Acit Muzaffarnagar v. M S Tikaula Sugar Mills Ltd Muzaffarnagar

1 Ita No 356 Del 2007 In The Income Tax Appellate Tribunal Delhi Bench D New Delhi Before Shri R S Syal Accounta Nt Member And Smt Suchitra Kamble Judicial Member I T A No 3561 Del 2007 A Y 2004 05 Dcit Circle I Muzaffarnagar Appellant Vs M S Tikaula Sugar Mills Ltd Muzaffarnagar Respondent I T A No 2817 Del 2008 A Y 2005 06 Dcit Circle I Muzaffarnagar Appellant Vs M S Tikaula Sugar Mills Ltd Muzaffarnagar Respondent C O No 144 Del 2008 A Y 2005 06 M S Tikaula Sugar Mills Ltd Muzaffarnagar Appellant Vs Dcit Circle I Muzaffarnagar Respondent Ita No 3598 Del 2011 A Y 2005 06 Dcit Circle I Muzaffarnagar Appellant Vs M S Tikaula Sugar Mills Ltd Muzaffarnagar Respondent Appellant By Sh Umesh Chand Dubey Sr Dr Respondent By Sh Akhilesh Kumar Adv Date Of Hearing 27 10 2016 Date Of Pronouncement 15 12 2016 2 Ita No 356 Del 2007 Order Per Suchitra Kamble Jm Ita No 3561 Del 2007 A Y 2004 05 This Appeal Is Filed Against The Order Dated 21 6 2 007 Passed By Cit A Muzaffarnagar 2 The Grounds Of Appeal Are As Follows 1 On The Facts And In The Circumstances Of The Ca Se The Ld Cit A Has Erred In Deleting The Addition Made By A O On Accou Nt Of Noninclusion Of Excise Duty Amounting To Rs 5 82 54 040 In The Closing Stock Of Alcohol Ignoring The Provision Of Section 145 A Of The Income Tax Act 1961 And Down Observations In Para 4 4 Of The Appellate Order That The Assessee Should Have Incl Uded The Excise Duty In The Value Of Closing Stock Of Alcohol By Ca Lculating The Same On The Basis Of Excise Duty Paid On Sales During Th E Year 2 That The Ld Cit A Has Erred In Law In Deleting The Additions Of Rs 5 71 81 580 Made By The Assessing Officer For Under Valuation Of Closing Stock Of Sugar Without Appreciating Fact S Of The Case That The Assessee Failed To Justify The Rates As Per A S 2 Revised Method As Prescribed By The Institute Of Chartered Account Ants Of India Which Are Mandatory In Nature 3 That The Ld Cit A Erred In Law In Deleting The Addition Of Rs 4 58 161 Made By The Assessing Officer On Acc Ount Of Disallowance Of Depreciation Claimed On Old Machine Ry Ignoring The Fact That The Machinery Was Old And Discarded And A Ssessee Failed To Prove Its Use 4 On The Facts And In The Circumstances Of The Cas E The Order Of Ld Cit A Deserves To Be Set Aside And That Of A O Be Restored 3 Ita No 356 Del 2007 3 Assessee Is A Limited Company And Filed Its Retu Rn Declaring Nil Income On 27 10 2004 Which Was Processed U S 143 1 Of The I T Act 1961 On 20 12 2004 However Company Paid Taxes As Per Pro Visions Of Section 115 Jb Of The Income Tax Act 1961 On The Book Profit Show N At Rs 13 42 424 Assessee Companys Case Was Selected For Scrutiny Accordingly Notice U S 143 2 Of The Act Was Issued On 3 8 2005 And Was Du Ly Served Upon The Assessee Company On 5 8 2005 In Response To Notic Es U S 142 1 Issued Along With Detailed Questionnaire Authorized Repre Sentative Of The Assessee Company Appeared From Time To Time Filed Various R Eplied And Details Which Are On Record The Return Of Income Was Accompanie D With Audit Report And Audited Copies Of Accounts As Per Computation Of Income Attached With The Return Of Income Company Declared Net Profit As Per P L Account At Rs 31 10 792 And After Making Various Adjustment Net Income Worked Out At Rs 1 35 79 895 Which Was Set Off Against The B Rought Forwarded Losses Of Earlier Years And Income Was Declared Nil 4 During The Course Of Assessment Proceedings Ass Essee Company Filed Comparative Figures Of Sales