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M/s K.G. Petrochem Ltd. Versus Assistant Commissioner of Income Tax

2016 (2) TMI 159 - ITAT JAIPUR

Adjustment of excise duty on opening stock U/s 145A - Held that:- The assessee furnished all the details before the lower authorities at the time of appellate proceedings and at the time of first appeal made before the ITAT thereafter in set aside proceeding, these details were given to the Assessing Officer.

As decided in CIT Vs. Mahavir Alluminum Ltd [2007 (11) TMI 41 - HIGH COURT OF DELHI ]there is no question of any double benefit being given to the assessee. Valuation of invento .....

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necessarily be a corresponding adjustment made in the opening stock as on April 1, 1998.Therefore, we allow the assessee’s claim of adjustment of excise duty U/s 145A on opening stock as on 01/4/1998 at ₹ 16,20,151/-.- Decided in favour of assessee

Deemed dividend U/s 2(22)(e) - Held that:- Assessing Officer had not given any finding on transaction but summarily rejected the submission made by the assessee. The ld CIT(A) also considered the title of the account for deciding the .....

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onal Co. ltd. with assessee are business transactions during the ordinary course of business, which cannot be treated as deemed dividend U/s 2(22)(e) of the Act. - Decided in favour of assessee - ITA Nos. 234 & 235/JP/2014 - Dated:- 14-12-2015 - SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM For the Petitioner : Shri P.C. Parwal (CA) For the Respondent : Shri Kailash Mangal (JCIT) ORDER PER T.R. MEENA, A.M. Both the appeals filed by the assessee arising out of against the orders dated 03/01/2014 .....

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Officer in light of decision of Delhi High Court in the case of CIT Vs. Mahaveer Aluminium Ltd. 297 ITR 77. 1.1 The ld CIT(A) has erred on facts and in law in making unwarranted observation while not allowing the claim of the assessee as per the direction of the Hon ble ITAT. Grounds of ITA No. 235/JP/2014 (A.Y. 2005-06) 1. The ld CIT(A) has erred on facts and in law in confirming the action of the A.O. in making addition of ₹ 20,45,362/- by holding the advance given by M/s Chrome Internat .....

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submissions, we find that upto the introduction of section 145A in the I.T. Act, 1961 by Finance (No.2) Bill 1998 with effect from 01/4/1999, the assessee had been following exclusively method of valuation of closing stock whereby the tax was not included in the value of purchase and sale of stock. In the assessment year under consideration i.e. assessment year 1999-2000 with effect from which the application of section 145A came into effect, the assessee gave effect to the element of excise dut .....

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alance in Modvat account at ₹ 5,33,354/-. Had the correct adjustment been made the income would have been reduced by ₹ 9,76,956/- as under:- Adjustment which should have been made Excise duty on closing stock ₹ 11,76,549/- Less: Excise duty on Opening stock ₹ 21,53,505/- Income would have reduced by ₹ 9,76,956/-. The A.O. denied the claim with this observation that neither the closing stock as on 31/3/1998 nor the opening stock as on 31/3/1999 as per the books of ac .....

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cordingly held that the method of valuation with the excise duty element on opening stock for assessment year 1999- 2000 adopted by the assessee is not in accordance with the provisions of law. He accordingly held that the profits shown for assessment year 1999-2000 has been understated by ₹ 5,33,354/- and added this amount in the income of the assessee. The ld CIT(A) has upheld the finding of the A.O.. Thus the issue before us is as to whether the opening stock as on 01/4/1998 should be a .....

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s with a non-obstante clause, and therefore, to give effect to section 145A of the Act, if it is a change in the closing stock as on March 31, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on April 1, 1998. The Hon'ble High Court has been also pleased to hold that if any adjustment is required to be made by a statute (as for example 145A of the Act), effect to the same should be given irrespective of any consequences on the computation of income for .....

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mount of ₹ 5,33,354/- on account of excise duty on opening stock instead of correct amount of ₹ 21,53,505/- and reduce the income by ₹ 16,20,151/- (Rs. 21,53,505 - ₹ 5,33,354/-), if he finds the said claim is correct while deciding the issue in view of the decision of Hon ble Delhi High Court in the above mentioned case of CIT Vs. Mahavir Alluminium Ltd. (supra). It is needless to mention over here that while deciding the issue, the assessee will be afforded adequate oppo .....

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2000 for the purpose of making valuation U/s 145A the assessee took the value of excise duty on the opening stock as on 01/4/1998 at ₹ 5,33,354/- whereas the value of closing stock as on 31/3/1998 did not include the said value of excise duty of ₹ 5,33,354/-. This method of valuation of opening stock with excise duty has the effect of reducing the profit of assessment year 1999-2000 by ₹ 5,33,354/-. This method of valuation with the excise duty element on opening stock for A.Y. .....

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he ld CIT(A) has also confirmed this issue by stating that by allowing the deduction on account of excise duty element in opening stock which was the closing stock for A.Y. 1998-99 in my considered view unless the closing stock for last year is enhanced no such set off for excise duty element in opening stock can be given. The A.O. was correct in not allowing such set off of ₹ 5,33,354/- on account of excise duty element of opening stock. When on principle it is not allowed then it makes n .....

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partly by observing as under:- 2.3 I have considered the facts of the case; assessment order and appellant s written submissions. ITAT set aside the issue of adjustment of excise duty to the opening stock on the basis of Delhi High Court decision in the case of Mahavir Alluminium Ltd. to the A.O.. Assessing Officer while completing set aside assessment, did not allow any adjustment to the opening stock as on 01/4/1998 on the ground that opening stock has to the same as the closing stock as on 31 .....

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d forward from last year. Therefore various courts have held that effect of amendment by introducing section 145A will be in the first year since opening stock will be without including of excise duty. Considering all these facts, Assessing Officer is fully justified in interpreting the provisions of Section 145A. However, ITAT directed the A.O. to examine the appellant s claim in the light of decision of Delhi High Court in the case of Mahavir Alluminium Ltd. in which adjustment to opening stoc .....

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r on account of adjustment to opening stock ₹ 5,33,354/- is deleted. As regards appellant s claim that adjustment to the opening stock was by mistake taken at lower figure, there is no material or basis to arrive at the revised claim made by the appellant. Since excise duty is not included in the closing stock of last year, it is not possible to verify and allow higher claim of adjustment. This will result in unintended benefit to the appellant and also result in reduction in returned inco .....

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that this amount is further to be reduced ₹ 16,20,151/- on the basis of adjustment as per Section 145A of the Act. The ld AR has further drawn our attention on decision of Hon'ble Delhi High Court in the case of CIT Vs. Mahavir Alluminum Ltd. (2008) 297 ITR 77 and prayed to allow the assessee s appeal. 5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the assessee was not in position to explain enhanced adjustment on account of excise duty .....

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adjustment. The AR of the assessee furnished all the details before the lower authorities at the time of appellate proceedings and at the time of first appeal made before the ITAT thereafter in set aside proceeding, these details were given to the Assessing Officer. The Hon ble Delhi High Court in the case of CIT Vs. Mahavir Alluminum (supra) has held as under:- 15. We are of the opinion that in the present case, there is no question of any double benefit being given to the assessee. Paragraph 2 .....

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e effect to section 145A of the Act, if there is a change in the closing stock as on March 31, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on April 1, 1998. Therefore, we allow the assessee s claim of adjustment of excise duty U/s 145A on opening stock as on 01/4/1998 at ₹ 16,20,151/-. 7. Now we are going to decide ITA No. 235/JP/2014. In this case, original assessment was completed on 31/12/2007 at ₹ 1,20,43,889/-. The ld Assessing Officer .....

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ficer completed the set aside proceeding vide order dated 27/12/2010. The ld Assessing Officer held that the assessee company had share holding of 31% in M/s Chrome International Company Ltd., who is not a company in which public are substantially interest. M/s Chrome International Company Ltd. possesses accumulated profits in its balance sheet and it has made payment by way of loans/advance to assessee. The advance made by M/s Chrome International Company Ltd. to the assessee company falls unde .....

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ns are recorded in separate accounts according to the nature of transaction. b. All the above transactions are business transactions or the transactions in the nature of current account. If all the transactions in different account are consolidated then it can be noted that as on 01/4/2004, M/s Chrome International Company Ltd. is a debtor of assessee for ₹ 11,00,951/- whereas as on 31/3/2005, it is a creditor for ₹ 20,58,481/-. From a look to this account, it can be noted that there .....

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ansactions cannot be considered to be transaction of loans or advances as envisaged U/s 2 (22)(e). The ld Assessing Officer held that the assessee had failed to substantiate his claim that the assessee was covered under the provisions of Section 2(22)(e) of the Act. Further the contention that the assessee company is a public limited company and its shares were listed on Bombay Stock Exchange was of no relevance because assessee company is shareholder and not the company was has given loans or a .....

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ns or advances during the entire year which can be seen from the copy of account of the assessee company in M/s Chrome International Company Ltd. The assessee s reply that these transactions are business transactions, are nothing else but a colorful device to misguide. The assessee company had taken loan/advances during the year and returned back, therefore, closing balance/maximum balance outstanding at ₹ 20,45,362/- during the year had been taken as amount of deemed dividend by following .....

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ion 2(22)(e). The addition made by the AO was sustained by CIT(A). ITAT set aside the addition to the file of AO for considering appellant's submissions. Assessing officer again made the addition by referring the relevant provisions of the Act and appellant's submissions. lt is not in dispute that appellant is a shareholder and was having substantial shareholding in chrome international company Ltd. The said company was not the company in which public are substantially interested. Theref .....

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nt in respect of business transactions and in respect of financial transactions. The title of the account with financial transactions is "KG Petro chem Ltd (short term loan)". From the heading of the account itself, it is clear that appellant's account is in the nature of short term loan and not business transactions. Appellant may have business dealings with the lending company but that does not mean that appellant could not have loans and advances with the said company. The decis .....

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im that these are not loan transactions. ln view of the clear treatment given by the lender to these transactions, there is no question of treating the transactions differently for the purpose of deciding whether these are loan transactions or not. Considering the detailed analysis given by the AO and transactions treated as short term loan in the books of accounts, the provisions of section (2)(22)(e) is clearly attracted. Accordingly, the addition made by the AO on account of deemed dividend i .....

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s of both the companies is manufacturing of HD-PP/PPE Bags. In the course of business, both the companies have entered into a series of trade transactions relating to goods, job charges, rent, sharing of water electricity charges, making payment and receiving payment. He further argued that these transactions relating to goods, job work charges, credit and debit, rent for which payment made and received by the assessee. There is also entry of interest in this account. It is a mutual, open, curre .....

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d restricted and confined limit and it can never interfere in the normal business of the companies carried out in the ordinary course of business. The ld Assessing Officer treated ₹ 20,45,426/- as short term loan but it is a temporary accommodation to meet the business requirement of the funds of each other and therefore the same cannot be considered as payment by way of loans or advances. In consolidated account there is an opening debit balance of ₹ 11,00,950/- and closing debit ba .....

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ise. The nature of transaction is a dominant factor to decide the case which depends on case to case and of their facts. He further relied on the decision in the case of Mtar Technologies (P) Ltd. Vs. ACIT 39 SOT 465 (Trib) (Hyd) (2010) wherein it has been held that law does not prohibit business transaction between the related concerned and therefore payments made in the ordinary course of business cannot be treated as loan and advances. He further relied on the following cases. 1. CIT Vs. Amba .....

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