M/s. Venkateswara Silk Mills, Hyderabad v. ACIT Circle 8(1), Hyderabad

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C.GUPTA VICE-PRESIDENT AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO.12/HYD/10 : ASSTT. YEA R 2005-06 M/S. VENKATESHWARA SILK MILLS R.R. DISTRICT HYDERABAD. (PAN - AACFV0641C) VS ACIT CENTRAL CIR-8(1) HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI AJAY GANDHI RESPONDENT BY : SHRI H. PHANI RAJU O R D E R PER AKBER BASHA ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF THE CIT (A)-III HYDERABAD DATED 11-11-2009 AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF TEXTILE PROCESSING DYING AND PRINTING. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT HAS FILED ITS RETUR N OF INCOME ON 27-10-2005 SHOWING INCOME OF RS.7 80 540 AND THE SAME W AS PROCESSED UNDER S.143(1) OF THE ACT ON 10-2-2006 THERE BY ACCEPTING THE RETURNED INCOME. LATER HOWEVER THE ASSESSING OFFICE R NOTICED THAT TAXABLE INCOME IN THE HANDS OF THE ASSESSEE HAS ESCAPED ASSESSM ENT AND HENCE AFTER RECORDING REASONS HE HAS REOPENED THE ASSE SSMENT UNDER S.147 OF THE ACT AND ACCORDINGLY THE ASSESSING OFFICE R ISSUED 2 NOTICE UNDER S. 148 OF THE ACT ON 19-2-2008. IN THE PROFIT AND LOSS ACCOUNT FOR THE PREVIOUS YEAR FILED ALONG WITH THE RE TURN THE ASSESSEE HAS DEBITED A SUM OF RS.12 30 332 UNDER THE HEAD 'EXCISE DUTY-CENVAT WRITTEN OFF'. DURING THE ASSESSMENT PROCEEDINGS IN RESPO NSE TO QUERY RAISED BY THE ASSESSING OFFICER FOR EXPLAINING SUCH CLAIM THE ASSESSEE HAS SUBMITTED THAT ON THEIR PURCHASES THE EXCISE DUTY CHARG ED WAS DEBITED TO CENVAT ACCOUNT AND OUT OF THE SAME EXCISE DU TY PAYABLE ON THEIR SALES WAS BEING SET OFF UNDER CENVAT RULES. IT WA S SUBMITTED THAT DURING THE FINANCIAL YEAR 2004-05 ON 8TH JULY 2004 IN THE BUDGET PRESENTED TO THE PARLIAMENT THE CENVAT CLAIM WAS ABOLI SHED AND THE EXCISE DUTY WAS ALSO REMOVED. AT THE YEAR END AS ON 31- 03-2005 DEBIT BALANCE OF RS.12 30 332/- IN CENVAT ACCOUNT IS THE AMOUN T NOT ADJUSTABLE BECAUSE OF CHANGE IN EXCISE AND CENVAT POLICY O F THE GOVERNMENT THE ASSESSEE DEBITED THE BALANCE AMOUNT AS W RITTEN OFF IN THE PROFIT AND LOSS ACCOUNT. NOT CONVINCED WITH THE EXPLA NATIONS OF THE ASSESSEE THE ASSESSING OFFICER CONCLUDED THE ASSESSMENT UNDER S.143[3] READ WITH S.147 OF THE ACT AND DISALLOWED TH E ENTIRE EXCISE DUTY CENVAT WRITTEN OFF APART FROM DISALLOWING 1/5TH OF THE EXPENSES RELATED TO TELEPHONE CHARGES. THUS THE ASSESSING OFFICER FINALLY ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.20 65 877/- AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE FILED AP PEAL BEFORE THE CIT [A] AND WHEREAS THE CIT [A] UPHELD THE ACTI ON OF THE ASSESSING OFFICER IN DISALLOWING EXCISE DUTY CENVAT WRITTEN OFF OF RS.12 30 332 AND PARTLY CONFIRMED THE DISALLOWANCE OF THE TELEPHONE CHAR GES AT 1/6TH OF THE TOTAL CLAIM. STILL AGGRIEVED THE ASSESSEE IS IN APPE AL BEFORE US. 2. THE FIRST EFFECTIVE GROUND OF APPEAL IS WITH REGAR D TO THE DISALLOWANCE OF CLAIM OF RS.12 30 332 UNDER 'EXCISE DUTY- CENVAT WRITTEN OFF'. 3 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E MANUFACTURED TEXTILES BY THE ASSESSEE WERE SUBJECT TO CENV AT. FROM THE PURCHASES MADE THE ASSESSEE WAS SEGREGATING THE COST OF GOODS AND EXCISE DUTY IN THE ACCOUNTS FOR ADJUSTMENT OF EXCISE DUTY PAYABLE ON THE GOODS MANUFACTURED. THE CENVAT ACCOUNT SHOWING BALANCE OF RS.12 30 332 ON THE DATE OF ABOLISHMENT OF CENVAT CHA IN. IT IS SUBMITTED THAT CENVAT IS A PART OF PARCEL OF THE PURCHA SES. ONCE THE CENTRAL EXISE DUTY WAS WITHDRAWN FROM THE PRODUCT MANU FACTURED THE CENVAT BALANCE COULD HAVE BEEN TRANSFERRED TO PURCHASE ACCOUNT. HOWER TO MAKE IT TRANSPARENT THE ASSESSEE HAS RIGHTLY T RANSFERRED THE SAID BALANCE AMOUNT TO PROFIT AND LOSS ACCOUNT AND SAME IS TO BE ALLOWED AS EXPENSE IN THE PROFIT AND LOSS ACCOUNT. 4. ON THE OTHER HAND THE LEARNED DR BY OPPOSING THE CONTENTIONS OF THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE VALUE D ITS STOCK INCLUSIVE OF CENVAT AND HENCE THE ASSESSEE HAS DEBITE D THE DISPUTED EXCISE DUTY COMPONENT PAID ON RAW MATERIALS IN THE PROFIT AND LOSS ACCOUNT. THUS IT SHOWS THE ASSESSEE HAD CLAIMED THE DEDU CTION FOR THE ALLEGED AMOUNT IN ITS PROFIT AND LOSS ACCOUNT FOR TH E CURRENT YEAR UNDER CONSIDERATION. HAVING ALREADY CLAIMED THE DEDUCTI ON FOR AN AMOUNT OF RS.12 30 332 AND SINCE THE ASSESSEE WAS NOT ENTI TILED TO RECEIVE ANY FINANCIAL BENEFIT SEPARATELY FOR THE EXCISE DUTY PAID BY IT ON RAW MATERIALS PURCHASED BY IT FOR MANUFCTURE OF FINISHE D GOODS THE ASSESSEE CANNOT CLAIM ANY DEDUCTION ON THIS ACCOUNT. THEREFO RE THE LOWER AUTHOIRITIES RIGHTLY DISALLOWED THE DEDUCTION AN D THE SAME IS JUSTIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSE E HAD DEBITED A SUM OF RS.12 30 232 UNDER THE HEAD 'EXCISE DUTY-CENVA T WRITTEN OFF' 4 ON ACCOUNT OF NOT ADJUSTABLE OF THE SAID AMOUNT AGAINST THE SALES BECAUSE OF THE CHANGES IN THE RATE OF CENTRAL EXCISE AND A BOLISHMENT OF CENVAT CREDIT CHAIN. AS PER THE GUIDANCE ISSUED BY THE I CAI THE ASSESSEE IS REQUIRED TO ADJUST THE CENVAT CREDIT RECEIVABLE EVERY YEAR AND DIFFERENCE IF ANY HAS TO BE TRANSFERRED TO THE PRO FIT AND LOSS ACCOUNT. IT IS CLEAR FROM THE ASSESSMENT ORDERS THAT THE ASSE SSEE HAS NOT DEBITED THE CENTRAL EXCISE DUTY TO THE PROFIT AND LOSS A/C WHICH IS FORMING PART OF THE PURCHASE VALUE. SINCE THE ASSESSEE NOT CHARGED THE SAID AMOUNT TO THE PROFIT AND LOSS A/C WHILE ACCOUNTING T HE PURCHASES THE ASSESSEE IS JUSTIFIED IN DEBITING THE UNRECOVERABLE CEN VAT CREDIT TO THE PROFIT AND LOSS A/C. IT IS INCORRECT TO SAY THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR THE SAID AMOUNT IN ITS PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE ASSESSEE INCLUDED THE EXCISE DUTY AMOU NT WHILE VALUING THE STOCK AS VALUATION OF STOCK IS OUTSIDE THE BOO KS OF ACCOUNT. HENCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE CIT (A) ON THIS ISSUE IS NOT IN ORDER. HENCE THE DISAL LOWANCE OF EXCISE DUTY WRITTEN OFF OF RS.12 30 332 IS TO BE DELETE D. AFTER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES OF T HE CASE WE DELETE THE DISALLOWANCE OF RS.12 30 332 MADE BY THE AS SESSING OFFICER ON THIS ACCOUNT AND ALLOW THE GROUND TAKEN BY THE ASSESSE E. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISAL LOWANCE OF TELEPHONE CHARGES AMOUNTING TO RS.55 055. THE LEARNED CIT(A) HELD THAT THE ELEMENT OF PERSONAL USE OF TELEPHONE CHARGES CA NNOT BE RULED OUT AND IN VIEW OF THIS HE SUSTAINED DISALLOWANCE AT 1 /6TH OF THE EXPENSES OF RS.2 75 027 CLAIMED UNDER THE HEAD 'TELEPHO NE CHARGES'. AFTER GOING THROUGH THE FACTS OF THE CASE ON THIS ISSUE AN D CONSIDERING THE POSSIBILITY OF PERSONAL USE OF TELEPHONE WE ARE OF THE OPINION THAT THE CIT (A) IS JUSTIFIED IN SUSTAINING THE DISALLOWANCE AT 1/6TH OF THE 5 TELEPHONE CHARGES CLAIMED. THEREFORE NO INTERFERENCE IS CALLED FOR AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LEARNED CIT (A ) ON THIS ISSUE. 7. IN THE RESULT ASSESSEE'S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 9-04-2010. SD/- G.C.GUPTA SD/- AKBER BASHA VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 9TH APRIL 2010 COPY FORWARDED TO: 1. GANDHI & GANDHI CAS 1002 PAIGAH PLAZA BASHEE RBAGH HYDERABAD. 2 THE ACIT CIR-8(1) INCOME-TAX TOWERS AC GUARDS HYDERABAD. 3. CIT(A)-III HYDERABAD. 5. THE DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD. JMR