M/S Atlas Storage Batteries Co v. Ass Commissioner Of Income Tax

HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR D.B. Income Tax Appeal No. 48 / 2008 M/S Atlas Storage Batteries Co ----Appellant Versus Ass Commissioner Of Income Tax ----Respondent _______________________________________________ For Appellant(s) : Mr. Ashish SharmaFor Respondent(s) : Ms. Parinitoo Jain _______________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 09/05/2017 1. By way of this appeal the appellant has challengedthe judgment and order of the Tribunal whereby Tribunalhas allowed the appeal preferred by the Department andreversed the finding of CIT(A) Appeal. 2.This court while admitting the appeal on 14.07.2008framed question No. B and C which we have reproduced inthe order dated 30.01.2017 which reads as under:- “B). Whether in the facts and circumstancesof the case, the Appellate Tribunal was justified insustaining an arbitrary addition of Rs. 91,581/-under Section 145 A without there being anydeflation in taxable profit of the company due toadoption of inclusive method of excise? C) Whether in the facts and circumstances of thecase the Appellate Tribunal was justified insustaining the addition of Rs. 3,09,294/- onaccount of disallowance of expenses incurred onconsultancy given by Shri R.C. Bhandari withoutbeing any evidence on record.?” 3. Counsel for the appellant Mr. Sharma has taken us to theorder of the CIT (A) and contended that while considering thecontentions which has been raised by the appellant has discussedthe issue in detail and taking into consideration allowed the appealand has decided both the issues in favour of the assessee.However the Tribunal without looking to Annexure-4 which readsas under:- ATLAS STORAGE BATTERIES CO. LTD. H38 PHASE-II, RIICO INDUSTRIAL AREA BEAWAR (RAJ.) 395 901 --Annexed to tax audit report for the year 19992000 (Asstt. Year 20002001) The company has adopted exclusive method of accounting of excise cenvatsince beginning. Hence, the profit & loss account prepared under thecompanies act is not according to the valuation prescribed under section 145Aof the Income Tax Act. Now, we are enclosing a statement showing the exciseduty effect on profit and loss account and as a result there will be no effect onthe profit as disclosed by the profit & loss account under the companies act(exclusive method) Excise duty effect on profit to be increase a) Excise duty on sale : 21,28,768.00 b) Excise duty on closing stock : 4,36,721.00 of raw material, stores etc. c) Excise duty on closing stock : 89,610.00 of finished goods d) Modvat credit utilized on : 8,01,607.00 consumption of raw material and stores 34,56,706.00 Excise duty effect on profit to be reduced a) Excise duty on purchase of : 12,38,328.00 Raw Material and stores b) Excise duty paid : 21,28,768.00 c) Deduction u/s. 43(B) for excise : 89,610.00 duty on closing stock of finished goods paid 34,56,706.00 4.He contended that Tribunal in Para 10 held as under:- Excise duty effect on profit to be increase a) Excise duty on sale : 21,28,768.00 b) Excise duty on closing stock : 4,36,721.00 of raw material, stores etc. c) Excise duty on closing stock : 89,610.00 of finished goods d) Modvat credit utilized on : 8,01,607.00 consumption of raw material and stores 34,56,706.00 Excise duty effect on profit to be reduced a) Excise duty on purchase of : 12,38,328.00 Raw Material and stores b) Excise duty paid : 21,28,768.00 c) Deduction u/s. 43(B) for excise : 89,610.00 duty on closing stock of finished goods paid 34,56,706.00 4.He contended that Tribunal in Para 10 held as under:- “10.In view of the decision of the Hon'ble Apex Court in thecase of CIT Vs. British Paints India Ltd. (supra), we are of the viewthat the AO is not bound by the method followed by the assesseeconsistently in the early years. If a system adopted by the assesseeproduce a comparatively lower valuation of a closing stock and thecorrect profits and gains cannot be deduced therefrom then the AOwas obliged to have the recourse to proviso to Section 145A of theAct. The profits of one year in dispute in the present case are likelyto be shifted to another year which would be incorrect method ofcomputing profits since each year is a self contained unit and thetaxes of the particular year are payable with reference to income ofthat year. The arguments of the ld counsel for the the assessee thatthe method of accounting does not affect the profitability of theassessee has been found to be not convincing to us. Therefore, theAO is justified in including the value of excise duty in the closingstock of the assessee. Therefore, the decision of the ld. CIT(A) isreversed on this issue. Thus Ground No.1 of the Revenue isallowed.” 5.It is also contended that the Tribunal while considering the issue of Bhandari has decided in favour of the Department holding as under:- “14. We have perused the facts of the case and findthat the AO in his order at page 3 and 4 categorically mentionedthat there is no evidence of showing that any work has beenexecuted by Shri R.C. Bhandari and Shri R.C.Bhandari was alsorequired vide AO’s letter No.103 dated 5-2-03 to furnish thecomplete address of the Ao at Hyderabad where he is filing thereturn of income and also the terms and conditions on which hehas been appointed alongwith the details of receipts andexpenditure, supporting evidence showing expenses, educationalqualification, experience and the work executed by him. But ShriR.C. Bhandari failed to produce the same. Also the assesseecompany was required to produce Shri R.C.Bhandari forexamination which it failed to produce. The assessee was alsoasked to produce the details of the payments made to ShriBhandari on various dates because most of the payments havebeen made in cash, which were not produced. The assesseecompany produced the air-tickets of the foreign tour of ShriR.C.Bhandari but no evidence was furnished that the Shri R.C.Bhandari conducted the tour for business purposes.” 6.Learned Counsel for the respondent Ms. Jain has taken up asto the judgment of Tribunal where issue of disallowance andexpenses on foreign travel by Mr. Bhandari was discussed andtaking into consideration she contended that the view taken by theTribunal is just and proper. 7.We have heard learned counsel for both the parties. 6.Learned Counsel for the respondent Ms. Jain has taken up asto the judgment of Tribunal where issue of disallowance andexpenses on foreign travel by Mr. Bhandari was discussed andtaking into consideration she contended that the view taken by theTribunal is just and proper. 7.We have heard learned counsel for both the parties. 8.Before proceeding with the matter, it may not be out ofplace to mention that liability in excess will start only on thedischarge of the goods in the view of the CIT (A) and afterconsidering the evidence on record after taking into considerationAnnexure-4 which we have reproduced hereinabove, the court maymake any difference in the excise duty. Therefore, the first issue isrequired to be answered in favour of the assessee. 9.Even on the second issue, the expenses incurred onconsultancy given by Mr. Bhandari it is established he is a livingperson and was assessed in Andhara and expenses which arerecorded by the AO are done therefore, whether the expenses isbona fide or not is to be verified. 10.Thus, this issue is also required to be answered in favour ofassessee and against the Department. 10.1Thus, the view taken by the CIT (A) is restored and that ofTribunal is set aside. 11.The appeal is allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. B. M. Gandhi/17