297 ITR 77 (Del.), it was held that "when there is adjustment in the valuation of closing stock, to give effect to S. 145A, the opening stock has to be increased by any tax, duty, cess or fee actually paid or incurred with reference to such stock if the same has not been added for the purpose of valuation in the accounts". The assessment year involved is A.Y.I 999-2000. In the case of CIT Vs. Mahalaxmi Glass Works (P) Ltd. (318 ITR 116) (Bom), it was held that "where in the closing stock unutilized Modvat credit is adjusted, similar adjustment should be made to opening stock also".
6.4. It is seen further in the case of Fouress Engg. (India) Ltd. Vs. ITO 26 SOT 178 (Mumbai), it was held that "to give effect S. 145A, the opening stock as on 1st April, 1998 will have to be increased by any tax, duty cess or ITA No. 2546/Ahd/13 & CO 71/A/14 9 Asst. Year 2010-11 fee actually paid or incurred with reference to such stock if the same has not been added for the purpose of valuation in the accounts'. The assessment year involved was 1999-2000. in the case of DCIT vs. Akasaka Electronics Ltd. 32 SOT 392 (Mumbai), it was held that "in the case of Cyanamid Agro Ltd. vs. Addl. CIT (2009) 121 TTJ (Mumbai) 606 the Tribunal held that "the gross method has got to be followed as per provisions of S. 145A contrast with the net method as mandated under the section, which will put an end to unnecessary litigation. According to the Tribunal there may not be any substantial benefit or loss to the assessee by following gross method in respect of the inputs and the inventories, etc. as mandated under s. 145A. accordingly in that case the Tribunal directed the AO to go through the exercise and work out the addition or relief, as the case may, by making the following adjustments in accordance with s. 145 A, read with the decision of the Delhi High Court in the case of CIT vs. Mahavir Aluminium Ltd. (2008) 214 CTR (Del.) 45 after giving reasonable opportunity of being heard to the assessee : (a) value the opening stock inclusive of element of taxes, even if the MODVAT credit is available in respect of the same ; (c) credit sales as per the bills and add the MODVAT credit that has accrued to the assessee in respect of the imputes including in respect of the opening stock (d) value the closing stock inclusive of element of taxes without deduction of MODVAT credit available to the assessee in respect of the unutilized stocks" the assessment year involved is 2004-05.
6.5. The Ahmedabad Tribunal in its decision dt.07.06.2011 in the case of Asian Tubes Ltd. for the A.Y. 2003-04 in ITA No.i358/Ahd/2009, held :
J"3. At the time of hearing, both the parties agreed that the issue is now squarely covered by the decision of Hon 'ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals Ltd. 327 ITR 369 (Gun.), wherein following was held: -
"Held, dismissing the appeal, that the Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because ;
(a) no deduct ion for the liability had been claimed by the assessee.
The excise duty payable on the finished goods lying in the closing stock at the end of the relevant accounting period had been paid in the subsequent year before the due date of filing of the return of income ITA No. 2546/Ahd/13 & CO 71/A/14 10 Asst. Year 2010-11 and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting yea;
(b) the Assessing Officer had not had recourse to sub-section (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the Assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April 1, 1997. So the next year's profits would get depressed accordingly. Over a period of time the whole exercise would even out, in other words, be revenue neutral. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed. :
(c) the assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No.2) Act, 1998 with effect from April, 1 1999 could not be invoked."
4. Respectfully following the above decision of Hon 'ble jurisdictional High Court, the addition made by the A.O. and confirmed by the Ld. C1T(A) is hereby deleted."
