, `'
IN THE INCOME TAX APPELLATE TRIBUNAL
"H" BENCH, MUMBAI
, , ,
BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
. / ITA no. 3213/Mum./2013
( / Assessment Year : 200910)
Asstt. Commissioner of Income Tax4(2)
................. /
Aayakar Bhavan, 101, M.K. Road
Mumbai 400 020 Appellant
v/s
M/s. Hindustan Organics Chemicals Ltd.
Harichandrai House, 81, M.K. Road ................... /
Mumbai 400 023 Respondent
./ Permanent Account Number AAACH2663P
/ Revenue by : Shri Pitambar Das
/ Assessee by : Shri K. Gopal
/ /
Date of Hearing 31.07.2014 Date of Order 06.08.2014
/ ORDER
, /
PER AMIT SHUKLA, J.M.
The present appeal has been preferred by Revenue, challenging
the impugned order dated 13th February 213, passed by the learned
Commissioner (Appeals)VIII, Mumbai, for the quantum of assessment
passed under section 143(3) of the Income Tax Act, 1961 (for short
M/s. Hindustan
Organics Chemicals Ltd.
2
"the Act") for the assessment year 200910, on the following
grounds:
"On the facts and in the circumstances of the case and in law
the learned CIT(A) erred in deleting the disallowance of `
9,13,519 of bond issue expenses without appreciating the fact
that it had been incurred for raising capital and hence be
treated as capital expenditure.
2. On the facts and in the circumstances of the case and in law
the learned CIT(A) erred in deleting the addition of 2% of the
total value of raw material, stores and spares in closing stock
made u/s 145A on account of direct expenses like freight,
storage, etc."
2. As regards the first issue i.e., disallowance of bond issue
expenses of ` 9,13,519, it is seen from the material placed on record
that the assessee has incurred bond issue expenses of ` 248,98,771
out of which the assessee has debited an amount of ` 9,13,519, to the
Profit & Loss account and the remaining amount has been carried to
share premium account. In response to the show cause notice, the
assessee submitted as under:
"During the year, the assessee has incurred Bond Issue
expenses of ` 251812290/ of which ` 24898771/ were
debited to Security Premium Account and Fitch Rating expenses
of Bonds of ` 913519/ was debited to other expenses. These
expenses are towards the bonds of ` 100 crores which are
redeemable at end of one year (Please rerer Schedule 4
"Unsecure Loans" to the Audited Balance Sheet. Considering the
same, the Bond issue expense of ` 24898771/ which were not
claimed as expenses in Profit & Loss Account, the same are
claimed in Computation of Income. Details of Bond Expenses are
enclosed."
M/s. Hindustan
Organics Chemicals Ltd.
3
3. However, the Assessing Officer rejected the assessee's
contention and held that the purpose of issuing bond is to raise capital
for the payment of loan taken in the earlier years and, therefore, the
same is in the nature of capital. Hence, he disallowed the said claim.
4. Before the learned Commissioner (Appeals), besides relying upon
various decisions also, relied upon the earlier year's order of the
learned Commissioner (Appeals) as well as the order of the Tribunal
especially order for the assessment year 200607. The learned
Commissioner (Appeals) accepted the assessee's contention and found
that this issue is covered in favour of the assessee by the earlier year's
order of the Tribunal and after relying upon the Tribunal order for the
assessment year 200607, directed the Assessing Officer to allow the
expenditure as revenue expenditure.
5. Before us, both the parties agreed that this issue stands covered
by in favour of the assessee by the order of the Tribunal for the
assessment year 200607. The learned counsel for the assessee Mr. K.
Gopal, brought to our notice that the High Court has also confirmed
this order of the Tribunal in the appeal filed by the Department in CIT
v/s Hindustan Organic Chemicals Ltd., ITA no.399/2012 order
pronounced on 11th July 2014.
M/s. Hindustan
Organics Chemicals Ltd.
4
6. In view of the aforesaid submissions and also the fact that the
High Court is confirmed the order of the Tribunal for the assessment
year 200607, in the following manner:
"10. As far as the second question is concerned, we find that the
CIT (Appeals) as well as the ITAT merely followed the decisions
in the case of this very Assessee in the preceding years in
deleting the disallowance of ` 10,00,300 incurred towards bond
registration charges and in view thereof, the ITAT came to the
finding that the said expenditure was a revenue expenditure and
hence allowable under section 37(i) of the Act. We are of the
view that the aforesaid finding of the ITAT cannot be in any way
said to be vitiated on the ground of perversity or any error
apparent on the face of the record and therefore does not give
rise to any substantial question of law which needs to be
answered by this Court."
Thus, we affirm the order of the learned Commissioner (Appeals)
following the order of the High Court. Accordingly, the ground no.1,
raised by the Department stands dismissed.
7. As regards the disallowance made in the closing stock of raw
material on adhoc basis @ 2% made under section 145A, the
Assessing Officer on a perusal of audit report noted that the assessee
has not considered the direct expenses while computing the value of
closing stock. He held that the raw materials are required to be loaded
with the direct expenses like freight shortage, etc., incurred on
account of the same as no details of direct expenses has been
furnished, therefore, he estimated 2% of the total value of the closing
stock of raw materials and stores and spares to be representing the
M/s. Hindustan
Organics Chemicals Ltd.
5
direct expenses incurred on account of raw material and accordingly
an addition of ` 54,35,420, was made in the closing stock under the
provisions of section 145A.
8. Before the learned Commissioner (Appeals), the assessee
submitted as under:
"The appellant, vide submission dated 05.12.2011, had
submitted that the value of closing stock of raw material and
stores includes freight charges and other direct charges incurred
on raw material and stores. In support of the claim; appellant
has submitted sample copy of purchase day book of item having
purchase value of ` 3,56,54,540 (inclusive freight of ` 30,260/)
and General Ledger of the same item reflecting the closing value
of stock at ` 3,56,54,540 (which is inclusive of freight). The
same copy is submitted at Page no.7 to 9. From the above your
honours may observe that, the freight is included in the closing
value of the stock. Therefore, the addition of ` 54,35,420 to
closing stock of Raw Material and Stores and Spares is
unwarranted and require deletion. Also, the issue is covered in
favour of the appellant by CIT(A) for A.Y. 200607, 200708 and
A.Y. 200809. The copy of the CIT(A) order for assessment year
200809 is enclosed for your reference at Page no.10 to 20.
Considering above, your honours are requested to delete the
addition u/s 145A of the act."
9. The learned Commissioner (Appeals), after following the earlier
year order of the Tribunal in assessee's own case for various earlier
years, allowed the assessee's ground.
10. Before us, it has been admitted by both the parties that this
issue has been decided in favour of the assessee by the Tribunal uptill
assessment year 200809.
M/s. Hindustan
Organics Chemicals Ltd.
6
11. After considering the order of the Assessing Officer as well as the
learned Commissioner (Appeals) and also the earlier year's order of
the Tribunal, we find that this issue has consistently been allowed by
the Tribunal in favour of the assessee. In assessment year 2008 09,
the Tribunal, vide order dated 9th November 2012, ITA no.7981/Mum./
2011, has decided the issue in the following manner:
"4. Apropos Ground No.2, it was stated to be covered by the
earlier decision of the Tribunal rendered for A.Y 2007-08. The
facts are stated to be identical. For the sake of convenience the
relevant portion of the order of the Tribunal dated 13/01/2011 in
ITA No.2201/Mum/2010 on the similar issue is reproduced
below:
"11. Ground No.3 is directed against the action of
the CIT(A) in deleting the disallowance of
Rs.58,09,097/- u/s. 145 of the Act.
12. The AO noted that the tax audit report showed
that the assessee company had not considered the
direct expenses while computing the value of closing
stock. The AO, therefore, was of the view that such
expenses were required to be loaded with for valuing
the closing stock and the direct expenses, freight,
storage, etc. were incurred on account of purchase
of raw material. Since no details of the direct
expenses had been furnished, the AO estimated the
direct expenses at 2% of the total value of closing
stock of raw materials and stores, which resulted in
to the addition of Rs. 58,09,097/- to the closing
stock in accordance with the provisions of section
145A of the Act. Aggrieved, the assessee carried the
matter in appeal before the CIT(A).
13. Before the CIT(A), the AR of the assessee
submitted that the AO had made addition of Rs.
58,09,97/- on estimate basis towards the
transportation cost and other direct cost like freight,
storage as incurred to closing stock of raw materials
and a spare parts. He further submitted that no
M/s. Hindustan
Organics Chemicals Ltd.
7
details were asked for by the AO. It was further
submitted that the value of closing stock of raw
materials and the stores were recorded at cost
inclusive of freight and transportation. The AR
submitted that the purchase book and general ledger
of a particular day reflects that the purchase is
accounted at Rs. 2,90,70,603/- which is inclusive of
freight of Rs. 58,850/- and the general ledger
reflects that the closing stock of Rs. 11,9,27,965/- is
inclusive of freight. It was also brought to the notice
of the CIT(A) that the issue is covered in favour of
the assessee by the order of CIT(A) for AY 1999-00,
2002-03, 2004-05 and 2006-07. After considering
the submissions of the assessee, the CIT(A) deleted
the disallowance made by the AO by holding as
under:
"4.3 I have considered the fact. It is seen
that the appellant has been valuing its
closing stock of raw material inclusive of
freight charges as reflected from the
purchase day book and general ledger of
item having the value of Rs. 2.90 crore.
It is further seen that there is no change
in the valuation of the stock. I find that
the valuation method has not been
changed by the AO in past year and that
no adjustment to this effect was made in
the subsequent year. The closing stock of
previous year would be the opening is
stock of the year and therefore
estimation of the stock is not justified.
Further the appellant is consistently
following the same method of valuation
of closing stock. This issue is also
covered in favour of the appellant by the
order of CIT(A) for assessment years
1999-00, 2002-03, 2004-05 and 2006-
07 dated 17/12/2010. In view of these
facts, the addition made by the AO is
deleted. This ground of appeal is
therefore allowed."
14. Aggrieved by the order of CIT(A), the revenue is
in appeal before us.
15. The learned DR besides relying upon the order of
the AO submitted that since no details of direct
M/s. Hindustan
Organics Chemicals Ltd.
8
expenses filed by the Assessee, the AO estimated
the direct expenses at 2% of the total value of
closing stock of raw materials and stores, which is
proper and the same is in accordance with the
provisions of section 145 of the Act.
16. On the other hand, the learned counsel for the
assessee has strongly relied upon the order of the
CIT(A).
17. We have considered the rival submissions,
perused the record and gone through the orders of
the authorities below. It is seen that since no details
of the direct expenses were furnished, the AO
estimated the direct expenses at 2% of the total
value of closing stock of raw materials and stores,
which resulted in to the addition of Rs. 58,09,097/-
to the closing stock in accordance with the provisions
of section 145A of the Act. The CIT(A) gave a finding
that the appellant has been valuing its closing stock
of raw material inclusive of freight charges as
reflected from the purchase day book and general
ledger of item having the value of Rs. 2.90 crore and
there is no change in the valuation of the stock. The
CIT(A) held that the closing stock of previous year
would be the opening is stock of the year and
therefore estimation of the stock is not justified. The
CIT(A) finally deleted the addition following the
earlier orders of CIT(A) in assessee's own case."
5. The facts of the present year are similar. The A.O applied
section 145A of the Act. He has observed that audit report has
revealed that assessee company did not consider direct
expenses while computing value of closing stock. According to
AO raw material was required to be loaded with the direct
expenses like freight, storage etc. incurred on account of the
same. In absence of details he estimated direct expenses to the
tune of 2% of the total value of the closing stock of raw material
and accordingly addition of Rs.6,81,25,800/- was made which
has been deleted by Ld. CIT(A) as mentioned above.
6. We have heard both the parties on this issue. The facts being
identical to A.Y 2007-08, therefore, respectfully following the
decision of Co-ordinate Bench in assessee's own case, we find no
infirmity in the relief given by the Ld. CIT(A). Ground No.2 of the
revenue is dismissed."
M/s. Hindustan
Organics Chemicals Ltd.
9
12. Thus, consistent with the view taken in the earlier years, we do
not find any merit in the ground raised by the Department and the
same is dismissed.
13.
14. In the result, Revenue's appeal is dismissed.
6th August 2014
Order pronounced in the open Court on 6th August 2014
Sd/- Sd/-
SANJAY ARORA AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 6th August 2014
/ Copy of the order forwarded to:
(1) / The Assessee;
(2) / The Revenue;
(3) () / The CIT(A);
(4) / The CIT, Mumbai City concerned;
(5) , , / The DR, ITAT, Mumbai;
(6) / Guard file.
/ True Copy
/ By Order
. / Pradeep J. Chowdhury
/ Sr. Private Secretary
/ / (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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