D.b. Income Tax Appeal v. M/S Autopal Industries Ltd., E-195-A, Riico Industrial Area, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 18 / 2011COMMISSIONER OF INCOME TAX, JAIPUR-III, JAIPUR. ----Appellant Versus M/S AUTOPAL INDUSTRIES LTD., E-195-A, RIICO INDUSTRIAL AREA, JAIPUR. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Vivek Singhal _____________________________________________________HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment Per Hon’ble Jhaveri, J. 12/04/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department and partly allowed theappeal of the assessee. 2.This court while admitting the appeal on 28.02.2012 has framed the following substantial question of law: “Whether the claim of deduction on accountof non realization of export proceeds isallowable in the subsequent assessmentyear, when already the said bad debts isclaimed as deduction under Chapter 6A ofthe Income Tax in the precedingAssessment Years, resulting in unjustenrichment in the hands of assessee andloss to revenue?” 3.The brief facts of this case are that the assessee filed returndeclaring a loss of Rs.4,29,72,704/- on 30.11.2000 which wasprocessed u/s 143 on 30-01-2002. Thereafter the case of theassessee was re-opened by issue of notice u/s 148 of the I.T. Act,1961 on 28-01-03 by duly recording reasons on the order sheet.In compliance to the above notice no return was filed by theassessee till 18-2-2003 when vide his letter received on 26-03-2003 he has informed that return fled by the assessee 30-11-2000 maybe treated to have been filed in response to the abovementioned notice under section 148 dated 28-01-2003 receivedby the company on 14-02-2004. Thereafter, notice u/s 143 (2)was issued to the assessee on 18.01.2003 fixing the case forhearing 1-13-2003. In response to the above assessee andsubsequent notices under section 143 (2) issued time to ShreeDeepak Kalani CA & A/R of the assessee appeared alongwithShree Arvind Kumar Tiwari, Accountant and produced the books ofaccounts, comprising of computerized cash book, ledger, purchaseregister, sales register, vouchers of purchase/expenses, bill books,bank book, journal etc which were examined by test check andcase was discussed with them. The assessee continuous to deriveincome by manufacturing of Halogen Bulb, CFL (CompactFluorescent Lamp) and General Lighting and sale thereof at hisplant as RIICO Industrial Area, Sanganer, Jaipur. During the yearunder consideration on the total turnover of Rs.3,19,88,996/- theassessee declared GP of Rs. 42,90,827/- giving a GP rate of13.41%. The purchase and sales are vouched and stock register isbeing maintained by the assessee, as such no interference is called for in the same. However, while examining the closing stockof the assessee it is found that he has declared a closing stock ofRs. 1,01,78,153/- (Work in progress Rs. 243063 + Financial goodsRs.99,35,090), which includes the closing stock of Rs.13,892/-peaces of Halogen Lamps 1,19,703 peaces of CFL (CompactFluorescent Lamp)and 32491 of fixtures (General Lighting) , whichare finished goods and the excise duty on the same is worked outat Rs.10,17,636/-. Accordingly to the Schedule S of accountingpolicies of annual report of the company the excise duty payableon finished good is accounted for on clearance of goods fromfactory. The amount of excise duty payable on finished goods ofstock lying in factory as on 31.3.2000 is estimated at Rs.10,17,636/-. According to the provisions of Sec. 145A of the I.T.Act , 1961 the excise duty to value of finished goods is required tobe taken at the time of valuation of the finished goods of amanufacturing unit. The assessee was asked to explain why theexcise duty payable on the finished goods of closing stock be notadded back to his income by considering the same in the valuationof the closing stock. In a written reply filed by the assessee on 3-2-2003 it is stated that; As per the provisions of Sec. 145A thevalue of purchase and sale of goods for the purpose ofdetermining the income chargeable under the head "profits andgains of business" is to be taken in accordance with the method ofaccounting regularly employed by the assessee and is further tobe adjusted to include the amount of any taxes, duties, cases orfee actually paid or incurred by the assessee to bring the goods tothe place of its location and condition as on date of valuation. Thus, only such taxes etc are to be taken into consideration, whichhave actually been paid incurred. As per the method of accountingregularly employed by the assessee and accepted by thedepartment the duty of excise on the bonded goods crystallizesonly on the date when the goods are released from the bondedwarehouse. Thus, the excise duty has neither been paid norincurred by the assessee in this case. Your attention is invited tothe decision of Hon'ble Bombay High Court in case of CaprihansIndia Limited vs. Prakash Chandra & Others reported in 256 ITR721. The Bombay High Court was dealing with a similar issue andit was held that a re-assessment proceeding taken to include theliability of excise duty in valuation of stock was not justified. Yourattention is invited to pages 723 and 724 of the report where ithas been held that although the taxable event for the purpose ofexcise duty is the date of manufacturing as held by the Apex Courtin the case of collector of Central Excise vs Polyset Corporation(2000) 10 SCC 241, relevant date for the payment of excise dutyis the date of clearance of excisable goods and not the date ofmanufacturing of excisable goods. 4.Counsel for the appellant has contended that both CIT(A) aswell as Tribunal have seriously committed an error in reversing thefinding arrived by the Assessing Officer. 5.Counsel for the respondent has supported the order of theTribunal and contended that the view taken by the Tribunal andmore particularly in para 18 & 19, which reads as under, requiresto be upheld: “On this issue, the AO has observed as under :- 4.Counsel for the appellant has contended that both CIT(A) aswell as Tribunal have seriously committed an error in reversing thefinding arrived by the Assessing Officer. 5.Counsel for the respondent has supported the order of theTribunal and contended that the view taken by the Tribunal andmore particularly in para 18 & 19, which reads as under, requiresto be upheld: “On this issue, the AO has observed as under :- "Further, the assessee has claimed expensesunder the head Research & Development atRs. 12,42,856/-. On enquiry, it is found thatRs. 10 lacs were paid to the sister concernM/s. Auto light India Ltd, Jaipur as per copyof the written agreement entered into inMarch,1998 for providing the technicalconsultancy and technical support etc.During the year under consideration, theturnover of the assessee has been increasedsubstantially and for a part of the year thefactory is also not working. In suchcircumstances, payment of such hugeamount to a sister concern is not justifiable.I therefore, disallow a sum of Rs. 5 lacs u/s40 A(2)(b) and added back to the income ofthe assessee. 19. The 1d. CIT (A) has deleted the disallowance after considering the submissionsof the assessee. The submissions of theassessee as placed before the ld. CIT (A) areas under :- "6.2 Disputing the disallowance, ld. ARsubmitted that there was an agreementbetween the appellant and M/s. Autolite(India) Ltd. dated 25-03-1998. Thatagreement was for the rendition of technicalconsultancy for different items. It was acomposite agreement for a total amount ofRs. 14 lacs and it was under that agreementthat the payment of Rs. 10 lacs was made toM/s Autolite (India) Ltd. The ld. AR pointedout that the ld. AO was not correct inmentioning that M/s Autolite (India) ltd. Wasa sister concern and the provisions ofSection 40A(2)(b) were applicable. Ld. ARclarified that the said observation of ld. AOwas incorrect because M/s Autolite (India)Ltd was a listed company and therefore,provisions of Sec. 40A(2)(b) were notapplicable. Ld. AR also argued that the ld.AO had also not arrived at a finding as tohow the expenditure claimed was excessiveor unreasonable having regard to the fairmarket value of the goods/services inquestion. It was pleaded that hence, thedisallowance be deleted." 6.Taking into consideration, we are of the opinion that the viewtaken by the Tribunal is just and proper and no case for interference is made out. 7.In that view of the matter, the issue is answered in favour of the assessee and against the department. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/104