6.6. Ahmedabad Tribunal in its decision dt. 06.01.2012 in the case of Jalaram Ceramics Ltd. Vs. DCIT, Circle-4 in ITA No.2187/Ahd/2009 for A.Y. 2005-06, held:-
"5. Having heard the submissions of both the sides, it was found that the assessee had maintained a separate account for the excise duty and that the assessee had paid the excise duty leviable on finished good stock before the filing of the return. The excise duty was not debited to P & L Account and it 'was not claimed as an expenditure. For this proposition case law cited is CIT vs. Parry Confectionary 299 ITR 321. The next argument is that the excise duty is leviable and includable in the closing stock when the stock is cleared from the factory. Since it was not cleared from the factory, therefore not includable in the value of the closing stock. Case law relied upon is Asst. CIT vs. Narmada Chematur Petrochemicals Ltd. 327 ITR 369 (Guj.). It has also been argued that in the past no such adjustment was ever made, hence the adjustment for the year under consideration it otherwise revenue neutral for ITA No. 2546/Ahd/13 & CO 71/A/14 11 Asst. Year 2010-11 this legal proposition case law relied upon is CIT vs. Realest Builders and Services Ltd. 307 ITR 202 (SC). Assessee has also placed reliance on Ashwin A. Shah 1 ITR 356 (Trib) [Ahd] for the legal proposition that the liability arises only at the time of removal of goods form the factory. Considering the totality of the facts and circumstances of the case and the law discussed above we hereby reverse the finding of the Id. CIT(A) and allow this ground. Assessee's appeal is allowed. "
6.7. It is seen from the ratio laid down in the above mentioned case-laws that only in respect of A.Y. 1999-2000, being the first year after the insertion of section 145A, there is difference of opinion as to whether only closing stock had to be adjusted or whether all the three elements namely, purchases, sale and inventory are to be adjusted to include the element of VAT. In respect of all the subsequent assessment years the ratio laid down is that all the three items namely, purchases, sale and the inventory (as mentioned in section 145A) are to be adjusted to include element of VAT. Such an exercise is revenue neutral.
13. We further observe that assessee is following exclusive method of accounting to recognize purchase and sale, net of excise duty. Further in respect of excise duty paid on purchases for which the assessee is eligible to claim Cenvat is debited under the head Cenvat credit and excise duty charged on sales is claimed as set off against Cenvat credit. Through this accounting treatment we observe that excise duty is never charged to profit and loss account and Cenvat credit account is in the form of current account in which excise duty paid on purchases is debited and that on sales is credited. At the end of the year if the Cenvat is receivable then it is carried forward and if it is payable then has to be paid in the following month. Therefore, there remains no reason for adding the Cenvat to the profit u/s 145 of the Act. We further observe that similar issue came up before the Co- ordinate Bench, Ahmedabad in the case of ACIT vs. Kiran Industries Pvt. Ltd. in ITA No.1450/Ahd/2012 & CO No.135/Ahd/2012 wherein ITA No. 2546/Ahd/13 & CO 71/A/14 12 Asst. Year 2010-11 the issue has been decided in favour of assessee by observing as follows :-
8.We have heard the rival submission and perused the material on record. We find that the issue in the present appeal is with respect to inclusion of Excise duty and VAT to the value of closing stock, in a case where the Assessee is following exclusion method of accounting of Excise and VAT for valuation of stock. We find similar issue were before the co-ordinate Bench of Tribunal. We further find that in the case of Snehal Pharma Chem (supra) the issue was decided in the favour of Assessee by the co-ordinate Bench of Tribunal by holding as under:-
3. We have considered the submissions of the Ld. D.R. and have gone through the material on record and the orders passed by authorities below. We find that there is submission of the assessee before the authorities below that while the entire amount of excise duty realized on sales was included in the sale amount but out of entire amount of excise duty paid on purchases, only that portion of such excise duty paid which was utilized by way of MOD VAT, had been included in the value of purchases and the balance amount of Modvat credit which could not be utilized in the present year was shown in the balance sheet as an amount receivable and this portion of Rs.11,25,342/- was not included in the value of purchases. Ld. D.R. could not controvert these submissions of the assessee made by the assessee before the A.Y. 2005-06 authorities below. Once it is accepted that these submissions of the assessee are correct, it means that excise duty paid but not included in the purchases was shown in the balance sheet as excise duty receivable and therefore, there cannot be a reason to make any addition in the income of the assessee because even if we include such excise duty receivable in the value of closing stock, the same is also required to be included in the value of purchases and it will have no impacts on the profits of the assessee. Therefore, we do not find any reason to interfere in the order of Ld. CIT(A).
9. We further find that in the case of Bloom Dekor Ltd. (supra) similar issue was decided by the Co-ordinate Bench of Tribunal in favour of the Assessee by holding as under:-
4. On perusing the financial statements Assessing Officer noticed that as per the notes to accounts, excise duty on finished goods not cleared as per factory was estimated at R. 47.38 lacs and custom duty on stock lying at port estimated at Rs. 46.5 lacs was not provided for in the books and was also not considered in the valuation of Inventories. Assessing Officer was of the view that as per provision of Section H5A inserted with effect from 1.04.1999 excise duty has to be added while valuing finished goods. He thus considered the amount of excise duty on finished goods not cleared from factory at Rs. 47.38 lacs and custom duty on stock lying at port at 46.51 lacs aggregating to Rs. 93,89,000/- and added it to the value of inventory. Aggrieved by the action of the Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the ITA No. 2546/Ahd/13 & CO 71/A/14 13 Asst. Year 2010-11 Assessee and relying on the decision of Ahmedabad Tribunal in the case of ITA 1358/Ahd/2009 allowed the appeal of the assessee by holding as under:-
The appellant also pointed out that Hon'ble IT AT, Ahmedabad vide ITA No. 13587Ahd/soog has also concurred with a view that excise duty and/or customs duty should not be included in the closing stock. The operative part indicating observation of the Hon'ble ITAT is reproduced herein as under:
"At the time of hearing, both the parties agreed that the issue is now squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals Ltd. 327ITR 369 (Guj.), wherein following was held:
"Held, dismissing the appeal, that Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because:
(a) No deduct ion for the liability had been claimed by the assessee.The excise duty payable on the finished goods lying in the closing stock at the end of the relevant accounting period had been paid in the subsequent year before_the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting year;
.
A.Y. 2005-06
(b) The Assessing Office had not had recourse to sub-section (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April i, 1997. So the next year's profits would get depressed accordingly, over a period of time the whole exercise would even out, in other words, be revenue natural. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed.
[c] The assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No. 2) Act, 1998 with effect from April i, 1999 could not be invoked".
[4.4] I have perused the assessment order and the written submissions made in this regard. Since the issue is squarely covered by the Juris diction al iTAT, I am of the view that no addition should be made on account of excise and customs ITA No. 2546/Ahd/13 & CO 71/A/14 14 Asst. Year 2010-11 duty in the valuation of closing stock. The addition made by the AO is thus directed to be deleted. The grounds raised by the appellant are thus allowed.
5. Aggrieved by the order of the Assessing Officer Revenue is now in appeal before us.
6. Before us, learned D.R. relied on the order of the Assessing Officer.
7. We have heard the learned D.R. and perused the material on record. CIT(A) while deleting the addition has held that the issue is squarely covered by the decision of jurisdictional Tribunal and accordingly relying on the aforesaid decision deleted the addition. Nothing has been brought on record to controvert the findings of CIT(A) and thus we find no reason to interfere in his order and this the appeal of Revenue is dismissed.
10. Since the issue in the present appeal is similar to the issues in the appeals cited hereinabove, we respectfully following the decisions of co-ordinate Bench of Tribunal cited hereinabove, we are of the view that no addition on account of MODVAT and VAT as made by the A.O needs to be made in the present case. We therefore direct its deletion. Thus this ground of Assessee is allowed.
10. We further find that on the issue of Guidance Notes and Accounting Standards issued by the" Institute of Chartered Accountant of India, the High Court of Telengana and Andhra Pradesh High Court in the case of CIT vs. Pacts Securities and Financial Services Ltd. (2015) 374 ITR 681 (T & A.P) at para 13 has noted that the merely because the Central Government has not. A.Y. 2005-06 notified in the Official Gazette "accounting standards" to be followed by any class of assessees or in respect of any class of income, it cannot be stated that the Accounting Standards prescribed by the Institute of Chartered Accountants of India or the Accounting Standards reflected in the "guidance note" cannot be adopted as an accounting method by an Assessee. It further held that notwithstanding the fact that the opinion of the Chartered Accountants of India was expressed in the 'guidance note", which had not attend a mandatory status, would not be a ground to discard the books of accounts of the Assessee or the method of accounting followed.
11. In view of the aforesaid facts and following the decisions of the Co-ordinate Bench cited and the decision of Hon'ble High Court hereinabove, we are of view that no addition on account of unutilized CENVAT Credit was called for in the present case. We thus dismiss the appeal of Revenue and allow the C.O. of assessee.
14. Respectfully following the decision of Co-ordinate Bench as referred above and in view of our discussion in preceding paragraph no addition was called for by the Assessing Officer towards unutilized Cenvat credit receivable. Accordingly, we find no reason to interfere ITA No. 2546/Ahd/13 & CO 71/A/14 15 Asst. Year 2010-11 with the order of ld. CIT(A) on this issue and we uphold the same. This ground of Revenue is dismissed.
15. Ground no.3 raised by the Revenue assailing the order of ld. CIT(A) for deleting the disallowance towards depreciation on car owned by the directors but used by the company at Rs.3,30,593/- and also deleting 20% disallowance for vehicle expenses at Rs.1,21,245/-
16. Ld. DR vehemently argued and supported the order of Assessing Officer and also relied on the decision of Co-ordinate Bench, Mumbai in the case of Edwise Consultants (P) Ltd. vs. Addl. CIT (2013) 35 taxmann.com 149 (Mumbai-Trib).wherein depreciation on the cars was not allowed as they were registered in the name of the directors.
17. On the other hand, ld. AR reiterated the submissions made before ld. CIT(A) and submitted that the impugned motor car was purchased in the name of director but the payment has been made by the company and has been regularly used for business purposes by the assessee. Further assessee has capitalized the purchase cost of motor car and has reflected in the fixed schedule forming part of the audited balance sheet. Bank loan was taken for purchase of car and the interest expenditure thereon has been claimed in the profit and loss account and duly allowed by Revenue. Further In support of above contention ld. AR relied on the decision of the Honorable I.T.A.T. Ahmedabad held in the case of Dhavani Textile Pvt. Ltd. Vs. /TO Ward- 1(4) Ahmedabad registered at ITA No. 873/AHD/2009, ITA No. 2546/Ahd/13 & CO 71/A/14 16 Asst. Year 2010-11 wherein the Co-ordinate Bench decided by relying on the judgment of Mysore Mineral Ltd. Vs. CIT (1999) 239 ITR 775 (SC) and Gowersons Publisher (P) Ltd. Vs. CIT (1990) 240ITR 191 (Delhi) and observed as under:-
"It is not in dispute that the assets were in the possession of the assessee company, purchase value of assets were paid by the assessee company and the vehicles were used for business purposes of the assessee as no part of fne expenses incurred in respect of the above vehicles were disallowed in the assessment Further, it is not the case of the Revenue that the registered owner in the RTO records have claimed that they are owner of the vehicles and not the assessee company. In the above circumstances as we find that the vehicles were purchased out of the funds of the assessee company and the same were used in the business of the assessee company, the assessee company was the owner of the vehicle, thus in our considered view the lower-authorities were not justified in disallowing the claim of depreciation of Rs.28,670/-. Our above view finds support from the decision of the Hon'ble Supreme Court in the case of Mysore Mineral Ltd. Vs. CIT (1999) 239 ITR 775(SC) and decision of Hon'ble Delhi High Court in Gowersons Publisher (P) Ltd. Vs. CIT (1999) 240 ITR 191 (Delhi) wherein it was held that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property in his own right would be the owner of building for the purpose of s. 32(1) though a formal deed of title may not have been executed and registered, and he would be entitled to depreciation thereon. We therefore delete the disallowance of Rs.28,670/-. Thus this ground of appeal of the assessee is allowed."
Further reliance is placed into the following decisions:-
i) CIT v. U.P. State Agro Industrial Corporation (127ITR 97,All.)
ii) Kala Rani vs. CIT (130 ITR 321 (P & H)
iii) CIT vs. Navdurga Transport Co.235 ITR 158, All.)
iv) CIT vs. Dilip singh Sardarsingh Bagga (201 ITR 995,Bom).
In view of what is stated herein above, the assessee submits necessary conditions for allowance of depreciation claim on motor car are satisfied and hence its claim should get allowed fully.
ITA No. 2546/Ahd/13 & CO 71/A/14 17Asst. Year 2010-11
18. Ld. AR further added as the necessary conditions for allowance of depreciation on motor car have been satisfied in view of the judicial precedence its claim was rightly allowed by ld. CIT(A).
19. We have heard the rival contentions and perused the record placed before us. The issue raised by the Revenue in this ground is against the deletion of disallowance on depreciation and proportionate vehicle expenses totaling to Rs.4,51,838/- made by CIT(A). It is not in dispute that the motor car was purchased in the name of director, payment has been made by the company and depreciation has been claimed. These facts further get strengthened by the audited financial statements and Tax Audit Report on firm 3CD with annexures showing depreciation on the impugned car. We further observe that assessee has taken loan from Nutan Nagarit Sahakari Bank Ltd. for car purchase and has claimed interest expenditure of Rs.3,17,835/- as evident from page 150 of the paper book.
20. Further from going through the assessment order, we find that ld. Assessing Officer has only disallowed the depreciation on the impugned motor car but has allowed the interest on car loan. Ld. Assessing Officer has also not disputed the fact that the impugned motor car has been used for the business purposes of the assessee and the disallowance towards vehicle expenses @ 20% was merely on ad hoc basis by taking a view that car being in personal name must have been used for personal purposes.
ITA No. 2546/Ahd/13 & CO 71/A/14 18Asst. Year 2010-11
21. Further from going through the decision relied on by the ld. DR in the case of Edwise Consultants (P) Ltd. vs. Addl. CIT (supra) we observe that similar type of issue wherein motor cars were owned by directors and no plausible reason was placed before the Assessing Authority for not purchasing the car in company's name. Co-ordinate Bench in this case have given a detailed finding and differenciated the facts of its case with those duly considered by Hon. Apex Court in the case of Mysore Minerals Ltd. vs. CIT (1999) 106 taxman 166 (SC) and others by observing as follows :-
7. We have heard the learned representatives on this point and have also gone through the record. We may observe that in this case all the three cars on which the assessee claims ownership and has claimed depreciation, were purchased by the assessee company in the individual names of the Directors. Not only invoice/bills have been issued in the individual names of the Directors, they are also the registered owners of the said cars.
The claim of the assessee company is that the payment for the purchase of said cars was made by the assessee company and the said cars have been shown as assets in the books of account of the company. We do not agree with the contention of the learned AR in this respect. The assessee company has failed to give any explanation as to why the cars were purchased in the individual names of the Directors and registered in their name, when the company wanted to claim ownership over the said cars. The learned AR has submitted that in the authorities cited by him it has been held that it is not necessary that the cars should be registered in the name of the company. He has further stressed that even if the cars are not registered in the name of the company itself is no ground for disallowance of depreciation on the cars especially when the said cars are found in the list of assets as well as books of account of the company. In our view the authorities cited by the learned AR does not fit into the facts and circumstances of this case.
Firstly, we take up the authority of the Hon'ble Supreme Court in the case of 'Mysore Minerals Ltd. (supra). The said case is relating to the ownership of a building. In the said case the assessee company had purchased for the use of its staff seven low income group houses from the Housing Board. The assessee had made part payment and was in turn given allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim u/s. 32 of the Act in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the AO forming an opinion that the assessee had not become the owner for want of deed of conveyance in its favour. It was under such circumstances, the Hon'ble Supreme Court ITA No. 2546/Ahd/13 & CO 71/A/14 19 Asst. Year 2010-11 while interpreting the term "owned" as occurring in section 32(1 )of the I.T Act has held as under:
"In our opinion, the term "owned" as occurring in section 32(1) of the Income-tax Act. 1961. must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings through a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee" the expression as occurring in section 32(1) of the Income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act. etc., but nevertheless is entitled to hold the property to the exclusion of all others."
The Hon'ble Supreme Court has further observed as under:
"It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub-serve the legislative intent. To take the case at hand it is the appellant- assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purposes of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by the Housing Board in favour of the assessee. but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on a large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of documents transferring title necessarily follows if the schedule of payment is observed by the allottee. No third person intervenes. The part payments made by the allottee are with the intention of acquiring title. The delivery of possession by the Housing Board to ITA No. 2546/Ahd/13 & CO 71/A/14 20 Asst. Year 2010-11 the allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment."
In this case, we may observe that the houses were allotted in the name of the assessee company and the possession of the same was also given to the assessee company. The assessee company exercised its domain over the property to the exclusion of all others but due to certain exigencies the conveyance deed could not be executed in the name of the assessee company as there was a fixed schedule of payment to be paid by the assessee company to the Housing Board. It was held by the Hon'ble Supreme Court that the delivery of possession by the Housing Board to the allottee towards conferring ownership. Documentation was delayed only with the idea of compelling the allottee to observe the schedule of payment. It was not the case that the houses were allotted in the name of the persons others than the assessee company. Not only the houses were allotted to the assessee company but also the possession was given by the Housing Board to the assessee company. It was under such circumstances, the Hon'ble Supreme Court has held that the assessee company was exercising its domain, possession and ownership over the property to the exclusion of all others and only because the documentation of the title deed was delayed due to certain reasons, that itself was not a ground to disallow the depreciation on the houses of which the assessee company was having use and possession being its owner.
In the case of Navdurga Transport Co. (supra], the assessee firm was constituted of seven partners to carry on transport business. Four partners contributed money as capital while the other three partners brought their trucks into the firm as their capital contribution. The three vehicles were shown as assets of the firm in the balance-sheet. The AO rejected the claim of depreciation on the said vehicles. It was observed in the said authority that the vehicles were contributed by the partners as their capital contribution. The assessee firm appointed three agents for supervision, control and plying of vehicles. The three trucks became the assets of the firm and they were used through agents by the assessee firm. It was under such circumstances that the Tribunal came to the conclusion that the assessee owned and used the trucks though the registration of the vehicle continued in the name of three partners, who initially acquired the vehicles. Though the registration of the vehicle could not be made in the name of the firm, the assessee firm was in a position to exercise the rights of an owner and not on behalf of the person in whom the title vested, but in its own rights.
Similarly, in the case of 'Dilip Sirigh Sardarsingh Baggtt' (supra), the assessee had purchased a truck from one Shri Agrawal. The brand new truck was originally allotted to Mr. Agarwal. Since the vendor did not have sufficient funds to purchase the truck, he made an offer to the assessee to finance the purchase of the said truck and to operate the said truck on licence as owning to the restrictions under the Motor Vehicles Act. The truck in question could not be registered immediately in the name of the assessee. It was under such circumstances, the Hon'ble Bombay high Court held that the assessee, who had actually purchased the motor vehicle, for valuable consideration and used the same for business cannot be denied the benefit of depreciation on the ground that due to some ITA No. 2546/Ahd/13 & CO 71/A/14 21 Asst. Year 2010-11 restrictions its transfer was not recorded in the name of the assessee under the Motor Vehicles Act.
Thus, in the case laws relied upon by the learned AR. the common fact was that though the ownership and possession over the asset was transferred to the assessee, the title could not be registered due to certain exigencies, reasons, compulsions or omissions. However, in the case in hand, there was no restriction or compulsion or explanation for the assessee company as to why the cars had been purchased in the name of its Directors when, in fact, the assessee company wanted to have ownership and domain over the said cars. It is not the case where due to some reasons as explained above, the registration of the vehicle could not be transferred in the name of the assessee company, whereas the assessee company had been using the said vehicles being its owner and exercising its domain over the vehicles to the exclusion of all others. The assessee company without assigning any reasons, not only purchased the vehicle in the name of the Directors but also the said vehicles were registered in the individual name of the Directors. The Directors under law are not only the legal owners of the property (car) but are also in actually using and possessing the same. Only because the said cars have been shown in the balance sheet or books of account as asset of the company, that does not mean that the company has become the owner of the same. As held by the Supreme Court in the case of 'Mysore Minerals Lid.' (supra)', owner is one who is entitled to own the property to the exclusion of the others. In the present case, the assessee company cannot be said to be holding the property to the exclusion of the Directors especially when the cars are not only purchased in the name of the Directors but also they are the registered owners of the cars. The said Directors of the assessee company have not sold or transferred the cars to the company itself. The authorities cited by the assessee can be applied to a case where in fact the property has been transferred to the assessee and the assessee has been using, possessing and exercising its rights as owner over it, but due to certain circumstances the title could not be transferred in the name of the assessee. But where a person who claims himself to be the owner of the property he does not without any sufficient explanation purchase the property in its own name and never make any efforts for getting its ownership or title transferred in its own name, rather allows deliberately its title registration in the name of other person cannot claim its ownership to the exclusion of the said registered owner/purchaser of the property. The purchase of the cars in the name of other persons by the assessee company itself implies that the assessee company treated the said persons as owner of the property and did not want to exercise its domain over the property. Merely because the company has shown the cars as its assets in the books of account, cannot put it into the definition of owner of the cars to the exclusion of the legal/registered owners of the cars. Under such circumstances, the company cannot be said to the owner of the cars even in the light of the extended definition of ownership u/s, 32(1) of the IT Act. The learned CIT(A) has rightly observed that payment having been made by the assessee company for the cars which were purchased by the Directors in their own name requires that such payment be treated as advance/loan to the Directors. The finding of the learned C1T(A) on this issue is hereby upheld.
