GAUTAM HIRALAL GANDHI, MUMBAI v. ADDL CIT 18(2), MUMBAI

ITA 8332/MUM/2010 | 2006-2007
Pronouncement Date: 23-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 833219914 RSA 2010
Assessee PAN AABPG7684F
Bench Mumbai
Appeal Number ITA 8332/MUM/2010
Duration Of Justice 2 year(s) 10 month(s) 22 day(s)
Appellant GAUTAM HIRALAL GANDHI, MUMBAI
Respondent ADDL CIT 18(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 23-10-2013
Date Of Final Hearing 18-09-2013
Next Hearing Date 18-09-2013
Assessment Year 2006-2007
Appeal Filed On 01-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN JUDICIAL MEMBER ITA NO. 8332/MUM/2010 ASSESSMENT YEAR: 2006-07 SHRI GAUTAM HIRALAL GANDHI 104 TURF ESTATE SHAKTI MILL LANE OFF E. MOSES ROAD MAHALAXMI MUMBAI- 11 PAN :AAABPG 7684 F VS. ADD. CIT 18(2) PIRAMAL CHAMBERS LALBAUG MUMBAI 400 012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJANIKANT CHANIYARI RESPONDENT BY : SHRI C.P. PATHAK DATE OF HEARING : 18.09.2013 DATE OF PRONOUNCEMENT : 23.10.2013 O R D E R PER DR. S.T.M. PAVALAN JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A) -29 MUMBAI DATED 06.08.2010 FOR THE ASSESSMENT YEAR 20 06-07. 2. GROUND NO.1 RAISED BY THE ASSESSEE IN THE APPEAL READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX (HEREINAFTER REFERRED TO AS AO) HAS ERRED IN INCLUDING EXCISE DUTY AMOUNTING TO RS.25 0 5 350 IN CLOSING STOCK AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [H EREINAFTER REFERRED TO AS CIT (A)] HAS ERRED IN CONFIRMING THE ACTION OF L EARNED AO. THE LEARNED AO BE DIRECTED TO EXCLUDE THE EXCISE DUTY ELEMENT OF R S.25 05 350 FROM CLOSING STOCK AND REDUCE THE TOTAL INCOME ACCORDINGLY. 2.1 BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD N OT INCLUDED EXCISE DUTY IN THE VALUATION OF INVENTORIES RELYING ON THE GUIDELINES ISSUED BY THE ICAI AS PER ACCOUNTING STANDARD 2. THE AO WAS OF THE VIEW THAT AS PER PROV ISION OF SECTION 145A FROM 01.08.99 IT IS COMPULSORY TO INCLUDE ANY TAX DUTY CESS OR F EES ACTUALLY PAID/INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION ETC. THE AO NOTICED THAT THE ITA NO. 8332/MUM/2010 SHRI GAUTAM HIRALAL GANDHI ASSESSMENT YEAR: 2006-07 2 ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD OF ACCOUNTIN G OF EXCISE DUTY AS PER THE GUIDELINES OF THE ICAI WHICH IS NOT BINDING ON THE DEPARTMENT AS THE PROVISION STANDS AMENDED AFTER THE HONBLE SUPREME COURTS DECISION IN THE C ASE OF M/S. INDO- NIPPON (2003) 261 ITR 275 (SC). THE AO ALSO RELIED UPON THE DECISIONS IN THE CASE OF DCIT VS. OIL REFINERY AND IN THE CASE OF M/S WEST COAST PAPER MILLS LTD. VS. ACIT. ON APPEAL THE LD.CIT(A) UPHELD THE ADDITION MADE BY THE AO AS PER THE AMEND MENT IN SECTION 145A IT IS MANDATORY TO INCLUDE THE CREDIT AVAILABLE IN THE EX CISE DUTY ACCOUNT AS PART OF VALUE OF CLOSING STOCK. 2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD ON THIS GROUND IT IS PERTINENT TO NOTE THAT IN THE ASSESSEES OWN CAS E IN ITA NO. 499/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06 THE ITAT BY RELYING ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. HAS REM ITTED A SIMILAR ISSUE BACK TO THE FILE OF AO WITH THE DIRECTION TO RE-COMPUTE THE VALUATION O F CLOSING STOCK BY TAKING INTO CONSIDERATION THE OPENING CLOSING BALANCES OF PURCH ASES AND SALES AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. SINCE THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO THE ASSESSME NT YEAR 2005-06 WE BY FOLLOWING THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 499/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06 REMIT THE ISSUE BACK TO TH E FILE OF AO WITH THE DIRECTION TO MAKE ADJUSTMENT AS PER SECTION 145A ON ACCOUNT OF E XCISE DUTY TO THE VALUE OF PURCHASES SALES AND OPENING & CLOSING STOCK AND RE-COMPUTE TH E ADDITION IF ANY TO BE MADE ON THIS ISSUE. WE ORDER AND DIRECT ACCORDINGLY. GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE. 3. GROUND NO. 2 RELATES TO THE DISALLOWANCE ON ACCO UNT OF TELEPHONE EXPENSES. THE RELEVANT FACTS ARE THAT THE AO HAS DISALLOWED 20% O F RS.5 72 130/- THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF TELEPHONE EXPENSES ON THE REASON THAT THE SAME INVOLVES PERSONAL USE AND THEREBY MADE AN ADDITION OF RS.1 1 4 626/-. ON APPEAL LD.CIT(A) HAS CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO. AGG RIEVED BY THE IMPUGNED DECISION THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFOR E US. BEFORE US THE LD.AR HAS PRAYED THAT 20% DISALLOWANCE ON ACCOUNT OF PERSONAL USE ON THE TELEPHONE EXPENSES IS VERY EXCESSIVE AND THE SAME MAY BE REDUCED REASONABLY. 3.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD IT IS NOT DISPUTED THAT THERE IS AN INVOLVEMENT OF PERSON USE OF THE T ELEPHONE BY THE ASSESSEE. ALSO IT ITA NO. 8332/MUM/2010 SHRI GAUTAM HIRALAL GANDHI ASSESSMENT YEAR: 2006-07 3 CANNOT BE DENIED THAT THE USE OF TELEPHONES HAVE BE EN MADE FOR THE BUSINESS PURPOSE. HOWEVER CONSIDERING THE FACT THAT THE AD HOC DISAL LOWANCE OF 20% MADE BY THE AO AND CONFIRMED BY THE CIT IS EXCESSIVE IT WOULD BE JUST AND PROPER TO RESTRICT THE SAME TO 10% OF THE TOTAL EXPENSES. WE ORDER AND DIRECT ACCORDIN GLY. GROUND NO. 2 IS PARTLY ALLOWED. 4. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF MOTO R CAR EXPENSES OF RS.46 383/- AND DEPRECIATION OF RS.70 999/-. THE RELEVANT FACTS ARE THAT IN THE PROFIT & LOSS A/C THE ASSESSEE HAD DEBITED A SUM OF RS.2 31 919/- ON ACCO UNT OF MOTOR CAR EXPENSES AND RS.3 54 996/- TOWARDS CAR DEPRECIATION. DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO ASKED THE ASSESSEE TO SUBMIT THE EXPENSES DETAIL S ALONG WITH LOG BOOK AND IN RESPONSE THE ASSESSEE DID NOT SUBMIT ANY LOG BOOK A S THE SAME WAS NOT MAINTAINED BY THE ASSESSEE. THEREFORE THE AO ESTIMATED THE AD HO C DISALLOWANCE AT 20% ON MOTOR CAR EXPENSES AND THE DEPRECIATION ON THE REASON THAT TH E SAME BEING NON INCIDENTAL TO BUSINESS PURPOSE. ACCORDINGLY HE DISALLOWED RS.46 383/- TOWARDS CAR EXPENSES AND THE DEPRECIATION OF RS.70 999/- THEREBY ADDED THE SAME TO THE TOTAL INCOME. ON APPEAL LD.CIT(A) UPHELD THE SAID DISALLOWANCES AS HE FOUND THAT BUSINESS ASSETS HAVING USED FOR PERSONAL PURPOSES AND PRO RATA DISALLOWANCES ESTIMA TE CAN BE REASONABLY MADE. 4.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON THIS GROUND SINCE THE ASSESSEE HAS NOT PRODUCED THE LOG BOOK THE INVOLVE MENT OF PERSONAL USE OF THE MOTOR CAR CANNOT BE DENIED. BUT AT THE SAME TIME IT IS NOT JU ST AND PROPER TO MAKE THE AD HOC DISALLOWANCE AT 20% WHICH HAS BEEN DONE BY THE AO A ND THE SAME CONFIRMED BY THE LD.CIT(A). CONSIDERING THE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO RESTRICT THE SAID AD HOC DISALLO WANCE AT 10% ON THE MOTOR CAR AND DEPRECIATION. WE DIRECT AND ORDER ACCORDINGLY. GROU ND NO. 3 IS PARTLY ALLOWED. 5. GROUND NO. 4 RAISED BY THE ASSESSEE AGAINST THE REALLOCATION OF COMMON EXPENDITURE FOR THE PURPOSE OF DEDUCTION U/S 80IB W HICH READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAD ERRED IN REALLOCATING THE COMMON EXPENSES OF RS.26 86 413/- FOR THE PURPOSE OF DEDUCTION U/S 80IB. THE ELIGIBLE PROFIT FOR THE PUR POSE OF DEDUCTION U/S 80IB IS THUS REDUCED DUE TO REALLOCATION OF COMMON EXPENSES AND THE LEARNED CIT(A) HAD ERRED IN CONFIRMING THE ACTION OF LEARNED AO. THE LEARNED AO BE DIRECTED NOT TO REALLOCATE COMMON EXPENSES AND ALLOW DEDUCTION U/S 80IB ACCORD INGLY. 5.1 BRIEFLY STATED FROM THE P&L ACCOUNT OF UNIT-I AND UNIT-II THE AO HAD OBSERVED THAT THE NET PROFIT PERCENTAGE OF UNIT-II IS MUCH H IGHER IN COMPARISON TO UNIT-I. BASICALLY ITA NO. 8332/MUM/2010 SHRI GAUTAM HIRALAL GANDHI ASSESSMENT YEAR: 2006-07 4 UNIT-I WAS NOT ELIGIBLE FOR DEDUCTION IN WHICH THE ASSESSEE HAD SHOWN LOSS IN P&L A/C AT RS2372614/- AND PROFIT IN UNIT-II AT RS.31283747/-. AFTER ADJUSTMENT IN THE COMPUTATION THE INCOME OF UNIT-I ALSO RESULTED IN PROFIT AT RS. 1733813/-. AFTER VERIFICATION THE AO OBSERVED THAT SOME OF THE EXPENDITURE STILL REQUIRE D TO BE ALLOCATED ACCORDING TO THE TURNOVER OF THE UNIT WHICH IS 7.47:92.53. AFTER ALL OCATION OF THE EXPENDITURE ON ACCOUNT OF SECURITY CHARGES INTEREST TO OTHERS AND INSURANCE IN ACCORDANCE TO THE TURNOVER THE AO WORKED THE DIFFERENCE AT RS.2686413/- (2984952-2985 38) WHICH RESULTED IN THE REDUCTION OF PROFIT FROM UNIT-II FOR THE PURPOSE OF COMPUTATI ON OF DEDUCTION U/S 80IB. ON APPEAL THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO AS THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF HIS CLAIM. 5.2 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON THIS GROUND. IT IS PERTINENT TO MENTION THAT IT IS THE CLAIM OF THE AS SESSEE THAT THE AO HAS REALLOCATED THE EXPENSES ON ACCOUNT OF INSURANCE INTEREST AND SECU RITY CHARGES INCURRED BY THE ASSESSEE ALLEGEDLY FROM UNIT-I TO UNIT-II ON THE BASIS OF TU RN OVER OF BOTH THE UNITS WHEREAS THE SAID EXPENSES ARE INCURRED AT RESPECTIVE UNITS ON A CTUAL BASIS AND CLAIM OF DEDUCTION WAS MADE ACCORDINGLY. HOWEVER THE SAID CONTENTION HAS NOT BEEN ACCEPTED BY THE LD.CIT(A) AS THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDE NCE IN SUPPORT OF HIS CLAIM. CONSIDERING THE FACTS IN TOTO WE ARE OF THE CONSID ERED VIEW THAT IT WOULD BE JUST AND PROPER TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE TO PLACE ALL THE RECORDS TO SUBSTANTIATE THE SAID CLAIM. WE ORDER AND DIRECT AC CORDINGLY. GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23RD DAY OF OCTOBER 2013. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 23.10.2013. *SRIVASTAVA ITA NO. 8332/MUM/2010 SHRI GAUTAM HIRALAL GANDHI ASSESSMENT YEAR: 2006-07 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR G BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.