TOSHVIN ANALYTICAL P. LTD, MUMBAI v. ADDL CIT 1(3), MUMBAI

ITA 3735/MUM/2010 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 373519914 RSA 2010
Assessee PAN AABCT4482D
Bench Mumbai
Appeal Number ITA 3735/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 5 day(s)
Appellant TOSHVIN ANALYTICAL P. LTD, MUMBAI
Respondent ADDL CIT 1(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 15-07-2011
Assessment Year 2006-2007
Appeal Filed On 10-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA R AO J.M. ITA NO. 3735/MUM/2010 ASSESSMENT YEAR: 2006-07 TOSHVIN ANALYTICAL PVT. LTD. APPELLANT 103 SJ HOUSE 1 ST FLOOR SITARAM MILLS COMPOUND N.M. JOSHI MARG LOWER PAREL MUMBAI 400 011. (PAN AABCT 4482 D) VS. ADDL. COMMISSIONER OF INCOME TAX-1(3) RESPONDENT AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. APPELLANT BY : MR. SUBHASH SHETTY RESPONDENT BY : MR. S.K. SINGH . ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 2 MUMBAI PASSED ON 12/02/2010 FOR THE ASS ESSMENT YEAR 2006-07. 2. GROUND NOS 1 TO 4 ARE IN RESPECT OF DISALLOWANCE OF RS. 18 09 244/- U/S 14A OF THE ACT. 3. DURING THE YEAR THE ASSESSEE HAD RECEIVED DIVID END INCOME AMOUNTING TO RS. 13 99 665/-. THE AO NOTICED THAT T HE ASSESSEE HAD NOT DISALLOWED ANY EXPENDITURE ON THE SAID AMOUNT. THEREFORE HE ASKED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A S HOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D OF THE IT RULES 19 62 AND ALSO ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 2 ASKED TO FURNISH THE COMPUTATION AS PER RULE 8D FOR DISALLOWANCE U/S 14A IN ITS CASE. AFTER EXAMINING THE SUBMISSIONS FI LED BY THE ASSESSEE THE AO INVOKED THE PROVISIONS OF RULE 8D( 2)(II) AND COMPUTED THE DISALLOWANCE UNDER RULE 85 AND DETERMI NED THE INADMISSIBLE EXPENSES U/S 14A AT RS. 18 09 244/-. T HE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THIS ISSUE IS COVERED BY THE JUD GMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG. CO. LTD. [2010] 328 ITR 81 (BOM.) WHEREIN THE HON BLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24 2008 WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICABLE THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA) WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 3 HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. ACCORDINGLY THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 5 IS IN RESPECT OF DISALLOWANCE OF RE PAIRS EXPENSES ON THE FLAT OCCUPIED BY THE MANAGING DIRECTOR OF TH E ASSESSEE COMPANY. 7. THE AO NOTICED THAT THE AN AMOUNT OF RS. 6 27 98 1/- HAD BEEN INCURRED AS FLAT MAINTENANCE CHARGES. THE AO OBSE RVED THAT THE FLAT IN WHICH REPAIRS HAD BEEN DONE AND WHICH WAS OCCUPI ED BY THE MD OF THE ASSESSEE COMPANY WAS NEITHER OWNED BY THE ASSES SEE NOR HAD BEEN TAKEN ON RENT OR LEASE BY ASSESSEE COMPANY. HE ALSO OBSERVED THAT IN TERMS OF EMPLOYMENT OF THE MD THERE IS NO PROVISION FOR MAINTENANCE OF THE FLAT ACQUIRED BY HIM. THEREFORE THE AO DISALLOWED THE SAID EXPENDITURE OF RS. 6 27 981/- ON THE GROUN D THAT THE SAME CANNOT BE FOR THE PURPOSE OF BUSINESS. THE CIT(A) C ONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 8. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE MATERIAL ON RECORD AS WELL AS GOING TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW IT IS SEEN THAT THE ASSESSEE FILED A COPY OF THE BOARD RESOLUTION DATED 24/03/2005 APPROVING CONSEN T TOWARDS REPAIRS AND MAINTENANCE OF THE FLAT UTILIZED BY THE MANAGING DIRECTOR AND A COPY OF THE SAME HAS ALSO BEEN FILED BEFORE U S. EVEN THE ASSESSEE HAD SUBMITTED THE TERMS AD CONDITIONS OF T HE APPOINTMENT OF ITS MANAGING DIRECTOR WHEREIN IT WAS SPECIFICALLY M ENTIONED THAT EXPENDITURE BY THE COMPANY ON HIRING UNFURNISHED AC COMMODATION SUBJECT TO A CEILING OF SEVENTY PERCENT OF THE SALA RY. THEREFORE IT IS CLEAR THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE FLAT OCCUPIED BY THE MD OF THE ASSESSEE COMPANY IS A BUS INESS EXPENDITURE. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND THE ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 4 DISALLOWANCE OF RS. RS. 6 27 981/- MADE BY THE AO I S HEREBY DELETED. THUS THIS GROUND OF APPEAL IS ALLOWED. 9. GROUND NO. 6 IS IN RESPECT OF DISALLOWANCE OF BA D DEBTS. 10. AN AMOUNT OF RS. 65 186/- IN THE P&L A/C HAD BE EN WRITTEN OFF AND EXPLAINED THAT THIS REPRESENTS SUNDRY BALANCES OF DEBTORS AND CREDITORS NOT RECEIVABLE/PAYABLE WRITTEN OFF/BACK DURING THE YEAR. IN THE ABSENCE OF DETAILS OF SUCH WRITING OFF OF EXPEN DITURE THE AO DISALLOWED THE SAID AMOUNT. THE CIT(A) CONFIRMED TH E ACTION OF THE AO. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT [2010] 323 ITR 397 (SC) WH EREIN THE APEX COURT HELD AS UNDER:- AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT 1961 WITH EFFECT FROM APRIL 1 1989 IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. THE SUPREME COURT ACCORDINGLY REMANDED THE MATTER T O THE AO TO EXAMINE SOLELY TO THE EXTENT OF WRITE OFF WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCOUNTS OF THE ASSE SSEE. 12. THE HONBLE SUPREME COURT HELD THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE SAID CASE WE HEREBY DELETE THE DISALLOWANCE OF RS. 65 1 86/- MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THIS GROUND IS HE REBY ALLOWED. 13. GROUND NO. 7 IS DIRECTED AGAINST THE ACTION OF CIT(A) IN HOLDING THAT S. 145A DOES NOT CONTEMPLATE ADJUSTMENT TO OPE NING STOCK ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 5 IGNORING THE SPECIFIC WORDING OF THE SECTION WHICH ONLY REFERS TO INVENTORY. 14. AFTER ANALYZING THE AUDIT REPORT AND THE OBSERV ATIONS OF THE AUDITORS THE AO NOTICED THAT THE ASSESSEE IS A NON -MANUFACTURING COMPANY AND THEREFORE LIABILITY UNDER EXCISE ACT IS NOT ATTRACTED. HOWEVER CVD IS PAYABLE ON IMPORTS OF INSTRUMENTS O F ASSESSEE AS THE AUDITORS HAD NOTICE THAT THE STOCK OF IMPORTED ITEM S IS BEING VALUED BY THE ASSESSEE EXCLUSIVE OF CVD. ACCORDING TO AO T HIS AMOUNT OUGHT TO HAVE BEEN ADDED TO THE VALUE OF CLOSING STOCK AN D HE WAS OF THE VIEW THAT THE ASSESSEE HAD NOT FOLLOWED THE METHOD OF VALUATION OF CLOSING STOCK AS PRESCRIBED IN SECTION 145A OF THE ACT. THEREFORE HE MADE THE ADDITION OF RS. 2 82 232/- U/S 145A OF THE ACT. ON APPEAL THE CIT(A) CONFIRMED THE ADDITION. AGGRIEVED THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 15. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE IN DISPUTE IS COVERED BY THE DECISIO N OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO. 7357/ MUM/2008 ORDER DATED 29 TH OCTOBER 2010. A COPY OF THE SAID ORDER HAS BEEN F ILED ON RECORD. ON THE OTHER HAND THE LEARNED DR HAS NOT O BJECTED TO THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASS ESSEE. 16. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD WE FIND THAT THE ITAT IN ASSES SEES OWN CASE FOR AY 2004-05 (SUPRA) FOLLOWING THE JUDGMENT OF THE HO NBLE DELHI COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINUM LTD. 297 I TR 77 REMITTED THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECT ION TO MAKE ADJUSTMENT IN THE OPENING STOCK ALSO IN THE LIGHT O F THE ABOVE DECISION. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE EXTRACTED BELOW: 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAH AVIR ALUMINUM LTD. HAS HELD AS UNDER:- HELD DISMISSING THE APPEAL THAT PARAGRAPH 23.13 OF THE GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUE D BY ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 6 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA MAD E 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. IF ANY ADJUSTMENT WAS RE QUIRED TO BE MADE BY A STATUTE EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A BEGINS WITH A NON OBSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SEC TION 145A IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MAR CH 31 1999 THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1 1998. THUS THE QUESTION OF DOUBLE DEDUCTION DID NOT ARIS E SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFI T AND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31 1998. THIS DECISION HAS BEEN FOLLOWED BY THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. 318 ITR 116. THEREFORE FOLLOWING THIS DECISION WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK WITH A DIRECTION TO MAKE ADJUSTMENT IN THE OPENING STOCK ALSO IN THE LI GHT OF THE ABOVE DECISION. 17. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF AY 2004-05 IN ASSESSEES OWN CASE WE RESPECTFULLY FOL LOW THE DECISION OF THE ITAT IN THAT YEAR AND IN THE LIGHT OF THAT WE R EMIT THE MATTER BACK TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. TH US THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JULY 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 15 TH JULY 2011 KV ITA NO. 3735/M/2010 M/S TOSHVIN ANALYTICAL PVT. LTD. 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE J BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI.