ACIT, Circle 12 (1), New Delhi. Vs. Gulshan Chemicals Ltd., E-12, Ground Floor, Greater Kailash-I, New Delhi.
May, 09th 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : C : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
SHRI A.D. JAIN, JUDICIAL MEMBER
Assessment Year : 2009-10
ACIT, Vs. Gulshan Chemicals Ltd.,
Circle 12 (1), E-12, Ground Floor,
New Delhi. Greater Kailash-I,
PAN : AAACG4002H
Assessee By : Shri P.N. Mehta, FCA
Department By : Shri Satpal Singh, Sr. DR
PER A.D. JAIN, JUDICIAL MEMBER:
This is Department's appeal for Assessment Year 2009-10 against the
order dated 26.04.2012, passed by the Ld. CIT (A)-XV, New Delhi, taking the
following grounds of appeal:-
"1. Whether Ld. CIT (A) was correct on facts and circumstances of
the case and in law in deleting the disallowance of Rs.37,68,727/-
made by the AO on account of variation in closing stock.
2. Whether Ld. CIT (A) was correct on facts and circumstances of
the case and in law in deleting the disallowance of Rs.5,00,000/- made
by the AO on account of fuel expenses.
3. Whether Ld. CIT (A) was correct on facts and circumstances of
the case and in law in deleting the disallowance of Rs.6,00,000/- made
by the AO on account of stores and spares expenses."
2. As per the record, the assessee company is engaged in the business of
manufacturing, trading, export and import of chemicals. It filed its return of
income for the year on 29.9.09, declaring income of ` 1,40,07,659/-.
Subsequently, on 26.11.09, it filed revised return, declaring income of `
1,43,11,522/-. Still later, on 14.12.09, it filed another revised return declaring
an income of ` 1,05,42,795/-.
3. Apropos Ground No.1, the AO asked the assessee to explain the
reasons for deduction in income as shown in the revised return. The
assessee submitted vide reply dated 17.08.11 that the difference in the
income was caused due to variation in the value of closing stock as on
31.3.09. The AO observed that the assessee remained not able to place on
record any cogent evidence supporting its case. As a result, the AO rejected
the explanation offered by the assessee and added back an amount of `
37,68,727/-, being the difference in the closing stock as shown in the return
filed on 14.12.09 and that filed on 26.11.09, i.e., the difference between the
two revised returns.
4. The ld. CIT (A) deleted this disallowance.
5. The ld. DR has contended that the ld. CIT (A) has erred in deleting the
disallowance of ` 37,68,727/- correctly made by the AO on account of
variation in closing stock; that while doing so, the ld. CIT (A) has failed to
appreciate the fact that the assessee had remained unable to produce any
cogent evidence to support its case.
6. The ld. Counsel for the assessee, on the other hand, has placed strong
reliance on the impugned order.
7. We have heard the parties and have perused the material on record
with regard to this issue. While deleting the disallowance, the ld. CIT (A) has
duly taken into consideration the explanation of the assessee that the reason
for filing the revised return was on account of mistake in taking the value of
the closing stock at a higher figure of ` 37,68,727/-, as contended before the
AO. The said mistake had been committed by the staff of the assessee
company while filing the original e-return. In column 4 of Part A P&L, of the
return of income, the closing stock had wrongly been mentioned as `
2,65,61,073/-, instead of ` 2,27,92,346/-. It was as a result of this mistake,
that the income shown in the return had been taken at ` 1,40,07,659/-, on
which, the assessee company had paid a total tax of ` 47,61,204/-. The
mistake came to the notice of the management later, when the concerned
employee had left the services of the company. The original return and the
tax filed had also been misplaced by the employee. It was on noticing the
said mistake that the return was revised, showing the correct value of
closing stock at ` 2,27,92,346/- and declaring the assessee's net income at `
1,05,42,795/- and claiming a refund of ` 9,10,069/-. These clarifications were
made in the assessee's letter dated 19.08.11, the extract whereof has been
reproduced in the impugned order at pages 4-5 thereof. In this letter, it was
also stated by the assessee before the AO that in the Schedule-6
(inventories) of the assessee's balance sheet as on 31.3.09 (a copy whereof
was filed) the assessee had shown the details of stock as ` 2,27,92,346/-, as
per the revised return of income dated 14.12.09. The assessee also
contended that there had been no change in the figures as audited by its
auditors on 31.7.09 and the error had been noticed in the course of the
internal check by the company. The assessee also submitted that the
assessee's excise record in RG-23, Part II and RG-1 for raw material and
work-in-progress and finished goods, respectively, also showed the quantity
of the assessee's stock as on 31.3.09, as per the balance sheet and return of
income filed and submitted to the Central Excise Department, which had also
been verified by the Central Excise Department. This quantity was also given
by the assessee company in its computation chart forming part of Form 3CD
duly audited by its auditors. A copy thereof was attached. The assessee had
submitted on the basis of the above that there had been no change in the
original stock figures of the assessee as audited and as contained in the
revised return filed on 14.12.09. Further, the assessee also submitted the
following documents before the ld. CIT (A) in support of its claim as had been
done before the AO:-
a) Printed Audited Balance Sheet showing the value of inventory as per
schedule no.6 to be Rs.227,92,346/-.
b) Daily stock statement received from the works and as per the excise
records as on 31.03.2009 submitted to Central Excise Department and
State Bank of India, New Delhi.
c) Statement of closing stock of finished goods and work-in-progress as
on 31.03.2009 submitted to department of Central Excise, Bhiwadi.
d) Consumption chart as on 31.03.2009 (Annexure to the tax audit report
giving complete opening purchase, consumption and closing stock of
raw material, work-in-progress and finished goods).
e) Copy of RG-1 register of Central Excise giving each finished good stock
position as on 31.03.2009.
f) Copy of RG-23-A, Part-1 of Central Excise register giving individual
stock position of various excisable raw materials, packing material as
8. It was submitted that the above records, in each case, tallied with the
daily stock statement submitted and the total stock of raw material, finished
goods, fuel, packing material and work-in-progress of ` 2,27,92,346/-, as per
the audited accounts of the assessee company.
9. The factum of the above documents having been produced before the
AO, was acknowledged on his order sheet noting dated 19.8.11.
10. The assessment order (page 1, second para) also mentions that:
"......during the course of hearing books of accounts were produced
which have been test checked. The closing stock was verified with the
help of bills/vouchers and the Central Excise records and the case was
discussed with the assessee's counsel."
11. Before us, the department has not been able to refute the findings of
fact recorded by the ld. CIT (A). As per the audited balance sheet of the
assessee, the value of closing stock is ` 2,27,92,346/-. The quantity of
closing stock tallies with the figure of excise records in RG-23, Part II and RG-
1. As such, the ld. CIT (A) is correct in holding that the AO wrongly took the
value of stock of the assessee, as shown in the original return of income.
Therefore, the ld. CIT (A) rightly directed the AO to adopt the figure of the
assessee's closing stock at ` 2,27,92,346/-, as declared in the revised return
filed on 14.12.09, as against the value of closing stock of ` 2,65,61,073/-, as
taken by the assessee in its original return of income.
12. In view of the above, finding no error therein, the CIT (A)'s order on
this issue is confirmed. Ground No.1 is rejected.
13. Addressing Ground No.2, the AO compared the fuel expenses of the
assessee for the year under consideration with those of the immediately
preceding assessment year and found that there was a substantial increase
therein. Holding that the bills/vouchers produced by the assessee were not
fully verifiable, out of the total expenses of ` 26,27,504/-, the AO disallowed
an amount of ` 5 lac.
14. The ld. CIT (A) deleted the said disallowance.
15. The ld. DR has contended that the ld. CIT (A) has erred in deleting the
disallowance of ` 5 lac correctly made by the AO on account of fuel
expenses, without taking into consideration the fact that the bills/vouchers
placed by the assessee were not fully verifiable.
16. The ld. Counsel for the assessee has relied on the CIT (A)'s order in this
17. The CIT (A), while deleting the disallowance, has considered
explanation of the assessee that the figure of ` 26,27,504/- was not the
figure of fuel consumption and the correct fuel consumption was of `
6,32,63,773/-, as compared to that of ` 5,46,31,886/- for the immediately
preceding assessment year. The sales of the assessee company during the
year were of ` 56,09,71,932/-, as compared to those of ` 39,34,31,972/- for
the preceding year. Percentagewise, it worked out to 11.28% for the year, as
compared to 30.89% for the preceding year. The AO had made the addition
out of the closing stock incorrectly. All the fuel expenses had been made on
regular bills from the suppliers and the payment had been made through
account payee cheques. A copy of the assessee's fuel account was filed.