ITA No. 2546/Ahd/13 & CO 71/A/14 22Asst. Year 2010-11
22. From going through the above decision of the Co-ordinate Bench in the case of Edwise Consultants (P) Ltd. vs. Addl. CIT (supra) we find that facts are quite similar, to this extent that car is also owned in the case of appeal before us by the director with the only variation observed about the interest on car loan. As discussed, we have observed that ld. Assessing Officer has allowed the claim of assessee for interest on car loan which itself proved that ld. Assessing Officer has accepted to this extent that the interest on car loan was a business expenditure. On one hand car loan interest on the impugned car has been allowed by Revenue and on the other hand depreciation and vehicle expenses have been disallowed. Both cannot go together. In such a situation the needle of justice tilt in favour of assessee. Here we would like to take note of the judgment of Hon. Rajasthan High Court in the case of CIT vs. Md. Bux Shaokat Ali 256 ITR 357 (Raj) wherein the issue was relating to vehicles purchased in the name of partners but the depreciation was claimed in the name of firm, Hon. High Court dismissed the reference by observing that the first finding reached by the Tribunal was that the consideration for purchase of vehicles had been made by the firm consisting of 8 partners and debited to the books of account of firm only. It was also a finding of fact arrived at by the Tribunal that the vehicles were exclusively used for the purpose of business of the firm. Merely because the vehicles have been registered under the Motor Vehicle Act in the name of one of the partners' name it would not deprive the firm of the ownership of the vehicles as it is not distinct from the partners. The Tribunal was correct in holding that depreciation is allowable on the vehicle.
ITA No. 2546/Ahd/13 & CO 71/A/14 23Asst. Year 2010-11 22.1 Respectfully following the judgment of Hon. Rajasthan High Court and in the given facts and circumstances of the case wherein assessee has made payment towards car purchase, impugned car in the name of director has been shown in the balance sheet of the assessee, interest on car loan taken for purchase of impugned car has been allowed by the Revenue, no objection has been raised as regards the use of the car for business purpose by the assessee, and all the day to day expenses on the car are being incurred by the assessee, we find no reason to interfere with the order of ld. CIT(A). We uphold the same. This ground of Revenue is dismissed.
23. Ground no.4 raised by Revenue is against the order of ld. CIT(A) deleting the addition of Rs.13,873/- being late payment made towards employees contribution to P.F even when such payment was not deductible u/s 36(1)(va) of the Act and are to be treated as income u/s 2(24)(x) of the Act.
24. At the outset ld. DR submitted that post the order of ld. CIT(A) Hon. Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation (GSRTC) 366 ITR 170 (Guj) as held that the employees contribution to PF if paid beyond due date should not be allowed as an expenditure u/s 36(1)(va) of the Act.
25. Ld. AR could not controvert the submissions made by ld. DR.
26. We have heard the rival contentions and perused the material on record. The only issue in this ground is relating to employees PF ITA No. 2546/Ahd/13 & CO 71/A/14 24 Asst. Year 2010-11 contribution of Rs.13,873/- deposited after the due date but has been deleted by ld. CIT(A). We observe that the issue in this ground is now well settled by the judgment of Hon. Gujarat High Court in the case of CIT vs. GSRTC (supra) wherein it has been observed.
"8.00. In view of the above and for the reasons stated above, and considering section 36(1 )(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on or before the "due date" mentioned in explanation to section 36(1 )(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were no! credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1 )(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.
Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. The questions raised in present appeal are answered in favour of the revenue. With this, all these appeals are allowed. "
27. Respectfully following the above judgment of Hon. Gujarat High Court in the case of CIT vs. GSRTC (supra), we are of the view that employees PF needs to be disallowed as it has been paid after the due date. Accordingly, this ground of Revenue is allowed.
28. In the result, appeal filed by the Revenue is partly allowed and the Cross Objection by assessee is allowed..
ITA No. 2546/Ahd/13 & CO 71/A/14 25Asst. Year 2010-11 Order pronounced in the open Court on 07th November, 2016 Sd/- sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 07/11/2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 28/10/2016
2. Date on which the typed draft is placed before the
Dictating Member: 31/11/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:7/11/2016
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: