Principal Commissioner Of Income Tax-1 v. Atul Limited

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 821 of 2018 ================================================================ PRINCIPAL COMMISSIONER OF INCOME TAX-1VersusATUL LIMITED ================================================================ Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAHandHONOURABLE MR.JUSTICE A.Y. KOGJE Date : 31/07/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT dated 04.01.2017 passed in IAT No.939/Ahd/2002 for Assessment Year 1996-97, by which the learned Tribunal has dismissed the said appeal preferred by the Revenue, the Revenue has preferred the present Tax Appeal with the following proposed questions of law:- “[A] Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs.55,73,818/- made on account of opening stock? [B]Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs.9,88,740/- made on account C/TAXAP/821/2018 ORDER of disallowance in respect of provisions of interest liability of central excise refund? [C]Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs.63,44,823/- made on account ofdisallowanceofinterestof Rs.63,44,823/- being on funds utilized for giving interest free loans to sister concerns?” [D]Whether the Appellate Tribunal has substantially erred in law in deleting the disallowance of expenditure on issue of non-convertible and fully convertible debenture?” 2. Counsel appearing for the appellant-Revenue at length on all the proposed questions. 3.The proposed Question-No.2[A] is with respect to deleting addition of Rs.55,73,818/- made on account of opening stock. Learned CIT (Appeals) as well as learned ITAT have specifically come to a finding that the Assessing Officer was required to adopt value of opening stock for Assessment Year 1996-97 equally to the value of closing stock of 1995-96 and allowed the deduction for the same. We are in complete agreement with the view taken by the learned CIT (Appeals) as well as learned ITAT that the value of closing stock of preceding year is C/TAXAP/821/2018 ORDER to be adopted of opening stock in the next year, i.e. Assessment Year 1996-97. Under the circumstances, the learned Tribunal has rightly deleted the addition of Rs.55,73,818/- made by the Assessing Officer made on account of opening stock. We are in complete agreement with the view taken by the learned Tribunal. No substantial question of law arises. 4.Now so far as proposed Question No.2[B] is concerned, it is with respect to deleting addition of Rs.9,88,740/- made on account of disallowance in respect of provisions of interest liability of central excise refund. It is required to be noted that and as rightly observed by the learned Tribunal in para-51 that though the liability got settled during the year under consideration in view of the High Court’s order and as the assessee followed mercantile system of accounting, the liability accrued during the year and its payment at future date cannot result in disallowance. Considering the above, the learned Tribunal has rightly deleted the aforesaid addition of Rs.9,88,740/- made on account of disallowance in respect of provisions of interest liability on central excise refund. We are in complete agreement with the view taken by the learned Tribunal. No substantial question of law arises. 5.Now so far as proposed Question No.2[C] is C/TAXAP/821/2018 ORDER concerned, the same is with respect to deleting addition of Rs.63,44,823/- made on account of disallowance of interest on funds utilized for giving interest free loans to sister concerns. It is required to be noted that in the case of the very assessee, in respect of earlier Assessment Year, a similar addition was deleted by the learned ITAT in IAT No.1800/Ahd/1999 for Assessment Year 1995-96. It is reported that the decision of the Tribunal has been accepted by the Department and the same is not carried further. Under the circumstances, similar treatment is required to be given in the year under consideration also as rightly observed by the Tribunal. Hence, learned Tribunal has rightly confirmed the order passed by the learned CIT (Appeals), deleting addition of Rs.63,44,823/- made on account of disallowance of interest on funds utilized for giving interest free loans to sister concerns. No substantial question of law arises. 5.Now so far as Question No.2[D] is concerned, it is with respect to deleting the disallowance of expenditure on issue of non-convertible and fully convertible debenture. The learned Tribunal, for the aforesaid, has relied upon the decision of the Hon’ble Supreme Court in the case of India Cements Ltd. Vs. Commissioner of Income Tax, Madras, reported in (1966) 60 C/TAXAP/821/2018 ORDER ITR, 52. The only contention on behalf of the Revenue was that in the books of accounts, the assessee treated the said expenses as capital expenses. However, as per the catena of decisions, effect given by the assessee in the books of accounts cannot be a determinative factor. What is required to be considered is whether in law, the said amount is to be treated as capital expenditure or the revenue expenditure. As per the decision of the Hon’ble Supreme Court in the case of India Cements Ltd. (supra), the expenditure incurred on the issue of debenture is allowable expenditure and to be treated as the revenue expenditure. Under the circumstances, no error has been committed by the learned Tribunal in deleting the disallowance of expenditure on issue of non-convertible and fully convertible debenture. We are in complete agreement with the view taken by the learned Tribunal. No substantial question of law arises. 6.In view of the above and for the reasons stated hereinabove, the appeal fails and the same deserves to be dismissed and it is accordingly dismissed. (M.R. SHAH, J) (A.Y. KOGJE, J)