And Gp As Under A Y 2004 05 2003 04 2002 03 Turnover 663937548 776017416 756646207 Gp 154133865 137282131 180125447 Percentage 23 22 17 69 23 81 The Assessing Officer Observed That The Gp Rates In Assessment Year Was Much Better Than Earlier Year Therefore Accepted T He Same By The Assessee Reply Filed By The Assessee Company Was Considered Though The Gp Was Better As Compare To Last Year But There Was Down F All In Sales As Compare To Earlier Years For Which No Reasons Was Given The Assessing Officer Further Noticed That Excises Duty Was Included In The Closi Ng Stock Of Sugar And Molasses But Element Of Ed Has Not Been Included In The Closing Stock Of 4 Ita No 356 Del 2007 Alcohol Assessee Company Filed Reply Stating Tha T No Provisions For Excise Duty In The Closing Stock Of Alcohol Was Made As It Depended On Nature Of Sale Reasons Given By The Assessee Company Was Not Accep Ted By The Assessing Officer The Assessing Officer Held That The Valua Tion Of Stock Only At The Actual Cost Of Raw Material Finished Goods And Not Taking Into Account The Overhead Charges Is Not Correct Mode Of Valuation Excise Duty Payable By The Manufacturer Are Manufacturing Expenses And Should Go Into Calculation Of Production Cost And Closing Stock Should Include An Element Of Such Duties As Held By The Honble Apex Court In The Case Of Cit A Vs V S British Paints Ltd 188 Itr 44 S C The Position Was Also Reaffirm Ed By The Board The Assessing Officer Held That Due To Non Inclusion Of Ed In The Closing Stock Of Alcohol Assessee Company Suppressed Its Gross Prof It Which Is Worked Out To Rs 5 82 54 040 I E 830504 Rs 70 14 And Added T O The Income Of The Company Assessee 5 The Assessing Officer Further Observed That Valu Ation Of Rs 465919 Qtls Sugar Was Shown At Rs 52 52 17 170 Which Giv Es A Rate Of Rs 1 127 Per Quintal Assessee Company Was Asked To Justify Rate Of Sugar Per Quintal And Its Working And Basis Assessee Company Filed Reply Stating That Working Of Closing Stock Has Been Made As Per A 2 And Value Of Closing Stock Has Been Shown 1 127 Per Qtls Being Cost Price The Ass Essing Officer Further Observed That On Verification From Other Sugar Mill S The Rate Found To Be On Much Lower Side M S Mansurpur Sugar Mills Valued I Ts Closing Stock Of Sugar 1 285 Per Qtls And Has Given Complete Working Assessee Company Was Therefore Further Required To Explain As To Why Add Ition On Account Of Under Valuation Of Closing Stock Be Not Made Assessee C Ompany Filed Reply Starting That All The Sales Have Been Made In The Open Marke T It Was Further Mentioned That Rates Of Sugar Varied From Time To T Ime As Per Market Conditions Assessee Company Requested For Supply Of Working Of Cost Of Sugar By The Mansurpur Sugar Mills Which Was Denied And Assessee Was Asked To Submit Its Own Working As Per As 2 Revised Method As Prescribed By The 5 Ita No 356 Del 2007 Institute Of Chartered Accountants Of India Which I S Mandatory In Nature Assessee Company Again Filed Reply On 4 12 2006 Sta Ting That Working Of Cost Depends On Various Factors As Under I Recovery Percentage Of Sugar Expenditure On Sa Lary Wages Number Of Bags Purchased Sugar Cane Cost Etc It Further Mentioned That Cost Worked Out As Per As 2 Method And Cost Differs Unit To Unit And Cost Shown May Be Accepted The Assessing Officer Held That There Is No Force In Assesseses Contention Because The Rates Of Sugar Cane Are Decided By The Govt And Sugar Mills Had To Purchase Sugar Cane At The Rates Prescribed By T He Govt Therefore There Will Be No Effect On Cost So Far As Recovery Percentag E And Other Expenses Are Concerned The Recovery Shown By The Assessee Compa Ny Cannot Be Considered As More Similarly Other Reasons Given By The Asse Ssee Company In Support Of Low Cost Of Production Is Not Much Convincing And R Ejected There Is A Vast Difference In The Costing The Mansurpur Sugar Mil Ls Has Valued Its Stock Of Levy Free Sugar 1285 Whereas The Assessee Compa Ny Valued 1 127 The Difference Worked Out To Rs 158 Per Quintals Considering The Reply And Reasons Given By The Assessee Company Cost Of Clos Ing Stock Of Sugar Of The Assessee Company Reasonably Valued 1250 Per Quint Al Which Is Worked Out To Rs 58 23 98 750 I E 465919 X 1250 As Against Rs 52 52 17 170 Shown By The Assessee Company Hence Difference Of Rs 5 71 81 580 Was Added To The Income Of The Assessee Company On Account Of Un Der Valuation Of Closing Stock Of Sugar 6 The Assessee Furnished A List Of All The Assets Which Was Purchased And Put To Use For More Than 180 Days And Also Less Tha N 180 Days During The Year The Assessee Has Shown Addition In P M Whic H Inter Alia Includes A Machinery At A Cost Of Rs 34 29 510 The Assesse E Was Required To Furnish Copy Of Bills In This Regard As Perusal Of Examin Ation Of Aforesaid Bill Reveals That The Machine Is Old Discarded For The Purpo Se Claiming Of Depreciation 6 Ita No 356 Del 2007 Assessee Has Shown Its Value At Rs 36 65 290 On 3 1 10 2003 Under The Category Of P M Put To Use For Less Than 180 Days The Assessee Claimed Depreciation Of Rs 4 58 161 12 5 I E The Half Rate Of Normal Rate Of Depreciation On The Aforesaid Machinery The Afore Said Depreciation Of Rs 4 58 161 Claimed By The Company Was Disallowed As The Machinery Was Not Put To Use For Purposes Of Business As The Same Being Old And Discarded Moreover The Assessee Has Not Proved Its Use 7 Being Aggrieved By The Order The Assessee Filed Appeal Before The Cit A The Cit A Allowed The Assessees Appeal 8 As Regards To Ground No 1 The Ld Dr Submitted That The Excise Duty On Closing Stock Of Alcohol Was Rightly Added By Th E Assessing Officer 9 The Ld Ar Submitted Two Case Laws I E Svp Indu Stries Ltd Vs Cit 2014 50 Taxman Com 229 Delhi Wherein It Is Held That Whe N Neither Excise Duty Was Paid Nor Duty Was Incurred Under Sub Section 1 Of S Ection 145 A Is Not Applicable The Assessee Relied On The Honble Sup Reme Court Judgment In The Case Of Dina Vision Which Is For Assessment Year 19 87 88 The Ld Ar Submitted That Cit A Is Right In Allowing The Asse Ssees Contentions 10 We Have Heard Both The Parties It Can Be Seen T Hat The Assessee Neither Excise Duty Was Paid By The Assessee Nor The Duty W As Incurred Therefore Section 145 A Will Not Be Applicable But As Regards The Basis Of Accounting Concept The Assessee Has Not Followed Proper Proced Ure As Excise Duty Was Not Mentioned In Closing Stock Of Alcohol While Excise Duty Payable Should Be Compared Of Production Cost Closing Stock Should I Nclude Element Of Such Duties This Matter Needs To Be Taken Into Conside Ration And Is Remanded Back To The Assessing Officer Proper Opportunity And He Aring May Be Given To The Assessee 7 Ita No 356 Del 2007 11 In Respect Of Ground No 2 The Ld Dr Submitte D That The Cit A Was Not Right In Allowing The Ground As Relates To Valuati On Of Closing Stock The Rate Which Was Taken Into Consideration By The Assessing Officer Was Correct 12 The Ld Ar Submitted That Working Of Closing St Ock Valuation Of Sugar Was Furnished To Assessing Officer As Per As To Is Sued By Icar Which Works Out To Be Rs 1 127 Per Quintal Which Is Consisten Tly Follow By The Assessee Company And Was Accepted The Cit A Has Rightly A Llowed The Claim Of The Assessee 13 We Have Heard Both The Parties And In Any Case No Adjustment Can Be Made The Only Closing Stock Without Any Adjustment In Opening Stock Cost Of The Earlier Season Was Rs 1 122 Per Quintal Against Current Seasons Rs 1 127 Is Duly Accepted By The Lower Authorities Besides The Said Closing Stock To Current Year Is Opening Stock Of Subsequent Year An D Hence The Same Was Verified Properly By The Cit A There Is No Need T O Interfere With The Same This Ground Of The Revenue Is Dismissed 14 In Result Ground No 2 Is Dismissed 15 As Relates To Disallowance Of Depreciation The Ld Dr Relied Upon The Assessment Order The Ld Ar Submitted That The Sam E Was Rightly Rejected By The Cit A 16 We Have Heard Both The Parties And Perused The Records The Assessing Officer Has Not Disputed The Purchase Of Machinery And Also Verified The Purchase With Reference To Purchase Bills Issued By Seller Company Mere Presumption By The Assessing Officer That Since The Machinery Was Old It Could Not Be Put To Use Without Major Repairs Does Not Su Stain Thus The Contention Of The Assessee That The Machinery Installed Was Op En To Verification And That If The Ao Had Any Doubt Spot Enquires Could Have Been Made Thus The Cit A Rightly Deleted This Addition 17 In Result Ground No 3 Is Dismissed 8 Ita No 356 Del 2007 18 The Appeal Of The Revenue Being Ita No 3561 De L 2007 Is Partly Allowed For Statistical Purpose Ita No 3561 Del 2007 A Y 2004 05 This Appeal Is Filed Against The Order Dated 26 6 2 008 Passed By Cit A Muzaffarnagar 20 The Grounds Of Appeal Are As Follows 1 On The Facts And In The Circumstances Of The Ca Se The Ld Cit A Erred In Deleting The Addition Of Rs 1 11 92 000 Made By The Assessing Officer On Account Of Treating The Incen Tive Of Rs 1 1192 000 On Sale Of Levy Sugar As Revenue Re Ceipts As Against Capital Receipts Claimed By The Assessee 2 On The Facts And In The Circumstances Of The Cas E The Ld Cit A Erred In Deleting The Addition Of Rs 3 34 413 Mad E By The Assessing Officer On Account Of Provision Made For Storage Fund Claimed As Revenue Expenditure By The Assessee 3 On The Facts And In The Circumstances Of The Cas E The Ld Cit A Erred In Deleting The Addition Of Miscellaneous Exp Enses Of Rs 1 25 000 Made By The Assessing Officer 4 The Order Of The Ld Cit A Be Set Aside And That Of The A O Be Restored 21 As Regards First Ground The Same Is Covered By Assessees Own Case For Assessment Year 2000 01 Being Ita No 86 Del 2006 R Elevant Portion Is As Follows The First Reason Taken By The A O For Initiating Reassessment Is Treating The Sale Of Additional Quota Of Sugar In Free Marke T Amounting To Rs 35 11 976 As Revenue Receipt Against The Assessees Claim Of Capital Receipt The Assessee Earned Profit F Rs 35 11 Lac From The Sale Of Addit Ional Free Sugar Under Incentive Scheme Of The Government Of India Which Amount Was Not Offered For Taxation On The Ground That It Was A Receipt Of Capital Natu Re The Assessee Was Called Upon To Show Cause As To Why This Amount Be Not Tre Ated As A Revenue Receipt In The Light Of The Judgment Of The Honble High Court In The Case Of Kcp Ltd 245 9 Ita No 356 Del 2007 Itr 421 S C The Assessee Submitted That The Fac Ts Of The Case Of Kcp Ltd Supra Were Distinguishable It Was Further Expla Ined That The Said Amount Of Rs 35 11 Lac Was In The Nature Of Incentive Given B Y The Government For Repayment Of Term Loans The Assessee Relied On Ce Rtain Judgments In Support Of Its Contention That The Amount Was Not A Revenue Re Ceipt Not Convinced With The Assessee Contentions The A O Came To Hold That Si Nce The Said Receipt Was To Be Uses For The Running Of Business And Hence Constit Uted A Trading Receipt The Ld Cit A Upheld The Action Of The A O By Noticing That The Assessee Did Not Produce Any Evidenced To Show That The Amount Of Rs 35 11 Lac Was Utilized For Repayment Of Loan During The Year 22 We Have Heard Both The Parties And Perused The Order Passed In Assessees Own Case In Ita No 86 Del 2006 The Iss Ue Herein Is Squarely Covered Rs 1 11 92 000 Made By The Assessing Off Icer On Account Of Treating The Incentive Of Rs 1 1192 000 On Sale O F Levy Sugar As Revenue Receipts As Against Capital Receipts Claimed By The Assessee Is Not Correct It Is Capital Receipt 23 In Result Ground No 1 Is Dismissed 24 As Regards Ground No 2 The Same Is Also Covere D By Assessees Own Case Being Ita No 86 Del 2006 Relevant Paragraph Of The Judgment Is As Follows We Have Heard The Rival Submissions And Perused Th E Relevant Material On Record The Undisputed Facts Are That The Asses See Created Molasses Reserve Fund For Construction Of Molasses Storage T Ank By Crediting A Sum Of Rs 1 30 625 To This Account In Accordance With Up Sheera Niyantran Niyamavali The Honble Calcutta High Court In Cit Vs Upper Ganges Sugar Mills Ltd 1994 206 Itr 215 Cal Has Held T Hat Contribution Towards Molasses Storage Fund Is Eligible For Deduc Tion As Business Expenditure Similar View Has Been Taken By The Ho Nble Madras High Court In Certain Decisions Including Cit Vs Salem Cooperative Sugar Mills Ltd 229 Mad In View Of Several Decisions Take N Note Of By The Ld Cit A 10 Ita No 356 Del 2007 In The Impugned Order Supporting The Assessees Con Tention Which Have Not Been Controverted By The Ld Dr With Any Contra Ry Decision We Are Of The Considered Opinion That The Ld First Appellate Authority Has Taken An Unimpeachable View On This Issue We Therefore U Phold The Impugned Order On This Score 25 We Have Heard Both The Parties And Perused The Order Passed In Assessees Own Case In Ita No 86 Del 2006 The Iss Ue Herein Is Squarely Covered 26 In Result Ground No 2 Is Dismissed 27 As Regards Ground No 3 Is Concerned The Ld D R Relied Upon The Order Of Assessing Officer The Ld Ar Submitted That Di Sallowances Are Only On Ad Hoc Basis Without A Single Instant Of Doubt The Mi Scellaneous Expenses Were Properly Dealt By The Cit A Hence No Interferenc E Is Required 28 We Have Heard Both The Parties The Disallowa Nce In Respect Of Miscellaneous Expenses Was Made Purely On Estimated Basis By The Assessing Officer The Cit A Has Rightly Deleted This Additi On Partly There Is No Need To Interfere With The Order Of The Cit A 29 In Result Ground No 3 Of The Revenues Appeal Is Dismissed 30 As Regards Ground No 1 Of The Cross Objection Of Filed By The Assessee Is Submitted That The Same Is Covered By The Amendment To Finance Act 2006 To Explanation 3 C With Retrospective Effect This Posit Ion Will Not Have Any Change For This Particular Assessment Year 31 In Result Ground No 1 Of The Assessees The C Ross Objection Is Dismissed 32 As Relates To Other Two Grounds Of The Cross Ob Jection Of The Assessee The Same Are Dismissed Accordingly 11 Ita No 356 Del 2007 33 In Result Appeal Of The Revenue Being Ita No 2817 Del 2008 And C O No 144 Del 2008 Stands Dismissed I T A No 3598 Del 2011 A Y 2005 06 34 This Appeal Is Filed By The Revenue Against The Order Dated 07 04 2011 Passed By