Commissioner Of Income Tax v. M/S. Comed Chemicals Pvt. Ltd.....opponent(S

O/TAXAP/1479/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1479 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MR.JUSTICE R.P.DHOLARIA Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to NOsee the judgment ?see the judgment ? 2 To be referred to the Reporter or not ?NO 3 Whether their Lordships wish to see the fair copy of NOthe judgment ?the judgment ? 4 Whether this case involves a substantial question of NOlaw as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ?NO ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus M/S. COMED CHEMICALS PVT. LTD.....Opponent(s) ================================================================ Appearance: MR MANISH BHATT, ADVOCATE for the Appellant(s) No. 1MR SNL AGARWALA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAHandHONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 26/12/2013 ORAL JUDGMENT(PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.00.Feeling aggrieved and dissatisfied with the impugned judgement and order dated 24/5/2006 passed by the Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT” for short) in ITA No.748/Ahd/2001 for AY 1997-98, the revenue has preferred the present Tax Appeal to consider the following substantial questions of law : “(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law approving exclusion of excise duty from valuation of closing stock of finished goods? (2)Whether the Appellate Tribunal was right in holding that interest of Rs.2,19,216/- derived from Bank Guarantee Deposits, Letter of Credit and on delayed payments, is eligible for deduction u/s.80IA? 2.00.That the assessee filed return of income for the AY 1997-98 declaring total income at Rs.25,40,810/-. That while passing the assessment order, the AO disallowed and consequently directed to make addition of Rs.11,09,733/- on the ground of undervaluation of closing stock due to non-inclusion of excise duty and also disallowed deduction under section 80IA of Rs.2,19,216/- derived from derived from Bank Guarantee Deposits, Letter of Credit and on delayed payments. 2.01.Feeling aggrieved and dissatisfied with the order passed by the AO, making disallowance of Rs.11,09,733/- and consequently making addition of the aforesaid amount on the ground of undervaluation of closing stock due to non-inclusion of excise duty as well as disallowance of deduction under section 80IA with respect to interest of Rs.2,19,216/- and other disallowances, the assessee preferred an appeal before the learned CIT(A) and the learned CIT(A) partly allowed the said appeal and deleted disallowance of Rs.11,09,733/- which was made by the AO on the ground of undervaluation of closing stock due to non-inclusion of excise duty and also deleted disallowance of deduction under section 80IA with respect to interest of Rs.2,19,216/- derived from derived from Bank Guarantee Deposits, Letter of Credit and on delayed payments. 2.02.Feeling aggrieved and dissatisfied with the order passed by the CIT(A), the revenue preferred an appeal before the learned ITAT and by the impugned judgement and order, the learned ITAT has dismissed the said appeal preferred by the revenue confirming the order passed by the CIT(A) deleting disallowance made by the AO. 2.02.Feeling aggrieved and dissatisfied with the order passed by the CIT(A), the revenue preferred an appeal before the learned ITAT and by the impugned judgement and order, the learned ITAT has dismissed the said appeal preferred by the revenue confirming the order passed by the CIT(A) deleting disallowance made by the AO. 2.03.Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT, revenue has preferred the present Tax Appeal to consider the following substantial questions of law : “(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law approving exclusion of excise duty from valuation of closing stock of finished goods? (2)Whether the Appellate Tribunal was right in holding that interest of Rs.2,19,216/- derived from Bank Guarantee Deposits, Letter of Credit and on delayed payments, is eligible for deduction u/s.80IA? 3.00.Heard Mr.Manish Bhatt, learned counsel appearing on behalf of the revenue and Mr.Agarwala, learned advocate appearing on behalf of the respondent. 3.01.Now, so far as question No.(1), Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law approving exclusion of excise duty from valuation of closing stock of finished goods, is concerned, it is reported that the said issue is now not res-integra in view of the decision of the Division Bench of this Court in the case of Assistant Commissioner of Income Tax Vs. Narmada Chematur Petrochemicals Ltd., reported in [2010] 327 ITR 369 (Gujarat). It is required to be noted that the issue / dispute in the present case is with respect to the period prior to amendment in the Act i.e. 1/4/1999. Therefore, the ratio and the law laid down by the Division Bench of this Court in the case of Narmada Chematur Petrochemicals Ltd. (supra) would be squarely applicable. In the case of Narmada Chematur Petrochemicals Ltd., the Division Bench of this Court has observed and held that excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period is to be excluded. While holding so, the Division Bench of this Court has assigned the following reasons:- “(a)no deduction for the liability had been claimed by the assessee. The excise duty payable on the finished goods lying in the closing stick at the end of the relevant accounting period had been paid in the subsequent year before the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting year; (b)the Assessing Officer had not had recourse to sub-section (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the Assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April 1, 1997. So the next year’s profits would get depressed accordingly. Over a period of time the whole excise would even out, in other words, be revenue neutral. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed. (c)the assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No.2) Act, 1998 with effect from April 1, 1999 could not be invoked.” Under the circumstances and applying the ratio and law laid down by the Division Bench in the case of Narmada Chematur Petrochemicals Ltd. (supra), question No.(1) is answered against the revenue. (c)the assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No.2) Act, 1998 with effect from April 1, 1999 could not be invoked.” Under the circumstances and applying the ratio and law laid down by the Division Bench in the case of Narmada Chematur Petrochemicals Ltd. (supra), question No.(1) is answered against the revenue. 3.02.Now, question No.(2), Whether the Appellate Tribunal was right in holding that interest of Rs.2,19,216/- derived from Bank Guarantee Deposits, Letter of Credit and on delayed payments, is eligible for deduction u/s.80IA of the Act, is concerned so far as interest derived from Bank Guarantee Deposits and Letter of Credit is concerned, the same is covered by the decision of the Hon'ble Supreme Court in the case of Liberty India Vs. Commissioner of Income Tax, reported in 317 ITR 218 (SC). Applying the ratio and law laid down by the Hon'ble Supreme Court in the case of Liberty India (supra) question No.(2) to the extent of deduction under section 80IA of the Act with respect of the interest derived from Bank Guarantee Deposits and Letter of Credit is held against the revenue. So far as the interest on delayed payments is concerned, the same is squarely covered in favour of the Revenue in view of the decision of the Division Bench of this Court in the case of Nirma Industries Ltd. Vs. Deputy Commissioner of Income Tax, reported in (2006) 283 ITR 402 (Gujarat). In the said decision, the Division Bench of this Court has held that while computing special deduction under section 80I, interest received from trade debtor towards late payment of sale consideration is to be included in the profits of the industrial undertaking. Applying the ratio laid down by this Court in the case of Nirma Industries Ltd. (supra), the said issue is to be held in favour of the revenue. 4.00.In view of the above and for the reasons stated above, Question No.(1) is answered against the revenue and so far as the question with respect to interest derived from Bank Guarantee Deposits and Letter of Credit is concerned, the same is held against the revenue, however, so far as the Question No.(2) with respect to interest received towards delayed payment is concerned, the same is held in favour of the revenue. Present appeal is partly allowed to the aforesaid extent. Sd/- (M.R.SHAH, J.) Rafik. Sd/- (R.P.DHOLARIA,J.)