18. The findings of fact recorded by the ld. CIT (A) in this regard also
remained un-rebutted. Accordingly, the CIT (A)'s order in this regard is also
upheld. Ground No.2 is rejected.
19. Coming to Ground No.3, on comparing the stores and spares expenses
of the assessee for the year under consideration with those for the
immediately preceding year, the AO found there to be a substantial increase.
Holding that the bills/vouchers produced by the assessee were not fully
verifiable, out of the total expenses of ` 23,90,280/-, the AO made a
disallowance of ` 6 lac.
20. The ld. CIT (A) deleted the disallowance considering that during the
year, the assessee company had purchased various items of spares and
equipment required for repair and maintenance. It was the assessee's
explanation, which was noted by the ld. CIT (A) that the items purchased by
the assessee were issued to the plant and considered as consumed during
the year. At the end of the financial year, physical stock had been taken in
the stores and a list of items available, i.e., spares, equipment, other
mechanical equipment, pipes and metal components, etc., was made and
was duly verified by the Stores Incharge and the Accounts Superintendent
at the plant. The amount of closing stock as per the physical stock taking list
at the end of the financial year was credited to the assessee's `Repair and
maintenance - plant and machinery' account and debited to the stock of
`Stores and spares.' This was the practice regularly carried on by the
assessee. For the year, closing stock of stores and spares at ` 23,90,280/- as
per the physical stock taking list, had been credited by the assessee to its
`Repair and maintenance - plant and machinery' account and debited to
`stores and spares.' A copy of voucher passed dated 31.3.09 along with the
total physical stock taking list duly verified at the plant, was placed before
the CIT (A). Purchase book along with original bills for verification of the
stock items purchased, out of which, the items left un-used were shown in
the stock list as on 31.3.09, were also filed. All the purchases were on
regular bills. As such, the AO went wrong in observing that the bills/vouchers
were made on loose papers and were, hence, not verifiable. All the purchase
transactions were through cheque payment, but for some small purchases
done on urgent basis at the plant itself, in cash, through regular cash
memos, entry qua which was duly made in the assessee's books of account.
Further, the assessee had not claimed this stock as expense u/s 37(1) of the
IT Act. Rather, an asset was created in the inventory to be claimed in the
next year. The expenditure of ` 23,90,280/- was, thus, found by the ld. CIT
(A) to be the figure of closing stock as per the assessee's books of account.
The financial statement produced showed that the assessee had incurred an
expenditure of ` 22,44,950/- during the year on stores and spares as against
a similar expenditure of ` 43,21,655/- in the immediately preceding year. The
books of account stood duly audited. The auditors had not qualified the audit
report. The AO had not pointed out any discrepancy about the expenses
claimed to have been incurred, nor was the genuineness of the expenditure
doubted. There was also no finding to the effect that the expenses had been
incurred for any non-business purpose.
21. The details of the assessee's stores and spares, as submitted before
the ld. CIT (A) along with its letter dated 20.04.2012, containing the above
explanation of the assessee, have also been filed before us, at pages 66-81
of the assessee's paper book. The detail of physical stock of stores and
spares taken on 31.3.09 (APB 68) totals to ` 23,90,280.51. The details of
stores and spares closing stock for the year 2008-09 are at APB 69-78 and
80-81. These details include description of the stores and spares, the party
from whom they were purchased, the bill No., the billing date, the quantity,
the rate and the amount. The closing stock as on 31.3.09 has been given at
22. None of the above evidence produced by the assessee in support of its
claim, as considered in detail by the ld. CIT (A), have been refuted before us
by the department. Therefore, finding no error whatsoever in the CIT (A)'s
order on this issue also, the same is upheld. Ground No.3 also stands
23. In the result, the appeal filed by the department is dismissed.
The order pronounced in the open court on 07.05.2014.
[R.S. SYAL] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 07th May, 2014.
Copy forwarded to:
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.