The Cit A Muzaffarnagar 35 The Grounds Of Appeal Are As Follows 1 On The Facts And In The Circumstances Of The Ca Se The Ld Cit A Has Erred In Deleting The Penalty Imposed By The Ao Und Er Section 271 1 C Of The I T Act 1961 In Respect Of Addition Of Rs 7 95 42 474 Of Secured Loans Which Has Been Sustained By The Cit A 2 On The Facts And In The Circumstances Of The Cas E Ld Cit A Erred In Law In Holding That The Ao Is Not Justified In Impo Sing The Penalty Under Section 271 1 C Of The I T Act 1961 Even After The Insertion Of Explanation 1 To Section 271 W E F 01 04 1976 3 The Order Of The Ld Cit A Be Set Aside And Tha T Of Ao Be Restored 36 Proceedings U S 271 1 C Of The Act Was Initia Ted And The Assessing Officer Held That The Benefit Of Doubt Could Be Giv En As Pertaining To Penalty U S 271 1 C Of The Act In Case Of Additions On Account Of Incentive On Sale Of Sugar And Disallowance Of Expenses Debited Under Th E Head Miscellaneous However The Same View Could Not Taken In The Case Of Addition Made On Account Of Unpaid Interest In Respect Of Term Loan Amounting To Rs 7 95 42 474 In This Case Interest Paid To Financ Ial Institution Was Converted Into Term Loan But Was Claimed As Actual Payment Wi Thin The Ambit Of Section 43 B Of The Act 37 Aggrieved By This The Assessee Filed Appeal Bef Ore The Cit A The Cit A Allowed The Appeal Of The Assessee 12 Ita No 356 Del 2007 38 The Ld Dr Relied Upon The Penalty Order The L D Ar Submitted That Cit A Has Rightly Considered The Issue And Deleted The Penalty 39 We Have Heard Both The Parties The Assessee Ha S Not Concealed Any Particulars Of Income Or Furnished Any Inaccurate P Articulars Of Income The Assessing Officer Was Incorrect In Holding That The Assessee Furnished Inaccurate Particulars Of Income On Account Of Inte Rest To Financial Institutions By Conversion Of Same Into Term Loan And By Issue O F Zero Coupon Bonds The Assessee Has Furnished All The Details Of Its Expen Diture As Well As Income In Its Return Which Details In Themselves Were Not Foun D To Be Inaccurate Nor Could Be Viewed As The Concealment Of Income On Its Part It Was Up To The Authorities To Accept Is Claim In The Return Or Not Merely Bec Ause The Assessing Officer Made Addition On Account Of Unpaid Interest In Resp Ect Of Term Loan Amounting To Rs 7 95 42 474 As Interest Paid To Financial Institution Was Converted Into Term Loan But Was Claimed As Actual Payment Within The Ambit Of Section 43 B Of The Act By The Assessee This Cannot Be Termed A S Concealment Of Income Or Furnishing Of Inaccurate Particulars Of Income And Will Not Attract The Provisions Of Section 271 1 C Of The Act The Exp Lanation 1 Of Section 271 1 C Of The Act Will Not Be Applicable In The Present Ca Se 40 In Result Appeal Of The Revenue Being Ita No 3598 Del 11 Is Dismissed Order Pronounced In The Open Court On 15th Decemb Er 2016 Sd Sd R S Syal Suchitra Kamble Accountant Member Judicial Memb Er Dated 15 12 2016 R Naheed 13 Ita No 356 Del 2007 Copy Forwarded To 1 Appellant 2 Respondent 3 Cit 4 Cit Appeals 5 Dr Itat Assistant Registrar Itat New Delhi Date 1 Draft Dictated On 27 10 2016 Ps 2 Draft Placed Before Author 27 10 2016 Ps 3 Draft Proposed Placed Before The Second Member 2016 Jm Am 4 Draft Discussed Approved By Second Member Jm Am 14 Ita No 356 Del 2007 5 Approved Draft Comes To The Sr Ps Ps 15 12 2016 Ps Ps 6 Kept For Pronouncement On Ps 7 File Sent To The Bench Clerk 15 12 2016 Ps 8 Date On Which File Goes To The Ar 9 Date On Which File Goes To The Head Clerk 10 Date Of Dispatch Of Order