Income Tax Appellate Tribunal - Ahmedabad
Radiant Parenterals Limited, Baroda vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
Before Shri N.S. SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing: 14.10.2009 Drafted on:15.10.09
ITA No.1111/AHD/2006
Assessment Year : 2002-2003
Radiant Parenterals Vs. The ITO Ward 4(2)
Limited Race Course Ayakar Bhavan,
rd
3 Floor, Paradise Baroda.
Complex, Sayajigunj,
Baroda.
PAN/GIR No. : AAACR 9394 R
(APPELLANT) .. (RESPONDENT)
Appellant by : None
Respondent by: Shri Jayant Jhaveri Sr. D.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by Assessee against the order of the ld.CIT(Appeals)-III, Baroda, dated 15.02.2006.
2. Ground no.1 of the appeal taken by the assessee is general in nature and hence requires no adjudication by us.
3. Ground no.2 of the appeal is directed against the order of the Learned Commissioner of Income Tax(Appeals) restoring the issue of excise duty addition of Rs.1,06,266/- to the stock of finished goods back to the file of the Learned Assessing Officer. The assessee contends that the same should have been deleted by the Learned Commissioner of Income Tax(Appeals).
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4. The brief facts leading to this ground of appeal are that the assessee did not include excise duty in the value of closing stock of finished goods. Before the Learned Assessing Officer the assessee submitted that excise duty was payable by the assessee only on removal of goods from the factory premises and is not payable on finish goods lying in the factory premises. The assessee also submitted that the opening stock of finished goods is Rs.8,88,080/- and the closing stock of finished goods is Rs.6,64,166/-. Therefore, after considering the effect of excise duty in opening stock no addition is warranted. It was further submitted that excise duty on finished goods was paid before the due date of filing of return of income and hence deductable under section 43B of the Act. The Learned Assessing Officer did not accept the above submissions of the assessee for the reason that excise duty was leviable on finished goods on manufacture and therefore includable in the cost of finished goods. He therefore held that the assessee is liable for excise duty @ 16% on cost of finished goods lying in stock and made addition of Rs.1,06,266/- to the income of the assessee.
5. In appeal, the Learned Commissioner of Income Tax(Appeals) relied on the various decisions cited in his order where it was held that excise duty was incurred in the manufacture or production of goods. He further observed that in view of specific provision of section 145A, the Learned Assessing Officer was justified in including the excise duty payable in finished goods in the value of stock and making addition to the income of assessee. Further, the Learned Commissioner of Income Tax(Appeals) observed that since the value of closing stock of preceding year was not changed, no change in the value of opening stock can be ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003 -3- allowed since it has been held Hon'ble Bombay High Court in the case of Melmould Corporation V. CIT 202 ITR 789 that the closing stock of preceding becomes the opening stock of next year and by the Hon'ble Supreme Court in the case of Mahindra Mills Ltd. V. AAC 99 ITR 135 that it cannot be disputed that closing stock of one accounting year furnishes the figure of the opening stock of the year following. However, the Learned Commissioner of Income Tax(Appeals) found merit in the contention of the assessee that he is entitled for deduction under section 43B of the Act for the excise duty paid before the due date of filing of return of income. He therefore, directed the Learned Assessing Officer to verify payment of excise duty and allow the deduction if the same was paid before the due date of filing of return of income.
6. Notice of hearing was sent to the appellate by Registered Post with acknowledgement due on 11.09.2009, which was served on the assessee on 17.09.2009 as evidenced by the acknowledgement card of the post office placed on record. None appeared for the appellant when the case was called for hearing and neither any adjournment application was filed. The Bench was of the view that the appeal can be decided in the absence of the learned Authorized Representative of the assessee and therefore, the Learned Departmental Representative was heard and the appeal was being disposed off on the basis of the materials available on record.
7. We have heard the Learned Departmental Representative and perused the orders of the lower authorities and the materials available on record. In the instant case, the Learned Assessing Officer found that the assessee has not included the amount of excise duty in the value of closing stock of finished goods for the reason that the goods were lying in ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003 -4- the factory and excise duty was payable on the removal of goods from the factory. The assessee also contended before the Learned Assessing Officer that in case excise duty is added to the value of closing stock then the value of opening stock should also be increased by the amount of excise duty and in that case as the value of opening stock was more than the value of the closing stock therefore no addition to the value of the closing stock on account of excise duty is warranted. Further, it was also contended that in case addition was made to the value of closing stock of finished goods for excise duty then the assessee should be allowed deduction for excise duty paid before the due date of filing of return of income. The Learned Assessing Officer did not accept the above contentions of the assessee.
In appeal, the Learned Commissioner of Income Tax(Appeals) rejected the contentions of the assessee for inclusion of excise duty in the value of opening stock of the year for the reason that the value of closing stock of earlier year becomes the value of closing stock of the subsequent year but accepted the contention of the assessee that excise duty paid before the due date of filing of return should be allowed deduction to the assessee and directed the Learned Assessing Officer to verify the same and then allow deduction as per law. We find that the Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Mahavir Aluminium Ltd. (2008) 297 ITR 77 (Del), has held as under:
"Order by the court :
In this appeal under s. 260A of the IT Act, 1961 ( ' the Act ' ), the Revenue is aggrieved by an order dt. 9th June, 2006 passed by the Income-tax Appellate Tribunal, New Delhi, Bench ' E ' ( ' Tribunal ' ) in ITA No. 413/Del/2003 relevant for the asst. yr. 1999-2000. Admit.
2. After hearing learned counsel for the parties, the following question of law is framed for consideration :ITA No.1111/Ahd/2006
M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003 -5- "Whether the Tribunal was correct in law in allowing the adjustment of Rs. 54,83,272 to the assessee in the opening stock for the previous asst. yr. 1998-99 (being a transitional year) under s. 145A of the IT Act, 1961 ?"
3. Filing of paper book is dispensed with.
4. In its closing stock for the previous year ending on 31st March, 1999, the assessee had charged Modvat credit on certain inputs. While doing so, the assessee made an adjustment in the opening stock as on 1st April, 1998. The adjustment was to the extent of Rs. 54,84,272. According to the AO, s. 145A of the Act (which came into force on 1st April, 1999) did not permit the assessee to make a change in the valuation of the opening stock as on 1st April, 1998 although it permitted a change in the closing stock as on 31st March, 1999.Sec. 145A of the Act reads as follows : "Sec. 145A. Method of accounting in certain cases.--Notwithstanding anything to the contrary contained in s. 145, 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 of profession shall be--
(a) in accordance with the method of accounting regularly employed by the assessee; and
(b) 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."
5. Feeling aggrieved by the decision of the AO, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [ ' CIT(A) ' ] who partly allowed the appeal but did not admit the claim of the assessee to the extent of the amount mentioned above.
6. Feeling aggrieved by the said order, the assessee preferred a further appeal before the Tribunal and by its order dt. 9th June, 2006, the Tribunal allowed the appeal. While doing so, the Tribunal relied upon a decision rendered by the Kolkata Bench of the Tribunal in the case of ITO vs. Mehra Electric Co. (2005) 148 Taxman 37 (Kol)(Mag). The Tribunal also relied upon Circular No. 772 dt. 27th Dec., 1998 passed by the CBDT as well as the Guidance Note issued by the ICAI.
Thereafter, the Tribunal held that the adjustment on account of Modvat credit and excise duty can be made in the opening stock also and that the assessee did not commit any error in doing so. Therefore, the Tribunal set aside the order of the AO.
7. The Revenue has now preferred an appeal before us under s. 260A of the Act.
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8. Learned counsel for the assessee has drawn our attention to Notes on Clauses in the Finance Bill when s. 145A of the Act was being inserted w.e.f. 1st April, 1999. It has been stated in the Notes of Clauses as follows :
"It is proposed that while computing the value of the inventory as on the 1st and the last day of the previous year, the computation according to the method of accounting regularly employed by the assessee shall be adjusted to include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force. This amendment is proposed as valuation of inventory after the adjustment will present the correct value."
9. Our attention has also been drawn to the decision of the Privy Council in the case of CIT vs. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 PC 56 where the effect of altering the method of valuation was considered. While discussing this issue, the Privy Council opined as under :
"If the method of altering both valuations is not adopted it is perfectly plain that the profit which is brought forward is not the real one. It may be more or it may be less, but it has no relation to the true profit if the stock is valued on one basis when it goes out without considering the value of the stock when it comes in. When, therefore, there is under valuation at one end, the effect is to cause both a smaller debit in respect of the stock introduced into the net account and a larger sum for profits realized by the sale, change in market values being immediately reflected in the price obtained for the goods that are sold, in these circumstances to contend that there should be under valuation at one end and not at the other is to raise an argument which their Lordships cannot accept."
10. The opinion of the Privy Council was that whenever there is a change in the valuation at one end (that is on 31st March, 1999 as in the present case) then there must necessarily be acorresponding change at the other end (that is on 1st April, 1998 as in the present case) otherwise, the true profit would not be reflected.
11. Circular No. 772 dt. 23rd Dec., 1998 issued by the CBDT refers to the method of accounting and in para 52.1 thereof, it is mentioned that whether the value of the closing stock of the inputs must necessarily include the element for which Modvat credit is available, has been a matter of considerable litigation over the years. In para 52.2, the CBDT has clarified that with a view to put an end to this point of litigation, both the opening and closing stock should reflect the correct value and that is why s. 145A was inserted to the statute book. It is further stated that the valuation shall be 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.
Para 52.2 of the circular reads as follows :
ITA No.1111/Ahd/2006M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003 -7- "52.2. Consistent with the other provisions of the Act, with a view to put end to this point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new s. 145A is inserted. This section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be 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."
12. Learned counsel for the Revenue referred to the Guidance Note on Tax Audit under s. 44AB of the Act issued by the ICAI, New Delhi. She referred to paras 23.8, 23.13 and 23.14 thereof. The contention of learned counsel for the Revenue was that by changing the method of valuation, the assessee has in fact got a double benefit which is not permissible. The paras cited by learned counsel for the Revenue read as follows :
"23.8 Sec. 145A has been enacted by the Finance (No. 2) Act, 1998 and has come into force from the accounting year 1st April, 1998 to 31st March, 1999 (asst. yr. 1999-2000). This section provides that the valuation of purchase and sale of goods and inventory for the purpose of computation of income from business or profession shall be made on the basis of the method of accounting regularly employed by the assessee but this shall be subject to certain adjustments. Therefore, it is not necessary to change the method of valuation of purchase, sale and inventory regularly in the books of account. The adjustments provided in this section can be made while computing the income for the purpose of preparing the return of income. These adjustments are as follows :
(a) Any tax, duty, cess or fee actually paid or incurred on inputs should be added to the cost of inputs (raw materials, stores etc.) if not already added in the books of accounts.
(b) Any tax, duty, cess or fee actually paid or incurred on sale of goods should be added to the sales, if not already added in the books of account. (c) Any tax, duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in- progress, raw materials etc.) should be added to the inventories, if not already added while valuing the inventory in the accounts.
23.13 It may be noted that when the adjustments are made in the valuation of inventories, this will affect both the opening as well as closing stock. Whatever adjustment is made in the valuation of closing stock, the same will be reflected in the opening stock also. Question for consideration is whether the opening stock as on 1st April, 1998 should be adjusted as required under s. 145A. It is now well settled that if any adjustment is required to be made by a statute, effect to the same should be given irrespective of any consequence on the computation of income for tax purposes. Sec. 145A starts with the non obstante clause ' ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003 -8- Notwithstanding anything to the contrary contained in s. 145 ' . Therefore, to give effect to s. 145A, the opening stock as on 1st April, 1998 will have 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.
23.14 It may be noted that while making the adjustments stated in paras 23.8 and 23.13 above, the tax auditor should ensure that if any deduction is claimed for any tax, duty, cess or fee on the items covered by these two paras by way of debit in the P&L a/c, either in the earlier year or in the year under report, adjustment for the same should be made in such a manner that no double deduction is claimed for the same expenditure. Similarly adjustment should be made for any item of income to ensure that the same item is not treated as income twice."
13. We are of the opinion that in the present case, there is no question of any double benefit being given to the assessee. Para 23.13 of the Guidance Note itself makes it clear that whenever any adjustment is made in the valuation of inventory, this will affect both the opening as well as the closing stock. It is also to be noted that if any adjustment is required to be made by a statute, (as for example s. 145A of the Act), effect to the same should be given irrespective of any consequences on the computation of income for tax purposes. Sec. 145A of the Act begins with a non obstante clause, and therefore, to give effect to s. 145A of the Act, if there is a change in the closing stock as on 31st March, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on 1st April, 1998. Para 23.14 of the Guidance Note postulates that adjustment should be made in such a manner that no double deduction is claimed for the same expenditure. In the present case, the question of double deduction does not arise, since no adjustment was made by the assessee in the P&L a/c for the year ending 31st March, 1998.
Under the circumstances, we answer the question in the affirmative, that is in favour of the assessee and against the Revenue. Accordingly, this appeal is disposed of."
In view of the above decision of the Hon'ble Delhi High Court, we set aside the order of the Learned Commissioner of Income Tax(Appeals) on this issue and restore the matter back to the file of the Learned Assessing Officer to decide the issue afresh in light of the above cited decision after allowing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal of the assessee is allowed for statistical purposes.
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8. Ground no.3 of the appeal is directed against the order of the Learned Commissioner of Income Tax(Appeals) confirming the disallowance of notional interest made by the Learned Assessing Officer on advances.
9. The brief facts of the case are that the assessee has made interest free advance of Rs.38,07,523/- to the following persons.
Amount(Rs.) Name of person/party Purpose of advance/loan 18,83,634 Shri Jay Prakash Shah Principal amount Rs.7,00,000 15,87,859 Shri Rajeshbhai J. Shah Principal amount Rs.8,70,000 5,000 Aquatech Industries For machinery purchase 3,000 Jalaram Electronix Business advance 76,534 Protech Engineers(India) Advance for machinery 1,75,871 The United Engineering Co. Advance for machinery 10,000 ECGC of India Ltd. Advance for ECGC guarantee
The Learned Assessing Officer held that assessee had taken loan from Bank on which it was paying interest and also accepted deposits from sister concerns and others to whom interest was being paid. The Learned Assessing Officer also observed that the assessee failed to prove any nexus between its own/interest-free funds and the advances given and also failed to prove that the borrowed funds were not used for making interest free advances. Reference was also made by the Learned Assessing Officer to the order of the Learned Commissioner of Income Tax(Appeals) for the Assessment Year 1995-96 wherein similar disallowance was confirmed by the Learned Commissioner of Income Tax(Appeals). The Learned Assessing Officer computed the interest at 15% on advance of Rs.30 lakhs and disallowed an amount of Rs.6,08,000/-.
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10. Before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that :-
(i) In the Assessment Year 1994-95 disallowance was made by the Learned Assessing Officer for investment made in shares and not for interest free advances and, therefore, the finding given in the Assessment Year 1994-95 is not applicable.
(ii) Advances to Shri Jayprakash P. Shah and Shri Rajeshbhai J. Shah of Rs.7.00 lacs and Rs. 8.70 lacs aggregating to Rs.15.70 lakhs were given in Financial Year 1993-94. Interest on these advances shall be Rs.2,35,500/-
@ 15% applied by the Learned Assessing Officer even if the same treated as advances out of borrowed funds.
(iii) The following advances aggregating Rs.2,17,405/- were for business purposes and were wrongly treated by the Learned Assessing Officer as interest free advances for non-business purposes:
5,000 Acuqtech Industries For Machinery purchase 3,000 Jalaram Electronix Business advance 76,534 Protech Engineers (India) For Machinery purchase 1,75,871 The United Engineering Co. For Machinery purchase 10,000 ECGC Of India Ltd. For ECGC guarantee
(iv) The Learned Assessing Officer has not proved any nexus between advances to associate concerns and the borrowings.
(v) There is a decrease in the borrowings by an amount of Rs.20.79 lakhs as compared to the preceding year.
(vi) Assessee's interest free funds are sufficient to make interest free advances.
(vii) In any case, the Assessing Officer has computed the interest incorrectly. The correct amount of interest at 15% on Rs.37,41,898/-
comes to Rs.5,61,285/-
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Reliance was also placed on the following decisions:
1. GNFC V. DCIT 73 TTJ 878 (ITAT Ahd)
2. CIT V. India Carbons Ltd. 247 ITR 510 (Gau)
3. CIT V. Shridev Enterprises 192 ITR 165 (Ker)
4. RD Joshi & Co. V. CIT 251 ITR 332 (MP)
5. Torrent Financiers V. ACIT 73 TTJ 624 (ITAT Ahd)
6. Sahibaug Enterprenuers V. ITO 50 ITD 113 (ITAT Ahd)
7. CIT V. Orissa Cement Ltd. 252 ITR 878 (Delhi)
11. After considering the submissions of the Assessee, the Learned Commissioner of Income Tax(Appeals) held as under:
"5.2.1 As regard loan to Shri Jayprakash Shah & Shri Rajeshbhai Shah, it is seen that these loan were given in the year 1993-94. The assessee was charging interest from these persons upto the year 1998-99. However, after that it has stopped charging interest from these persons. These persons are covered by the definition of 'specified persons' as per section 40A(2)(b) of the Act. The assessee has not given any reasons as to why it has stopped charging of interest from these persons. As pointed out by the Assessing Officer, the assessee has been paying substantial interest on money borrowed but has not charged any interest from these persons. The Assessing Officer was, therefore, justified in disallowing the proportionate interest @ 15% in respect of advances to these persons. The Assessing Officer is, however, directed to re-compute the interest on the principal amount as there is nothing to show that the assessee was earlier charging interest on interest.
5.2.2 As regards advances of Rs.2,17,405/- for purchase of machinery, business advance, ECGC guarantee etc., these are business advances and not interest free advances to related persons. In all business, such interest-free advances are made and there is noting unusual about it. Therefore, there is no justification for disallowing proportionate interest on these advances."ITA No.1111/Ahd/2006
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12. The Learned Departmental Representative supported the order of the Learned Assessing Officer.
13 We have heard the Learned Departmental Representative and perused the orders of the lower authorities and the materials available on record. In the instant case, the Learned Assessing Officer disallowed interest amounting to Rs.6,08,000/- @ 15% on advance of Rs.30 lacs given by the assessee for the reason that the assessee has taken loan from Bank on which it was paying interest and also accepted deposits from sister concerns and others to whom interest was being paid and the assessee has given advanced free of interest and the assessee failed to prove any nexus between his own/interest free funds and the advances given and also failed to prove that the borrowed funds were not used for giving interest free advances. In appeal, the Learned Commissioner of Income Tax(Appeals) deleted the disallowance of interest on advances of Rs.2,17,405/- given by the assessee for purchase of machinery, business advance, ECGC guarantee etc. for the reason that these are business advances and not interest free advances to related persons and confirmed the disallowance of interest on the balance amount of advances given by the assessee. We find that the Learned Assessing Officer disallowed interest on advance of Rs.18.83 lacs given to Shri Jayprakash P. and Rs.15.87 lacs given to Shri Rajeshbhai J. Shah who were nearest relatives of the Directors of the Company, thus, the Learned Assessing Officer also observed that the assessee was not having sufficient interest free funds to advance the amount to the aforesaid persons as assessee has taken secured loan from Bank and sister concern and debited interest of Rs.18.66 lacs in the profit and loss account. He also noted that the borrowed fund existed in the previous year from ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
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where these advances have been brought forward and that additions were made on account of interest on advances in Assessment Year 1994- 95 and the same was confirmed by the Learned Commissioner of Income Tax(Appeals). Thus, it is observed that the revenue has brought material on record to show that interest free advance given to the parties were out of borrowed funds by showing that interest expenditure proportionate to these advances were disallowed in the assessment of Assessment Year 1994-95. No material was brought on record by the assessee to controvert the above finding of the Learned Assessing Officer and to show that the advances have been given out of interest free funds available with the assessee. In absence of any such evidence, we do not find any good and justifiable reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals) and the same is hereby confirmed and the ground of appeal of the assessee is dismissed.
14. Ground no.4 of the appeal is directed against confirmation of the following disallowance made by the Learned Assessing Officer.
(a) Rs. 10,747 out of transportation charges
(b) Rs. 27,715 being testing charges
(c) Rs.1,05,716 being goods lost in transit
(d) Rs. 3,877 being Kasar/Discount
15. The brief facts are that the Learned Assessing Officer disallowed transportation charges of Rs.10,747/- on the ground that the bill was in the name of assessee's sister concerns namely Rekvina Lab Ltd. The assessee submitted before the Learned Commissioner of Income Tax(Appeals) that the bill was inadvertently raised by the transporter in the name of Rekvina Lab Ltd. but the payment was made by the assessee ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
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vide Cheque No.60535 dated 4.07.2001 for Rs.6930/- and Cheque No.60645 dated 16.08.2001 for Rs.3,544/-. The Learned Commissioner of Income Tax(Appeals) confirmed the action of the Learned Assessing Officer on the ground that the bill was in the name of M/s. Rekvina Lab Ltd. and no contrary evidence was brought on record by the assessee and that merely making of payment by assessee would not entitle the assessee for deduction of expenditure.
16. After hearing the Learned Departmental Representative and perusing the material on record, we find that the assessee failed to show that the expenditure was incurred for the business of the assessee by bringing any positive material on record. It is undisputed fact that the bill was not in the name of the assessee and therefore, merely making of payment of the bill would not entitle the assessee for deduction of expenditure unless it is shown by the assessee that though the bills were raised in the name of sister concerns but it actually related to the assessee's business. We therefore, no good reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals) and the order of the Learned Commissioner of Income Tax(Appeals) hereby confirmed and the ground of the appeal of the assessee is dismissed.
17. Further, the Learned Assessing Officer disallowed testing charges of Rs.27,715/- on the ground that the assessee could not produce the bill for the expenditure. Before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that it had dispatched goods to Tamilnadu Medical services corporation Ltd., which were rejected by the party. The party made payment by reducing the amount from the bill of the assessee. No debit note/bill was raised on the party as it has deducted ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
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the amount from the bill for which journal entry was passed. The Learned Commissioner of Income Tax(Appeals) observed that the assessee filed copy of letter dated 16.05.2001 from Tamilnadu Medical services Corporation Ltd. wherein it was stated that goods worth Rs.27,645/- failed the test. The Learned Commissioner of Income Tax(Appeals) observed that it is not possible to say with certainity that it is this amount which has been debited in the testing charges account. Since, assessee had not produced any conclusive evidence, he confirmed the disallowance made by the Learned Assessing Officer.
18. Further, the assessee claimed deduction of Rs.1,05,716/- on account of goods lost in transit, which was disallowed by the Learned Assessing Officer as the assessee could not produced any evidence for goods lost in transit. Before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that M/s. Tamilnadu Medical Services Corporation Ltd. to whom substantial sales were made rejected the goods and hence deduction of Rs.1,05,716/- was claimed. Assessee filed copy of letter dated 31.3.2001 from M/s. Tamilanadu Medical Services Corporation Ltd. in support of the claim and submitted that as the party was old and regular customer, no F.I.R. was filed and the rejection was treated as goods lost in transit. In appeal, the Learned Commissioner of Income Tax(Appeals) observed that it is not know as to what happen to the rejected goods with the other party and that whether they were included in the closing stock or were simply thrown by the assessee or M/s. Tamilnadu Medical Services Corporation Ltd. The Learned Commissioner of Income Tax(Appeals) from perusal of letter dated 31.03.2001, it is seen that it refers to various invoices dated 17.07.2000 to 26.08.2000. The material was received by the party ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
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between 28.08.2000 to 30.09.2000, whereas the letter for product fail has been issued on 31.03.2001. The Learned Commissioner of Income Tax(Appeals) also observed that the party did not make claim immediately on receipt of goods and the assessee also did not object to the claim of rejection of goods as such a later date. He therefore confirmed the disallowance made by the Learned Assessing Officer.
19. After hearing the Learned Departmental Representative and perusing the material on record, it is observed that disallowance of Rs.20,715/- and Rs.1,05,716/- was made by the Learned Assessing Officer for lack of evidences. The assessee filed evidences in the form of letter from the party for the first time before the Learned Commissioner of Income Tax(Appeals). The Learned Commissioner of Income Tax(Appeals) rejected the evidences on the basis of suspicion alone without any verification. In the circumstances, in our considered opinion, it shall be in the interest of the justice to restore the issues back to the file of the Learned Assessing Officer for adjudication afresh after verification of the evidences brought on record by the assessee. We order accordingly and direct the Learned Assessing Officer to readjudicate the issues as per law after allowing proper opportunity of hearing to the assessee. Thus, these two grounds of appeal are allowed for statistical purposes.
20. Further, the assessee claimed deduction of Rs. 3,877/- on account of Kasar expenses which was disallowed by the Learned Assessing Officer as the assessee failed to file Kasar account or any other evidence in support of the claim. In appeal before the Learned Commissioner of Income Tax(Appeals), the assessee submitted that the expense was in the nature of discount and short realization of amount from various parties ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
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against sales made and that considering the turnover of Rs.154 lacs, the expense was very small. The Learned Commissioner of Income Tax(Appeals) confirmed the disallowance made by the Learned Assessing Officer as the assessee failed to furnish details of the Kasar expenses.
21. After hearing the Learned Departmental Representative and perusing the material on record, we find that the assessee has claimed Kasar expenses of Rs.3,877/- which was disallowed. We find that the expenses claimed are in the nature of discount and short realization of amounts from various parties against sales made. Considering the nature of expenses and smallness of amount, we are of the view that the lower authorities were not justified in disallowing such petty expenses which are incurred in the usual course of business. We therefore, delete the disallowance of Rs.3,877/- and allow the ground of appeal of the assessee. Thus, this ground of appeal of the assessee is allowed.
22. Ground no.5 of the appeal is directed against the order of the Learned Commissioner of Income Tax(Appeals) confirming disallowance of RS. 97,572/- made by the Learned Assessing Officer out of interest considering the same relating to investment in shares.
23. The brief facts are that the assessee invested Rs.31,60,121/- in the shares of sister concerns M/s. Rekvina Lab. Ltd. The Learned Assessing Officer disallowed proportionate interest of Rs.97,572/- attributable to the investment. Before the Learned Commissioner of Income Tax(Appeals) assessee submitted that shares of Rs.40.87 lacs were purchased in the Financial Year 1993-94 and the assessee had sufficient interest refunds as on 31.03.2002. The Learned Assessing Officer was not justified in holding that the borrowed funds were invested in the ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003
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investment in shares when the share capital has increased to Rs.185.11 lacs as on 31.3.2002. There is no direct nexus between borrowed funds and investment in shares. Further, it was submitted that section 14A deals with the expenditure incurred in relation to income not includable in total income and as the assessee had no dividend income, no disallowance was called for. The Learned Commissioner of Income Tax(Appeals) observed that section 14A was introduced by the Finance Act, 2001 with retrospective effect from 1.04.1962. The section provides that no deduction shall be allowed in respect of an expenditure incurred by the assessee in relation to the income which is exempt from tax. In the case of the assessee, investment has been made in shares which will yield tax free income in the form of dividend. He observed that Hon'ble Supreme Court in CIT V. Rajendraprasad Modi 115 ITR 519 has held that even if no income from dividend on shares was received during the year interest on money borrowed for investment in shares is an admissible deduction under section 57(iii) of the Act. He therefore, confirmed the order of the Learned Assessing Officer.
24. After hearing the Learned Departmental Representative and perusing the material on record, we find that the Learned Assessing Officer disallowed proportionate interest of Rs.97,572/- on investment of Rs.31,60,121/- in shares of sister concerns M/s. Rekvina Lab. Ltd made by the assessee. The assessee claimed that investment in shares were made out of own funds and not borrowed capital and in support of the same, it pointed out that the share capital had increased to Rs.185.11 lacs as on 31.03.2002 which was sufficient to make the investment in shares. The assessee also submitted that the Learned Assessing Officer has not shown any nexus between the funds invested in the purchase of shares and the ITA No.1111/Ahd/2006 M/s.Radiant Parenterals Ltd.
Asst.Year -2002-2003
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amount borrowed. Therefore, the disallowance of interest cannot be made. We find that the above explanation of the assessee was not found to be false by the lower authorities. The lower authorities have failed to bring any material on record to show that the investment in shares was made by the assessee from out of the borrowed funds and not out of the own funds of the assessee. In absence of any such evidence being brought on record, in our considered opinion, the lower authorities were not justified in disallowing proportionate interest expenditure of Rs.97,572/-. Hence, we delete the disallowance of interest expenditure of Rs.97,572/- and allow this ground of appeal of the assessee.
25. In the result, the appeal of the assessee is partly allowed in the manner indicated above.
26. Order signed, dated and pronounced in the Court on 23/10/2009.
Sd/- Sd/-
( MAHAVIR SINGH) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 23/10/2009
Paras#
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-III, Baroda.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad