The ITO, Ward-6(1),, Surat v. M/s. Dynamic Builders, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND BHAVNESH SAINI JUDICIAL MEMBER) ITA NO.1625/AHD/2008 [ASSTT. YEAR : 2005-2006] DYNAMIC BUILDERS 12/806 MAHANAND APARTMENT SHAHPORE SURAT. VS. ITO WARD-6(1) SURAT. ITA NO.2286/AHD/2008 [ASSTT. YEAR : 2005-2006] ITO WARD-6(1) SURAT. VS. DYNAMIC BUILDERS 12/806 MAHANAND APARTMENT SHAHPORE SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.K. SHAH REVENUE BY : SHRI R.K. DHAMESTA O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THESE ARE TWO APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV SURAT DATE D 04.04.2008 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. BOTH THESE APPEALS ARE DISP OSED OF BY THIS COMMON FOR THE SAKE OF CONVENIENCE. ITA NO.1625/AHD/2008 (ASSESSEES APPEAL) 2. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASS ESSEE READS AS UNDER: 1. THE LD.CIT(A) GROSSLY ERRED IN CONFIRMING ADDIT ION OF RS.13 33 500/- UNDER SECTION 40(A) (IA) OF THE ACT AS PER PAGE NO.2 OF THE APPEAL ORDER. 3. AT THE TIME OF HEARING BEFORE US IT IS STATED B Y THE LEARNED COUNSEL THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE ITAT IN THE CASE OF SHRI KANUBHAI RAMJIBHAI VS. ITO IN ITA NO.3983/AHD/2008 DATED ITA NO.1625 AND 2286/AHD/2008 -2- 3-12-2010 WHEREIN THE ITAT HAS HELD THE AMENDMENT I N SECTION 40(A)(IA) TO BE RETROSPECTIVE. THAT THE ASSESSEE HAS MADE PAYMENT OF TDS BEFORE THE DUE DATE OF FILING OF THE RETURN AND THEREFORE AS PER THE DE CISION OF THE ITAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) IS CALLED FOR. THE LEARNED DR STATED THAT THE ASSESSEE NEVER CLAIMED BEFORE THE AO THAT THE T DS HAS BEEN DEDUCTED AND PAID BEFORE THE DUE DATE FOR FILING OF THE RETURN THEREFORE THIS FACT NEEDS VERIFICATION AT THE END OF THE AO. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL PLACED BEFORE US. SECTION 40(A)(IA) IS A MENDED BY THE FINANCE ACT 2010 WHEREBY THE PAYMENT BEFORE THE DUE DATE OF FIL ING OF THE RETURN IS KEPT OUT OF THE PURVIEW OF THE DISALLOWANCE UNDER THE SAID S ECTION. THEREFORE IF THE ASSESSEE HAS DEDUCTED AND PAID THE TDS BEFORE THE D UE DATE FOR FILING OF THE RETURN NO DISALLOWANCE UNDER SECTION 40(A)(IA) IS REQUIRED TO BE MADE. THE ITAT AHMEDABAD BENCH IN THE CASE OF SHRI KANUBHAI RAMJIBHAI (SUPRA) HAS HELD THE ABOVE AMENDMENT TO BE CLARIFICATORY AND TH EREFORE RETROSPECTIVE IN NATURE. THE RELEVANT FINDING OF THE ITAT READS AS UNDER: 12. ACCORDINGLY WE ARE OF THE VIEW THAT THE AMEND MENTS BROUGHT OUT IN SECTION 40(A)(IA) OF THE ACT FROM TIME-TO-T IME WAS CLARIFICATORY AND WHEN AN AMENDMENT IS DECLARATORY AND CLARIFICATORY IN NATURE THE PRESUMPTION AGAINST IT S RETROSPECTIVITY IS NOT APPLICABLE AND AMENDMENTS OF THIS KIND ONLY DEC LARE. IT IS NO DOUBT TRUE THAT ORDINARILY A STATUTE AND PARTICU LARLY WHEN THE SAME HAS BEEN MADE APPLICABLE WITH EFFECT FROM A PARTICU LAR DATE SHOULD BE CONSTRUED PROSPECTIVELY AND NOT RETROSPECTIVELY. BUT THIS PRINCIPLE WILL NOT BE APPLICABLE IN A CASE WHERE THE PROVISIO N CONSTRUED IS MERELY EXPLANATORY CLARIFICATORY OR DECLARATORY IT CANNOT BE DISPUTED THAT THE OBJECT OF THE EXPLANATION IS TO E XPLAIN THE MEANING AND INTENDMENT OF THE ACT ITSELF AND THIS VIEW HAS BEEN HOLD BY HOBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. IN DIA STEAMSHIP CO. LTD. (1992) 196 ITR 917 936 (CAL)]. IN THAT CA SE EXPLANATION 8 WHICH HAS NEWLY BEEN INSERTED BY THE FINANCE ACT 1986 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 1974 TO SECTI ON 43(1) HAS BEEN HELD TO BE CLARIFICATORY IN NATURE AND THE SAME HAS BEEN HELD TO BE DEEMED TO BE ALWAYS IN EXISTENCE EVEN BEFORE 1-4-19 74. SIMILARLY IN THE CASE OF ALLIED MOTORS (P) LTD (SUPRA) IT HAS B EEN HELD THAT THE ITA NO.1625 AND 2286/AHD/2008 -3- PROVISIONS OF THE FIRST PROVISO WHICH HAS NEWLY BE EN INSERTED BY THE FINANCE ACT 1987 WITH EFFECT FROM 1ST APRIL 1988 TO SECTION 43B IS REMEDIAL IN NATURE DESIGNED TO ELIMINATE UNINTENDE D CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE ASSESSEE AND WHICH MADE THE PROVISION UNWORKABLE OR UNJUST IN A SPECIFIC SI TUATION AND IS OF CLARIFICATORY NATURE AND THEREFORE HAS TO BE TREA TED AS RETROSPECTIVE WITH EFFECT FROM 1ST APRIL 1984 THE DATE ON WHICH SECTION 43B HAS NEWLY BEEN INSERTED BY THE FINANCE ACT 1983. IN TA KING THIS VIEW THE SUPREME COURT HAS APPROVED JAMSHEDPUR MOTOR ACC ESSORIES STORES V. UNION OF INDIA [(1991) 189 ITR 70 (PAT) SPECIAL LEAVE PETITION DISMISSED B THE SUPREME COURT : (1991) 191 ITR (ST.) 8 (SC)] CIT V. SRI JAGANNATH STEEL CORPORATION [(199 1) 191 ITR 676 (CAL)] AND CIT V. CHANDULAL VENICHAND [(1992) 197 ITR 718 720 (CAL)] AND CIT V. PYARILAL KASAM MANJI & CO. [(1992 ) 198 IGTR 110 (ORI)]. 13. IN VIEW OF THE ABOVE DISCUSSION FOLLOWING THE CASE LAWS OF HONBLE APEX COURT AND OF HONBLE HIGH COURTS CITED ABOVE WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40(A)(IA ) AS AMENDED BY THE FINANCE ACT 2010 W.E.F 1-4-2010 WHICH HAS NEW LY BEEN INSERTED BY THE FINANCE (NO.2) ACT 2004 WITH EFFECT FROM 1 ST APRIL 2005 TO SECTION 40 OF THE ACT IS REMEDIAL IN NATURE DESIGN ED TO ELIMINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDS HIP TO THE TAXPAYERS AND WHICH MADE THE PROVISION UNWORKABLE O R UNJUST IN A SPECIFIC SITUATION AND IS OF CLARIFICATORY NATURE AND THEREFORE HAS TO BE TREATED AS RETROSPECTIVE WITH EFFECT FROM 1ST AP RIL 2005 THE DATE ON WHICH SECTION 40(A)(IA) HAS BEEN INSERTED BY TH E FINANCE (NO.2) ACT 2004. ACCORDINGLY THIS ISSUE OF THE ASSESSEE S APPEAL IS ALLOWED. NO CONTRARY DECISION IS BROUGHT TO OUR NOTICE. WE THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE ITAT AHMEDABAD HOLD THAT IF THE PAYMENT FOR TDS IS MADE BEFORE THE DUE DATE OF FILING OF TH E RETURN NO DISALLOWANCE UNDER SECTION 40(A)(IA) IS REQUIRED TO BE MADE. HO WEVER FOR FACTUAL VERIFICATION OF THE PAYMENT OF TDS WE SET ASIDE THE MATTER BACK TO THE FILE OF THE AO. HE WILL EXAMINE THE ASSESSEES CONTENTION THAT THE TDS IS ACTUALLY PAID BEFORE THE DUE DATE OF FILING OF THE RETURN AN D IF HIS CONTENTION IS FACTUALLY FOUND TO BE CORRECT NO DISALLOWANCE UNDER SECTION 40(A)(IA) WOULD BE MADE. ITA NO.2286/AHD/2008 (REVENUES APPEAL): ITA NO.1625 AND 2286/AHD/2008 -4- 6. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13 94 963/- MADE BY THE AO ON ACCOUNT OF UNDERVALUATION OF CLOSING STOC K. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE AO MADE THE ADDITION OF RS.1 3 94 963/- ON THE GROUND OF UNDERVALUATION OF THE CLOSING STOCK. THE CIT(A) DE LETED THE SAME WITH THE FOLLOWING FINDINGS. I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE DETAILS. IT IS SEEN THAT THE AO HAS INVOKED THE PRO VISIONS OF SECTION 145(3) OF THE IT ACT BECAUSE OF TWO REASONS ONE TH AT THE VALUE OF CLOSING STOCK OUGHT TO BE HIGHER AND TWO THAT THE P AYMENT TO THE SISTER CONCERN WAS AT A HIGHER RATE. THESE TWO GROU NDS CANNOT BE THE BASIS FOR REJECTION OF BOOK RESULTS UNLESS SPECIFIC DEFECTS ARE FOUND BY THE AO IN THE REGULAR BOOKS OF ACCOUNTS. IT IS A FACT THAT MOST OF THE CLOSING STOCK LYING WITH THE APPELLANT AT THE E ND OF FINANCIAL YEAR 2004-05 WAS STILL LYING WITH HIM TILL RECENTLY WHIC H IS SUFFICIENT EVIDENCE THAT THE GOODS WERE NOT SALEABLE. I AM ALS O NOT INCLINED TO AGREE WITH THE AO'S OBSERVATIONS THAT NO INSTANCE O F SALE OF THESE MATERIAL AT A LOWER PRICE WAS FURNISHED BY THE APPE LLANT SINCE SUCH GOODS WERE NEVER SOLD. FURTHER THE AO HAS WORKED O UT THE AVERAGE COST OF MANUFACTURING AT RS.30.26 PER METER AND ON THIS BASIS HAS VALUED THE CLOSING STOCK OF SUCH GOODS. THE AVERAGI NG OF A HIGH QUALITY AND LOW QUALITY FINISHED MATERIAL WOULD NEV ER GIVE CORRECT RESULTS REGARDING THE VALUE OF SUCH STOCK. FURTHER MAKING A HIGHER VALUATION OF CLOSING STOCK IN ONE YEAR WOULD MEAN T HAT THE VALUE OF OPENING STOCK OF THE NEXT YEAR WILL HAVE TO BE CORR ESPONDINGLY INCREASED AND THEREFORE THE EXERCISE WOULD BE REVEN UE NEUTRAL. IT IS FOR THE APPELLANT TO ADOPT MARKET VALUE OR THE COST WHICHEVER IS ITA NO.1625 AND 2286/AHD/2008 -5- LOWER AS THE VALUE OF CLOSING STOCK PROVIDED HE CON SISTENTLY FOLLOWS THE SAME METHOD YEAR AFTER YEAR. I AM THEREFORE OF THE CONSIDERED VIEW THAT THE APPELLANT HAS TAKEN THE VALUE OF CLOS ING STOCK AT A LOWER PRICE ONLY BECAUSE THE SAID ITEM WAS NOT SALE ABLE AND THEREFORE THE AO'S ACTION MAKING SUCH AN ADDITION C ANNOT BE UPHELD. ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 8. AT THE TIME OF HEARING BEFORE US THE ABOVE FACT UAL FINDING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERTED. ON THE OTHER HAND THE ASSESSEE FURNISHED THE DETAILS FOR CLOSING STOCK WHICH IS PL ACED AT PAGE NO.8 OF THE ASSESSEES PAPER BOOK FROM WHICH IT IS EVIDENT THAT THE MATERIAL WHICH WAS VALUED AT THE RATE OF RS.12/- PER METER WAS OLD STO CK AND SUCH MATERIAL WAS NEITHER ACQUIRED DURING THE YEAR NOR SOLD DURING TH E YEAR UNDER APPEAL. IT WAS ALSO EXPLAINED BY THE LEARNED COUNSEL THAT THIS STO CK HAD BECOME OBSOLETE AND WAS NOT SALEABLE. THEREFORE IT WAS VALUED AT THE SAME RATE AT WHICH IT WAS VALUED LAST YEAR. HE ALSO STATED THAT ULTIMATELY T HIS STOCK WAS SOLD AT BELOW RS.12/- PER METER. IN VIEW OF THE ABOVE FACTUAL PO SITION WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) THE SAME IS SUSTAINED A ND THE GROUND NO.1 OF THE REVENUES APPEAL IS REJECTED. 9. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4 07 658/- MADE BY THE ASSESSING U/S.40A(2)(B) OF THE IT ACT. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. DURING THE YEAR UNDER CONSIDERATION THE ASSES SEE MADE THE PAYMENT OF JOB CHARGES @ RS.12/- PER METER TO THE SISTER CONCERN. THE AO HELD THE SAME TO BE EXCESSIVE AND RESTRICTED THE JOB CHARGES AT RS.9/- PER METER WHICH RESULTED IN ADDITION OF RS.4 07 658/-. ON APPEAL THE CIT(A) R ECORDED THE FINDING THAT THE SAME SISTER CONCERN HAS CHARGED RS.18/- PER METER A S JOB CHARGES FROM OUTSIDE ITA NO.1625 AND 2286/AHD/2008 -6- PARTIES. THIS FACTUAL FINDING RECORDED BY THE CIT( A) HAS NOT BEEN CONTROVERTED BEFORE US. WHEN THE SISTER CONCERN IS CHARGING MOR E JOB WORK CHARGES TO OTHERS THEN IT CANNOT SAID THAT THE PAYMENT OF JOB CHARGES MADE BY THE ASSESSEE EITHER EXCESSIVE OR UNREASONABLE. IN VIEW OF THE A BOVE WE UPHOLD THE ORDER OF THE CIT(A) ON THIS POINT AND REJECT GROUND NO.2 OF THE REVENUES APPEAL. 11. IN THE RESULT ASSESSEES APPEAL IS DEEMED TO B E ALLOWED FOR STATISTICAL PURPOSE AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH FEBRUARY 2011. SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 04-02-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD